
PART I Item 1. Business Ellington Residential Mortgage REIT is a Maryland REIT formed in August 2012, specializing in acquiring, investing in, and managing residential mortgage- and real estate-related assets, with a primary objective to generate attractive current yields and risk-adjusted total returns for shareholders - Ellington Residential Mortgage REIT (EARN) is a Maryland REIT established in August 2012, focusing on residential mortgage- and real estate-related assets to generate current yields and risk-adjusted total returns15 - The company's portfolio primarily consists of Agency RMBS and, to a lesser extent, non-Agency RMBS and corporate CLOs, with opportunistic investments in other mortgage- and real estate-related asset classes1516 - EARN is externally managed and advised by Ellington Residential Mortgage Management LLC, an affiliate of Ellington Management Group, L.L.C., leveraging Ellington's 29-year history in MBS and related derivatives1718 Our Company Ellington Residential Mortgage REIT, formed in August 2012, aims to provide attractive current yields and risk-adjusted total returns by investing in residential mortgage- and real estate-related assets, primarily Agency RMBS, and opportunistically in non-Agency RMBS, CLOs, and other related asset classes - Ellington Residential Mortgage REIT was formed in August 2012 and specializes in acquiring, investing in, and managing residential mortgage- and real estate-related assets15 - The company's primary objective is to generate attractive current yields and risk-adjusted total returns for shareholders15 - The portfolio consists primarily of Agency RMBS and, to a lesser extent, non-Agency RMBS, and corporate CLOs, with opportunistic investments in other mortgage- and real estate-related asset classes1516 Special Note Regarding Forward-Looking Statements This section highlights that statements in the report not historical in nature are forward-looking and involve known and unknown risks, uncertainties, and assumptions - Forward-looking statements are identified by words like 'believe,' 'expect,' 'anticipate,' and similar expressions, and are subject to known and unknown risks, uncertainties, and assumptions13 - Key factors that could cause actual results to differ include changes in interest rates, market value of securities, leverage dependence, changes in government regulations, and the ability to maintain REIT qualification and Investment Company Act exclusion14 - The company is not obligated to update or revise any forward-looking statements unless required by law14 Our Manager and Ellington Ellington Residential Mortgage REIT is externally managed by Ellington Residential Mortgage Management LLC, an affiliate of Ellington Management Group, L.L.C - The company is externally managed and advised by Ellington Residential Mortgage Management LLC, an affiliate of Ellington Management Group, L.L.C., which provides all necessary personnel and resources1820 - Ellington Management Group, L.L.C. had over 170 employees and approximately $10.3 billion in assets under management as of December 31, 202321 - The management team includes Michael Vranos (Co-Chief Investment Officer), Laurence Penn (President and CEO), Mark Tecotzky (Co-Chief Investment Officer), and Christopher Smernoff (CFO)19 Our Strategy The company's opportunistic strategy aims to generate attractive current yields and risk-adjusted total returns by actively managing a hybrid investment portfolio - The company's strategy is opportunistic, focusing on security selection and capital allocation to balance mortgage-related risks22 - The hybrid investment portfolio primarily includes leveraged Agency RMBS, investment grade and non-investment grade non-Agency RMBS, and corporate CLOs (mezzanine debt and equity tranches)2227 - Risk mitigation is achieved through various hedging instruments for interest rate, prepayment, and credit risks27 - The strategy is flexible and adaptable to changing market environments, subject to maintaining REIT qualification and Investment Company Act exclusion23 Our Targeted Assets The company targets a diverse range of assets including Agency RMBS, non-Agency RMBS, corporate CLOs, and other mortgage- and real estate-related assets - Targeted assets include Agency RMBS (fixed-rate, ARMs, hybrid, reverse mortgages, CMOs, TBAs), non-Agency RMBS (prime jumbo, Alt-A, non-QM, manufactured housing, subprime, single-family-rental mortgages), CLOs (debt and equity tranches), and other assets (residential mortgage loans, MSRs, CRTs, CMBS)28 - Agency RMBS include pass-through certificates and Collateralized Mortgage Obligations (CMOs), with TBAs used for future delivery and interest rate risk management293031 - Non-Agency RMBS are debt obligations issued by private originators, often structured as senior/subordinated or excess spread/over-collateralization35 - CLOs are structured finance securities backed by corporate loans, with investments focused on mezzanine debt and equity tranches36 Investment Process The investment process is managed by an investment and risk management committee, comprising key officers, which sets investment policies and portfolio composition - The investment process is managed by an investment and risk management committee, including Mr. Vranos, Mr. Penn, and Mr. Tecotzky, which reviews and approves investment policies and portfolio composition38 - Ellington has focused investment teams for each asset class, evaluating opportunities through sourcing, screening, credit analysis, due diligence, structuring, financing, and hedging39 - Asset acquisitions are screened to ensure compliance with Investment Company Act exclusion and REIT qualification39 Valuation of Assets The Manager's valuation committee directs the asset valuation process, which is overseen by independent trustees - The Manager's valuation committee oversees the asset valuation process, subject to independent trustee oversight40 - Details of the valuation process are provided in Note 2 of the consolidated financial statements40 Risk Management Risk management is central to Ellington's portfolio management, utilizing a proprietary system (ELLiN) and comprehensive infrastructure - Ellington's risk management uses a proprietary portfolio management system, ELLiN, for comprehensive assessment of portfolio and operational risks41 - Interest rate risk is opportunistically managed using instruments like interest rate swaps, TBAs, CMOs, U.S. Treasury securities, and futures/forward contracts4246 - Credit risk hedging is opportunistically employed for corporate CLOs and non-Agency RMBS using derivative instruments, subject to REIT and Investment Company Act compliance44 Our Financing Strategies and Use of Leverage The company finances its assets with a prudent amount of leverage, primarily through repurchase agreements (repos) - The company finances assets with leverage, primarily through repurchase agreements (repos), which are accounted for as collateralized borrowings45 Debt-to-Equity Ratio | Metric | As of December 31, 2023 | As of December 31, 2022 | | :----- | :---------------------- | :---------------------- | | Debt-to-equity ratio | 5.4 to 1 | 7.5 to 1 | - The Manager's investment and risk management committee has discretion to change overall and individual asset class leverage, with no targeted debt-to-equity ratio47 Management Agreement The company operates under a management agreement with its Manager, which expires in September 2024 and automatically renews annually - The management agreement with the Manager, effective since September 2012, governs day-to-day operations, including portfolio management, financing, and risk management48 - The Manager receives a quarterly management fee equal to 1.50% per annum of shareholders' equity (as defined in the agreement) and reimbursement for certain operating expenses and dedicated personnel costs4950 - The agreement automatically renews annually, but termination by the company without cause or for unsatisfactory performance/unfair fees requires a termination fee of 5% of shareholders' equity515254 Conflicts of Interest; Equitable Allocation of Opportunities Conflicts of interest exist due to Ellington managing other accounts with similar strategies, including Ellington Financial Inc - Ellington manages other clients with similar or overlapping strategies, creating potential conflicts of interest57 - Ellington's investment allocation policy aims for equitable participation across accounts, but may allow preferential allocation to 'start-up' or 'ramp-up' accounts5758 - Policies are in place for cross transactions (requiring market prices or independent trustee approval) and principal transactions (requiring independent trustee approval)5963 Competition The company operates in a highly competitive market, competing with various financial institutions, including other mortgage REITs, banks, and investment firms - The company competes with other mortgage REITs, specialty finance companies, banks, and institutional investors, many of whom are larger and have greater resources64 - Competitors may have lower cost of funds, access to government funding, or different risk tolerances, allowing them to acquire a wider variety of assets or pay higher prices64 - The company's competitive advantage stems from access to Ellington's professionals and industry expertise, but competitive risks may still hinder business goals65 Operating and Regulatory Structure The company has elected to be taxed as a REIT, requiring it to distribute at least 90% of its annual taxable income to shareholders to avoid federal income tax - The company has elected to be taxed as a REIT, requiring it to distribute at least 90% of its annual REIT taxable income to avoid U.S. federal income tax66 - Operations are structured to maintain exclusion from registration under the Investment Company Act, primarily through subsidiaries satisfying the 40% Test and Section 3(c)(5)(C) exclusion6769 - Changes in laws or SEC guidance regarding Investment Company Act status could require strategy adjustments, potentially limiting investments or forcing asset sales7273 Human Capital Resources The company has no direct employees - The company does not have any direct employees75 - All executive officers and partially dedicated personnel are employees of Ellington or its affiliates, provided via the management agreement75 Additional Information The company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Corporate Governance Guidelines, Code of Business Conduct and Ethics, and committee charters are available free of charge on its website and the SEC's website - Annual, Quarterly, and Current Reports (10-K, 10-Q, 8-K) are available on the company's website (www.earnreit.com) and the SEC's website (www.sec.gov**)[76](index=76&type=chunk)77 - Corporate Governance Guidelines, Code of Business Conduct and Ethics, and committee charters are also available on the company's website76 Item 1A. Risk Factors This section outlines significant risks that could materially and adversely affect the company's business, financial condition, results of operations, and ability to pay dividends - The company faces risks related to federal conservatorship of Fannie Mae and Freddie Mac, potentially affecting Agency RMBS value and financing858990 - Interest rate changes, including Federal Reserve actions, can adversely affect asset values, increase interest expense, and impact net interest margin and profitability9293101103 - Dependence on the external Manager and key Ellington personnel creates risks, including conflicts of interest and potential difficulties in finding replacements213220 - Maintaining REIT qualification and Investment Company Act exclusion imposes significant limitations on operations and investment strategy, with potential adverse effects if compliance fails238240 Summary of Risk Factors This summary provides a high-level overview of the various risk categories detailed in Item 1A, including risks related to the company's business operations, CLO investments, relationship with its Manager, common shares, organizational structure, and U.S. federal income tax - Key risk categories include business operations, CLO investments, relationship with the Manager and Ellington, common shares, organizational structure, and U.S. federal income tax79808182 - The list of risks is not exhaustive, and additional unknown or immaterial risks may impair operations and performance8384 Risks Related To Our Business Risks to the company's business include the impact of federal conservatorship of Fannie Mae and Freddie Mac, Federal Reserve actions affecting interest rates and market volatility, and changes in prepayment rates on assets - Federal conservatorship of Fannie Mae and Freddie Mac, and related government actions, could significantly reduce their roles, impacting Agency RMBS values and the company's ability to acquire them8589 - Federal Reserve's quantitative tightening and interest rate hikes have caused, and could continue to cause, market volatility, widening yield spreads, and an inverted yield curve, adversely affecting business and dividends93 - Prepayment rates on RMBS and MSRs are influenced by interest rates and other factors; faster or slower than expected prepayments can adversely affect profitability and asset values9499100 - The company's reliance on short-term borrowings for fixed-rate assets creates interest rate mismatch risk, potentially compressing net interest margin during periods of rising rates101 - Illiquidity in certain assets, especially privately placed or complex securities, can lead to greater price volatility and difficulties in valuation or sale, potentially forcing liquidation at depressed prices141 - High dependence on Ellington's and third-party information systems exposes the company to significant disruption from system failures, cyber-attacks, or security breaches142143144 - Access to financing sources may be limited or unfavorable, with lenders potentially requiring additional collateral (margin calls) or increasing costs, which could force asset disposals145149150 Risks Related to our CLO Investments Investments in corporate CLOs, particularly mezzanine debt and equity tranches, carry significant credit risk due to the lower-rated underlying corporate loans, which are susceptible to economic downturns and higher interest rates - Corporate CLO investments, especially mezzanine debt and equity tranches, are subject to significant credit risk from underlying lower-rated corporate loans, which are vulnerable to economic downturns and rising interest rates177179181182 - CLOs are exposed to prepayment and reinvestment risk, as collateral repayments may be reinvested at lower yields, and equity holders can direct early calls or refinancings192 - Lack of diversification in CLO portfolios, including concentration in specific CLOs, risk profiles, or collateral managers, increases the risk of significant loss193195 - Failure of CLOs to meet collateralization or interest coverage tests can divert cash flows from mezzanine debt and equity tranches to more senior tranches196 - The company is dependent on unaffiliated CLO collateral managers, who may have conflicting fiduciary duties, and CLOs are generally not registered under the Investment Company Act, limiting investor protections199200201 - CLO investments often have limited liquidity, leading to price volatility and potential difficulties in valuation or sale205 - Tax implications of CLOs are complex, potentially leading to recognition of taxable income before cash distributions ('phantom income'**) or subjecting CLOs to U.S. federal income tax or withholding requirements209210211 Risks Related to our Relationship with our Manager and Ellington The company's dependence on its external Manager and key Ellington personnel creates risks, including the potential for management agreement termination or personnel departure without suitable replacement - The company is entirely dependent on its Manager and key Ellington personnel; their departure or termination of the management agreement could severely impact operations213 - Management fees are based on shareholders' equity, not portfolio performance, potentially reducing the Manager's incentive to seek profitable opportunities214 - Conflicts of interest exist due to overlapping investment strategies with other Ellington accounts, leading to competition for assets and personnel, and no preferential allocation duty217218220 - The management agreement was not negotiated at arm's-length and is costly to terminate (5% of shareholders' equity for certain terminations)227228 - The Manager has broad investment guidelines and does not require Board approval for individual asset acquisitions or management decisions, increasing investment risk215 Risks Related to Our Common Shares Shareholders may not receive consistent or growing dividends, as payments are at the Board's discretion and depend on earnings, liquidity, and REIT requirements - Dividend payments are at the sole discretion of the Board of Trustees and depend on earnings, liquidity, financial condition, and REIT distribution requirements, with no assurance of fixed or growing dividends233234235 - Rising market interest rates can negatively impact the market price of common shares and the company's ability to pay dividends, as investors may seek higher-yielding alternatives236 - Investment in common shares carries a high degree of risk due to the speculative and aggressive nature of the company's assets, including credit, prepayment, interest rate, and market risks237 - Future offerings of debt securities (senior upon liquidation) or equity securities (dilutive, potentially senior for dividends) could adversely affect the market price of common shares301302303 Risks Related to Our Organization and Structure Maintaining exclusion from Investment Company Act registration imposes significant limitations on operations and asset holdings, with potential adverse effects if compliance fails or SEC guidance changes - Maintaining exclusion from Investment Company Act registration (via the 40% Test and Section 3(c)(5)(C)) significantly limits investment strategy and asset holdings, with potential adverse impacts if compliance is lost or SEC guidance changes238239240 - Ownership limits (9.8% of shares) in the declaration of trust and certain Maryland General Corporation Law provisions may deter takeovers or business combinations that could benefit shareholders241243244245 - The Board of Trustees can amend investment strategies and operational policies, and issue additional shares without shareholder approval, limiting shareholder control242246247 - Liability of trustees and officers is limited under Maryland law, and removal of trustees is difficult, potentially limiting shareholder recourse for actions not in their best interest248249250 U.S. Federal Income Tax Risks The company faces various U.S. federal income tax risks, primarily related to maintaining its REIT qualification - Failure to maintain REIT qualification would subject the company to U.S. federal, state, and local income taxes at corporate rates, substantially reducing cash available for shareholder distributions255257 - Compliance with REIT asset and income tests may require foregoing otherwise attractive investments or liquidating assets, potentially hindering investment performance258259261 - The company may recognize 'phantom' income (taxable income exceeding economic income), requiring distributions that are economically a return of capital, or forcing the use of cash reserves, debt, or asset sales to meet distribution requirements263286 - Uncertainty exists regarding the treatment of TBAs as qualifying real estate assets and income for REIT tests, and the application of the Section 475(f) mark-to-market election, which could jeopardize REIT status or cause taxable income volatility269290291 - REIT provisions limit effective hedging, as non-qualifying hedging income cannot exceed 5% of annual gross income, potentially increasing hedging costs or risks270271 - Investments in corporate CLOs may result in phantom income or subject CLOs to U.S. federal income tax or withholding requirements, reducing returns275276278 General Risk Factors General risks include potential adverse legislative or regulatory changes, which could impact business, strategy, or costs - Adverse legislative or regulatory changes at federal, state, local, or foreign levels could force portfolio changes, constrain strategy, or increase costs293294 - Failure to secure adequate funding and capital, exacerbated by REIT distribution requirements, could negatively impact common share value and dividend payments295296 - The company is subject to regulatory inquiries and legal proceedings, which could result in investigations, enforcement actions, fines, or private litigation claims297298 - The market price and trading volume of common shares may be volatile due to factors like dividend variations, interest rate changes, market valuations, and economic conditions299300 - Climate change poses risks through potential damage to underlying properties (e.g., natural disasters) and increased costs for remediation or insurance304305 - Corporate social responsibility (ESG) scrutiny and evolving regulations (e.g., SEC climate-related disclosures) could damage reputation, increase costs, and impact investor relationships306307308309 Item 1B. Unresolved Staff Comments The company has no unresolved staff comments to report - There are no unresolved staff comments312 Item 1C. Cybersecurity The company relies on Ellington's comprehensive cybersecurity processes, which are integrated into Ellington's overall risk management program - The company relies on Ellington's information systems and cybersecurity processes, which are integrated into Ellington's risk management and oversight program313314 - Ellington's cybersecurity program includes governance, a cross-functional approach to identifying and mitigating threats, technical safeguards, incident response planning, third-party risk management, and employee education315322 - The Board of Trustees, via the Audit Committee, oversees cybersecurity risk management, receiving regular presentations and reports from Ellington's outsourced Chief Technology Officer320323 - To date, no cybersecurity threats to Ellington have materially affected or are reasonably likely to materially affect the company, despite two business email compromise incidents in recent years319 Item 2. Properties The company does not own any properties - The company does not own any properties324 - Principal offices are in leased space at 53 Forest Avenue, Old Greenwich, CT, provided by the Manager under the management agreement324 Item 3. Legal Proceedings Neither the company nor Ellington or its affiliates are currently subject to any material legal proceedings - Neither the company nor Ellington or its affiliates are currently subject to any material legal proceedings325 - Operating in highly regulated markets, the company and its affiliates expect to receive future inquiries and requests from various regulators325 - There is no assurance that future investigations, enforcement actions, fines, or litigation claims would not materially adversely affect the company326 Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to the company327 PART II Item 5. Market for Registrant's Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities The company's common shares are listed on the NYSE under the symbol "EARN" since May 1, 2013 - Common shares have been listed on the NYSE under the symbol "EARN" since May 1, 2013330 - As of March 8, 2024, there were 107 holders of record for common shares331 - On December 14, 2023, 14,473 restricted common shares were granted to partially dedicated employees under the 2023 Equity Incentive Plan332 - The company has an open-ended share repurchase program, approved June 13, 2018, authorizing repurchase of up to 1.2 million common shares333 Share Repurchase Program Status | Metric | Value | | :-------------------------------- | :------ | | Authorized shares for repurchase | 1.2 million | | Remaining authorization (Dec 31, 2023) | 725,808 shares | | Repurchases in Q4 2023 | None | Item 6. [Reserved] This item is reserved and contains no content Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an executive summary of Ellington Residential Mortgage REIT's business, market trends, financial condition, and results of operations for the years ended December 31, 2023 and 2022 - The company is a Maryland REIT specializing in residential mortgage- and real estate-related assets, including Agency RMBS, non-Agency RMBS, and corporate CLOs, aiming for attractive current yields and risk-adjusted total returns335 - The company is externally managed by an Ellington affiliate and has elected to be taxed as a REIT, intending to maintain Investment Company Act exclusion336338 Book Value Per Share | Metric | As of December 31, 2023 | As of December 31, 2022 | | :---------------- | :---------------------- | :---------------------- | | Book value per share | $7.32 | $8.40 | - Net income for 2023 was $4.6 million, a significant improvement from a $(30.2) million loss in 2022, primarily due to total other income in the current period400 Executive Summary Ellington Residential Mortgage REIT, a Maryland REIT formed in 2012, focuses on acquiring and managing residential mortgage- and real estate-related assets, including Agency and non-Agency RMBS, and corporate CLOs - Ellington Residential Mortgage REIT (EARN) specializes in acquiring, investing in, and managing residential mortgage- and real estate-related assets, including Agency RMBS, non-Agency RMBS, and corporate CLOs335 - The company's primary objective is to generate attractive current yields and risk-adjusted total returns for shareholders335 - EARN is externally managed by an Ellington affiliate, uses repurchase agreements for leverage, and is taxed as a REIT, aiming to distribute taxable income to shareholders336337338 Book Value Per Share | Metric | As of December 31, 2023 | As of December 31, 2022 | | :---------------- | :---------------------- | :---------------------- | | Book value per share | $7.32 | $8.40 | Trends and Recent Market Developments In 2023, the Federal Reserve slowed interest rate hikes, pausing in June and maintaining a 5.25%-5.50% range by year-end, with market anticipation of 2024 cuts - The Federal Reserve increased the federal funds rate to 5.25%–5.50% by July 2023, then maintained it, with market expectations of rate cuts in 2024339340 - Interest rates were highly volatile in 2023; the 2-year U.S. Treasury yield decreased by 18 basis points, and the 10-year yield increased by 1 basis point for the full year341345 - Mortgage rates peaked at 7.79% in October 2023 before falling to 6.42% by year-end, while U.S. home prices increased by 5.5%347 - Inflation (CPI-U) declined from 6.4% in January to 3.4% in December 2023, remaining elevated347 MBS and Corporate Bond Index Performance (Full Year 2023) | Index | Absolute Return | Excess Return | | :---------------------------------- | :-------------- | :------------ | | Bloomberg Barclays U.S. MBS Index | 5.05% | 0.68% | | Bloomberg Barclays U.S. Corporate Bond Index | 8.52% | 4.55% | | Bloomberg Barclays U.S. Corporate High Yield Bond Index | 13.45% | 8.86% | - The company's Agency RMBS holdings decreased by 16% to $728.0 million, non-Agency RMBS decreased by 25% to $9.4 million, and corporate CLO holdings totaled $17.4 million as of December 31, 2023350351 Financing For 2023, the company's average repo borrowing cost significantly increased to 5.18% from 1.40% in 2022 due to rising short-term interest rates Average Repo Borrowing Cost | Period | Average Repo Borrowing Cost | | :---------------------- | :-------------------------- | | Year ended Dec 31, 2023 | 5.18% | | Year ended Dec 31, 2022 | 1.40% | Weighted Average Borrowing Rate on Repurchase Agreements | As of | Weighted Average Borrowing Rate | | :---------------- | :------------------------------ | | December 31, 2023 | 5.58% | | December 31, 2022 | 3.70% | Debt-to-Equity Ratio | As of | Debt-to-Equity Ratio (Unadjusted) | Debt-to-Equity Ratio (Adjusted) | | :---------------- | :-------------------------------- | :------------------------------- | | December 31, 2023 | 5.4:1 | 5.3:1 | | December 31, 2022 | 7.5:1 | 7.6:1 | - The decline in the debt-to-equity ratio was primarily due to decreased borrowings on the Agency RMBS portfolio and significantly higher shareholders' equity374 Critical Accounting Estimates The company's financial statements are prepared under U.S. GAAP, requiring significant estimates and assumptions, particularly for valuation, interest income, and income taxes - Consolidated financial statements are prepared in conformity with U.S. GAAP, requiring estimates and assumptions for asset/liability amounts and revenues/expenses375 - The fair value option is elected for most assets and liabilities, with valuation based on quoted market prices, third-party valuations, or discounted cash flow methodologies376378 - Valuations are inherently uncertain, based on estimates, and may differ from market values, especially for illiquid instruments380381 - Interest income accrual involves amortizing premiums and accreting discounts using the effective interest method, with quarterly 'Catch-up Amortization Adjustments' based on prepayment assumptions382383 - Income tax estimates rely on REIT qualification and legal interpretations; successful challenges by tax regulators could result in unrecorded tax liabilities385 Recent Accounting Pronouncements The company is assessing the impact of ASU 2023-09 (Improvements to Income Tax Disclosures) and ASU 2023-07 (Segment Reporting—Improvements to Reportable Segment Disclosures), both effective for future fiscal years - ASU 2023-09 (Improvements to Income Tax Disclosures) is effective for annual periods beginning after December 15, 2024, and is not expected to have a material impact387342 - ASU 2023-07 (Segment Reporting—Improvements to Reportable Segment Disclosures) is effective for fiscal years beginning after December 15, 2023, and is not expected to have a material impact387343 Financial Condition As of December 31, 2023, the company's investment portfolio was $773.5 million, with 89% allocated to mortgage-related securities (primarily Agency RMBS) and 11% to corporate CLOs Securities Portfolio Composition (Fair Value) | Asset Class | Dec 31, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Agency RMBS | $727,997 | $863,284 | | Agency IOs | $7,415 | $9,313 | | CLO Notes | $14,491 | — | | CLO Equity | $2,926 | — | | Non-Agency RMBS | $9,409 | $12,566 | | Non-Agency IOs | $11,310 | $8,138 | | Preferred equity securities | — | $208 | | U.S. Treasury securities sold short | — | $(498) | | Reverse repurchase agreements | — | $499 | | Total | $773,548 | $893,510 | - As of December 31, 2023, 89% of invested capital was in mortgage-related securities and 11% in corporate CLOs389 Financial Derivatives (Net Fair Value) | As of | Total, net (in thousands) | | :---------------- | :------------------------ | | December 31, 2023 | $66,950 | | December 31, 2022 | $65,651 | Outstanding Repurchase Agreements | As of | Borrowings Outstanding (in thousands) | | :---------------- | :---------------------------------- | | December 31, 2023 | $729,543 | | December 31, 2022 | $842,455 | Shareholders' Equity | As of | Shareholders' Equity (in thousands) | | :---------------- | :-------------------------------- | | December 31, 2023 | $136,238 | | December 31, 2022 | $112,409 | Results of Operations for the Years Ended December 31, 2023 and 2022 For the year ended December 31, 2023, the company reported a net income of $4.6 million, a significant improvement from a net loss of $(30.2) million in 2022 Net Income (Loss) and EPS | Metric | Year Ended Dec 31, 2023 (in thousands) | Year Ended Dec 31, 2022 (in thousands) | | :-------------------------- | :----------------------------------- | :----------------------------------- | | Net Income (Loss) | $4,559 | $(30,198) | | Net Income (Loss) Per Common Share | $0.31 | $(2.29) | - The year-over-year reversal from net loss to net income was primarily due to total other income in 2023, offsetting a significant increase in interest expense400 Interest Income and Expense | Metric | Year Ended Dec 31, 2023 (in thousands) | Year Ended Dec 31, 2022 (in thousands) | | :---------------- | :----------------------------------- | :----------------------------------- | | Interest income | $42,549 | $35,006 | | Interest expense | $(45,256) | $(14,820) | | Net interest income (expense) | $(2,707) | $20,186 | - Interest income increased due to higher asset yields on both Agency and credit portfolios, despite lower average holdings on the Agency RMBS portfolio401 - Total interest expense significantly increased due to higher financing costs from rising short-term interest rates403 Adjusted Distributable Earnings | Metric | Year Ended Dec 31, 2023 (in thousands) | Year Ended Dec 31, 2022 (in thousands) | | :-------------------------------- | :----------------------------------- | :----------------------------------- | | Adjusted Distributable Earnings | $13,000 | $13,822 | | Adjusted Distributable Earnings Per Share | $0.87 | $1.05 | Liquidity and Capital Resources The company's liquidity is managed through cash on hand, investment cash flow, repurchase agreements, and equity offerings - Liquidity is generated from cash on hand, investment cash flow, repurchase agreements, and equity offerings, expected to meet short-term and long-term needs419 Cash and Cash Equivalents | As of | Amount (in thousands) | | :---------------- | :-------------------- | | December 31, 2023 | $38,533 | | December 31, 2022 | $34,816 | Outstanding Repurchase Agreements | As of | Borrowings Outstanding (in thousands) | Number of Counterparties | | :---------------- | :---------------------------------- | :----------------------- | | December 31, 2023 | $729,543 | 19 | | December 31, 2022 | $842,455 | 17 | - The weighted average contractual haircut on repo collateral was 5.7% as of December 31, 2023 (5.5% in 2022)423 - In 2023, 5,183,037 common shares were issued through ATM programs, generating $33.6 million in net proceeds440 - The Board of Trustees determines dividend distributions based on earnings, liquidity, capital requirements, and REIT rules431 Contractual Obligations and Commitments The company's primary contractual obligations include management fees and expense reimbursements to its Manager, which are not fixed - Contractual obligations include management fees and expense reimbursements to the Manager, which are not fixed payments445 - The company enters into repurchase agreements for financing, with $729.5 million outstanding as of December 31, 2023, with implied interest rates based on competitive market rates446447 Off-Balance Sheet Arrangements As of December 31, 2023, the company had no relationships with unconsolidated entities or financial partnerships for off-balance sheet arrangements - As of December 31, 2023, the company had no relationships with unconsolidated entities or financial partnerships for off-balance sheet arrangements448 - The company has not guaranteed obligations of unconsolidated entities nor committed to providing them funding448 Inflation The company's performance is primarily influenced by interest rates rather than inflation, as most assets and liabilities are interest rate-sensitive - The company's performance is primarily influenced by interest rates, as virtually all assets and liabilities are interest rate-sensitive449 - Elevated long-term inflation could adversely impact investment portfolio performance or asset prices, potentially reducing borrower income for non-Agency RMBS450 Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate risk, prepayment risk, and credit risk, which are actively managed - Primary market risks include interest rate risk, prepayment risk, and credit risk, which are actively managed451 - Interest rate risk is hedged using instruments like interest rate swaps, TBAs, and U.S. Treasury securities to mitigate the mismatch between long-duration assets and short-term liabilities452 Estimated Impact of Interest Rate Shifts on Portfolio Fair Value (Dec 31, 2023) | Category of Instruments | Estimated Change for a Decrease in Interest Rates by 50 Basis Points (Market Value) | Estimated Change for a Decrease in Interest Rates by 100 Basis Points (Market Value) | Estimated Change for an Increase in Interest Rates by 50 Basis Points (Market Value) | Estimated Change for an Increase in Interest Rates by 100 Basis Points (Market Value) | | :------------------------------------------ | :---------------------------------------------------------------- | :----------------------------------------------------------------- | :---------------------------------------------------------------- | :----------------------------------------------------------------- | | Agency RMBS, and CMBS excluding TBAs | $14,755 | $27,910 | $(16,357) | $(34,316) | | Long TBAs | $1,260 | $2,194 | $(1,585) | $(3,495) | | Short TBAs | $(2,160) | $(4,228) | $2,252 | $4,596 | | Non-Agency RMBS | $(506) | $(1,221) | $296 | $384 | | CLOs | $21 | $42 | $(22) | $(46) | | U.S. Treasury Securities, Interest Rate Swaps, Options, and Futures | $(15,136) | $(30,959) | $14,451 | $28,215 | | Corporate Securities and Derivatives on Corporate Securities | $(7) | $(14) | $7 | $14 | | Repurchase and Reverse Repurchase Agreements | $(186) | $(372) | $186 | $372 | | Total | $(1,959) | $(6,648) | $(772) | $(4,276) | - Prepayment risk affects RMBS and CLOs, driven by interest rates, housing turnover, and government policy, impacting different security types variably457 - Credit risk for non-Agency RMBS and CLOs includes default risk (borrowers failing payments) and severity risk (loss upon default, including property value decline and foreclosure costs)458459461462463 - Liquidity risk from financing long-term assets with short-term debt is managed by prudent leverage, interest rate hedges, long-term financing sources, and maintaining cash/unpledged securities464465466 Item 8. Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for Ellington Residential Mortgage REIT and its subsidiaries as of and for the years ended December 31, 2023 and 2022 - The section includes audited consolidated financial statements for Ellington Residential Mortgage REIT and its subsidiaries for the years ended December 31, 2023 and 2022470 - Financial statements comprise Consolidated Balance Sheets, Statements of Operations, Shareholders' Equity, and Cash Flows467 - Notes to Consolidated Financial Statements provide detailed information on organization, accounting policies, investments, valuation, derivatives, borrowings, and other financial aspects467 Report of Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP, the independent registered public accounting firm, issued an unqualified opinion on the consolidated financial statements for Ellington Residential Mortgage REIT as of and for the years ended December 31, 2023 and 2022 - PricewaterhouseCoopers LLP issued an unqualified opinion on the consolidated financial statements for the years ended December 31, 2023 and 2022470 - The valuation of certain Level 3 investments in securities was identified as a critical audit matter due to significant management judgment and the complex nature of valuation inputs474475476 Consolidated Balance Sheets The Consolidated Balance Sheets show the company's financial position as of December 31, 2023, and 2022 Consolidated Balance Sheet Summary (in thousands) | Metric | Dec 31, 2023 | Dec 31, 2022 | | :-------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $38,533 | $34,816 | | Securities, at fair value | $773,548 | $893,509 | | Financial derivatives–assets, at fair value | $74,279 | $68,770 | | Total Assets | $945,690 | $1,053,632 | | Repurchase agreements | $729,543 | $842,455 | | Financial derivatives–liabilities, at fair value | $7,329 | $3,119 | | Total Liabilities | $809,452 | $941,223 | | Total Shareholders' Equity | $136,238 | $112,409 | - Total assets decreased by approximately $108 million, primarily driven by a reduction in securities held481 - Shareholders' equity increased by approximately $23.8 million, reflecting capital raising activities and net income481 Consolidated Statements of Operations The Consolidated Statements of Operations show a significant shift from a net loss of $(30.2) million in 2022 to a net income of $4.6 million in 2023 Consolidated Statements of Operations Summary (in thousands) | Metric | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :------------------------------------------ | :---------------------- | :---------------------- | | Interest income | $42,549 | $35,006 | | Interest expense | $(45,256) | $(14,820) | | Total net interest income (expense) | $(2,707) | $20,186 | | Total expenses | $5,535 | $5,128 | | Total other income (loss) | $12,801 | $(45,256) | | NET INCOME (LOSS) | $4,559 | $(30,198) | | Basic and Diluted EPS | $0.31 | $(2.29) | - Net income improved significantly from a loss of $(30.2) million in 2022 to a gain of $4.6 million in 2023484 - The positive shift was largely driven by $12.8 million in 'Total other income (loss)' in 2023, primarily from financial derivatives, contrasting with a $(45.3) million loss in 2022484 - Net interest income became negative in 2023, moving from $20.2 million in 2022 to $(2.7) million, due to a substantial increase in interest expense484 Consolidated Statements of Shareholders' Equity The Consolidated Statements of Shareholders' Equity show an increase in total shareholders' equity from $112.4 million at December 31, 2022, to $136.2 million at December 31, 2023 Shareholders' Equity Changes (in thousands) | Metric | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :-------------------------------- | :---------------------- | :---------------------- | | Balance, beginning of period | $112,409 | $154,225 | | Common shares issued (net) | $33,555 | $2,028 | | Share based compensation | $255 | $312 | | Dividends declared | $(14,540) | $(13,696) | | Net income (loss) | $4,559 | $(30,198) | | Balance, end of period | $136,238 | $112,409 | - Total shareholders' equity increased by $23.8 million from December 31, 2022, to December 31, 2023487 - The increase was mainly due to $33.6 million in net proceeds from common share issuances and $4.6 million in net income, partially offset by $14.5 million in dividends487 Consolidated Statements of Cash Flows The Consolidated Statements of Cash Flows show a net increase in cash and cash equivalents of $3.7 million in 2023, bringing the total to $38.5 million Consolidated Statements of Cash Flows Summary (in thousands) | Cash Flow Activity | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :------------------------------------------ | :---------------------- | :---------------------- | | Net cash provided by (used in) operating activities | $(10,022) | $22,417 | | Net cash provided by (used in) investing activities | $85,723 | $110,547 | | Cash provided by (used in) financing activities | $(71,984) | $(167,176) | | Net increase (decrease) in cash and cash equivalents | $3,717 | $(34,212) | | Cash and cash equivalents, end of period | $38,533 | $34,816 | - Cash and cash equivalents increased by $3.7 million in 2023, reaching $38.5 million, compared to a $34.2 million decrease in 2022491493 - Operating activities used $10.0 million in 2023, while investing activities provided $85.7 million438 - Financing activities used $72.0 million in 2023, including $33.6 million from common share issuances and $14.1 million for dividends paid438 Notes to Consolidated Financial Statements The Notes to Consolidated Financial Statements provide detailed disclosures on the company's organization, investment objectives, significant accounting policies, investment portfolio composition, financial derivatives, borrowings under repurchase agreements, offsetting arrangements, earnings per share, related party transactions, capital structure, commitments, and subsequent events - The notes detail the company's formation as a Maryland REIT in 2012, its external management by Ellington, and its investment focus on Agency/non-Agency RMBS and CLOs496497 - Significant accounting policies include U.S. GAAP conformity, fair value election for securities and derivatives, and specific methodologies for interest income recognition and income taxes499500509512518534540 - The company's investment portfolio, financial derivatives, and repurchase agreements are detailed, including fair values, notional amounts, and weighted average rates545580597 - Related party transactions, including management fees and expense reimbursements to the Manager, are disclosed, along with capital structure details like common shares outstanding and share repurchase programs610611613618621622 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures The company reports no changes in or disagreements with its accountants on accounting and financial disclosures - There are no changes in or disagreements with accountants on accounting and financial disclosures629 Item 9A. Controls and Procedures The company's management, including the CEO and CFO, concluded that its disclosure controls and procedures were effective as of December 31, 2023 - Disclosure controls and procedures were evaluated and deemed effective as of December 31, 2023, by management, including the CEO and CFO630631 - No material changes in internal control over financial reporting occurred during the quarter ended December 31, 2023632 - Management concluded that internal control over financial reporting was effective as of December 31, 2023, based on the COSO 2013 framework633635 Item 9B. Other Information This item reports that there is no other information to disclose - No other information is reported under this item636 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Disclosure regarding foreign jurisdictions that prevent inspections is not applicable637 PART III Item 10. Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's definitive Proxy Statement for its 2024 annual shareholders' meeting - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement640 - The company has a Code of Business Conduct and Ethics applicable to officers, trustees, and Manager's employees, available on **www.earnreit.com**[641](index=641&type=chunk) - Waivers of the Code for executive officers or trustees are made by the Board or its committees and disclosed on the company's website641642 Item 11. Executive Compensation Information regarding executive compensation is incorporated by reference from the company's definitive Proxy Statement for its 2024 annual shareholders' meeting - Executive compensation information is incorporated by reference from the 2024 Proxy Statement643 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Information regarding security ownership of certain beneficial owners and management, and related shareholder matters, is incorporated by reference from the company's definitive Proxy Statement for its 2024 annual shareholders' meeting - Security ownership information for certain beneficial owners and management is incorporated by reference from the 2024 Proxy Statement644 Item 13. Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships and related transactions, and director independence, is incorporated by reference from the company's definitive Proxy Statement for its 2024 annual shareholders' meeting - Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2024 Proxy Statement645 Item 14. Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's definitive Proxy Statement for its 2024 annual shareholders' meeting - Information on principal accountant fees and services is incorporated by reference from the 2024 Proxy Statement646 PART IV Item 15. Exhibits and Financial Statement Schedules This section lists all documents filed as part of the report, including financial statements, schedules, and a comprehensive list of exhibits - The section includes financial statements and schedules, with all financial statement schedules not included being omitted as inapplicable or provided in the Financial Statements and Notes648 - A comprehensive list of exhibits is provided, covering corporate governance, management agreements, equity incentive plans, and various certifications648649 - Certifications under Section 302 and 906 of the Sarbanes-Oxley Act of 2002 are furnished as exhibits649 Item 16. Form 10-K Summary This item indicates that no Form 10-K Summary is provided - No Form 10-K Summary is provided650