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What changed in Ellington Credit Co's 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of Ellington Credit Co's 2024 and 2025 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2025 report.

+717 added−787 removedSource: 10-K (2025-03-31) vs 10-K (2024-03-12)

Top changes in Ellington Credit Co's 2025 10-K

717 paragraphs added · 787 removed · 426 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

73 edited+42 added−26 removed73 unchanged
Biggest changeIn particular, our strategy consists of: • utilizing an investment model that focuses on security selection and allocates capital to assets that balance a range of mortgage-related risks; • constructing and actively managing a hybrid investment portfolio consisting primarily of Agency RMBS and, to a lesser extent, non-Agency RMBS, designed to: ◦ take advantage of opportunities in the Agency RMBS market by acquiring Agency RMBS on a leveraged basis; and 5 ◦ take advantage of opportunities in the non-Agency residential mortgage market by purchasing investment grade and non-investment grade non-Agency RMBS, including senior and subordinated securities; • acquiring and managing a portfolio of corporate CLOs, with an emphasis on CLO mezzanine debt and equity tranches; • opportunistically acquiring and managing other mortgage- and real estate-related assets, such as MSRs, CRTs, CMBS, and residential mortgage loans, that we would hold for appreciation and/or current income; and • opportunistically mitigating our interest rate, prepayment, and, to a lesser extent, credit risks, by using a variety of hedging instruments.
Biggest changeIn particular, our strategy consists of: • utilizing an investment model that focuses on security selection and allocates capital to assets that balance a range of corporate- and mortgage-related risks; • acquiring and managing a portfolio of corporate CLOs, with an emphasis on CLO mezzanine debt and equity tranches, and related investments; • actively managing an investment portfolio of Agency RMBS in order to maintain our exclusion from registration under the 1940 Act, prior to the Conversion becoming effective; • opportunistically mitigating our interest rate, prepayment, and, to a lesser extent, credit risks, by using a variety of hedging instruments.
Ellington makes available to our Manager all opportunities to acquire assets that it determines, in its reasonable and good faith judgment, based on our objectives, policies and strategies, and other relevant factors, are appropriate for us in accordance with Ellington's written investment allocation policy, subject to the exception that we might not participate in each such opportunity, but will on an overall basis equitably participate with Ellington's other accounts in all such opportunities.
Ellington makes available to our Manager all opportunities to acquire assets that it determines, in its reasonable and good faith judgment, based on our objectives, policies and strategies, and other relevant factors, are appropriate for us in accordance with Ellington's written investment allocation policy, subject to the exception that we might not participate in each such opportunity, but will equitably participate with Ellington's other accounts in all such opportunities on an overall basis.
Our Manager may also terminate the management agreement upon 60 days written notice if we default in the performance of any material term of the management agreement and the default continues for a period of 30 days after written notice to us, whereupon we would be required to pay our Manager the termination fee described above.
Our Manager may terminate the Management Agreement upon 60 days written notice if we default in the performance of any material term of the Management Agreement and the default continues for a period of 30 days after written notice to us, whereupon we would be required to pay our Manager the termination fee described above.
In addition to existing companies, other companies may be organized for similar purposes in the future, including companies focused on purchasing mortgage assets. A proliferation of such companies may increase the competition for equity capital and thereby adversely affect the market price of our common shares.
In addition to existing competitors, other companies may be organized for similar purposes in the future, including companies focused on purchasing mortgage assets. A proliferation of such companies may increase the competition for equity capital and thereby adversely affect the market price of our common shares.
Ellington's continued emphasis on and development of proprietary MBS, interest rate, prepayment, and credit models, as well as other proprietary research and analytics, underscores the importance it places on a disciplined and analytical approach to fixed income investing, especially in MBS.
Ellington's continued emphasis on and development of proprietary credit, MBS, interest rate, and prepayment models, as well as other proprietary research and analytics, underscores the importance it places on a disciplined and analytical approach to fixed income investing, especially in CLOs and MBS.
"Investment securities" excludes U.S. government securities and securities of majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company for private funds under Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act.
"Investment securities" excludes U.S. government securities and securities of majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company for private funds under Section 3(c)(1) or Section 3(c)(7) of the 1940 Act.
We monitor our compliance with the 40% Test and the holdings of our subsidiaries to ensure that each of our subsidiaries is in compliance with an applicable exemption or exclusion from registration as an investment company under the Investment Company Act.
We monitor our compliance with the 40% Test and the holdings of our subsidiaries to ensure that each of our subsidiaries is in compliance with an applicable exemption or exclusion from registration as an investment company under the 1940 Act.
In that case, our investment in EARN Mortgage LLC would be classified as an investment security, and we might not be able to maintain our overall exclusion from registering as an investment company under the Investment Company Act.
In that case, our investment in EARN Mortgage LLC would be classified as an investment security, and we might not be able to maintain our overall exclusion from registering as an investment company under the 1940 Act.
Under Section 3(a)(1) of the Investment Company Act, a company is deemed to be an "investment company" if: • it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities (Section 3(a)(1)(A)); or • it is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities and does own or proposes to acquire "investment securities" having a value exceeding 40% of the value of its total assets (excluding U.S. government securities and cash) on an unconsolidated basis, or "the 40% Test" (Section 3(a)(1)(C)).
Under Section 3(a)(1) of the 1940 Act, a company is deemed to be an "investment company" if: • it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities (Section 3(a)(1)(A)); or 13 • it is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities and does own or proposes to acquire "investment securities" having a value exceeding 40% of the value of its total assets (excluding U.S. government securities and cash) on an unconsolidated basis, or "the 40% Test" (Section 3(a)(1)(C)).
GAAP accounting purposes which is being 11 crossed at market prices, or the cross transaction has received approval of a majority of our independent trustees.
GAAP accounting purposes which is being crossed at market prices, or the cross transaction has received approval of a majority of our independent trustees.
There can be no assurance that the laws and regulations governing the Investment Company Act status of companies similar to ours, or the guidance from the Division of Investment Management of the SEC regarding the treatment of assets as qualifying real estate assets or real estate-related assets, will not change in a manner that adversely affects our operations as a result of this review.
There can be no assurance that the laws and regulations governing the 1940 Act status of companies similar to ours, or the guidance from the Division of Investment Management of the SEC regarding the treatment of assets as qualifying real estate assets or real estate-related assets, will not change in a manner that adversely affects our operations as a result of this review.
Additional Information A copy of this Annual Report on Form 10-K, as well as our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available, free of charge, on our internet website at www.earnreit.com .
Additional Information A copy of this Annual Report on Form 10-K, as well as our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available, free of charge, on our internet website at www.ellingtoncredit.com .
Our Financing Strategies and Use of Leverage We finance our assets with what we believe to be a prudent amount of leverage, which will vary from time to time based upon the particular characteristics of our portfolio, availability of financing and market conditions. As of December 31, 2023, all of our debt financings consisted of repos.
Our Financing Strategies and Use of Leverage We finance our assets with what we believe to be a prudent amount of leverage, which will vary from time to time based upon the particular characteristics of our portfolio, availability of financing and market conditions. As of December 31, 2024, all of our debt financings consisted of repos.
The following factors are examples of those that could cause actual results to vary from our forward-looking statements: changes in interest rates and the market value of our securities or our investments; our use of and dependence on leverage; future changes with respect to the Federal National Mortgage Association, or "Fannie Mae," and Federal Home Loan Mortgage Corporation, or "Freddie Mac," and related events, including the lack of certainty as to the future roles of these entities and the U.S.
The following factors are examples of those that could cause actual results to vary from those stated or implied by our forward-looking statements: changes in interest rates and the market value of our securities or our investments; our use of and dependence on leverage; future changes with respect to the Federal National Mortgage Association, or "Fannie Mae," and Federal Home Loan Mortgage Corporation, or "Freddie Mac," and related events, including the lack of certainty as to the future roles of these entities and the U.S.
We believe that we and our Operating Partnership will not be considered investment companies under Section 3(a)(1)(A) of the Investment Company Act because we and our Operating Partnership do not engage primarily or hold ourselves out as being engaged primarily in the business of investing, reinvesting, or trading in securities.
We believe that we and our Operating Partnership will not be considered investment companies under Section 3(a)(1)(A) of the 1940 Act because we and our Operating Partnership do not engage primarily or hold ourselves out as being engaged primarily in the business of investing, reinvesting, or trading in securities.
In these cases, Ellington's investment allocation procedures and policies typically allocate such assets to multiple accounts in proportion to their needs and available capital. Ellington may at times allocate opportunities on a preferential basis to accounts that are in a "start-up" or "ramp-up" phase.
In these cases, Ellington's investment allocation procedures and policies typically allocate such assets to multiple accounts in proportion to their needs and available capital. Ellington may at times allocate opportunities on a preferential basis to accounts that are in a "start-up" or "ramp-up" phase, including us.
Our Operating Partnership's direct and indirect subsidiaries, through which we operate our business, rely upon certain exclusions from the definition of investment company under the Investment Company Act including, in the case of our 13 Operating Partnership's wholly-owned subsidiary, EARN Mortgage LLC, Section 3(c)(5)(C) of the Investment Company Act.
Our Operating Partnership's direct and indirect subsidiaries, through which we operate our business, rely upon certain exclusions from the definition of investment company under the 1940 Act including, in the case of our Operating Partnership's wholly-owned subsidiary, EARN Mortgage LLC, Section 3(c)(5)(C) of the 1940 Act.
Treasury securities; • futures and forward contracts; and • other derivatives on interest rates, including swaptions and other options on any of the foregoing.
Treasury securities; 8 • futures and forward contracts; and • other derivatives on interest rates, including swaptions and other options on any of the foregoing.
Disparities between targeted sectors vary from time to time and are driven by a combination of factors. For example, as various MBS and CLO sectors fall in and out of favor, the relative yields that the market demands for those sectors may vary.
Disparities between targeted sectors vary from time to time and are driven by a combination of factors. For example, as various CLO debt, CLO equity, and MBS sectors fall in and out of favor, the relative yields that the market demands for those sectors may vary.
On August 31, 2011, the SEC published a concept release entitled "Companies Engaged in the Business of Acquiring Mortgages and Mortgage Related Instruments" (Investment Company Act Rel. No. 29778). This release notes that the SEC is reviewing the 3(c)(5)(C) exclusion relied upon by companies similar to us that invest in mortgage loans and mortgage-backed securities.
On August 31, 2011, the SEC published a concept release entitled "Companies Engaged in the Business of Acquiring Mortgages and Mortgage Related Instruments" (1940 Act Rel. No. 29778). This release notes that the SEC is reviewing the 3(c)(5)(C) exclusion relied upon by companies similar to us that invest in mortgage loans and mortgage-backed securities.
Business Except where the context suggests otherwise references in this Annual Report on Form 10-K to "we," "us," and "our" refer to Ellington Residential Mortgage REIT and its consolidated subsidiaries, including Ellington Residential Mortgage LP, our operating partnership subsidiary, which we refer to as our "Operating Partnership." We hold all of our assets and conduct all of our operations through our Operating Partnership.
Business Except where the context suggests otherwise references in this Annual Report on Form 10-K to "we," "us," and "our" refer to Ellington Credit Company (formerly Ellington Residential Mortgage REIT) and its consolidated subsidiaries, including Ellington Residential Mortgage LP, our operating partnership subsidiary, which we refer to as our "Operating Partnership." We hold all of our assets and conduct all of our operations through our Operating Partnership.
Our primary objective is to generate attractive current yields and risk-adjusted total returns for our shareholders by making investments that we believe compensate us appropriately for the risks associated with them.
Our primary objective is to generate attractive current yields and risk-adjusted total returns for our shareholders by making investments that we believe compensate us appropriately for the associated risks.
In addition, Ellington's performance projections for certain sectors may differ from those of other market participants and such disparities will naturally cause us, from time to time, to gravitate towards certain sectors and away from others.
In addition, our performance projections for certain sectors may differ from those of other market participants and such disparities will naturally cause us, from time to time, to gravitate towards certain sectors and away from others.
Our Manager is responsible for, among other things: • the selection, purchase, and sale of our portfolio investments; • our financing and risk management activities; • providing us with advisory services; and • providing us with a management team, inclusive of a dedicated or partially dedicated Chief Financial Officer and appropriate support personnel as necessary.
Our Manager also remains responsible for, among other things: • the selection, purchase, and sale of our portfolio investments; • our financing and risk management activities; • providing us with advisory services; and • providing us with a management team, inclusive of a dedicated or partially dedicated Chief Financial Officer and appropriate support personnel as necessary.
Disparities between MBS and CLO sectors and individual securities within such sectors may also be driven by differences in collateral performance, in servicer or collateral manager behavior and in the structure of particular investments (for example, in the timing of cash flows), and our Manager may believe that other market participants are overestimating or underestimating the value of these differences.
Disparities between CLO debt, CLO equity, and MBS sectors and individual securities within such sectors may also be driven by differences in collateral performance, in servicer or collateral manager behavior and in the structure of particular investments (for example, in the timing of cash flows), and we may believe that other market participants are overestimating or underestimating the value of these differences.
To the extent that the SEC staff provides more specific guidance regarding any of the matters bearing upon our exclusion from the need to register under the Investment Company Act, we may be required to adjust our strategy accordingly.
To the extent that the SEC staff provides more specific guidance regarding any of the matters bearing upon our exclusion from the need to register under the 1940 Act, we may be required to adjust our strategy accordingly.
In addition, throughout Ellington's 29-year history of investing in RMBS and related derivatives and 11-year history of investing in corporate CLOs, it has developed strong relationships with a wide range of dealers and other market participants that provide Ellington access to a broad range of trading opportunities and market information.
In addition, throughout Ellington's 30-year history of investing in RMBS and related derivatives and 12-year history of investing in corporate CLOs, it has developed strong relationships with a wide range of dealers and other market participants that provide Ellington access to a broad range of trading opportunities and market information.
Furthermore, we believe that Ellington's extensive experience in buying, selling, analyzing, and structuring fixed income securities, coupled with its broad access to market information and trading flows, provides us with a steady flow of opportunities to acquire assets with favorable trade executions. 6 Our Targeted Assets Asset Class Principal Assets Agency RMBS .
Furthermore, we believe that Ellington's extensive experience in buying, selling, analyzing, and structuring fixed income securities, coupled with its broad access to market information and trading flows, provides us with a steady flow of opportunities to acquire assets with favorable trade executions. 6 Our Targeted Assets Asset Class Principal Assets CLOs and Related Investments .
"Manager" refers to Ellington Residential Mortgage Management LLC, our external manager, and "Ellington" refers to Ellington Management Group, L.L.C. and its affiliated investment advisory firms, including our Manager. In certain instances, references to our Manager and services to be provided to us by our Manager may also include services provided by Ellington and its other affiliates from time to time.
"Manager" refers to Ellington Credit Company Management LLC, our external manager, and "Ellington" refers to Ellington Management Group, L.L.C. and its affiliated investment advisory firms, including our Manager. In certain instances, references to our Manager and services to be provided to us by our Manager may also include services provided by Ellington and its other affiliates from time to time.
We have not made any such investments to date. • Split Price Executions— pursuant to the management agreement, our Manager is authorized to combine purchase or sale orders on our behalf together with orders for other accounts managed by Ellington, our Manager or their affiliates and allocate the securities or other assets so purchased or sold, on an average price basis or other fair and consistent basis, among such accounts.
We have not made any such investments to date. • Split Price Executions— pursuant to the Management Agreement, our Manager is authorized to combine purchase or sale orders on our behalf together with orders for other accounts managed by Ellington, our Manager or their affiliates and allocate the securities or other assets so purchased or sold, on an average price basis or other fair and consistent basis, among such accounts. 12 Our Manager is authorized to follow very broad investment guidelines.
The CMOs we acquire will not be treated as qualifying real estate interests for purposes of the 55% requirement. We also have formed, and may in the future form, certain other wholly-owned or majority-owned subsidiaries that will invest in CMOs and, subject to our investment guidelines, other real estate-related assets.
The CMOs will be treated as qualifying real estate interests for purposes of the 55% requirement. We also have formed certain other wholly-owned or majority-owned subsidiaries that invest in CMOs and, subject to our investment guidelines, other real estate-related assets.
Because Agency pass-through certificates, Agency and non-Agency CMOs, and certain other asset classes in which we invest are typically available only in specified quantities and are also targeted assets for certain other Ellington accounts, Ellington often is not able to buy as much of any given asset as required to satisfy the needs of all of its accounts.
Because CLOs, Agency pass-through certificates, Agency and non-Agency CMOs, and certain other asset classes in which we invest are typically available only in specified quantities and are also targeted assets for certain other Ellington accounts, Ellington often is not able to buy as much of any given asset or group of assets as would be required to satisfy the needs of all of Ellington's accounts.
However, our independent trustees generally will not review our proposed asset acquisitions, dispositions, or other management decisions. In addition, in conducting periodic reviews, our independent trustees will rely primarily on information provided to them by our Manager.
Our independent trustees will periodically review our investment guidelines and our portfolio. However, our independent trustees generally will not review our proposed asset acquisitions, dispositions, or other management decisions. In addition, in conducting periodic reviews, our independent trustees will rely primarily on information provided to them by our Manager.
In the event we elect 10 not to renew the term, we will be required to pay our Manager a termination fee equal to 5% of our Shareholders' Equity, as defined in the management agreement, as of the end of the month preceding the date of the notice of termination or non-renewal of the management agreement.
In the event we elect not to renew the term, we will be required to pay our Manager a termination fee equal to 5% of our Net Asset Value, as defined in the Management Agreement, as of the end of the month preceding the date of the notice of termination or non-renewal of the Management Agreement.
Our Corporate Governance Guidelines and Code of Business Conduct and Ethics and the charters of the Audit, Compensation and Nominating and Corporate Governance Committees of our Board of Trustees are also available at www.earnreit.com and are available in print to 14 any shareholder upon request in writing to Ellington Residential Mortgage REIT, c/o Investor Relations, 53 Forest Avenue, Old Greenwich, CT 06870.
Our Corporate Governance Guidelines and Code of Business Conduct and Ethics and the charters of the Audit, Compensation and Nominating and Corporate Governance Committees of our Board of Trustees are also available at www.ellingtoncredit.com and are available in print to any shareholder upon request in writing to Ellington Credit Company, c/o Investor Relations, 53 Forest Avenue, Old Greenwich, CT 06870.
We also screen and monitor potential asset acquisitions to determine their impact on maintaining our exclusion from registration as an investment company under the Investment Company Act and our qualification as a REIT. Valuation of Assets Our Manager's valuation committee directs our valuation process, which is also subject to the oversight of our independent trustees.
We also screen and monitor potential asset acquisitions to determine their impact on maintaining our exclusion from registration as an investment company under the 1940 Act until the Conversion occurs. Valuation of Assets Our Manager's valuation committee directs our valuation process, which is also subject to the oversight of our independent trustees.
We leverage these skills and resources for purposes of attaining our objectives. We believe that our Manager is uniquely qualified to implement our strategy. Our strategy is consistent with Ellington's investment approach, which is based on its distinctive strengths in sourcing, analyzing, trading, and hedging for complex MBS and other mortgage- and non-mortgage-related products.
We believe that our Manager is uniquely qualified to implement our strategy. Our strategy is consistent with Ellington's investment approach, which is based on its distinctive strengths in sourcing, analyzing, trading, and hedging for complex CLO, MBS and other mortgage- and non-mortgage-related products.
All of our executive officers, and our partially dedicated personnel, which include our Chief Financial Officer, Chief Operating Officer, controller, accounting staff, in-house legal counsel, and internal audit staff, are employees of Ellington or one or more of its affiliates. See "—Management Agreement" above.
Human Capital Resources We currently do not have any employees. All of our executive officers, and our partially dedicated personnel, which include our Chief Financial Officer, Chief Operating Officer, controller, accounting staff, in-house legal counsel, and internal audit staff, are employees of Ellington or one or more of its affiliates. See "—Management Agreement" above.
IOs are CMOs that only receive interest payments while POs receive only principal payments. TBAs— In addition to investing in specific pools of Agency RMBS, subject to our satisfying the requirements for qualification as a REIT, we utilize forward-settling purchases and sales of Agency RMBS where the underlying pools of mortgage loans are TBAs.
IOs are CMOs that only receive interest payments while POs receive only principal payments. TBAs— In addition to investing in specific pools of Agency RMBS, we utilize forward-settling purchases and sales of Agency RMBS where the underlying pools of mortgage loans are TBAs.
By rotating between and allocating among various strategies and adjusting the extent to which it hedges interest rate, prepayment, and, to a lesser extent, credit risks, Ellington believes that it will be able to capitalize on the disparities between these sectors as well as on overall trends in the marketplace, and therefore provide better and more consistent returns.
By rotating between and allocating among various strategies and adjusting the extent to which we hedge interest rate, prepayment, and credit risks, we believe that we will be able to capitalize on the disparities between these subsectors as well as on overall trends in the marketplace, and therefore provide better and more consistent returns.
The loss of our exclusion from registration pursuant to the Investment Company Act could require us to restructure our operations, sell certain of our assets, or abstain from the purchase of certain assets, which could have an adverse effect on our financial condition and results of operations.
The loss of our exclusion from registration pursuant to the 1940 Act prior to completion of the Conversion could require us to restructure our operations, sell certain of our assets to pay down leverage, or abstain from the purchase of certain assets, which could have an adverse effect on our financial condition and results of operations.
Investments in subsidiaries that rely on the exclusions from the definition of investment company under 3(c)(1) or 3(c)(7) of the Investment Company Act are considered investment securities for the purposes of the 40% Test.
These subsidiaries will rely upon the exclusion from the definition of investment company under the 1940 Act pursuant to Section 3(c)(1) or 3(c)(7) of the 1940 Act. Investments in subsidiaries that rely on the exclusions from the definition of investment company under 3(c)(1) or 3(c)(7) of the 1940 Act are considered investment securities for the purposes of the 40% Test.
No termination fee will be due to the Manager if the Manager decides not to renew the management agreement. We have the right to terminate the management agreement for cause, as defined in the management agreement, at any time during the term upon 30 days' prior written notice, without payment of any termination fee.
We have the right to terminate the Management Agreement for cause, as defined in the Management Agreement, at any time during the term upon 30 days' prior written notice, without payment of any termination fee.
As of December 31, 2023, we had approximately $0.7 billion outstanding under repos with 19 counterparties, and given that we had approximately $136.2 million of shareholders' equity as of December 31, 2023, our debt-to-equity ratio was 5.4 to 1. Our debt-to-equity ratio does not account for liabilities other than debt financings.
As of December 31, 2024, we had approximately $563.0 million outstanding under repos with 14 counterparties, and given that we had approximately $193.7 million of shareholders' equity as of December 31, 2024, our debt-to-equity ratio was 2.9 to 1. Our debt-to-equity ratio does not account for liabilities other than debt financings.
Investment Company Act Exclusion Both we and our Operating Partnership are organized as holding companies and conduct our businesses primarily through wholly-owned subsidiaries of our Operating Partnership in a manner such that neither we nor our subsidiaries are subject to registration under the Investment Company Act.
The revocation of our REIT election was not a taxable event for our shareholders. 1940 Act Exclusion Both we and our Operating Partnership are organized as holding companies and conduct our businesses primarily through wholly-owned subsidiaries of our Operating Partnership in a manner such that neither we nor our subsidiaries are subject to registration under the 1940 Act.
As of December 31, 2023, Ellington had over 170 employees and had assets under management of approximately $10.3 billion, of which (i) approximately $7.2 billion consisted of our company, as well as Ellington Financial Inc., a Delaware corporation that elected to be taxed as a REIT (NYSE: EFC), and various hedge funds and other alternative investment vehicles that employ financial leverage, and (ii) approximately $3.1 billion consisted of accounts that do not employ financial leverage.
As of December 31, 2024, Ellington had over 160 employees and had assets under management of approximately $13.7 billion, of which (i) approximately $7.4 billion consisted of our company, as well as Ellington Financial Inc., a Delaware corporation that elected to be taxed as a REIT listed on the New York Stock Exchange, or the "NYSE," under the ticker "EFC," 5 and various hedge funds and other alternative investment vehicles that employ financial leverage, and (ii) approximately $6.2 billion consisted of accounts that do not employ financial leverage.
Our Manager is responsible for our day-to-day operations and performs (or causes to be performed) such services and activities relating to the management, operation, and administration of our assets and liabilities, and business as may be appropriate. Under the management agreement, we pay our Manager a management fee quarterly in arrears, and we reimburse certain expenses of our Manager.
Our Manager is also responsible for our day-to-day operations and performs (or causes to be performed) such services and activities relating to the management, operation, and administration of our assets and liabilities, and business as may be appropriate.
We also may raise capital by issuing debt, preferred or common shares, or depositary shares. 9 Our use of leverage, especially in order to increase the amount of assets supported by our capital base, may have the effect of increasing losses when these assets underperform.
Our use of leverage, especially in order to increase the amount of assets supported by our capital base, may have the effect of increasing losses when these assets underperform.
As a result, although we intend to focus on the acquisition and management primarily of Agency RMBS, and to a lesser extent, non-Agency RMBS, residential mortgage loans, MSRs, CRTs, and CMBS, our acquisition and management decisions will depend on prevailing market conditions and our targeted asset classes may vary over time in response to market conditions.
As a result, although we intend to focus on the acquisition and management primarily of CLOs, along with Agency MBS prior to our Conversion, our acquisition and management decisions will depend on prevailing market conditions and our targeted asset classes may vary over time in response to market conditions.
The derivative instruments that we use for credit hedging purposes may include contracts referencing the unsecured corporate credit, or the equity of, certain corporations, including indices on corporate debt and equity, tranches or options on these indices, contracts referencing various MBS indices, or other derivative instruments.
The derivative instruments that we use for credit hedging purposes may include contracts referencing the secured or unsecured debt or equity of certain corporations, as well as contracts referencing indices comprised of corporate debt and equity.
Our Manager uses Ellington's proprietary models to identify attractive assets, value these assets, monitor and forecast the performance of these assets, and (subject to maintaining our qualification as a REIT) opportunistically hedge our interest rate risk and yield spread risk, hedge our prepayment risk, and hedge our credit risk.
Our Manager uses Ellington's proprietary models to identify attractive assets, value these assets, monitor and forecast the performance of these assets, and opportunistically hedge our interest rate risk and yield spread risk, hedge our prepayment risk, and hedge our credit risk. We leverage these skills and resources for purposes of attaining our objectives.
We may utilize other types of borrowings in the future, including term facilities or other more complex financing structures.
We may utilize other types of borrowings in the future, including term facilities or other more complex financing structures. We also may raise capital by issuing debt, preferred or common shares, or depositary shares.
Upon any termination of the management agreement based on unsatisfactory performance or unfair management fees, we are required to pay our Manager the termination fee described above. Our Manager may terminate the management agreement, without payment of the termination fee, in the event we become regulated as an investment company under the Investment Company Act.
Upon any termination of the Management Agreement based on unsatisfactory performance or unfair management fees, we are required to pay our Manager the termination fee described above.
Our strategy is adaptable to changing market environments, subject to compliance with the income and other tests that will enable us to maintain our qualification as a REIT for U.S. federal income tax purposes and to maintain our exclusion from registration as an investment company under the Investment Company Act.
Our strategy is adaptable to changing market environments, subject to compliance with the tests that will enable us to maintain our exclusion from registration as an investment company under the 1940 Act until the Conversion is complete.
However, we may not be able to achieve our business goals or expectations as a result of the competitive risks that we face.
However, we may not be able to achieve our business goals or expectations as a result of the competitive risks that we face. Operating and Regulatory Structure Tax Requirements We revoked our election to be treated as REIT, effective as of January 1, 2024.
Government in the mortgage market and changes to legislation and regulations affecting these entities; market volatility; changes in the prepayment rates on the mortgage loans underlying the securities we own and intend to acquire; changes in rates of default and/or recovery rates on our non-Agency assets; our ability to borrow to finance our assets and the available terms for such borrowings; changes in government regulations affecting our business; our ability to maintain our exclusion from registration under the Investment Company Act of 1940, as amended, or the "Investment Company Act"; our ability to maintain our qualification as a real estate investment trust, or "REIT"; and risks associated with investing in real estate assets, including changes in business conditions and the general economy such as changes to fiscal or monetary policy, heightened inflation, slower growth or recession, and currency fluctuations.
Government in the mortgage market and changes to legislation and regulations affecting these entities; market volatility; our ability to pivot our investment strategy to focus on CLOs; a deterioration in the CLO market; our ability to utilize our U.S. federal and state net operating losses, or "NOLs"; our ability to convert to a closed-end fund/regulated investment company; our ability to exit investments in a timely and cost-effective manner; changes in our investment objectives and strategy; changes in the prepayment rates on the mortgage loans underlying the securities we own; changes in rates of default and/or recovery rates; our ability to borrow to finance our assets and the available terms for such borrowings; changes in government regulations affecting our business; our ability to maintain our exclusion from registration under the Investment Company Act of 1940, as amended, or the "1940 Act," and following our conversion to a closed-end fund/regulated investment company, our ability to qualify as an investment company under the 1940 Act; risks associated with investing in real estate assets, including changes in business conditions; and other changes in markets conditions and trends, such as changes to fiscal or monetary policy, heightened inflation, slower growth or recession, and currency fluctuations.
The management agreement, as amended, requires our Manager to manage our business affairs in conformity with policies and investment guidelines that are approved and monitored by our Board of Trustees. Our Manager is subject to the direction and oversight of our Board of Trustees.
Management Agreement Upon our inception in September 2012, we entered into a management agreement with our Manager pursuant to which our Manager provides for the day-to-day management of our operations. The management agreement, as amended, requires our Manager to manage our business affairs in conformity with policies and investment guidelines that are approved and monitored by our Board of Trustees.
CLOs A CLO is a form of structured finance security that is generally backed by a pool of corporate loans or similar corporate credit-related assets that serve as collateral. Most CLOs are issued in multiple tranches, offering investors various maturity and credit risk characteristics, often categorized as senior, mezzanine and subordinated/equity according to their relative seniority and degree of risk.
Most CLOs are issued in multiple tranches, offering investors various maturity and credit risk characteristics, often categorized as senior, mezzanine and subordinated/equity according to their relative seniority and degree of risk.
Ellington's investment philosophy primarily revolves around the pursuit of value across various types of MBS, CLO and related assets. Ellington seeks investments across a wide range of sectors without any restriction as to ratings, structure, or position in the capital structure. Over time and through market cycles, opportunities will present themselves in varying sectors and in varying forms.
Our investment philosophy primarily revolves around the pursuit of value across various types of CLO debt, CLO equity, MBS, and related assets. Within these sectors, we seek to make investments across a wide range of subsectors without any restriction as to ratings, structure, or position in the capital structure.
See "Risk Factors—Risks Related to Our Organization and Structure—Maintenance of our exclusion from registration as an investment company under the Investment Company Act imposes significant limitations on our operations.
See "Risk Factors—Risks Related to Our Organization and Structure—Maintenance of our exclusion from registration as an investment company under the 1940 Act imposes significant limitations on our operations." If we were required to register as an investment company under the 1940 Act, we would be subject to the restrictions imposed by the 1940 Act, which would require us to make material changes to our strategy.
These beliefs, assumptions, and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity, results of operations and strategies may vary materially from those expressed or implied in our forward-looking statements.
If a change occurs, our business, financial condition, liquidity, results of operations and strategies may vary materially from those expressed or implied in our forward-looking statements or from our beliefs, expectations, estimates and projections and, consequently, you should not rely on these forward-looking statements as predictions of future events.
Reimbursement of Expenses We do not maintain an office or employ personnel. We rely on the facilities and resources of our Manager to conduct our operations. We pay all of our direct operating expenses, except those specifically required to be borne by our Manager under the management agreement.
We pay all of our direct operating expenses, except those specifically required to be borne by our Manager under the Management Agreement.
Additionally, many of our competitors are not subject to REIT tax compliance or required to maintain an exclusion from the Investment Company Act. Our competitors may include other investment vehicles managed by Ellington or its affiliates, including Ellington Financial Inc.
Some competitors may have a lower cost of funds and access to funding sources that may not be available to us, such as funding from the government. Additionally, many of our competitors are not required to maintain an exclusion from the 1940 Act. Our competitors may include other investment vehicles managed by Ellington or its affiliates, including Ellington Financial Inc.
In addition, nothing in the management agreement binds or restricts our Manager or any of its affiliates, officers, or employees from buying, selling, or trading any securities or commodities for their own accounts or for the accounts of others for whom our Manager or any of its affiliates, officers, or employees may be acting. 12 Competition In acquiring our assets, we compete with other mortgage REITs, specialty finance companies, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, financial institutions, governmental bodies, and other entities.
In addition, nothing in the Management Agreement binds or restricts our Manager or any of its affiliates, officers, or employees from buying, selling, or trading any securities or commodities for their own accounts or for the accounts of others for whom our Manager or any of its affiliates, officers, or employees may be acting.
Credit Risk Hedging Although we do not operate our corporate CLO or non-Agency RMBS investment strategies on a credit-hedged basis in general, we may from time to time opportunistically enter into short credit positions using derivative instruments to protect against adverse credit events and/or spread widening risk with respect to our corporate CLOs, non-Agency RMBS, or other assets, subject to maintaining our qualification as a REIT and maintaining our exclusion from registration as an investment company under the Investment Company Act.
Credit Risk Hedging We opportunistically enter into short credit positions using derivative instruments to protect against adverse credit events and/or spread widening risk with respect to our CLOs, or other assets, subject to maintaining our exemption from the 1940 Act prior to the Conversion.
We engage in TBA transactions for purposes of managing interest rate risk associated with our liabilities under repurchase agreements, which we sometimes refer to herein as "repos." For tax purposes, we generally treat such TBA purchases and sales as hedging transactions that hedge indebtedness incurred to acquire or carry real estate assets, or "qualifying liability hedges." We also opportunistically engage in TBA transactions because we find them attractive in their own right, from a relative value perspective or otherwise.
TBA trading is based on the assumption that mortgage pools that are eligible to be delivered at TBA settlement are fungible and thus the specific mortgage pools to be delivered do not need to be explicitly identified at the time a trade is initiated. 7 We engage in TBA transactions for purposes of managing interest rate risk associated with our liabilities under repurchase agreements, which we sometimes refer to herein as "repos." We also opportunistically engage in TBA transactions because we find them attractive in their own right, from a relative value perspective or otherwise.
We were formed through an initial strategic venture among affiliates of Ellington, an investment management firm and registered investment adviser with a 29-year history of investing in a broad spectrum of residential and commercial mortgage-backed securities, or "MBS," and related derivatives, and the Blackstone Funds.
Our Company Ellington Credit Company (formerly Ellington Residential Mortgage REIT) is a Maryland company that was formed in August 2012 through a strategic venture among affiliates of Ellington, an investment management firm and registered investment adviser with a 30-year investment history, and the Blackstone Funds.
As of December 31, 2023, Ellington managed various funds, accounts, and other vehicles, comprising approximately $9.0 billion of assets under management (excluding our assets but including $3.1 billion of accounts that do not employ financial leverage), with strategies that are similar to, or that overlap with, our strategy.
As of December 31, 2024, these other funds, accounts, and vehicles, represented approximately $12.7 billion of assets under management (excluding our assets but including $6.2 billion of accounts that do not employ financial 11 leverage).
Investment Advisers Act of 1940 Both Ellington and our Manager are registered as investment advisers under the Advisers Act and are subject to the regulatory oversight of the Division of Investment Management of the SEC. Human Capital Resources We currently do not have any employees.
On April 1, 2025, we intend to complete the Conversion and thereby convert to a Delaware closed-end fund registered under the 1940 Act. 14 Investment Advisers Act of 1940 Both Ellington and our Manager are registered as investment advisers under the Advisers Act and are subject to the regulatory oversight of the Division of Investment Management of the SEC.
In addition, we utilize derivatives and other hedging instruments to opportunistically manage our interest rate and yield spread risk. 8 Interest Rate Hedging We opportunistically manage our interest rate risk by using various hedging strategies to mitigate such risks, subject to maintaining our qualification as a REIT and maintaining our exclusion from registration as an investment company under the Investment Company Act.
Interest Rate Hedging We opportunistically manage our interest rate risk by using various hedging strategies to mitigate such risks, subject to maintaining our exemption from the 1940 Act prior to the Conversion.
For accounting purposes, in accordance with generally accepted accounting principles in the United States of America, or "U.S. GAAP," we classify TBA transactions as derivatives. 7 Non-Agency RMBS We acquire non-Agency RMBS backed by prime jumbo, Alt-A, non-QM, manufactured housing, and subprime residential, and single-family-rental mortgage loans.
For accounting purposes, in accordance with generally accepted accounting principles in the United States of America, or "U.S. GAAP," we classify TBA transactions as derivatives. Investment Process Our investment process benefits from the resources and professionals of our Manager and Ellington.
Agency collateralized mortgage obligations, or "CMOs," including interest only securities, or "IOs," principal only securities, or "POs," inverse interest only securities, or "IIOs," and inverse floaters; and . To-Be-Announced mortgage pass-through certificates, or "TBAs." Non-Agency RMBS . RMBS backed by prime jumbo, Alt-A, non-QM loans, manufactured housing, and subprime mortgages; .
Agency collateralized mortgage obligations, or "CMOs," including interest only securities, or "IOs," principal only securities, or "POs," inverse interest only securities, or "IIOs," and inverse floaters; and .
Our Company Ellington Residential Mortgage REIT is a Maryland real estate investment trust formed in August 2012 that specializes in acquiring, investing in, and managing residential mortgage- and real estate-related assets.
We historically specialized in acquiring, investing in, and managing residential mortgage- and real estate-related assets, and elected to be taxed as a real estate investment trust, or "REIT," under the Internal Revenue Code of 1986, as amended (the "Code").
Removed
We seek to attain this objective by constructing and actively managing a portfolio consisting primarily of residential mortgage-backed securities, or "RMBS," for which the principal and interest payments are guaranteed by a U.S. government agency or a U.S. government-sponsored entity, or "Agency RMBS," and, to a lesser extent, RMBS backed by prime jumbo, Alternative A-paper, or "Alt-A," mortgage loans that are not deemed "qualified mortgage," or "QM," loans under the rules of the Consumer Financial Protection Bureau, or "non-QM loans," mortgages on single-family-rental properties, manufactured housing, and subprime residential mortgage loans, or "non-Agency RMBS." We also may opportunistically acquire other types of mortgage- and real estate-related asset classes, such as commercial mortgage-backed securities, or "CMBS"; residential mortgage loans; mortgage servicing rights, or "MSRs"; and credit risk transfer securities, or "CRTs." We also acquire and manage corporate collateralized loan obligations, or "CLOs." We believe that being 4 able to combine Agency RMBS with CLOs, non-Agency RMBS and opportunistic investments, enables us to balance a range of mortgage-related and credit risks.
Added
These beliefs, assumptions, and expectations are subject to numerous risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to us.
Removed
We have elected to be taxed as a real estate investment trust, or "REIT," for U.S. federal income tax purposes. We intend to maintain our exclusion from registration under the Investment Company Act. Our Manager and Ellington We are externally managed and advised by our Manager, an affiliate of Ellington, pursuant to a management agreement.
Added
On March 29, 2024, our Board of Trustees approved a strategic transformation, the "CLO Strategic Transformation," of our investment strategy to focus on corporate collateralized loan obligations, or "CLOs." In connection with the CLO Strategic 4 Transformation, we revoked our election to be taxed as a REIT for tax year 2024, rebranded as Ellington Credit Company, and began operating as a taxable C-Corp.
Removed
The $10.3 billion and $7.2 billion in assets under management include approximately $0.8 billion in Ellington-managed CLOs. For these purposes, the Ellington-managed CLO figure represents the aggregate outstanding balance of CLO notes and market value of CLO equity, excluding any notes and equity held by other Ellington-managed funds and accounts.
Added
As a taxable C-Corp, we conduct our operations so that neither we nor any of our subsidiaries are required to register as an investment company under the 1940 Act. This includes holding a core portfolio of liquid Agency MBS pools in order to maintain our exemption from the 1940 Act.
Removed
To the extent that we acquire MSRs or engage in other strategies including certain relative value trading strategies, it may be necessary to conduct such activities through a taxable REIT subsidiary, or "TRS." The income from any such activities conducted through a domestic TRS would be subject to U.S. federal and state corporate income tax, as applicable.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAlthough we believe we have operated in the past and currently operate so as to maintain our qualification as a REIT, given the complex nature of the rules governing REITs, the ongoing importance of factual determinations, including the potential tax treatment of the investments we make, and the possibility of future changes in our circumstances, no assurance can be given that our actual results of operations for any particular taxable year will satisfy such requirements.
Biggest changeGiven the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations, and the possibility of changes in our circumstances, no assurance can be given that we qualified for any particular year. 42 If we failed to qualify as a REIT prior to our 2024 tax year and we do not qualify for certain statutory relief provisions, we would have to pay federal income tax on our taxable income for the year of the failure and for the following four years.
Ellington makes available to us all opportunities to acquire assets that it determines, in its reasonable and good faith judgment, based on our objectives, policies and strategies, and other relevant factors, are appropriate for us in accordance with Ellington's written investment allocation policy, it being understood that we might not participate in each such opportunity, but will on an overall basis equitably participate with Ellington's other accounts in all such opportunities.
Ellington makes available to us all opportunities to acquire assets that it determines, in its reasonable and good faith judgment, based on our objectives, policies and strategies, and other relevant factors, are appropriate for us in accordance with Ellington's written investment allocation policy, it being understood that we might not participate in each such opportunity, but will equitably participate with Ellington's other accounts in such opportunities on an overall basis.
Most CLOs in which we invest will be treated as non-U.S. financial entities for this purpose, and therefore will be required to comply with these reporting requirements to avoid the 30% withholding.
Most CLOs in which we invest will be treated as non-U.S. financial entities for this purpose and therefore will be required to comply with these reporting requirements to avoid the 30% withholding.
Some of the factors that could negatively affect the price of our common shares, or result in fluctuations in the price or trading volume of our common shares include: • actual or anticipated variations in our dividends or quarterly operating results; • changes in our earnings estimates, failure to meet earnings or operating results expectations of public market analysts and investors, or publication of research reports about us or the real estate specialty finance industry; • increases in market interest rates that lead purchasers of our common shares to demand a higher yield; • repurchases and issuances by us of our common shares; • passage of legislation, changes in applicable law, court rulings, enforcement actions or other regulatory developments that adversely affect us or our industry; • changes in government policies or changes in timing of implementation of government policies, including with respect to Fannie Mae, Freddie Mac, and Ginnie Mae; • changes in market valuations of similar companies; • adverse market reaction to any increased indebtedness we incur in the future; • additions or departures of key management personnel; • actions by shareholders; • speculation in the press or investment community; • adverse changes in global, national, regional and local economic and market conditions, including those relating to pandemics, such as the COVID-19 pandemic, high unemployment, elevated inflation, volatile interest rates, concerns regarding a recession, geopolitical conflicts, social unrest, or civil disturbances; • our inclusion in, or exclusion from, various stock indices; • our operating performance and the performance of other similar companies; and • changes in accounting principles.
Some of the factors that could negatively affect the price of our common shares, or result in fluctuations in the price or trading volume of our common shares include: • actual or anticipated variations in our dividends or quarterly operating results; • changes in our earnings estimates, failure to meet earnings or operating results expectations of public market analysts and investors, or publication of research reports about us or the real estate specialty finance industry; • increases in market interest rates that lead purchasers of our common shares to demand a higher yield; • repurchases and issuances by us of our common shares; • passage of legislation, changes in applicable law, court rulings, enforcement actions or other regulatory developments that adversely affect us or our industry; • changes in government policies or changes in timing of implementation of government policies, including with respect to Fannie Mae, Freddie Mac, and Ginnie Mae; • changes in market valuations of similar companies; • adverse market reaction to any increased indebtedness we incur in the future; • additions or departures of key management personnel; • actions by shareholders; • speculation in the press or investment community; • adverse changes in global, national, regional and local economic and market conditions, including those relating to pandemics, such as the COVID-19 pandemic, high unemployment, elevated inflation, tariffs, volatile interest rates, concerns regarding a recession, geopolitical conflicts, social unrest, or civil disturbances; • our inclusion in, or exclusion from, various stock indices; • our operating performance and the performance of other similar companies; and • changes in accounting principles.
It is difficult to determine what, if any, negative impact may directly result from any specific interruption or cyber-attacks or security breaches of Ellington's networks or systems (or the networks or systems of certain third parties that facilitate 27 our and Ellington's business activities) or any failure to maintain performance, reliability and security of Ellington's or certain third-party service providers' technical infrastructure, but such computer malware, ransomware, viruses, and computer hacking and phishing attacks could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our shareholders.
It is difficult to determine what, if any, negative impact may directly result from any specific interruption or cyber-attacks or security breaches of Ellington's networks or systems (or the networks or systems of certain third parties that facilitate our and Ellington's business activities) or any failure to maintain performance, reliability and security of Ellington's or certain third-party service providers' technical infrastructure, but such computer malware, ransomware, viruses, and computer hacking and phishing attacks could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our shareholders.
Furthermore, because predictive models are usually constructed based on historical data supplied by third parties, the success of relying on such models may depend heavily on the accuracy and reliability of the supplied historical data, and, in the case of predicting performance in scenarios with little or no historical precedent (such as extreme broad-based declines in home prices, deep economic recessions or depressions, or pandemics), such models must employ greater degrees of extrapolation and are therefore more speculative and of more limited reliability.
Furthermore, because predictive models are usually constructed based on historical data supplied by third parties, the success of relying on such models may depend heavily on the accuracy and reliability of the supplied historical data, and, in the case of predicting performance in scenarios with little or no historical precedent (such as extreme broad-based declines in home prices, deep economic recessions or depressions), such models must employ greater degrees of extrapolation and are therefore more speculative and of more limited reliability.
Because we do not have fixed guidelines for diversification, we do not have any limitations on the ability to invest in any one CLO, and our investments may be concentrated in relatively few CLOs, CLOs that have similar risk profiles (including by being concentrated in a limited number of industries), CLOs where there is an overlap of underlying corporate issuers or CLOs 35 that are managed by the same collateral manager.
Because we do not have fixed guidelines for diversification, we do not have any limitations on the ability to invest in any one CLO, and our investments may be concentrated in relatively few CLOs, CLOs that have similar risk profiles (including by being concentrated in a limited number of industries), CLOs where there is an overlap of underlying corporate issuers or CLOs that are managed by the same collateral manager.
The departure of any of the senior officers of our Manager, or of a significant number of investment professionals of Ellington or the inability of such personnel to perform their duties due to acts of God, pandemics such as the COVID-19 pandemic, war or other geopolitical conflict, terrorism, elevated inflation, high energy costs, social unrest, or civil disturbances, could have a material adverse effect on our ability to achieve our objectives.
The departure of any of the senior officers of our Manager, or of a significant number of investment professionals of Ellington or the inability of such personnel to 35 perform their duties due to acts of God, pandemics such as the COVID-19 pandemic, war or other geopolitical conflict, terrorism, elevated inflation, high energy costs, social unrest, or civil disturbances, could have a material adverse effect on our ability to achieve our objectives.
Accordingly, the subordinated and lower-rated (or unrated) securities in which we invest may experience significant price and performance volatility relative to more senior or higher-rated securities, and they are subject to greater risk of loss than more senior or higher-rated securities which, if realized, could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our shareholders.
Accordingly, the subordinated and lower-rated (or unrated) CLO securities in which we invest may experience significant price and performance volatility relative to more senior or higher-rated CLO securities, and they are subject to greater risk of loss than more senior or higher-rated CLO securities which, if realized, could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our shareholders.
In addition, if the lender is a broker or dealer subject to the Securities Investor Protection Act of 1970, or an insured depository institution subject to the Federal Deposit Insurance Act, our ability to exercise our rights to recover our securities under a repo agreement or to be compensated for any damages resulting from the lenders' insolvency may be further limited by those statutes.
In addition, if the lender is a broker or dealer subject to the Securities Investor Protection Act of 1970, or an insured depository institution subject to the Federal Deposit Insurance Act, our ability to exercise our rights to recover our securities under a repo agreement or to be compensated for any damages resulting from the lenders' insolvency 29 may be further limited by those statutes.
In addition, in years when we have a capital loss carryforward that offsets current year capital gains, our earnings and profits may be higher than our taxable income. As a result, shareholders at times may be required to pay U.S. federal income tax on distributions taxable as dividends that economically represent a return of capital rather than a dividend.
In addition, in years when we have a capital loss carryforward that offsets current year capital gains, our earnings and profits may 43 be higher than our taxable income. As a result, shareholders at times may be required to pay U.S. federal income tax on distributions taxable as dividends that economically represent a return of capital rather than a dividend.
These changes could materially adversely affect our business, financial condition and results of operations and our ability to pay dividends to our shareholders. Any such change may increase our exposure to the risks described herein or expose us to new risks that are not currently contemplated. We operate in a highly competitive market.
These (and similar) changes could materially adversely affect our business, financial condition and results of operations and our ability to pay dividends to our shareholders. Any such change may increase our exposure to the risks described herein or expose us to new risks that are not currently contemplated. We operate in a highly competitive market.
Such defaults and losses, especially those in excess of the market’s or our expectations, would have a negative impact on the fair value of our CLO investments, and reduce the cash flows that we receive from our CLO investments, which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our shareholders.
Such defaults and losses, especially those in excess of the market’s or our expectations, would have a negative impact on the value of our CLO investments, and reduce the cash flows that we receive from our CLO investments, which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our shareholders.
In addition, our Board of Trustees may, without shareholder approval, approve amendments to our declaration of trust to increase 43 the aggregate number of our authorized shares or the number of shares of any class or series that we have authority to issue and may classify or reclassify any unissued common shares or preferred shares and may set the preferences, rights and other terms of the classified or reclassified shares.
In addition, our Board of Trustees may, without shareholder approval, approve amendments to our declaration of trust to increase the aggregate number of our authorized shares or the number of shares of any class or series that we have authority to issue and may classify or reclassify any unissued common shares or preferred shares and may set the preferences, rights and other terms of the classified or reclassified shares.
If we were required to register as an investment company under the Investment Company Act, we would be subject to the restrictions imposed by the Investment Company Act, which would require us to make material changes to our strategy that could have a materially adverse effect on our business, financial condition, and results of operations.
If we were required to register as an investment company under the 1940 Act, we would be subject to the restrictions imposed by the 1940 Act, which would require us to make material changes to our strategy that could have a materially adverse effect on our business, financial condition, and results of operations.
While our Board of Trustees periodically reviews our guidelines and our portfolio and asset-management decisions, including our decision to begin making CLO investments, it generally does not review all of our proposed acquisitions, dispositions, and other management decisions. In addition, in conducting periodic reviews, our Board of Trustees relies primarily on information provided to them by our Manager.
While our Board of Trustees periodically reviews our guidelines and our portfolio and asset-management decisions, including our decision to begin making CLO investments, it generally does not review our proposed acquisitions, dispositions, and other management decisions. In addition, in conducting periodic reviews, our Board of Trustees relies primarily on information provided to them by our Manager.
Any action that affects the credit quality of the guarantees provided by Fannie Mae, Freddie Mac, and Ginnie Mae could materially adversely affect the value of our Agency 18 RMBS. In addition, any market uncertainty that arises from such proposed changes could have a similar impact on us and our Agency RMBS.
Any action that affects the credit quality of the guarantees provided by Fannie Mae, Freddie Mac, and Ginnie Mae could materially adversely affect the value of our Agency RMBS. In addition, any market uncertainty that arises from such proposed changes could have a similar impact on us and our Agency RMBS.
Additionally, dealers and pricing services may claim to furnish valuations only as an accommodation and without special compensation, and so they may disclaim any and all liability for any direct, 26 incidental, or consequential damages arising out of any inaccuracy or incompleteness in valuations, including any act of negligence or breach of any warranty.
Additionally, dealers and pricing services may claim to furnish valuations only as an accommodation and without special compensation, and so they may disclaim any and all liability for any direct, incidental, or consequential damages arising out of any inaccuracy or incompleteness in valuations, including any act of negligence or breach of any warranty.
The removal, replacement, resignation, or assignment of any particular CLO manager’s role could adversely affect the returns on the CLO securities in which we invest, which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our shareholders. Our CLO investments often have limited liquidity.
The removal, replacement, resignation, or assignment of any particular CLO collateral manager’s role could adversely affect the returns on the CLO securities in which we invest, which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our shareholders. Our CLO investments often have limited liquidity.
Furthermore, we may not obtain third party valuations for all of our assets. Changes in the fair value of our assets directly impact our net income through recording unrealized appreciation or depreciation of our investments and derivative instruments, and so our Manager's determination of fair value has a material impact on our net income.
Furthermore, we may not obtain third party valuations for all of our assets. Changes in the fair value of our assets directly impact our net income and book value through recording unrealized appreciation or depreciation of our investments and derivative instruments, and so our Manager's determination of fair value has a material impact on our net income.
As a result, an investment in our common shares may not be suitable for investors with lower risk tolerance. Risks Related to Our Organization and Structure Maintenance of our exclusion from registration as an investment company under the Investment Company Act imposes significant limitations on our operations.
As a result, an investment in our common shares may not be suitable for investors with lower risk tolerance. Risks Related to our Organization and Structure Maintenance of our exclusion from registration as an investment company under the 1940 Act imposes significant limitations on our operations.
Finally, mark-to-market gains and losses could cause volatility in the amount of our taxable income. For instance, the mark-to-market election could generate losses in one taxable year that we are unable to use to offset taxable income, followed by mark-to-market gains in a subsequent taxable year that force us to make additional distributions to our shareholders.
Finally, mark-to-market gains and losses could cause volatility in the amount of its taxable income. For instance, the mark-to-market election could generate losses in one taxable year that we are unable to use to offset taxable income, followed by mark-to-market gains in a subsequent taxable year that force us to make additional distributions to our shareholders.
If rising interest rates cause us to be unable to acquire a 32 sufficient volume of our targeted assets with a yield that is above our borrowing cost, our ability to satisfy our investment objectives and to generate income and pay dividends to our shareholders may be materially and adversely affected.
If rising interest rates cause us to be unable to acquire a sufficient volume of our targeted assets with a yield that is above our borrowing cost, our ability to satisfy our investment objectives and to generate income and pay dividends to our shareholders may be materially and adversely affected.
We have conducted and intend to continue to conduct our operations so that neither we nor any of our subsidiaries are required to register as an investment company under the Investment Company Act. Both we and our Operating Partnership are organized as holding companies and conduct our business primarily through wholly-owned subsidiaries of our Operating Partnership.
We have conducted and intend to continue to conduct our operations so that neither we nor any of our subsidiaries are required to register as an investment company under the 1940 Act. Both we and our Operating Partnership are organized as holding companies and conduct our business primarily through wholly-owned subsidiaries of our Operating Partnership.
Our business is materially affected by conditions in the residential mortgage market, the residential real estate market, the financial markets, and the economy, including inflation, interest rates, energy costs, unemployment, geopolitical issues, concerns over the creditworthiness of governments worldwide and the stability of the global banking system.
Our business is materially affected by conditions in the residential mortgage market, the residential real estate market, the financial markets, and the economy, including inflation, interest rates, energy costs, unemployment, geopolitical issues, tariffs, concerns over the creditworthiness of governments worldwide and the stability of the global banking system.
Prepayments also significantly affect the value of MSRs because an MSR entitles the holder to receive a monthly servicing fee equal to a percentage of the unpaid principal balance of the mortgage loans, as well as other cashflows, for so long as the underlying loans are outstanding.
Prepayments also significantly affect the value of MSRs because an MSR entitles the holder to receive a monthly servicing fee equal to a percentage of the unpaid principal balance of the mortgage loans, as well as other cashflows, for so long 25 as the underlying loans are outstanding.
In addition, the policies permit departure from proportional allocations under certain circumstances, for example when such allocation would result in an inefficiently small amount of the security or assets being purchased for an account, which may also result in our not participating in certain allocations.
In addition, the policies permit departure from proportional allocations under certain circumstances, including, for example when such allocation would result in an inefficiently small amount of the security or assets being purchased for an account, which may also result in our not participating in certain allocations.
If we fail or are perceived to fail to comply with applicable rules, regulations and stakeholder expectations, it could negatively impact our reputation and our business results. Further, our business could become subject to additional regulations, penalties and/or risks of regulatory scrutiny and enforcement in the future.
If we fail or are perceived to fail to comply with or meet applicable rules, regulations and stakeholder expectations, it could negatively impact our reputation and our business results. Further, our business could become subject to additional regulations, penalties and/or risks of regulatory scrutiny and enforcement in the future.
Future offerings of debt securities, which would rank senior to our common shares upon liquidation, and future offerings of equity securities which would dilute the common share 39 holdings of our existing shareholders and may be senior to our common shares for the purposes of dividend and liquidating distributions, may adversely affect the market price of our common shares.
Future offerings of debt securities, which would rank senior to our common shares upon liquidation, and future offerings of equity securities which would dilute the common share holdings of our existing shareholders and may be senior to our common shares for the purposes of dividend and liquidating distributions, may adversely affect the market price of our common shares.
Even if an asset increases in value, if the asset fails to earn a return that equals or exceeds our cost of borrowing, the leverage will diminish our returns. 29 Leverage also increases the risk of our being forced to precipitously liquidate our assets.
Even if an asset increases in value, if the asset fails to earn a return that equals or exceeds our cost of borrowing, the leverage will diminish our returns. Leverage also increases the risk of our being forced to precipitously liquidate our assets.
Furthermore, our Manager has only a limited internal credit function to evaluate the creditworthiness of its counterparties, mainly relying on its experience with such counterparties and their general reputation as participants in these markets.
Furthermore, our Manager has only a limited internal credit function to evaluate the creditworthiness of its counterparties, mainly relying on its experience with such counterparties and/or their general reputation as participants in these markets.
The programs may involve, among other things, the modification of mortgage loans to reduce the principal amount of the loans or the rate of interest payable on the loans, or to extend the payment terms of the loans. Loan modification and refinance programs may adversely affect the performance of Agency and non-Agency RMBS.
The programs may involve, among other things, the modification of mortgage loans to reduce the principal amount of the loans or the rate of interest payable on the loans, or to extend the payment terms of the loans. Loan modification and refinance programs may adversely affect the performance of Agency RMBS.
Our Board of Trustees will 41 continue to assess the dividend rate on our common shares on an ongoing basis, as market conditions and our financial position continue to evolve. Our Board of Trustees is under no obligation to declare any dividend distribution.
Our Board of Trustees will continue to assess the dividend rate on our common shares on an ongoing basis, as market conditions and our financial position continue to evolve. Our Board of Trustees is under no obligation to declare any dividend distribution.
Prepayments can also occur when borrowers sell their properties, or when borrowers default on their mortgages and the 19 mortgages are prepaid from the proceeds of a foreclosure sale of the underlying property and/or from the proceeds of a mortgage insurance policy or other guarantee.
Prepayments can also occur when borrowers sell their properties, or when borrowers default on their mortgages and the mortgages are prepaid from the proceeds of a foreclosure sale of the underlying property and/or from the proceeds of a mortgage insurance policy or other guarantee.
If the CLO collateral manager causes the CLO to purchase substitute assets at a lower yield than those initially acquired, the excess interest-related cash flow available for distribution to the CLO equity tranches would decline.
If the 20 CLO collateral manager causes the CLO to purchase substitute assets at a lower yield than those initially acquired, the excess interest-related cash flow available for distribution to the CLO equity tranches would decline.
Under other sections of the Code, the status of a 50 trader in securities depends on all of the facts and circumstances, including the nature of the income derived from the taxpayer's activities, the frequency, extent and regularity of the taxpayer's securities transactions, and the taxpayer's investment intent.
Under other sections of the Code, the status of a trader in securities depends on all of the facts and circumstances, including the nature of the income derived from the taxpayer's activities, the frequency, extent and regularity of the taxpayer's securities transactions, and the taxpayer's investment intent.
Legal Proceedings, over the years, Ellington and its affiliates have received, and we expect in the future that we and they may receive, inquiries and requests for documents and information from various federal, state, and foreign regulators.
Legal Proceedings, over 44 the years, Ellington and its affiliates have received, and we expect in the future that we and they may receive, inquiries and requests for documents and information from various federal, state, and foreign regulators.
Additionally, to the extent cash flows from RMBS we hold are reinvested in new RMBS, the spread between the yields of the new RMBS and available borrowing rates may also compress or become negative.
Additionally, to the extent cash flows from Agency RMBS we hold are reinvested in new Agency RMBS, the spread between the yields of the new Agency RMBS and available borrowing rates may also compress or become negative.
There can be significant mismatches between the timing and 34 frequency of coupon resets on the floating rate CLO debt tranches and the underlying floating rate corporate loans, and furthermore some of the underlying corporate loans may bear fixed coupon rates.
There can be significant mismatches between the timing and frequency of coupon resets on the floating rate CLO debt tranches and the underlying floating rate corporate loans, and furthermore some of the underlying corporate loans may bear fixed coupon rates.
If we were required to register as an investment company under the Investment Company Act, we would be subject to the restrictions imposed by the Investment Company Act, which would require us to make material changes to our strategy.
If we were required to register as an investment company under the 1940 Act, we would be subject to the restrictions imposed by the 1940 Act, which would require us to make material changes to our strategy.
Investments in subsidiaries that rely on the exclusions from the definition of investment company under 3(c)(1) or 3(c)(7) of the Investment Company Act are considered investment securities for the purposes of the 40% Test.
Investments in subsidiaries that rely on the exclusions from the definition of investment company under 3(c)(1) or 3(c)(7) of the 1940 Act are considered investment securities for the purposes of the 40% Test.
There is no assurance that we, Ellington, or certain of the third parties that facilitate our and Ellington's business activities, have not or will not experience a breach.
There is no assurance that we, Ellington, or certain of the third parties that facilitate our and Ellington's business activities, have not or will not experience 34 a breach.
However, any such future laws and regulations imposing reporting obligations, limitations on greenhouse gas emissions, or additional taxation of energy use could require the owners of properties to make significant expenditures to attain and maintain compliance. Any new legislative or regulatory initiatives related to climate change could adversely affect our business.
However, any such future laws and regulations imposing reporting obligations, limitations on greenhouse gas emissions, or additional taxation of energy use could require the owners of assets to make significant expenditures to attain and maintain compliance. Any new legislative or regulatory initiatives related to climate change could adversely affect our business.
We generally fund our targeted assets with borrowings whose interest rates reset frequently, and as a result we generally have an interest rate mismatch between our assets and liabilities, which could cause our net interest margin (the spread between the average yield on our assets and our average borrowing costs) to compress, or even become negative.
We generally fund our targeted assets with borrowings whose interest rates reset frequently, and as a result we have an interest rate mismatch between certain of our assets and liabilities, which could cause our net interest margin (the spread between the average yield on our assets and our average borrowing costs) to compress, or even become negative.
At times, covenant-lite loans have represented a significant majority of the market. To the extent that the corporate CLO securities in which we invest hold covenant-lite loans, we may have a greater risk of loss on such investments as compared to investments in CLOs holding loans with more robust covenants.
At times, covenant-lite loans have represented a significant majority of the syndicated corporate loan market. To the extent that the corporate CLO securities in which we invest hold covenant-lite loans, we may have a greater risk of loss on such investments as compared to investments in CLOs holding loans with more robust covenants.
Generally, we will seek to reserve the right to terminate our hedging transactions upon a counterparty's insolvency, but absent an actual insolvency, we may not be able to terminate a hedging transaction without the consent of the hedging counterparty, and we may not be able to assign or otherwise dispose of a hedging transaction to another counterparty without the consent of both the original hedging counterparty and the potential assignee.
Generally, we will seek to reserve the right to terminate our derivative transactions upon a counterparty's insolvency, but absent an actual insolvency, we may not be able to terminate a derivative transaction without the consent of the counterparty, and we may not be able to assign or otherwise dispose of a derivative transaction to another counterparty without the consent of both the original derivative counterparty and the potential assignee.
There can be no assurance that we will continue to qualify as a trader in securities eligible to make a mark-to-market election. We have not received, nor are we seeking, an opinion from counsel or a ruling from the IRS regarding our qualification as a trader.
There can be no assurance that we will continue to qualify as a trader in securities eligible to make a mark-to-market election. We have not received, nor are we seeking, an opinion from counsel or a ruling from the IRS regarding its qualification as a trader.
We may change our investment strategy, investment guidelines, hedging strategy, and asset allocation, operational, and management policies without notice or shareholder consent, which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our shareholders.
Other Business Risks We may change our investment strategy, investment guidelines, hedging strategy, and asset allocation, operational, and management policies without notice or shareholder consent, which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our shareholders.
In such cases, the risks are heightened that the collateral underlying the CLO may not be able to be readily liquidated, or that when liquidated, the resulting proceeds would be insufficient to redeem the CLO mezzanine debt and equity tranches that are the focus of our investment strategy.
In such cases, the risks are heightened that the collateral underlying the CLO may not be able to be readily 18 liquidated, or that when liquidated, the resulting proceeds would be insufficient to redeem in full the CLO mezzanine debt and equity tranches that are the focus of our investment strategy.
In addition, if a CLO in which we invest experiences an event of default as a result of failure to make a payment when due, erosion of the underlying collateral, or for other reasons, the CLO would be subject to the possibility of liquidation.
In addition, if a CLO in which we invest experiences an event of default as a result of the CLO's failure to make a payment when due, the erosion of the CLO's underlying collateral, or other reasons, the CLO would be subject to the possibility of liquidation.
Pursuant to the management agreement, our Manager will not assume any responsibility other than to render the services called for thereunder and will not be responsible for any action of our Board of Trustees in following or declining to follow its advice or recommendations.
Pursuant to the management agreement, our Manager will not assume any responsibility other than to render the services called for thereunder and will not be responsible for any action of our Board of Trustees in following or declining to follow our Manager's advice or recommendations.
Any of the foregoing could require us to adjust our strategy, which could limit our ability to make certain investments or require us to sell assets in a 42 manner, at a price or at a time that we otherwise would not have chosen.
Any of the foregoing could require us 40 to adjust our strategy, which could limit our ability to make certain investments or require us to sell assets in a manner, at a price or at a time that we otherwise would not have chosen.
Our profitability depends, in large part, on our ability to acquire targeted assets at favorable prices. We compete with a number of entities when acquiring our targeted assets, including other mortgage REITs, financial companies, public and private funds, commercial and investment banks and residential and commercial finance companies. We may also compete with (i) the Federal Reserve and the U.S.
Our profitability depends, in large part, on our ability to acquire targeted assets at favorable prices. We compete with a number of entities when acquiring our targeted assets, including financial companies, public and private funds, commercial and investment banks and residential and commercial finance companies. We may also compete with (i) the Federal Reserve and the U.S.
Section 3(c)(5)(C) of the Investment Company Act is designed for entities "primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate." This exclusion generally requires that at least 55% of the entity's assets on an unconsolidated basis consist of qualifying real estate assets and at least 80% of the entity's assets on an unconsolidated basis consist of qualifying real estate assets or real estate-related assets.
Section 3(c)(5)(C) of the 1940 Act is designed for entities "primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate." This exclusion generally requires that at least 55% of the entity's assets on an unconsolidated basis consist of qualifying real estate assets and at least 80% of the entity's assets on an unconsolidated basis consist of qualifying real estate assets or real estate-related assets.
There can be no assurance that the laws and regulations governing the Investment Company Act status of companies similar to ours, or the guidance from the SEC staff regarding the treatment of assets as qualifying real estate assets or real estate-related assets, will not change in a manner that adversely affects our operations.
There can be no assurance that the laws and regulations governing the 1940 Act status of companies similar to ours, or the guidance from the SEC staff regarding the treatment of assets as qualifying real estate assets or real estate-related assets, will not change in a manner that adversely affects our operations.
Because our Manager earns management fees that are based on the total amount of our equity capital, our Manager may have an incentive to recommend that we issue additional equity securities. See below for further discussion of the adverse impact future debt or equity offerings could have on our common shares.
Because our Manager earns management fees that are based in part on the total amount of our equity capital, our 37 Manager may have an incentive to recommend that we issue additional equity securities. See below for further discussion of the adverse impact future debt or equity offerings could have on our common shares.
Although we do not intend to operate our non-Agency RMBS investment strategy on a credit-hedged basis in general, we may from time to time opportunistically enter into short positions using credit default swaps to protect against adverse credit events with respect to our non-Agency RMBS, provided that our ability to do so may be limited in order to maintain our qualification as a REIT and maintain our exclusion from registration as an investment company under the Investment Company Act.
Although we do not intend to operate our non-Agency RMBS investment strategy on a credit-hedged basis in general, we may from time to time opportunistically enter into short positions using credit default swaps to protect against adverse credit events with respect to our non-Agency RMBS, provided that our ability to do so may be limited in order to maintain our exclusion from registration as an investment company under the 1940 Act.
Currently, it is not possible to predict how legislation or new regulations that may be adopted to address greenhouse gas emissions will impact the properties underlying our investments.
Currently, it is not possible to predict how legislation or new regulations that may be adopted to address greenhouse gas emissions will impact the assets underlying our investments.
In addition, some portion of our hedges are cleared through a central counterparty clearinghouse, or "CCP," which we access through a futures commission merchant, or "FCM." If an FCM that holds our cleared derivatives account were to become insolvent, the CCP will make an effort to move our futures and swap positions to an alternate FCM, though it is possible that no alternate FCM could be found to accept our positions, which could result in a total cancellation of our positions in the account; in such a case, if we wished to reinstate such hedging positions, we would have to re-initiate such positions with an alternate FCM.
In addition, some portion of our derivatives, including our future positions, are cleared through a central counterparty clearinghouse, or "CCP," which we access through a futures commission merchant, or "FCM." If an FCM that holds our cleared derivatives account were to become insolvent, the CCP will make an effort to move our futures and swap positions to an alternate FCM, though it is possible that no alternate FCM could be found to accept our positions, which could result in a total cancellation of our positions in the account; in such a case, if we wished to reinstate such derivative positions, we would have to re-initiate such positions with an alternate FCM.
To the extent that our CLO investments are less diversified, we are susceptible to a greater risk of loss if one or more of the CLOs in which we are invested performs poorly, or in the event a CLO collateral manager were to fail, experience the loss of key employees or sell its business.
To the extent that our CLO investments are more concentrated, we are susceptible to a greater risk of loss if one or more of the CLOs in which we are invested performs poorly, or in the event a CLO collateral manager were to fail, experience the loss of key employees or sell its business.
We are highly dependent on Ellington's information systems and those of third-party service providers, including mortgage servicers, and system failures could significantly disrupt our business, which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our shareholders.
We are highly dependent on Ellington's information systems and those of third-party service providers, and system failures could significantly disrupt our business, which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our shareholders.
Subject to maintaining our qualification as a REIT and exclusion from registration as an investment company under the Investment Company Act, we may pursue various hedging strategies to seek to reduce our exposure to adverse changes in interest rates and, to a lesser extent, credit risk.
Subject to maintaining our exclusion from registration as an investment company under the 1940 Act, we may pursue various hedging strategies to seek to reduce our exposure to adverse changes in interest rates and, to a lesser extent, credit risk.
While we collaborate with mortgage servicers and other third-party service providers to develop secure transmission capabilities and protect against operational failures and cyber-attacks, we and those third parties may not have all appropriate controls in place to protect from such failures or attacks.
While we collaborate with third-party service providers to develop secure transmission capabilities and protect against operational failures and cyber-attacks, we and those third parties may not have all appropriate controls in place to protect from such failures or attacks.
There can be no assurance that a liquid secondary market will exist for hedging instruments purchased or sold, and therefore we may be required to maintain any hedging position until exercise or expiration, which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our shareholders.
There can be no assurance that a liquid secondary market will exist for derivative instruments purchased or sold, and therefore we may be required to maintain any derivative positions until exercise or expiration, which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our shareholders.
Our use of the "Ellington" brand, trademark and logo overseas will therefore be unlicensed and could expose us to a claim of infringement. Risks Related to Our Common Shares Our shareholders may not receive dividends or dividends may not grow over time.
Our use of the "Ellington" brand, trademark and logo overseas is therefore unlicensed and could expose us to a claim of infringement. Risks Related to our Common Shares Our shareholders may not receive dividends or dividends may not grow over time.
The U.S. Foreign Account Tax Compliance Act provisions of the Code impose a withholding tax of 30% on certain U.S. source periodic payments, including interest and dividends, to certain non-U.S. entities, including certain non-U.S. financial institutions and investment funds, unless such non-U.S. entity complies with certain reporting requirements regarding its U.S. account holders and its U.S. owners.
Foreign Account Tax Compliance Act provisions of the Code (commonly referred to as “FATCA”) impose a withholding tax of 30% on certain U.S. source periodic payments, including interest and dividends, to certain non-U.S. entities, including certain non-U.S. financial institutions and investment funds, unless such non-U.S. entity complies with certain reporting requirements regarding its U.S. account holders and its U.S. owners.
Valuations of some of our assets are inherently uncertain, may be based on estimates, may fluctuate over short periods of time, and may differ from the values that would have been used if a ready market for these assets existed. The values of some of the assets in our portfolio are not readily determinable.
Valuations of many of our assets are inherently uncertain, may be based on estimates, may fluctuate over short periods of time, and may differ from the values that would have been used if a ready market for these assets existed. The values of many of the assets in our portfolio are not readily determinable with precision.
If we terminate a hedging transaction, we may not be able to enter into a replacement contract in order to cover our risk.
If we terminate a derivative transaction, we may not be able to enter into a replacement contract in order to cover our risk.
The corporate issuers of the loans or securities underlying our CLO investments may be subject to an increased risk 33 of default depending on certain micro- or macro-economic conditions, such as economic recessions, heightened interest rates and/or inflation, and other conditions.
The corporate issuers of the loans or securities underlying our CLO investments may be highly leveraged and may be subject to an increased risk of default depending on certain micro- or macro-economic conditions, such as economic recessions, heightened interest rates and/or inflation, tariffs, and other conditions.
In the event that we cannot obtain sufficient funding and capital on acceptable terms, 51 there may be a negative impact on the value of our common shares and our ability to pay dividends to our shareholders, and you may lose part or all of your investment.
In the event that we cannot obtain sufficient funding and capital on acceptable terms, there may be a negative impact on the value of our common shares and our ability to pay dividends to our shareholders, and shareholders may lose part or all of their investment.
As a result, we and our shareholders may have more limited rights against our present and former trustees and officers than might otherwise exist absent the current provisions in our declaration of trust and bylaws or that might exist with other companies, which could limit your recourse in the event of actions not in your best interest.
As a result, we and our shareholders may have more limited rights against our present and former trustees and officers than might otherwise exist absent the current provisions in our declaration of trust and bylaws or that might exist with other companies, which could limit shareholders' recourse in the event of actions not in their best interests.
We expect to focus our CLO investment activity in mezzanine debt and equity tranches, which have less liquidity than many other securities, including as a result of lower trading volumes, transfer restrictions, and their bespoke nature.
We expect to focus our CLO investment activity in mezzanine debt and equity tranches, which have less liquidity than many other securities, including as a result of lower or no trading volume, transfer restrictions, and their bespoke nature.
Under the terms of many of our hedging transaction contracts, the business failure of a hedging counterparty with whom we enter into a hedging transaction will most likely result in a default under the agreement governing the hedging arrangement.
Under the terms of many of our derivative transaction contracts, the business failure of a derivative counterparty with whom we enter into a derivative transaction will most likely result in a default under the governing arrangement.
We also may have different operating constraints from those of our competitors including, among others, (i) tax-driven constraints such as those arising from our qualification as a REIT, (ii) restraints imposed on us by our attempt to comply with certain exclusions from the definition of an "investment company" or other exemptions under the Investment Company Act and (iii) restraints and additional costs arising from our status as a public company.
We also may have different operating constraints from those of our competitors including, among others, (i) tax-, legal- or accounting-driven constraints, (ii) restraints imposed on us by our attempt to comply with certain exclusions from the definition of an "investment company" or other exemptions under the 1940 Act and (iii) restraints and additional costs arising from our status as a public company.
Our Board of Trustees has approved very broad investment guidelines for our Manager and will not approve each decision made by our Manager to acquire, dispose of, or otherwise manage an asset. Our Manager is authorized to follow very broad guidelines in pursuing our strategy.
Our Board of Trustees has approved very broad investment guidelines for our Manager and will not approve the decisions made by our Manager to acquire, dispose of, or otherwise manage an asset. Our Manager is authorized to follow very broad guidelines in pursuing our strategy.
The physical impact of climate change could also have a material adverse effect on the properties underlying our investments.
The physical impact of climate change could also have a material adverse effect on our investments.
We use leverage in executing our business strategy, which may adversely affect the return on our assets and may reduce cash available for distribution to our shareholders, as well as increase losses when economic conditions are unfavorable. We use leverage to finance our investment activities and to enhance our financial returns.
Risks Related to our Financing, Hedging, and Derivative Activities We use leverage in executing our business strategy, which may adversely affect the return on our assets and may reduce cash available for distribution to our shareholders, as well as increase losses when economic conditions are unfavorable. We use leverage to finance our investment activities and to enhance our financial returns.
CLOs are often governed by a complex series of legal documents and contracts. As a result, the risk of dispute over the interpretation or enforceability of the documentation may be higher relative to other types of investments.
CLO investments involve complex documentation, and complex accounting considerations. CLOs are often governed by a complex series of legal documents and contracts. As a result, the risk of dispute over the interpretation or enforceability of the documentation may be higher relative to other types of investments.
See "—Risks Related To Our Business—Certain actions by the Federal Reserve could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our shareholders."
Certain actions by the Federal Reserve could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our shareholders.
Some of the risks of relying on analytical models and third-party data include the following: • collateral cash flows and/or liability structures may be incorrectly modeled in all or only certain scenarios, or may be modeled based on simplifying assumptions that lead to errors; • information about assets or the underlying collateral may be incorrect, incomplete, or misleading; • asset, collateral, MBS, or CLO historical performance (such as historical prepayments, defaults, cash flows, etc.) may be incorrectly reported, or subject to interpretation (e.g., different MBS issuers may report delinquency statistics based on different definitions of what constitutes a delinquent loan); and • asset, collateral, MBS, or CLO information may be outdated, in which case the models may contain incorrect assumptions as to what has occurred since the date information was last updated.
Similarly, any hedging activities that are based on faulty models and data may prove to be unsuccessful. 27 Some of the risks of relying on analytical models and third-party data include the following: • collateral cash flows and/or liability structures may be incorrectly modeled in all or only certain scenarios, or may be modeled based on simplifying assumptions that lead to errors; • information about assets or the underlying collateral may be incorrect, incomplete, or misleading; • asset, collateral, MBS, or CLO historical performance (such as historical prepayments, defaults, cash flows, etc.) may be incorrectly reported, or subject to interpretation (e.g., different MBS issuers may report delinquency and default statistics based on different definitions of what constitutes a delinquent or defaulted loan); and • asset, collateral, MBS, or CLO information may be outdated, in which case the models may contain incorrect assumptions as to what has occurred since the date information was last updated.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeTo date, no risks from cybersecurity threats to Ellington have materially affected or are reasonably likely to materially affect the Company. While Ellington did experience two business email compromise incidents in recent years, neither had a material impact on our business strategy, results of operations or financial condition.
Biggest changeRisk Factors—We are highly dependent on Ellington's information systems and those of third-party service providers, including mortgage servicers, and system failures could significantly disrupt our business, which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our shareholders." and "—Because we are highly dependent on information systems when sharing information with third party service providers, systems failures, breaches or cyber-attacks could significantly disrupt our business, which could have a material adverse effect on our results of operations and cash flows." While Ellington did experience two business email compromise incidents in recent years, neither had a material impact on our business strategy, results of operations or financial condition.
In such continued monitoring of its cybersecurity posture, Ellington conducts continuous depreciation of obsolete or unsuitable technology, including legacy hardware and software, has a robust patch and vulnerability management process, and has personnel dedicated to the continued monitoring of new developments in threat actors’ activities in order to take preventative actions.
In such continued monitoring of its cybersecurity posture, Ellington conducts continuous deprecation of obsolete or unsuitable technology, including legacy hardware and software, has a robust patch and vulnerability management process, and has personnel dedicated to the continued monitoring of new developments in threat actors’ activities in order to take preventative actions.
During his tenure at Ellington, the DPI Head has lead several critical efforts such as the revitalization of Ellington’s hardware, networking and disaster recovery facilities, major improvements to Ellington’s cybersecurity infrastructure, and the development and maintenance of Ellington’s Data Engineering infrastructure.
During his tenure at Ellington, the DPI Head has led several critical efforts such as the revitalization of Ellington’s hardware, networking and disaster recovery facilities, major improvements to Ellington’s cybersecurity infrastructure, and the development and maintenance of Ellington’s Data Engineering infrastructure.
Ellington's Risk Management and Strategy Ellington's cybersecurity program is focused on the following key areas: • Governance : As discussed in more detail below under "Governance," our Board of Trustees' oversight of cybersecurity risk management is supported by the Audit Committee of our Board of Trustees (the “Audit Committee”), which regularly interacts with our management team and other professionals who are responsible for assessing and managing material risks from cybersecurity threats at Ellington. • Collaborative Approach : Ellington has implemented a cross-functional approach to identifying and evaluating, preventing, mitigating and remediating cybersecurity threats and incidents, while also implementing controls and 54 procedures that provide for the prompt escalation of certain cybersecurity incidents.
In general, Ellington seeks to address cybersecurity risks through a cross-functional approach that is focused on preserving the confidentiality, security and availability of the information that Ellington collects and stores by identifying, preventing and mitigating cybersecurity threats and responding to cybersecurity incidents when they occur. 48 Ellington's Risk Management and Strategy Ellington's cybersecurity program is focused on the following key areas: • Governance : As discussed in more detail below under "Governance," our Board of Trustees' oversight of cybersecurity risk management is supported by the Audit Committee of our Board of Trustees (the “Audit Committee”), which regularly interacts with our management team and other professionals who are responsible for assessing and managing material risks from cybersecurity threats at Ellington. • Collaborative Approach : Ellington has implemented a cross-functional approach to identifying and evaluating, preventing, mitigating and remediating cybersecurity threats and incidents, while also implementing controls and procedures that provide for the prompt escalation of certain cybersecurity incidents.
Ellington employs internal or external resources whose responsibilities include oversight of their respective firm’s cybersecurity posture. 55 Ellington's cybersecurity team is lead by Ellington's outsourced Chief Technology Officer (the "CTO"), who is primarily responsible for assessing and managing material risks from cybersecurity threats to Ellington.
Ellington employs internal or external resources whose responsibilities include oversight of their respective firm’s cybersecurity posture. Ellington's cybersecurity team is led by Ellington's Chief Technology Officer (the "CTO"), who is primarily responsible for assessing and managing material risks from cybersecurity threats to Ellington. The CTO has extensive experience in application development, database architecture, systems design, and third-party software integration.
The CTO has extensive experience in application development, database architecture, systems design, and third-party software integration. During his tenure at Ellington, the CTO has lead large technical efforts such as the development of Ellington’s proprietary whole loan management system and the overhaul of Ellington’s engineering infrastructure and development services.
During his tenure at Ellington, the CTO has led large technical efforts such as the development of Ellington’s proprietary internally hosted rapid application system and the overhaul of Ellington's engineering infrastructure and development services. The CTO works closely with Ellington’s head of Data Platform and Infrastructure (the "DPI Head") to manage Ellington’s infrastructure and cybersecurity posture.
Removed
In general, Ellington seeks to address cybersecurity risks through a cross-functional approach that is focused on preserving the confidentiality, security and availability of the information that Ellington collects and stores by identifying, preventing and mitigating cybersecurity threats and responding to cybersecurity incidents when they occur.
Added
To date, no risks from cybersecurity threats to Ellington have materially affected or are reasonably likely to materially affect the Company. Cyber criminals do, however, target us, Ellington and Ellington’s employees and other third parties. 49 Ongoing or future attacks such as these could have impacts on our or Ellington’s operations.
Removed
The CTO works closely with Ellington’s head of Data Platform and Infrastructure (the "DPI Head") to manage Ellington’s infrastructure and cybersecurity posture.
Added
For additional information on these ongoing risks, please refer to "Part 1. Item 1A.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeFor a discussion of these and other related risks, see "Risk Factors—General Risk Factors—We, Ellington, or its affiliates may be subject to regulatory inquiries and proceedings, or other legal proceedings" included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023 (the "Form 10-K").
Biggest changeFor a discussion of these and other related risks, see "Risk Factors—General Risk Factors—We, Ellington, or its affiliates may be subject to regulatory inquiries and proceedings, or other legal proceedings" included in Part I, Item 1A of this Annual Report on Form 10-K.
We and Ellington cannot provide any assurance that, whether the result of regulatory inquiries or otherwise, neither we nor Ellington nor its affiliates will become subject to investigations, enforcement actions, fines, penalties or the assertion of private litigation claims or that, if any such events were to occur, they would not materially adversely affect us.
We and Ellington cannot provide any assurance that, whether the result of regulatory inquiries or otherwise, neither we nor Ellington nor its affiliates will become subject to investigations, enforcement actions, fines, penalties or the assertion of 50 private litigation claims or that, if any such events were to occur, they would not materially adversely affect us.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe restricted common shares are subject to forfeiture restrictions that will lapse with respect to 7,237 of the common shares on December 14, 2024 and 7,236 of the common shares on December 14, 2025. Such grants were exempt from the registration requirements of the Securities Act based on the exemption provided in Section 4(a)(2) of the Securities Act.
Biggest changeThe restricted common shares are subject to forfeiture restrictions that will lapse with respect to 17,350 of the common shares on December 12, 2025 and 14,991 of the common shares on December 12, 2026. Such grants were exempt from the registration requirements of the Securities Act based on the exemption provided in Section 4(a)(2) of the Securities Act.
Holders of Our Common Shares Based upon a review of a securities position listing as of the close of business on March 8, 2024, we had an aggregate of 107 holders of record and holders of our common shares who are nominees for an undetermined number of beneficial owners.
Holders of Our Common Shares Based upon a review of a securities position listing as of the close of business on March 21, 2025, we had an aggregate of 114 holders of record and holders of our common shares who are nominees for an undetermined number of beneficial owners.
As of December 31, 2023, we had remaining authorization to repurchase up to 725,808 common shares under the share repurchase program. We did not repurchase any common shares under the share repurchase program during the three months ended December 31, 2023.
As of December 31, 2024, we had remaining authorization to repurchase up to 725,808 common shares under the share repurchase program. We did not repurchase any common shares under the share repurchase program during the three month period ended December 31, 2024.
Unregistered Sales of Equity Securities Pursuant to our 2023 Equity Incentive Plan, on December 14, 2023, we granted 14,473 restricted common shares to certain of our partially dedicated employees.
Unregistered Sales of Equity Securities Pursuant to our 2023 Equity Incentive Plan, on December 20, 2024, we granted 32,341 restricted common shares to certain of our partially dedicated employees.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeFinancial Condition Investment portfolio The following tables summarize our securities portfolio as of December 31, 2023 and 2022: December 31, 2023 December 31, 2022 ($ In thousands) Current Principal Fair Value Average Price (1) Cost Average Cost (1) Current Principal Fair Value Average Price (1) Cost Average Cost (1) Agency Portfolio: Agency RMBS (2) 15-year fixed-rate mortgages $ 28,647 $ 27,847 97.21 $ 28,765 100.41 $ 47,453 $ 45,324 95.51 $ 48,899 103.05 20-year fixed-rate mortgages 8,524 7,863 92.25 9,033 105.97 10,812 9,691 89.63 11,508 106.44 30-year fixed-rate mortgages 697,510 670,294 96.10 682,379 97.83 841,823 781,754 92.86 849,168 100.87 ARMs 7,127 7,119 99.89 8,060 113.09 8,696 8,663 99.62 9,595 110.34 Reverse mortgages 14,406 14,874 103.25 16,589 115.15 17,506 17,852 101.98 19,659 112.30 Total Agency RMBS 756,214 727,997 96.27 744,826 98.49 926,290 863,284 93.20 938,829 101.35 Agency IOs n/a 7,415 n/a 6,607 n/a n/a 9,313 n/a 9,212 n/a Total Agency 735,412 751,433 872,597 948,041 Credit Portfolio: CLO Notes 16,876 14,491 85.87 14,441 85.57 — — — — — CLO Equity n/a 2,926 n/a 2,947 n/a — — — — — Non-Agency RMBS (2) 9,953 9,409 94.53 8,189 82.28 16,895 12,566 74.38 12,414 73.48 Non-Agency IOs n/a 11,310 n/a 8,700 n/a n/a 8,138 n/a 6,289 n/a Preferred equity securities — — — — — n/a 208 n/a 202 n/a Total Credit 38,136 34,277 20,912 18,905 U.S.
Biggest changeRecent Accounting Pronouncements Refer to the notes to our consolidated financial statements for a description of relevant recent accounting pronouncements. 60 Financial Condition Investment portfolio The following tables summarize our securities portfolio as of December 31, 2024 and 2023: December 31, 2024 December 31, 2023 ($ In thousands) Current Principal Fair Value Average Price (1) Cost Average Cost (1) Current Principal Fair Value Average Price (1) Cost Average Cost (1) Credit Portfolio: Dollar Denominated: CLOs CLO Notes $ 65,954 $ 55,157 $ 83.63 $ 55,363 $ 83.94 $ 16,876 $ 14,491 $ 85.87 $ 14,441 $ 85.57 CLO Equity n/a 91,832 n/a 97,267 n/a n/a 2,926 n/a 2,947 n/a Total Dollar Denominated CLOs 146,989 152,630 17,417 17,388 Corporate Debt 1,787 428 23.95 398 22.27 — — — — — Corporate Equity n/a 56 n/a 75 n/a n/a — n/a — n/a Non-Agency RMBS (2) — — — — — 9,953 9,409 94.53 8,189 82.28 Non-Agency IOs n/a — n/a — n/a n/a 11,310 n/a 8,700 n/a Total Dollar Denominated Credit 147,473 153,103 38,136 34,277 Non-Dollar Denominated: CLOs CLO Notes 17,368 16,835 96.93 17,219 99.14 — — — — — CLO Equity n/a 7,298 n/a 7,995 n/a n/a — n/a — n/a Total non-Dollar Denominated CLOs 24,133 25,214 — — Total Credit 171,606 178,317 38,136 34,277 Agency Portfolio: Dollar Denominated: Agency RMBS (2) 15-year fixed-rate mortgages — — — — — 28,647 27,847 97.21 28,765 100.41 20-year fixed-rate mortgages — — — — — 8,524 7,863 92.25 9,033 105.97 30-year fixed-rate mortgages 536,948 512,307 95.41 519,628 96.77 697,510 670,294 96.10 682,379 97.83 ARMs — — — — — 7,127 7,119 99.89 8,060 113.09 Reverse mortgages — — — — — 14,406 14,874 103.25 16,589 115.15 Total Agency RMBS 536,948 512,307 95.41 519,628 96.77 756,214 727,997 96.27 744,826 98.49 Agency IOs n/a 2 n/a 2 n/a n/a 7,415 n/a 6,607 n/a Total Agency 512,309 519,630 735,412 751,433 Dollar Denominated: U.S.
We ended the year with a net long TBA position on a notional basis, but a net short TBA position as measured by 10-year equivalents. 10-year equivalents for a group of positions represent the amount of 10-year U.S. Treasury securities that would be expected to experience a similar change in market value under a standard parallel move in interest rates.
We ended the year with a net short TBA position on a notional basis, but a net long TBA position as measured by 10-year equivalents. 10-year equivalents for a group of positions represent the amount of 10-year U.S. Treasury securities that would be expected to experience a similar change in market value under a standard parallel move in interest rates.
Treasury securities, and express the total as a percentage of our average outstanding repurchase agreement borrowings on yield-bearing assets (excluding U.S. Treasury securities).
Treasury securities, and express the total as a percentage of our average outstanding repurchase agreement borrowings on yield-bearing assets (excluding U.S.
We may take positions with respect to certain tax issues which depend on legal interpretation of facts or applicable tax regulations. Should the relevant tax regulators successfully challenge any such positions, we might be found to have a tax 64 liability that has not been recorded in the accompanying consolidated financial statements.
We may take positions with respect to certain tax issues which depend on legal interpretation of facts or applicable tax regulations. Should the relevant tax regulators successfully challenge any such positions, we might be found to have a tax liability that has not been recorded in the accompanying consolidated financial statements.
If a particular counterparty's collateral 72 held by us is greater than the aggregate fair value of the financial derivatives plus our collateral held directly by the counterparty, there is no amount at risk for the particular counterparty. We purchase and sell TBAs and Agency pass-through certificates on a when-issued or delayed delivery basis.
If a particular counterparty's collateral held by us is greater than the aggregate fair value of the financial derivatives plus our collateral held directly by the counterparty, there is no amount at risk for the particular counterparty. We purchase and sell TBAs and Agency pass-through certificates on a when-issued or delayed delivery basis.
Realized and unrealized gains and losses are calculated based on identified cost. For financial instruments that are traded in an "active market," the best measure of fair value is the quoted market price. However, many of our financial instruments are not traded in an active market. Therefore, management generally uses third-party valuations when available.
Realized and unrealized gains and losses are calculated based on identified cost. For financial instruments that are traded in an "active market," the best measure of fair value is the quoted market price. However, many of our financial instruments are not traded in an active market. Therefore, management generally uses third- 59 party valuations when available.
However, elevated long-term inflation could adversely impact the performance of our investment portfolio, or the prices of our investments, or both. For example, if higher inflation is not matched by an increase in wages, inflation could cause the real income of the borrowers whose loans underlie our non-Agency RMBS to decline. 75
However, elevated long-term inflation could adversely impact the performance of our investment portfolio, or the prices of our investments, or both. For example, if higher inflation is not matched by an increase in wages, inflation could cause the real income of the borrowers whose loans underlie our non-Agency RMBS to decline.
We enter into repurchase agreements with third-party broker-dealers whereby we sell securities to such broker-dealers at agreed-upon purchase prices at the initiation of the repurchase agreements and agree to repurchase such securities at predetermined repurchase prices and termination dates, thus providing the broker-dealers with an implied interest rate on the funds initially transferred to us by the broker-dealers.
We enter into repurchase agreements with third-party broker-dealers whereby we sell securities to such broker-dealers at 71 agreed-upon purchase prices at the initiation of the repurchase agreements and agree to repurchase such securities at predetermined repurchase prices and termination dates, thus providing the broker-dealers with an implied interest rate on the funds initially transferred to us by the broker-dealers.
As 63 such, the mortgage-backed securities are recorded at fair value on our Consolidated Balance Sheet and the period change in fair value is recorded in current period earnings on our Consolidated Statement of Operations as a component of Change in net unrealized gains (losses) on securities. Purchase and sales transactions are generally recorded on trade date.
As such, the mortgage-backed securities are recorded at fair value on our Consolidated Balance Sheet and the period change in fair value is recorded in current period earnings on our Consolidated Statement of Operations as a component of Change in net unrealized gains (losses) on securities. Purchase and sales transactions are generally recorded on trade date.
Amounts at risk in connection with our forward settling TBA and Agency pass-through certificates represent the excess, if any, for each counterparty of the net fair value of the forward settling contracts plus our collateral held directly by the counterparty less the counterparty's collateral held by us.
Amounts at risk in connection with our forward settling TBA and Agency pass-through certificates represent the excess, if any, 69 for each counterparty of the net fair value of the forward settling contracts plus our collateral held directly by the counterparty less the counterparty's collateral held by us.
Our capital resources primarily include cash on hand, cash flow from our investments (including monthly principal and interest payments received on our securities and proceeds from the sale of securities), borrowings under repurchase agreements, and proceeds from equity offerings. We expect that these sources of funds will be sufficient to meet our short-term and long-term liquidity needs.
Our capital resources primarily include cash on hand, cash flow from our investments (including periodic principal and interest payments received on our securities and proceeds from the sale of securities), borrowings under repurchase agreements, and proceeds from equity offerings. We expect that these sources of funds will be sufficient to meet our short-term and long-term liquidity needs.
Inflation Virtually all of our assets and liabilities are interest rate-sensitive in nature. As a result, interest rates and other factors generally influence our performance more than does inflation. Our activities and balance sheet are measured with reference to historical cost and/or fair market value without considering inflation.
Inflation Virtually all of our assets and liabilities are interest rate-sensitive in nature to varying degrees. As a result, interest rates and other factors generally influence our performance more than does inflation. Our activities and balance sheet are measured with reference to historical cost and/or fair market value without considering inflation.
Off-Balance Sheet Arrangements As of December 31, 2023, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Off-Balance Sheet Arrangements As of December 31, 2024, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
At those times when cash flows from our operating activities are insufficient to fund our dividend payments, we fund such dividend payments through cash flows from our investing and/or financing activities, and in some cases from additional cash on hand. The following paragraphs summarize our cash flows for the years ended December 31, 2023 and 2022.
At those times when cash flows from our operating activities are insufficient to fund our dividend payments, we fund such dividend payments through cash flows from our investing and/or financing activities, and in some cases from additional cash on hand. The following paragraphs summarize our cash flows for the years ended December 31, 2024 and 2023.
We believe that the presentation of Adjusted Distributable Earnings provides information useful to investors, because: (i) we believe that it is a useful indicator of both current and projected long-term financial performance, in that it excludes the impact of certain current period earnings components that we believe are less useful in forecasting long-term performance and dividend-paying ability; (ii) we use it to evaluate the effective net yield provided by our portfolio, after the effects of financial leverage; and (iii) we believe that presenting Adjusted Distributable Earnings assists our investors in measuring and evaluating our operating performance, and 70 comparing our operating performance to that of our residential mortgage REIT peers.
We believe that the presentation of Adjusted Distributable Earnings provides information useful to investors, because: (i) we believe that it is a useful indicator of both current and projected long-term financial performance, in that it excludes the impact of certain current period earnings components that we believe are less useful in forecasting long-term performance and dividend-paying ability; (ii) we use it to evaluate the effective net yield provided by our portfolio, after the effects of financial leverage; and (iii), we believe that presenting Adjusted Distributable Earnings assists investors in measuring and evaluating our operating performance, and comparing our operating performance to that of our peers.
Our primary objective is to generate attractive current yields and risk-adjusted total returns for our shareholders by making investments that we believe compensate us appropriately for the risks associated with them.
Our primary objective is to generate attractive current yields and risk-adjusted total returns for our shareholders by making investments that we believe compensate us appropriately for the associated risks.
Amounts at risk under our repurchase agreements as of December 31, 2023 and 2022 does not include $0.5 million and $1.5 million, respectively, of net accrued interest receivable, which is defined as accrued interest on securities held as collateral less interest payable on cash borrowed.
Amounts at risk under our repurchase agreements as of December 31, 2024 and 2023 does not include $3.1 million and $0.5 million, respectively, of net accrued interest receivable, which is defined as accrued interest on securities held as collateral less interest payable on cash borrowed.
As of December 31, 2023 and 2022, the weighted average contractual haircut applicable to the assets that serve as collateral for our outstanding repo borrowings was 5.7% and 5.5%, respectively. The following table details total outstanding borrowings, average outstanding borrowings, and the maximum outstanding borrowings at any month end for each quarter under repurchase agreements for the past twelve quarters.
As of December 31, 2024 and 2023, the weighted average contractual haircut applicable to the assets that serve as collateral for our outstanding repo borrowings was 9.5% and 5.7%, respectively. 68 The following table details total outstanding borrowings, average outstanding borrowings, and the maximum outstanding borrowings at any month end for each quarter under repurchase agreements for the past twelve quarters.
Consequently, the weighted average term of our repurchase agreement financings will almost always be substantially shorter than the expected average maturity of our RMBS.
Consequently, the weighted average term of our repurchase agreement financings will almost always be substantially shorter than the expected average maturity of our RMBS and CLOs.
Treasury securities, and reverse repurchase agreements. 68 Interest Expense For the years ended December 31, 2023 and 2022, the majority of interest expense that we incurred was related to our repo borrowings, which we use to finance our assets. We also incur interest expense in connection with our short positions in U.S.
Treasury securities, and reverse repurchase agreements. 64 Interest Expense For the years ended December 31, 2024 and 2023, the majority of interest expense that we incurred was related to our repo borrowings, which we use to finance our assets. We also incur interest expense in connection with our short positions in U.S.
In addition, because Adjusted Distributable Earnings is an incomplete measure of our financial results and differs from net income (loss) computed in accordance with U.S. GAAP, it should be considered supplementary to, and not as a substitute for, net income (loss) computed in accordance with U.S. GAAP. Furthermore, Adjusted Distributable Earnings is different from REIT taxable income.
In addition, because Adjusted Distributable Earnings is an incomplete measure of our financial results and differs from net income (loss) computed in accordance with U.S. GAAP, it should be considered supplementary to, and not as a substitute for, net income (loss) computed in accordance with U.S. GAAP.
Treasury securities as well as on our counterparties' cash collateral held by us. Our total interest expense for the years ended December 31, 2023 and 2022 was $45.3 million and $14.8 million, respectively, which primarily consisted of interest expense on our repo borrowings.
Treasury securities as well as on our counterparties' cash collateral held by us. Our total interest expense for the years ended December 31, 2024 and 2023 was $34.8 million and $45.3 million, respectively, which primarily consisted of interest expense on our repo borrowings.
For the years ended December 31, 2023 and 2022, we recognized a Catch-up Amortization Adjustment of $(0.1) million and $3.1 million, respectively. The Catch-up Amortization Adjustment is reflected as an increase (decrease) to interest income on the Consolidated Statement of Operations.
For the years ended December 31, 2024 and 2023, we recognized a Catch-up Amortization Adjustment of $(0.5) million and $(0.1) million, respectively. The Catch-up Amortization Adjustment is reflected as an increase (decrease) to interest income on the Consolidated Statement of Operations.
This expected increase in value would then serve to offset corollary expected increases in our current and/or future borrowing costs under our repurchase agreements, and so in this manner our short TBA positions serve as a hedge against potential increases in interest rates.
These profits would then serve to offset corollary expected increases in our current and/or future borrowing costs under our repurchase agreements, and so in this manner our short TBA positions serve as a hedge against potential increases in interest rates.
As of December 31, 2023 and 2022, our total debt-to-equity ratio was 5.4:1 and 7.5:1, respectively. Collateral transferred with respect to our outstanding repo borrowings, including net cash collateral posted or (received), had an aggregate fair value of $0.8 billion and $0.9 billion, as of December 31, 2023 and December 31, 2022, respectively.
As of December 31, 2024 and 2023, our total debt-to-equity ratio was 2.9:1 and 5.4:1, respectively. Collateral transferred with respect to our outstanding repo borrowings, including net cash collateral posted or (received), had an aggregate fair value of $0.6 billion and $0.8 billion, as of December 31, 2024 and 2023, respectively.
If a particular counterparty's collateral held by us is greater than the aggregate fair value of the forward settling contracts plus our collateral held directly by the counterparty, there is no amount at risk for the particular counterparty. As of December 31, 2023, we had cash and cash equivalents of $38.5 million.
If a particular counterparty's collateral held by us is greater than the aggregate fair value of the forward settling contracts plus our collateral held directly by the counterparty, there is no amount at risk for the particular counterparty. As of December 31, 2024, we had cash and cash equivalents of $31.8 million.
Most of our outstanding repo financing is still provided by banks and bank affiliates; however, we have also entered into repo agreements with non-bank dealers. Our debt-to-equity ratio was 5.4:1 as of December 31, 2023, as compared to 7.5:1 as of December 31, 2022.
Most of our outstanding repo financing is still provided by banks and bank affiliates; however, we have also entered into repo agreements with non-bank dealers. Our debt-to-equity ratio was 2.9:1 as of December 31, 2024, as compared to 5.4:1 as of December 31, 2023.
Our repo activity used to finance our purchase of securities (including repayments, in conjunction with the sales of securities, of amounts borrowed under our repurchase agreements as well as collateral posted in connection with our repo activity) used net cash of $155.0 million.
Our repo activity used to finance our purchase of securities (including repayments, in conjunction with the sales of securities, of amounts borrowed under our repurchase agreements as well as collateral posted in connection with our repo activity) used net cash of $183.9 million.
As of December 31, 2023 and December 31, 2022, the weighted average borrowing rate on our repurchase agreements was 5.58% and 3.70%, respectively. While large banks still dominate the repo market, non-bank firms, not subject to the same regulations as banks, are active in providing repo financing.
As of December 31, 2024 and 2023, the weighted average borrowing rate on our repurchase agreements was 4.81% and 5.58%, respectively. While large banks still dominate the repo market, non-bank firms, not subject to the same regulations as banks, are active in providing repo financing.
Treasury securities and from positions in long U.S. Treasury securities. 69 For the year ended December 31, 2023, the weighted average yield on our Agency RMBS and credit portfolios excluding the impact of the Catch-up Amortization Adjustment was 4.09%, while our total adjusted average cost of funds, including interest rate swaps and net short U.S.
Treasury securities and from positions in long U.S. Treasury securities. For the year ended December 31, 2024, the weighted average yield on our Agency RMBS and credit portfolios excluding the impact of the Catch-up Amortization Adjustment was 6.57%, while our total adjusted average cost of funds, including interest rate swaps and net short U.S.
Our debt-to-equity ratio may fluctuate period over period based on portfolio management decisions, market conditions, capital markets activities, and the timing of security purchase and sale transactions. As of December 31, 2023, 93% of our borrowings were secured by Agency RMBS.
Our debt-to-equity ratio may fluctuate period over period based on portfolio management decisions, market conditions, capital markets activities, and the timing of security purchase and sale transactions. As of December 31, 2024, 89% of our borrowings were secured by Agency RMBS and 11% were secured by CLOs.
Our debt-to-equity ratio may fluctuate period over period based on portfolio management decisions, market conditions, capital markets conditions, and the timing of security purchase and sale transactions. Shareholders' Equity As of December 31, 2023, our shareholders' equity increased to $136.2 million from $112.4 million as of December 31, 2022.
Our debt-to-equity ratio may fluctuate period over period based on portfolio management decisions, market conditions, capital markets conditions, and the timing of security purchase and sale transactions. Shareholders' Equity As of December 31, 2024, our shareholders' equity increased to $193.7 million from $136.2 million as of December 31, 2023.
Three-Month Period Ended December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 Three-Month Constant Prepayment Rates (1) 6.8 7.3 7.4 4.3 6.1 (1) Excludes recent purchases of fixed rate Agency specified pools with no prepayment history. 61 The following table provides details about the composition of our portfolio of fixed-rate specified pools (excluding those backed by reverse mortgages) as of December 31, 2023 and 2022.
Three-Month Period Ended December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024 December 31, 2023 Three-Month Constant Prepayment Rates (1) 9.5 7.5 6.7 5.2 6.8 (1) Excludes recent purchases of fixed rate Agency specified pools with no prepayment history. 57 The following table provides details about the composition of our portfolio of fixed-rate specified pools (excluding those backed by reverse mortgages) as of December 31, 2024 and 2023.
During the year, we continued to hedge interest rate risk primarily through the use of interest rate swaps, and to a lesser extent, short positions in TBAs, U.S. Treasury securities, and futures.
During the year, we continued to hedge interest rate risk through the use of interest rate swaps and short positions in U.S. Treasury securities and futures.
As of December 31, 2023, in connection with our forward settling TBA and Agency pass-through certificates, we had an aggregate amount at risk with seven counterparties of approximately $1.7 million. As of December 31, 2022, in connection with our forward settling TBA and Agency pass-through certificates, we had an aggregate amount at risk with eight counterparties of approximately $4.6 million.
As of December 31, 2024, in connection with our forward settling TBA and Agency pass-through certificates, we had an aggregate amount at risk with six counterparties of approximately $1.2 million. As of December 31, 2023, in connection with our forward settling TBA and Agency pass-through certificates, we had an aggregate amount at risk with seven counterparties of approximately $1.7 million.
As an alternative cost of funds measure, we add to our repo borrowing cost the net periodic amounts paid or payable by us on our interest rate swaps and the net interest (income) expense we incur on our positions in U.S.
Treasury securities to hedge against the risk to our borrowings of rising interest rates. As an alternative cost of funds measure, we add to our repo borrowing cost the net periodic amounts paid or payable by us on our interest rate swaps and the net interest (income) expense we incur on our positions in U.S.
Treasury securities, was 1.22%, resulting in a net interest margin of 1.58%. Management Fees For each of the years ended December 31, 2023 and 2022, our management fee expense was approximately $1.8 million. Management fees are calculated based on our shareholders' equity at the end of each quarter.
Treasury securities, was 2.66%, resulting in a net interest margin of 1.43%. Management Fees For the years ended December 31, 2024 and 2023, our management fee expense was approximately $2.5 million and $1.8 million, respectively. Management fees are calculated based on our shareholders' equity at the end of each quarter.
The following table summarizes prepayment rates for our portfolio of fixed-rate specified pools (excluding those backed by reverse mortgages) for the three-month periods ended December 31, 2023, September 30, 2023, June 30, 2023, March 31, 2023, and December 31, 2022.
(2) Conformed to current period presentation. The following table summarizes prepayment rates for our portfolio of fixed-rate specified pools (excluding those backed by reverse mortgages) for the three-month periods ended December 31, 2024, September 30, 2024, June 30, 2024, March 31, 2024, and December 31, 2023.
Treasury securities (5) 9 — % 298 0.03 % Net periodic expense (benefit) paid or payable on interest rate swaps (21,078) (2.52) % (1,908) (0.19) % Total Adjusted Cost of Funds $ 838,040 $ 22,332 2.66 % 992,061 12,101 1.22 % (1) This metric does not take into account other instruments that we use to hedge interest rate risk, such as TBAs, swaptions, and futures.
Treasury securities (5) 125 0.02 % 9 — % Net periodic expense (benefit) paid or payable on interest rate swaps (19,105) (3.30) % (21,078) (2.52) % Total Adjusted Cost of Funds $ 578,958 $ 12,785 2.21 % $ 838,040 $ 22,332 2.66 % (1) This metric does not take into account other instruments that we use to hedge interest rate risk, such as TBAs, swaptions, and futures.
Thus our operating and investing activities, when combined with our net repo financing activities, used net cash of $22.0 million. We also received net proceeds from the issuance of common shares, net of commissions and offering costs paid of $2.0 million. We used $13.9 million to pay dividends, and $0.3 million to repurchase common shares.
Thus our operating and investing activities, when combined with such net financing activities, used net cash of $58.3 million. We also received proceeds from the issuance of common shares, net of commissions and offering costs paid of $73.8 million and we used $22.2 million to pay dividends.
As of both December 31, 2023 and 2022, there were no repurchase agreements and reverse repurchase agreements reported on a net basis on the Consolidated Balance Sheet. As of December 31, 2023, we had $729.5 million of outstanding borrowings with 19 counterparties.
As of both December 31, 2024 and 2023, there were no repurchase agreements and reverse repurchase agreements reported on a net basis on the Consolidated Balance Sheet. As of December 31, 2024, we had $563.0 million of outstanding borrowings with 14 counterparties.
The following table sets forth the dividend distributions authorized by the Board of Trustees for the periods indicated below: Year Ended December 31, 2023: Dividend Per Share Dividend Amount Declaration Date Record Date Payment Date (In thousands) $ 0.08 $ 1,488 December 7, 2023 December 29, 2023 January 25, 2024 0.08 1,332 November 7, 2023 November 30, 2023 December 26, 2023 0.08 1,307 October 6, 2023 October 31, 2023 November 27, 2023 0.08 1,270 September 7, 2023 September 29, 2023 October 25, 2023 0.08 1,258 August 7, 2023 August 31, 2023 September 25, 2023 0.08 1,209 July 10, 2023 July 31, 2023 August 25, 2023 0.08 1,150 June 7, 2023 June 30, 2023 July 25, 2023 0.08 1,115 May 8, 2023 May 31, 2023 June 26, 2023 0.08 1,106 April 10, 2023 April 28, 2023 May 25, 2023 0.08 1,106 March 7, 2023 March 31, 2023 April 25, 2023 0.08 1,103 February 7, 2023 February 28, 2023 March 27, 2023 0.08 1,096 January 9, 2023 January 31, 2023 February 27, 2023 73 Year Ended December 31, 2022: Dividend Per Share Dividend Amount Declaration Date Record Date Payment Date (In thousands) $ 0.08 $ 1,070 December 7, 2022 December 30, 2022 January 25, 2023 0.08 1,063 November 7, 2022 November 30, 2022 December 27, 2022 0.08 1,060 October 6, 2022 October 31, 2022 November 25, 2022 0.08 1,060 September 8, 2022 September 30, 2022 October 25, 2022 0.08 1,058 August 4, 2022 August 31, 2022 September 26, 2022 0.08 1,046 July 8, 2022 July 29, 2022 August 25, 2022 0.08 1,046 June 7, 2022 June 30, 2022 July 25, 2022 0.08 1,049 May 2, 2022 May 31, 2022 June 27, 2022 0.10 1,311 April 7, 2022 April 29, 2022 May 25, 2022 0.10 1,311 March 7, 2022 March 31, 2022 April 25, 2022 0.10 1,311 February 7, 2022 February 28, 2022 March 25, 2022 0.10 1,311 January 7, 2022 January 31, 2022 February 25, 2022 On January 8, 2024, the Board of Trustees approved a monthly dividend in the amount of $0.08 per share payable on February 26, 2024 to shareholders of record as of January 31, 2024.
The following table sets forth the dividend distributions authorized by the Board of Trustees for the periods indicated below: Year Ended December 31, 2024: Dividend Per Share Dividend Amount Declaration Date Record Date Payment Date (In thousands) $ 0.08 $ 2,372 December 6, 2024 December 31, 2024 January 27, 2025 0.08 2,304 November 7, 2024 November 29, 2024 December 26, 2024 0.08 2,304 October 7, 2024 October 31, 2024 November 25, 2024 0.08 2,237 September 9, 2024 September 30, 2024 October 25, 2024 0.08 2,160 August 7, 2024 August 30, 2024 September 25, 2024 0.08 2,026 July 8, 2024 July 31, 2024 August 26, 2024 0.08 1,691 June 10, 2024 June 28, 2024 July 25, 2024 0.08 1,638 May 7, 2024 May 31, 2024 June 25, 2024 0.08 1,610 April 8, 2024 April 30, 2024 May 28, 2024 0.08 1,586 March 7, 2024 March 29, 2024 April 25, 2024 0.08 1,586 February 7, 2024 February 29, 2024 March 25, 2024 0.08 1,585 January 8, 2024 January 31, 2024 February 26, 2024 Year Ended December 31, 2023: Dividend Per Share Dividend Amount Declaration Date Record Date Payment Date (In thousands) $ 0.08 $ 1,488 December 7, 2023 December 29, 2023 January 25, 2024 0.08 1,332 November 7, 2023 November 30, 2023 December 26, 2023 0.08 1,307 October 6, 2023 October 31, 2023 November 27, 2023 0.08 1,270 September 7, 2023 September 29, 2023 October 25, 2023 0.08 1,258 August 7, 2023 August 31, 2023 September 25, 2023 0.08 1,209 July 10, 2023 July 31, 2023 August 25, 2023 0.08 1,150 June 7, 2023 June 30, 2023 July 25, 2023 0.08 1,115 May 8, 2023 May 31, 2023 June 26, 2023 0.08 1,106 April 10, 2023 April 28, 2023 May 25, 2023 0.08 1,106 March 7, 2023 March 31, 2023 April 25, 2023 0.08 1,103 February 7, 2023 February 28, 2023 March 27, 2023 0.08 1,096 January 9, 2023 January 31, 2023 February 27, 2023 On January 8, 2025, the Board of Trustees approved a monthly dividend in the amount of $0.08 per share payable on February 25, 2025 to shareholders of record as of January 31, 2025.
The composition and relative mix of our hedging instruments may vary from period to period given the amount of our liabilities outstanding or anticipated to be entered into, the overall market environment and our view as to which instruments best enable us to execute our hedging goals.
The composition and relative mix of our hedging instruments may vary from period to period given the amount of our liabilities outstanding or anticipated to be entered into, the overall market environment and our view as to which instruments best enable us to execute our hedging goals. At year end, we held a modest credit hedge portfolio.
Treasury securities, was 2.66%, resulting in a net interest margin of 1.43%. By comparison, for the year ended December 31, 2022, the weighted average yield of our portfolio of Agency and non-Agency RMBS excluding the impact of the Catch-up Amortization Adjustment was 2.80%, while our total adjusted average cost of funds, including interest rate swaps and short U.S.
Treasury securities, was 2.21%, resulting in a net interest margin of 4.37%. By comparison, for the year ended December 31, 2023, the weighted average yield of our portfolio of Agency and credit portfolios excluding the impact of the Catch-up Amortization Adjustment was 4.09%, while our total adjusted average cost of funds, including interest rate swaps and net short U.S.
On February 7, 2024, the Board of Trustees approved a monthly dividend in the amount of $0.08 per share payable on March 25, 2024 to shareholders of record as of February 29, 2024.
On February 10, 2025, the Board of Trustees approved a monthly dividend in the amount of $0.08 per share payable on March 25, 2025 to shareholders of record as of February 28, 2025. 70 On March 7, 2025, the Board of Trustees approved a monthly dividend in the amount of $0.08 per share payable on April 25, 2025 to shareholders of record as of March 31, 2025.
As of December 31, 2023 and 2022, we had $729.5 million and $842.5 million outstanding under our repurchase agreements, respectively. As of December 31, 2023, our outstanding repurchase agreements were with 19 counterparties.
As of December 31, 2024 and 2023, we had $563.0 million and $729.5 million outstanding under our repurchase agreements, respectively. As of December 31, 2024, our outstanding repurchase agreements were with 14 counterparties.
If the amounts outstanding under repurchase agreements with a particular counterparty are greater than the collateral held by the counterparty, there is no amount at risk for the particular counterparty.
Amounts at risk represent the excess, if any, for each counterparty of the fair value of collateral held by such counterparty over the amounts outstanding under repurchase agreements. If the amounts outstanding under repurchase agreements with a particular counterparty are greater than the collateral held by the counterparty, there is no amount at risk for the particular counterparty.
As of December 31, 2023, we had an aggregate amount at risk under our derivative contracts, excluding TBAs, with three counterparties of approximately $26.0 million. As of December 31, 2022, we had an aggregate amount at risk under our derivatives contracts, excluding TBAs, with three counterparties of approximately $24.5 million.
As of December 31, 2024, we had an aggregate amount at risk under our derivative contracts, excluding TBAs, with three counterparties of approximately $31.3 million. As of December 31, 2023, we had an aggregate amount at risk under our derivatives contracts, excluding TBAs, with three counterparties of approximately $47.1 million.
The terms of our repo borrowings are predominantly governed by Master Repurchase Agreements, or "MRAs," which generally conform to the terms in the standard master repurchase agreement as published by the Securities Industry and Financial Markets Association as to repayment and margin requirements. 71 In addition, each lender may require that we include supplemental terms and conditions to the standard master repurchase agreement.
We borrow funds in the form of repurchase agreements. The terms of our repo borrowings are predominantly governed by Master Repurchase Agreements, or "MRAs," which generally conform to the terms in the standard master repurchase agreement as published by the Securities Industry and Financial Markets Association as to repayment and margin requirements.
For the year ended December 31, 2022, Other income (loss) was $(45.3) million, consisting primarily of net realized and unrealized losses of $(152.8) million on our securities, which were partially offset by net realized and unrealized gains of $107.5 million on our financial derivatives.
For the year ended December 31, 2024, Other income (loss) was $0.8 million, consisting primarily of net realized and unrealized gains of $19.9 million on our financial derivatives, which were partially offset by net realized and unrealized losses of $(18.4) million on our securities.
Also, management's conclusions regarding the authoritative guidance may be subject to review and adjustment at a later date based on changing tax laws, regulations, and interpretations thereof. As of December 31, 2023, the REIT had a net operating loss carry-forward of approximately $39 million. See Note 2 to our consolidated financial statements for additional details on income taxes.
Also, management's conclusions regarding the authoritative guidance may be subject to review and adjustment at a later date based on changing tax laws, regulations, and interpretations thereof. See Note 2 to our consolidated financial statements for additional details on income taxes.
After giving effect to dividends declared during the year ended December 31, 2023 of $0.96 per share, our book value per share decreased to $7.32 as of December 31, 2023, from $8.40 as of December 31, 2022, and we had a negative economic return of (1.4)% for the year ended December 31, 2023.
After giving effect to dividends declared during the year ended December 31, 2024 of $0.96 per share, our book value per share decreased to $6.53 as of December 31, 2024, from $7.32 as of December 31, 2023, and we had an economic return of 2.3% for the year ended December 31, 2024.
The timing and frequency of distributions will be determined by our Board of Trustees based upon a variety of factors deemed relevant by our trustees, including restrictions under applicable law, our capital requirements, and the REIT requirements of the Code.
The timing and frequency of distributions will be determined by our Board of Trustees based upon a variety of factors deemed relevant by our trustees, including restrictions under applicable law and our capital requirements. The declaration of dividends to our shareholders and the amount of such dividends are at the discretion of our Board of Trustees.
To the extent that the benchmark rates used to calculate the payments we receive on our interest rate swaps continue to be highly correlated with our repo borrowing costs, our interest rate swap contracts should help to reduce the variability of our overall repo borrowing costs, thus reducing risk to the extent we hold fixed-rate assets that are financed with repo borrowings.
To the extent that the benchmark rates used to calculate the payments we receive on our interest rate swaps continue to be highly correlated with our repo borrowing costs, our interest rate swap contracts should help to reduce the variability of our overall repo borrowing costs, thus reducing risk to the extent we hold fixed-rate assets that are financed with repo borrowings. 62 In the case of TBAs, many of our positions are short TBA positions with negative duration, meaning that should interest rates rise, we would expect to profit from these positions.
The majority of our mortgage-related securities are Agency RMBS, which include investments in Agency pools and Agency collateralized mortgage obligations, or "CMOs." Our most prevalent method of financing RMBS is through short-term repos, which generally have maturities of 364 days or less. The weighted average lives of the RMBS that we own are generally much longer.
Our most prevalent method of financing RMBS and CLOs is through short-term repos, which generally have maturities of 364 days or less. The weighted average lives of the RMBS and CLOs that we own are generally much longer.
December 31, 2023 December 31, 2022 Weighted Average Weighted Average Remaining Days to Maturity Borrowings Outstanding Interest Rate Remaining Days to Maturity Borrowings Outstanding Interest Rate Remaining Days to Maturity (In thousands) (In thousands) 30 days or less $ 713,678 5.56 % 17 $ 563,926 4.01 % 14 31-60 days 6,131 6.69 46 210,569 2.73 44 61-90 days 9,734 6.47 67 67,960 4.16 72 Total $ 729,543 5.58 % 17 $ 842,455 3.70 % 26 We finance our assets with what we believe to be a prudent amount of leverage, which will vary from time to time based upon the particular characteristics of our portfolio, availability of financing, and market conditions.
December 31, 2024 December 31, 2023 Weighted Average Weighted Average Remaining Days to Maturity Borrowings Outstanding Interest Rate Remaining Days to Maturity Borrowings Outstanding Interest Rate Remaining Days to Maturity (In thousands) (In thousands) 30 days or less $ 538,614 4.78 % 15 $ 713,678 5.56 % 17 31-60 days 24,360 5.57 43 6,131 6.69 46 61-90 days — — — 9,734 6.47 67 Total $ 562,974 4.81 % 16 $ 729,543 5.58 % 17 We finance our assets with what we believe to be a prudent amount of leverage, which will vary from time to time based upon the particular characteristics of our portfolio, availability of financing, and market conditions.
We did not purchase any shares under this program during the year ended December 31, 2023. Based on our current portfolio, amount of free cash on hand, debt-to-equity ratio and current and anticipated availability of credit, we believe that our capital resources will be sufficient to enable us to meet anticipated short-term and long-term liquidity requirements.
Based on our current portfolio, amount of free cash on hand, debt-to-equity ratio and current and anticipated availability of credit, we believe that our capital resources will be sufficient to enable us to meet anticipated short-term and long-term liquidity requirements.
This increase principally consisted of net proceeds from the issuance of shares of $33.6 million and a net gain of $4.6 million, partially offset by dividends declared of $14.5 million.
This increase principally consisted of net proceeds from the issuance of shares of $73.6 million and a net income of $6.6 million, partially offset by dividends declared of $23.1 million.
The following table details our interest income, average holdings of yield-bearing assets, and weighted average yield based on amortized cost for the years ended December 31, 2023 and 2022: Agency (1) Credit (1) Total (1) (In thousands) Interest Income Average Holdings Yield Interest Income Average Holdings Yield Interest Income Average Holdings Yield Year ended December 31, 2023 $ 36,186 $ 928,386 3.90 % $ 2,645 $ 22,678 11.66 % $ 38,831 $ 951,064 4.08 % Year ended December 31, 2022 $ 31,866 $ 1,067,399 2.99 % $ 1,558 $ 14,115 11.04 % $ 33,424 $ 1,081,514 3.09 % (1) Amounts exclude interest income on cash and cash equivalents (including when posted as margin), long U.S.
The following table details our interest income, average holdings of yield-bearing assets, and weighted average yield based on amortized cost for the years ended December 31, 2024 and 2023: Agency (1) Credit (1) Total (1) (In thousands) Interest Income Average Holdings Yield Interest Income Average Holdings Yield Interest Income Average Holdings Yield Year ended December 31, 2024 $ 29,047 $ 596,906 4.87 % $ 16,341 $ 101,009 16.18 % $ 45,388 $ 697,915 6.50 % Year ended December 31, 2023 $ 36,186 $ 928,386 3.90 % $ 2,645 $ 22,678 11.66 % $ 38,831 $ 951,064 4.08 % (1) Amounts exclude interest income on cash and cash equivalents (including when posted as margin), long U.S.
Our net mortgage assets-to-equity ratio—which we define as the net aggregate market value of our mortgage-backed securities (including the underlying market values of our long and short TBA positions) divided by shareholders' equity attributable to our mortgage-related strategies—slightly declined during the year.
Our net mortgage assets-to-equity ratio—which we define as the net aggregate market value of our mortgage-backed securities (including the underlying market values of our long and short TBA positions) divided by total shareholders' equity —declined year over year. The decrease was driven by significantly higher shareholders' equity and a smaller Agency RMBS portfolio.
In the aggregate, under the 2021 ATM program and 2023 ATM program, during the year ended December 31, 2023, we issued 5,183,037 common shares which provided $33.6 million of net proceeds after $0.5 million of commissions and $0.2 million of offering costs.
During the year ended December 31, 2024, we issued 10,964,023 common shares which provided $73.6 million of net proceeds after $0.6 million of commissions and $0.5 million of offering costs. As of December 31, 2024, we had $11.2 million of common shares available to be issued under the 2023 ATM program.
As of December 31, 2023, we had cash and cash equivalents of $38.5 million, in addition to other unencumbered assets of $22.9 million. This compares to cash and cash equivalents of $34.8 million and other unencumbered assets of $2.9 million as of December 31, 2022.
We also maintained modest credit hedge and currency hedge portfolios at year end. 55 As of December 31, 2024, we had cash and cash equivalents of $31.8 million, in addition to other unencumbered assets of $79.2 million. This compares to cash and cash equivalents of $38.5 million, and other unencumbered assets of $22.9 million, as of December 31, 2023.
As of December 31, 2023, our book value per share was $7.32, as compared to $8.40 as of December 31, 2022. 67 Results of Operations for the Years Ended December 31, 2023 and 2022 The following table summarizes our results of operations for the years ended December 31, 2023 and 2022: Year Ended December 31, (In thousands except for per share amounts) 2023 2022 Interest Income (Expense) Interest income $ 42,549 $ 35,006 Interest expense (45,256) (14,820) Net interest income (expense) (2,707) 20,186 Expenses Management fees to affiliate 1,804 1,758 Other operating expenses 3,731 3,370 Total expenses 5,535 5,128 Other Income (Loss) Net realized and change in net unrealized gains (losses) on securities 3,171 (152,785) Net realized and change in net unrealized gains (losses) on financial derivatives 9,630 107,529 Total Other Income (Loss) 12,801 (45,256) Net Income (Loss) $ 4,559 $ (30,198) Net Income (Loss) Per Common Share $ 0.31 $ (2.29) Net Income (Loss) Net income (loss) for the year ended December 31, 2023 was $4.6 million, as compared to $(30.2) million for the year ended December 31, 2022.
As of December 31, 2024, our book value per share was $6.53, as compared to $7.32 as of December 31, 2023. 63 Results of Operations The following table summarizes our results of operations for the years ended December 31, 2024 and 2023: Year Ended December 31, (In thousands except for per share amounts) 2024 2023 Interest Income (Expense) Interest income $ 49,863 $ 42,549 Interest expense (34,794) (45,256) Net interest income (expense) 15,069 (2,707) Expenses Management fees to affiliate 2,539 1,804 Other operating expenses 6,245 3,731 Total expenses 8,784 5,535 Other Income (Loss) Net realized and change in net unrealized gains (losses) on securities (18,432) 3,171 Net realized and change in net unrealized gains (losses) on financial derivatives 19,908 9,630 Other, net (665) — Total Other Income (Loss) 811 12,801 Net Income (Loss) before income taxes 7,096 4,559 Income tax expense (benefit) 510 — Net Income (Loss) $ 6,586 $ 4,559 Net Income (Loss) Per Common Share $ 0.28 $ 0.31 Results of Operations for the Years Ended December 31, 2024 and 2023 Net Income (Loss) Net income (loss) for the year ended December 31, 2024 was $6.6 million, as compared to $4.6 million for the year ended December 31, 2023.
Adjusted for unsettled purchases and sales, our debt-to equity ratio was 5.3:1 as of December 31, 2023, as compared to 7.6:1 as of December 31, 2022.
Adjusted for unsettled trades, our debt-to equity ratio was also 2.9:1 as of December 31, 2024, as compared to 5.3:1 as of December 31, 2023.
Net realized and unrealized gains of $3.2 million on our securities consisted primarily of net realized and unrealized gains of $1.5 million on our non-Agency RMBS and $1.4 million on our U.S. Treasury securities.
Net realized and unrealized losses of $(18.4) million on our securities consisted primarily of net realized and unrealized losses of $(16.1) million on our on our Agency RMBS, $(3.7) million on our corporate CLOs, and $(0.4) million on our U.S. Treasury securities, partially offset by net realized and unrealized gains of $1.9 million on our non-Agency RMBS.
Leverage The following table summarizes our outstanding liabilities under repurchase agreements as of December 31, 2023 and 2022. We had no other borrowings outstanding.
At year end, we maintained foreign currency hedges in connection with our European CLO holdings. Leverage The following table summarizes our outstanding liabilities under repurchase agreements as of December 31, 2024 and 2023. We had no other borrowings outstanding.
December 31, 2023 December 31, 2022 Coupon (%) Current Principal Fair Value Weighted Average Loan Age (Months) Current Principal Fair Value Weighted Average Loan Age (Months) (In thousands) (In thousands) Fixed-rate Agency RMBS: 15-year fixed-rate mortgages: 1.50-1.99 $ — $ — — $ 3,608 $ 3,153 27 2.50–2.99 3,794 3,550 52 3,764 3,497 41 3.00–3.49 4,829 4,645 103 15,596 14,746 50 3.50–3.99 9,960 9,684 92 12,627 12,244 78 4.00–4.49 10,013 9,918 60 11,712 11,539 52 4.50–4.99 51 50 167 146 145 155 Total 15-year fixed-rate mortgages 28,647 27,847 78 47,453 45,324 56 20-year fixed-rate mortgages: 2.00–2.49 4,063 3,502 42 4,750 4,038 30 2.50–2.99 — — — 1,852 1,625 29 3.00–3.49 1,147 1,045 46 1,362 1,236 34 4.00–4.49 1,255 1,225 41 1,500 1,447 29 4.50–4.99 491 489 63 563 554 51 5.00–5.49 577 583 64 785 791 52 6.50–6.99 991 1,019 6 — — — Total 20-year fixed-rate mortgages 8,524 7,863 41 10,812 9,691 33 30-year fixed-rate mortgages: 2.00–2.49 4,614 3,687 38 48,278 39,718 22 2.50–2.99 37,503 32,160 36 96,776 82,982 26 3.00–3.49 76,869 68,695 59 175,838 156,401 32 3.50–3.99 111,327 104,283 73 125,167 116,561 76 4.00–4.49 134,317 129,181 72 164,444 157,268 58 4.50–4.99 124,152 122,062 51 123,176 120,663 48 5.00–5.49 106,323 105,851 28 86,820 86,325 25 5.50–5.99 39,423 39,801 19 8,567 8,710 38 6.00–6.49 18,084 18,478 14 10,610 10,887 7 6.50–6.99 44,898 46,096 7 2,147 2,239 — Total 30-year fixed-rate mortgages 697,510 670,294 49 841,823 781,754 44 Total fixed-rate Agency RMBS $ 734,681 $ 706,004 50 $ 900,088 $ 836,769 44 For the year ended December 31, 2023, we had total net realized and unrealized gains on our Agency securities of $0.2 million, or $0.01 per share.
December 31, 2024 December 31, 2023 Coupon (%) Current Principal Fair Value Weighted Average Loan Age (Months) Weighted Average Coupon Current Principal Fair Value Weighted Average Loan Age (Months) Weighted Average Coupon (In thousands) (In thousands) Fixed-rate Agency RMBS: 15-year fixed-rate mortgages: 2.50–2.99 — — — — % 3,794 3,550 52 2.50 % 3.00–3.49 — — — — % 4,829 4,645 103 3.00 % 3.50–3.99 — — — — % 9,960 9,684 92 3.50 % 4.00–4.49 — — — — % 10,013 9,918 60 4.00 % 4.50–4.99 — — — — % 51 50 167 4.50 % Total 15-year fixed-rate mortgages — — — — % 28,647 27,847 78 3.46 % 20-year fixed-rate mortgages: 2.00–2.49 — — — — % 4,063 3,502 42 2.00 % 3.00–3.49 — — — — % 1,147 1,045 46 3.00 % 4.00–4.49 — — — — % 1,255 1,225 41 4.00 % 4.50–4.99 — — — — % 491 489 63 4.50 % 5.00–5.49 — — — — % 577 583 64 5.00 % 6.50–6.99 — — — — % 991 1,019 6 6.50 % Total 20-year fixed-rate mortgages — — — — % 8,524 7,863 41 3.30 % 30-year fixed-rate mortgages: 2.00–2.49 — — — — % 4,614 3,687 38 2.00 % 2.50–2.99 25,728 20,980 37 2.50 % 37,503 32,160 36 2.50 % 3.00–3.49 — — — — % 76,869 68,695 59 3.00 % 3.50–3.99 55,966 49,505 32 3.50 % 111,327 104,283 73 3.50 % 4.00–4.49 93,905 85,833 15 4.00 % 134,317 129,181 72 4.00 % 4.50–4.99 55,755 52,504 14 4.50 % 124,152 122,062 51 4.50 % 5.00–5.49 96,309 93,163 24 5.00 % 106,323 105,851 28 5.00 % 5.50–5.99 94,550 93,457 12 5.50 % 39,423 39,801 19 5.50 % 6.00–6.49 45,589 45,954 9 6.00 % 18,084 18,478 14 6.00 % 6.50–6.99 69,146 70,911 12 6.50 % 44,898 46,096 7 6.50 % Total 30-year fixed-rate mortgages 536,948 512,307 18 4.86 % 697,510 670,294 49 4.26 % Total fixed-rate Agency RMBS $ 536,948 $ 512,307 18 4.86 % $ 734,681 $ 706,004 50 4.21 % For the year ended December 31, 2024, we had total net realized and unrealized losses on our Agency securities of $(16.1) million, or $(0.68) per share, and net realized losses of $(24.8) million, or $(1.05) per share.
Specified pools are fixed-rate Agency pools consisting of mortgages with special characteristics, such as mortgages with low loan balances, mortgages backed by investor properties, mortgages originated through government-sponsored refinancing programs, and mortgages with various other characteristics.
As of December 31, 2024, our mortgage-backed securities portfolio consisted almost entirely of $512.3 million of fixed-rate Agency "specified pools," and a de minimis amount of Agency interest-only securities, or "Agency IOs." Specified pools are fixed-rate Agency pools consisting of mortgages with special characteristics, such as mortgages with low loan balances, mortgages backed by investor properties, mortgages originated through government-sponsored refinancing programs, and mortgages with various other characteristics.
Under the current repurchase program adopted on June 13, 2018, we have repurchased 474,192 common shares through May 12, 2023 at an average price per share of $9.21 and an aggregate cost of $4.4 million, and have authorization to repurchase an additional 725,808 common shares.
Under the current repurchase program adopted on June 13, 2018, we have repurchased 167,476 common shares through March 28, 2025 at an average price per share of $5.84 and an aggregate cost of $1.0 million, and have authorization to repurchase an additional 558,332 common shares.
This mismatch in maturities, together with the uncertainty of RMBS prepayments, and other potential changes in timing and/or amount of cash flows on our RMBS assets, creates the risk that changes in interest rates will cause our financing costs with respect to our RMBS to increase relative to the income on our RMBS over the term of our investments. 65 Financial Derivatives The following table summarizes our portfolio of financial derivative holdings as of December 31, 2023 and 2022: (In thousands) December 31, 2023 December 31, 2022 Financial derivatives–assets, at fair value: TBA securities purchase contracts $ 654 $ — TBA securities sale contracts — 3,568 Fixed payer interest rate swaps 67,719 65,202 Fixed receiver interest rate swaps 3,622 — Futures 2,284 — Total financial derivatives–assets, at fair value 74,279 68,770 Financial derivatives–liabilities, at fair value: TBA securities purchase contracts (13) (664) TBA securities sale contracts (1,863) — Fixed payer interest rate swaps (4,182) — Fixed receiver interest rate swaps (576) (2,373) Futures (63) (82) Credit Default Swaps (632) — Total financial derivatives–liabilities, at fair value (7,329) (3,119) Total $ 66,950 $ 65,651 Pursuant to our hedging program, we engage in a variety of interest rate hedging activities that are designed to reduce the interest rate risk with respect to the liabilities incurred to acquire or hold RMBS.
Financial Derivatives The following table summarizes our portfolio of financial derivative holdings as of December 31, 2024 and 2023: (In thousands) December 31, 2024 December 31, 2023 Financial derivatives–assets, at fair value: TBA securities purchase contracts $ — $ 654 TBA securities sale contracts 592 — Fixed payer interest rate swaps 39,125 67,719 Fixed receiver interest rate swaps 1,192 3,622 Futures 170 2,284 Credit default swaps 705 — Forwards 83 — Total financial derivatives–assets, at fair value 41,867 74,279 Financial derivatives–liabilities, at fair value: TBA securities purchase contracts (1,363) (13) TBA securities sale contracts — (1,863) Fixed payer interest rate swaps (1,401) (4,182) Fixed receiver interest rate swaps (194) (576) Futures (811) (63) Credit default swaps (1,912) (632) Total financial derivatives–liabilities, at fair value (5,681) (7,329) Total $ 36,186 $ 66,950 Pursuant to our hedging program, we engage in a variety of interest rate hedging activities that are designed to reduce the interest rate risk with respect to the liabilities incurred to acquire or hold RMBS.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Executive Summary We are a Maryland real estate investment trust, or "REIT," formed in August 2012 that specializes in acquiring, investing in, and managing residential mortgage- and real estate-related and other assets.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Executive Summary We were initially formed in August 2012 as a Maryland company and have historically specialized in acquiring, investing in, and managing residential mortgage- and real estate-related assets, while electing to be taxed as a REIT under the Code.
As a result of these activities, there was a decrease in our cash holdings of $34.2 million, from $69.0 million as of December 31, 2021 to $34.8 million as of December 31, 2022.
As a result of these activities, there was a decrease in our holdings of cash and cash equivalents of $6.7 million, from $38.5 million as of December 31, 2023 to $31.8 million as of December 31, 2024.
Our Agency portfolio turnover was approximately 87% for the year ended December 31, 2023 and we recognized net realized losses of $(59.2) million. For the year ended December 31, 2023, we continued to hedge interest rate risk primarily through the use of interest rate swaps, and to a lesser extent, short positions in TBAs, U.S. Treasury securities, and futures.
For the year ended December 31, 2024, we continued to hedge interest rate risk through the use of interest rate swaps and short positions in TBAs, U.S. Treasury securities, and futures.
The following table reconciles, for the years ended December 31, 2023 and 2022, Adjusted Distributable Earnings to the line on the Consolidated Statement of Operations entitled Net Income (Loss), which we believe is the most directly comparable U.S.
In setting our dividends, our Board of Trustees considers our earnings, liquidity, financial condition, distribution requirements, and financial covenants, along with other factors that the Board of Trustees may deem relevant from time to time. 67 The following table reconciles, for the years ended December 31, 2024 and 2023, Adjusted Distributable Earnings to the line on the Consolidated Statement of Operations entitled Net Income (Loss), which we believe is the most directly comparable U.S.
Currently, our credit hedges consist of CDS on corporate bond indices, although there are periods of time where we have no credit hedges in place.
We may also utilize tranches or option contracts on corporate credit or equity indices, as well as contracts referencing various MBS indices and other derivative instruments. Currently, our credit hedges consist of CDS on corporate bond indices, although there are periods of time where we have no credit hedges in place.
The year-over-year increase in interest income primarily resulted from higher asset yields on both our Agency and credit portfolios and to a lesser extent higher average holdings on our credit portfolio, partially offset by lower average holdings on our Agency RMBS portfolio. The Catch-up Amortization Adjustment causes variability in our interest income and portfolio yields.
The period-over-period increase in interest income was driven by higher asset yields in both our Agency and credit portfolios, along with higher average holdings in our credit portfolio which have a significantly higher yield relative to our Agency portfolio. The Catch-up Amortization Adjustment causes variability in our interest income and portfolio yields.
Adjusted Distributable Earnings We calculate Adjusted Distributable Earnings as net income (loss), excluding realized and change in net unrealized gains and (losses) on securities and financial derivatives, and excluding other income or loss items that are of a non-recurring nature, if any.
Adjusted Distributable Earnings We calculate Adjusted Distributable Earnings as net income (loss) adjusted for: (i) net realized and change in net unrealized gains and (losses) on securities, financial derivatives, and foreign currency transactions; (ii) net realized and change in net unrealized gains (losses) associated with periodic settlements on interest rate swaps; (iii) other income or loss items that are of a non-recurring nature, if any; (iv) Catch-up Amortization Adjustment (as defined below); and (v) provision for income taxes.
Excluding the Catch-up Amortization Adjustments, the weighted average yield of our overall portfolio was 4.09% and 2.80% for the years ended December 31, 2023 and 2022, respectively.
For the years ended December 31, 2024 and 2023, we had a negative Catch-up Amortization Adjustments of approximately $(0.5) million and $(0.1) million, respectively, which decreased interest income. Excluding the Catch-up Amortization Adjustments, the weighted average yield of our overall portfolio was 6.57% and 4.09% for the years ended December 31, 2024 and 2023, respectively.
The following table details the components of our adjusted cost of funds (1)(2) for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 Year Ended December 31, 2022 (In thousands) Average Borrowed Funds (3) Interest Expense (Benefit) Average Cost of Funds Average Borrowed Funds (3) Interest Expense (Benefit) Average Cost of Funds Repurchase Agreements: Agency RMBS $ 822,543 $ 42,386 5.15 % $ 982,375 $ 13,398 1.36 % Credit 15,497 1,015 6.55 % 9,686 313 3.23 % Subtotal (4) 838,040 43,401 5.18 % 992,061 13,711 1.38 % Adjustments: Net interest (income) expense related to U.S.
Treasury securities). 65 The following table details the components of our adjusted cost of funds (1) for the years ended December 31, 2024 and 2023: Year Ended December 31, 2024 Year Ended December 31, 2023 ($ In thousands) Average Borrowed Funds (3) Interest Expense (Benefit) Average Cost of Funds Average Borrowed Funds (3) Interest Expense (Benefit) Average Cost of Funds Repurchase Agreements: Credit (2) : CLO $ 26,165 $ 1,594 6.09 % $ 576 $ 39 6.85 % Non-Agency RMBS 9,025 614 6.81 % 14,921 976 6.54 % Total Credit 35,190 2,208 6.28 % 15,497 1,015 6.55 % Agency RMBS 543,768 29,557 5.44 % 822,543 42,386 5.15 % Subtotal (4) 578,958 31,765 5.49 % 838,040 43,401 5.18 % Adjustments: Net interest (income) expense related to U.S.
The reversal in our results of operations year over year was primarily due to a total other income in the current period as compared to a total other loss in the prior period.
The period-over-period change in our results of operations was primarily due to positive net interest income in the current period, as compared to negative net interest income in the prior period, partially offset by a decline in total other income and an increase in total expenses.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeSubject to maintaining our qualification as a REIT and our exclusion from registration under the Investment Company Act, we may selectively attempt to mitigate our default risk by, among other things, opportunistically entering into credit default swaps. These instruments can reference various MBS indices, corporate bond indices, or corporate entities, such as publicly traded REITs.
Biggest changeThese instruments can reference various MBS indices, corporate bond indices, or corporate entities, such as publicly traded REITs. We also rely on third-party servicers to mitigate our default risk, but such third-party servicers may have little or no economic incentive to mitigate loan default rates.
Our CLO investments will typically be in subordinated positions within the CLO capital structure with respect to realized losses, and the leveraged nature of the CLO vehicle amplifies the negative impact of any collateral losses. 77 For our non-Agency RMBS and other mortgage-related instruments with credit risk, the two primary components of such credit risk are default risk and severity risk.
Our CLO investments will typically be in subordinated positions within the CLO capital structure with respect to realized losses, and the leveraged nature of the CLO vehicle amplifies the negative impact of any collateral losses. For our non-Agency RMBS and other mortgage-related instruments with credit risk, the two primary components of such credit risk are default risk and severity risk.
While most of the assets underlying our CLO investments are expected to be senior secured and first lien in nature, CLOs also invest, in some cases, in subordinated obligations that do not have first priority claims in the event of a default by their related obligors.
While most of the assets underlying our CLO investments are expected to be senior secured and first lien in nature, CLOs 72 also invest, in some cases, in subordinated obligations that do not have first priority claims in the event of a default by their related obligors.
Significantly higher haircuts would require us to post additional collateral and could reduce our ability to leverage our portfolio or may even force us to sell assets, especially if correlated with asset price declines or faster prepayment rates on our assets.
Significantly higher haircuts would require us to post additional collateral and could reduce our ability to leverage our portfolio or may even force us to sell assets, especially if correlated with asset price declines or faster prepayment rates on our assets. 75
Depending on the nature of the instrument, these additional factors may include credit spreads, yield spreads, option-adjusted spreads, real estate prices, collateral adequacy, borrower creditworthiness, 76 inflation, unemployment, general macroeconomic conditions, and other factors.
Depending on the nature of the instrument, these additional factors may include credit spreads, yield spreads, option-adjusted spreads, real estate prices, collateral adequacy, borrower creditworthiness, inflation, unemployment, general macroeconomic conditions, and other factors.
See "Business—Special Note Regarding Forward-Looking Statements." Prepayment Risk Prepayment risk is the risk of change, whether an increase or a decrease, in the rate at which principal is returned in respect of our RMBS and CLOs, including both through voluntary prepayments by the underlying mortgage or corporate borrowers, through liquidations or other accelerations due to defaults and foreclosures, or through the optional redemptions of such securities by the issuers.
See "—Special Note Regarding Forward-Looking Statements." Prepayment Risk Prepayment risk is the risk of change, whether an increase or a decrease, in the rate at which principal is returned in 74 respect of our RMBS and CLOs, including both through voluntary prepayments by the underlying mortgage or corporate borrowers, through liquidations or other accelerations due to defaults and foreclosures, or through the optional redemptions of such securities by the issuers.
While the table above reflects the estimated impacts of immediate parallel interest rate increases and decreases on specific categories of instruments in our portfolio, we actively trade many of the instruments in our portfolio, and therefore our current or future portfolios may have risks that differ significantly from those of our December 31, 2023 portfolio estimated above.
While the table above reflects the estimated impacts of immediate parallel interest rate increases and decreases on specific categories of instruments in our portfolio, we actively trade many of the instruments in our portfolio, and therefore our current or future portfolios may have risks that differ significantly from those of our December 31, 2024 portfolio estimated above.
The following sensitivity analysis table shows the estimated impact on the fair value of our portfolio segregated by certain identified categories as of December 31, 2023, assuming a static portfolio and immediate and parallel shifts in interest rates from current levels as indicated below.
The following sensitivity analysis table shows the estimated impact on the fair value of our portfolio segregated by certain identified categories as of December 31, 2024, assuming a static portfolio and immediate and parallel shifts in interest rates from current levels as indicated below.
Subject to maintaining our qualification as a REIT and our exclusion from registration under the Investment Company Act, we opportunistically hedge our interest rate risk by entering into interest rate swaps, TBAs, U.S. Treasury securities, Eurodollar and U.S. Treasury futures, and other instruments.
Subject to maintaining our exclusion from registration under the 1940 Act, we opportunistically hedge our interest rate risk by entering into interest rate swaps, TBAs, U.S. Treasury securities, Eurodollar and U.S. Treasury futures, and other instruments.
In addition to measuring and mitigating the risk related to changes in interest rates with respect to the generally shorter-term liabilities we incur to acquire and hold generally longer-lived RMBS, we also monitor the effect of changes in interest rates on the discounted present value of our portfolio of assets and liabilities.
In general, such hedging instruments are used to mitigate the interest rate risk arising from the mismatch between the duration of our financed Agency RMBS and the duration of the liabilities used to finance such assets. 73 In addition to measuring and mitigating the risk related to changes in interest rates with respect to the generally shorter-term liabilities we incur to acquire and hold generally longer-lived RMBS and CLOs, we also monitor the effect of changes in interest rates on the discounted present value of our portfolio of assets and liabilities.
For example, mortgage prepayment rates are generally lower in states with substantially higher mortgage recording taxes. Credit Risk We are subject to credit risk in connection with certain of our assets, especially our non-Agency RMBS and our corporate CLOs.
Credit Risk We are subject to credit risk in connection with certain of our assets, especially our non-Agency RMBS and our corporate CLOs.
We also rely on third-party servicers to mitigate our default risk, but such third-party servicers may have little or no economic incentive to mitigate loan default rates. Severity Risk Severity risk is the risk of loss upon a borrower default on a mortgage loan underlying our RMBS or other secured or unsecured debt obligation.
Severity Risk Severity risk is the risk of loss upon a borrower default on a mortgage loan underlying our RMBS or other secured or unsecured debt obligation.
Default Risk Default risk is the risk that borrowers will fail to make principal and interest payments on a mortgage loan or other debt obligation.
Default Risk Default risk is the risk that borrowers will fail to make principal and interest payments on a mortgage loan or other debt obligation. Subject to maintaining our exclusion from registration under the 1940 Act, we may selectively attempt to mitigate our default risk by, among other things, opportunistically entering into credit default swaps.
Liquidity Risk To fund our assets we may use a variety of debt alternatives in addition to equity capital that present us with liquidity risks. Certain of our assets are long-term fixed-rate assets, and we believe that liquidity risk arises from these assets with shorter-term variable rate borrowings.
For example, mortgage prepayment rates are generally lower in states with substantially higher mortgage recording taxes. Liquidity Risk To fund our assets, in addition to using equity capital, we may use a variety of debt alternatives, each of which may present us with liquidity risks.
(In thousands) Estimated Change for a Decrease in Interest Rates by Estimated Change for an Increase in Interest Rates by 50 Basis Points 100 Basis Points 50 Basis Points 100 Basis Points Category of Instruments Market Value % of Total Equity Market Value % of Total Equity Market Value % of Total Equity Market Value % of Total Equity Agency RMBS, and CMBS excluding TBAs $ 14,755 10.83 % $ 27,910 20.49 % $ (16,357) (12.01) % $ (34,316) (25.19) % Long TBAs 1,260 0.92 % 2,194 1.61 % (1,585) (1.16) % (3,495) (2.57) % Short TBAs (2,160) (1.59) % (4,228) (3.10) % 2,252 1.65 % 4,596 3.37 % Non-Agency RMBS (506) (0.37) % (1,221) (0.90) % 296 0.22 % 384 0.28 % CLOs 21 0.02 % 42 0.03 % (22) (0.02) % (46) (0.03) % U.S.
($ In thousands) Estimated Change for a Decrease in Interest Rates by Estimated Change for an Increase in Interest Rates by 50 Basis Points 100 Basis Points 50 Basis Points 100 Basis Points Category of Instruments Market Value % of Total Equity Market Value % of Total Equity Market Value % of Total Equity Market Value % of Total Equity Agency RMBS, and CMBS excluding TBAs $ 11,425 5.90 % $ 21,429 11.06 % $ (12,845) (6.63) % $ (27,113) (14.00) % Long TBAs 1,825 0.94 % 3,646 1.88 % (1,830) (0.94) % (3,664) (1.89) % Short TBAs (995) (0.51) % (1,684) (0.87) % 1,302 0.67 % 2,912 1.50 % CLOs 179 0.09 % 358 0.18 % (180) (0.09) % (359) (0.19) % U.S.
Removed
In general, such hedging instruments are used to mitigate the interest rate risk arising from the mismatch between the duration of our financed Agency RMBS and the duration of the liabilities used to finance such assets.
Added
Treasury Securities, Interest Rate Swaps, Options, and Futures (12,337) (6.37) % (25,197) (13.01) % 11,815 6.10 % 23,108 11.93 % Corporate Securities and Derivatives on Corporate Securities (14) (0.01) % (28) (0.01) % 14 0.01 % 28 0.01 % Repurchase and Reverse Repurchase Agreements (122) (0.06) % (243) (0.13) % 122 0.06 % 243 0.13 % Total $ (39) (0.02) % $ (1,719) (0.90) % $ (1,602) (0.82) % $ (4,845) (2.51) % The preceding analysis does not show sensitivity to changes in interest rates for instruments for which we believe that the effect of a change in interest rates is not material to the value of the overall portfolio and/or cannot be accurately estimated.
Removed
Treasury Securities, Interest Rate Swaps, Options, and Futures (15,136) (11.11) % (30,959) (22.72) % 14,451 10.61 % 28,215 20.71 % Corporate Securities and Derivatives on Corporate Securities (7) (0.01) % (14) (0.01) % 7 0.01 % 14 0.01 % Repurchase and Reverse Repurchase Agreements (186) (0.14) % (372) (0.27) % 186 0.14 % 372 0.27 % Total $ (1,959) (1.45) % $ (6,648) (4.87) % $ (772) (0.56) % $ (4,276) (3.15) % Our analysis of interest rate risk is derived from Ellington's proprietary models as well as third-party information and analytics.
Added
In particular, this analysis excludes certain of our holdings of CLOs, corporate securities, and derivatives on corporate securities, and reflects only sensitivity to U.S. interest rates. Our analysis of interest rate risk is derived from Ellington's proprietary models as well as third-party information and analytics.
Removed
Additionally, as a REIT, we are required to distribute a significant portion of our taxable income annually, which constrains our ability to accumulate operating cash flow and therefore may require us to utilize debt or equity capital to finance our business and, therefore, we are exposed to risks related to the equity capital markets, and our related ability to raise capital through the issuance of our common stock, preferred stock or other equity instruments.
Added
Certain of our assets are long-term fixed-rate assets, and we become exposed to liquidity by funding these assets with shorter-term variable rate borrowings.
Removed
We seek to mitigate these risks by monitoring the equity capital markets to inform our decisions on the amount, timing, and terms of capital we raise. 78

Other EARN 10-K year-over-year comparisons