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1. Company Snapshot

1.a. Company Description

Ellington Residential Mortgage REIT, a real estate investment trust, specializes in acquiring, investing in, and managing residential mortgage-and real estate-related assets.It acquires and manages residential mortgage-backed securities (RMBS), including agency pools and agency collateralized mortgage obligations (CMOs); and non-agency RMBS comprising non-agency CMOs, such as investment grade and non-investment grade.The company has elected to be taxed as a real estate investment trust.


As a result, it would not be subject to corporate income tax on that portion of its net income that is distributed to shareholders.Ellington Residential Mortgage REIT was incorporated in 2012 and is based in Old Greenwich, Connecticut.

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1.b. Last Insights on EARN

Ellington Credit Company's recent performance was negatively impacted by delays in its conversion to a CLO closed-end fund. Despite strong shareholder support, the company's transition has been hindered by regulatory challenges. This uncertainty has likely weighed on investor sentiment and may impact the company's 2025 tax liabilities. Additionally, the company's reliance on "mirror preferred" shares to amplify voting power has raised concerns among investors.

1.c. Company Highlights

2. Ellington Credit Company Beats Earnings Estimates with Robust CLO Portfolio Performance

Ellington Credit Company delivered a strong second fiscal quarter ended September 30, 2025, with net investment income of $0.23 per share, beating analyst estimates of $0.2. The company's GAAP net income was $0.11 per share. The CLO portfolio ramp-up continued at a steady pace, with the portfolio reaching $380 million. The weighted average GAAP yield for the quarter on the CLO portfolio was 15.5%, as reviewed by Chris Smernoff during the earnings call.

Publication Date: Nov -26

📋 Highlights
  • Net Investment Income:: Increased to $0.23 per share, driven by CLO portfolio ramp-up and redemptions.
  • CLO Portfolio Composition:: $380 million portfolio with 70% in mezzanine debt tranches and 14% in Europe.
  • GAAP Yield:: Weighted average yield of 15.5% for the quarter on the CLO portfolio.
  • Leverage Ratio:: Current leverage at 2:1, with capacity to expand to $400 million under regulatory constraints.
  • Hedge Strategy:: Active hedging in October to manage tail risks, not reflecting increased credit caution.

Portfolio Composition and Performance

The CLO portfolio was almost evenly split between mezzanine debt and equity tranches, with 70% of net CLO purchases being mezzanine debt tranches, reflecting the company's deliberate move up in credit quality. The company's active trading approach and modest size allowed it to remain nimble and selective in investments, as highlighted by Greg Borenstein. The company has been cautious about owning first-loss credit risk and has favored CLO mezzanine tranches as a more attractive balance of risk and return in the portfolio.

Valuation and Leverage

With a P/B Ratio of 0.89, Ellington Credit Company's stock is trading slightly below its book value. The company's leverage is around 2:1, and it has room to increase to around $400 million, as discussed by Laurence Penn. The company's '40 Act constraints and fully compliant derivative user status also impact its appetite for leverage.

Market Outlook and Risks

Gregory Borenstein expressed uncertainty about the amount of CLO supply in the next year, citing the challenging ARB environment and potential refinancing activities. He also mentioned that new issue loan supply and rate changes may impact the market. The company is cautious about the potential effects of AI-related credits on the loan market, creating winners and losers, and potentially impacting CLO equity and default rates.

Growth Prospects

Analysts estimate next year's revenue growth at 17.0%. The company's ability to take advantage of interesting opportunities in the CLO equity market and its expectation to continue to see compelling special situations, especially in the secondary market, may drive this growth. Laurence Penn mentioned that Ellington Credit Company is entering the market for hedges at attractive prices, considering the current market conditions.

3. NewsRoom

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Ellington Credit Company (EARN) Q3 2025 Earnings Call Transcript

Nov -20

Source: seekingalpha.com

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Ellington Credit (EARN) Q3 Earnings and Revenues Surpass Estimates

Nov -20

Source: zacks.com

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Ellington Credit Company Announces Financial Results for the Second Fiscal Quarter Ended September 30, 2025

Nov -19

Source: businesswire.com

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Ellington Credit (NYSE:EARN) Shares Cross Below 200-Day Moving Average – Here’s Why

Nov -19

Source: defenseworld.net

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Ellington Credit Company Announces Release Date of Earnings, Conference Call, and Investor Presentation

Nov -05

Source: businesswire.com

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EARN: Attractive Double-Digit Yield And Unique European CLO Exposure

Sep -11

Source: seekingalpha.com

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CEF Weekly Review: Bulldog Is Back To Financial Engineering

Sep -01

Source: seekingalpha.com

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Ellington Credit: High Yield, Speculative CLO Fund

Aug -21

Source: seekingalpha.com

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (6.00%)

6. Segments

Real Estate Investment Trust

Expected Growth: 6.0%

Ellington Residential Mortgage REIT's 6.0% growth is driven by increasing demand for housing, low interest rates, and a strong US economy. The REIT's diversified portfolio of residential mortgage-backed securities and whole loans also contributes to its growth. Additionally, the company's active management and hedging strategies help to mitigate risks and maximize returns.

7. Detailed Products

Residential Mortgage-Backed Securities (RMBS)

Ellington Residential Mortgage REIT invests in and manages a diversified portfolio of RMBS, which are securities backed by residential mortgages.

Agency RMBS

Ellington Residential Mortgage REIT invests in agency RMBS, which are guaranteed by government-sponsored entities such as Fannie Mae and Freddie Mac.

Non-Agency RMBS

Ellington Residential Mortgage REIT invests in non-agency RMBS, which are not guaranteed by government-sponsored entities.

To-Be-Announced (TBA) Securities

Ellington Residential Mortgage REIT invests in TBA securities, which are forward-settling trades that allow the company to take advantage of market opportunities.

Excess MSRs

Ellington Residential Mortgage REIT invests in excess mortgage servicing rights (MSRs), which represent the right to service mortgages.

Whole Loans

Ellington Residential Mortgage REIT invests in whole loans, which are individual mortgages that have not been securitized.

8. Ellington Residential Mortgage REIT's Porter Forces

Forces Ranking

Threat Of Substitutes

The threat of substitutes for Ellington Residential Mortgage REIT is moderate, as there are alternative investment options available to investors, but the company's focus on residential mortgage-backed securities provides some differentiation.

Bargaining Power Of Customers

The bargaining power of customers is low, as Ellington Residential Mortgage REIT is a publicly traded company and its customers are primarily institutional investors who have limited negotiating power.

Bargaining Power Of Suppliers

The bargaining power of suppliers is moderate, as Ellington Residential Mortgage REIT relies on a diverse range of suppliers, including mortgage originators and servicers, but has some negotiating power due to its scale and reputation.

Threat Of New Entrants

The threat of new entrants is low, as entering the residential mortgage-backed securities market requires significant capital and expertise, and Ellington Residential Mortgage REIT has a strong track record and established relationships with investors.

Intensity Of Rivalry

The intensity of rivalry is high, as Ellington Residential Mortgage REIT operates in a competitive market with several established players, and must continually innovate and adapt to changing market conditions to maintain its market share.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 84.26%
Debt Cost 3.95%
Equity Weight 15.74%
Equity Cost 13.34%
WACC 5.42%
Leverage 535.49%

11. Quality Control: Ellington Residential Mortgage REIT passed 1 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

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Growth: 4.2

Quality: 6.6

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Momentum: 2.0

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Redwood Trust

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Ellington Residential Mortgage REIT

A-Score: 5.7/10

Value: 4.5

Growth: 2.8

Quality: 5.2

Yield: 10.0

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Volatility: 9.3

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A-Score: 5.2/10

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A-Score: 4.7/10

Value: 6.6

Growth: 4.1

Quality: 3.1

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Volatility: 7.0

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

5.36$

Current Price

5.36$

Potential

-0.00%

Expected Cash-Flows