10-Q 1 earn-20240331.htm 10-Q earn-20240331
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Such termination fee will be equal to 5% of Shareholders' Equity, as defined in the Management Agreement as of the month-end preceding the date of the notice of termination or non-renewal of the Management Agreement.0.4one 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to         
Commission file number 001-35896
Ellington Credit Company
(Exact Name of Registrant as Specified in Its Charter)
Maryland 46-0687599
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
53 Forest Avenue
Old Greenwich, Connecticut 06870
(Address of Principal Executive Offices) (Zip Code)
(203) 698-1200
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common Shares of Beneficial Interest, $0.01 par value per shareEARNThe New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer" "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated Filer
Non-Accelerated FilerSmaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
Number of the Registrant's common shares outstanding as of May 10, 2024: 20,134,542



ELLINGTON CREDIT COMPANY
PART I. Financial Information
Item 1. Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4. Controls and Procedures
PART II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits



PART I—FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (unaudited)
ELLINGTON CREDIT COMPANY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, 2024December 31, 2023
(In thousands except for share amounts)
ASSETS
Cash and cash equivalents$22,442 $38,533 
Securities, at fair value(1)
812,042 773,548 
Due from brokers5,261 3,245 
Financial derivatives–assets, at fair value
82,330 74,279 
Receivable for securities sold36,474 51,132 
Interest receivable4,642 4,522 
Other assets
765 431 
Total Assets$963,956 $945,690 
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Repurchase agreements$683,171 $729,543 
Payable for securities purchased68,179 12,139 
Due to brokers58,238 54,476 
Financial derivatives–liabilities, at fair value5,746 7,329 
Dividend payable1,586 1,488 
Accrued expenses1,702 1,153 
Management fee payable to affiliate538 513 
Interest payable1,879 2,811 
Total Liabilities821,039 809,452 
SHAREHOLDERS' EQUITY
Preferred shares, par value $0.01 per share, 100,000,000 shares authorized;
(0 shares issued and outstanding, respectively)
  
Common shares, par value $0.01 per share, 500,000,000 shares authorized;
(19,819,610 and 18,601,464 shares issued and outstanding, respectively)
198 186 
Additional paid-in-capital282,161 274,698 
Accumulated deficit(139,442)(138,646)
Total Shareholders' Equity142,917 136,238 
Total Liabilities and Shareholders' Equity$963,956 $945,690 
(1)Includes assets pledged as collateral to counterparties. See Note 6 for additional details on the Company's borrowings and related collateral.
See Notes to Consolidated Financial Statements
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ELLINGTON CREDIT COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three-Month Period Ended
March 31, 2024March 31, 2023
(In thousands except for per share amounts)
INTEREST INCOME (EXPENSE)
Interest income$10,379 $9,338 
Interest expense(10,100)(9,710)
Total net interest income (expense)279 (372)
EXPENSES
Management fees to affiliate538 433 
Professional fees339 242 
Compensation expense270 181 
Insurance expense94 99 
Other operating expenses386 350 
Total expenses1,627 1,305 
OTHER INCOME (LOSS)
Net realized gains (losses) on securities(9,823)(15,126)
Net realized gains (losses) on financial derivatives3,459 1,743 
Change in net unrealized gains (losses) on securities1,760 27,948 
Change in net unrealized gains (losses) on financial derivatives10,216 (10,551)
Total other income (loss)5,612 4,014 
Net income (loss) before income taxes4,264 2,337 
Income tax expense (benefit) 303  
NET INCOME (LOSS)$3,961 $2,337 
NET INCOME (LOSS) PER COMMON SHARE:
Basic and Diluted$0.20 $0.17 

See Notes to Consolidated Financial Statements
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ELLINGTON CREDIT COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
Common SharesCommon
Shares,
par value
Preferred SharesPreferred Shares,
par value
Additional Paid-in-CapitalAccumulated (Deficit) EarningsTotal
(In thousands except for share amounts)
BALANCE, December 31, 202318,601,464 $186  $ $274,698 $(138,646)$136,238 
Common shares issued(1)
1,218,146 12 7,391 7,403 
Share based compensation72 72 
Dividends declared(2)
(4,757)(4,757)
Net income (loss)3,961 3,961 
BALANCE, March 31, 202419,819,610 $198  $ $282,161 $(139,442)$142,917 
BALANCE, December 31, 202213,377,840 $134  $ $240,940 $(128,665)$112,409 
Common shares issued(1)
455,671 4 3,487 3,491 
Share based compensation45 45 
Forfeiture of common shares to satisfy tax withholding obligations(3,108)   
Dividends declared(2)
(3,305)(3,305)
Net income (loss)2,337 2,337 
BALANCE, March 31, 202313,830,403 $138  $ $244,472 $(129,633)$114,977 
(1)Net of discounts and commissions and offering costs.
(2)For each of the three-month periods ended March 31, 2024 and 2023, dividends totaling $0.24, per common share outstanding, were declared.
See Notes to Consolidated Financial Statements
5


ELLINGTON CREDIT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three-Month Period Ended
March 31, 2024March 31, 2023
(In thousands)
Cash flows provided by (used in) operating activities:
Net income (loss)$3,961 $2,337 
Reconciliation of net income (loss) to net cash provided by (used in) operating activities:
Net realized (gains) losses on securities9,823 15,126 
Change in net unrealized (gains) losses on securities(1,760)(27,948)
Net realized (gains) losses on financial derivatives(3,459)(1,743)
Change in net unrealized (gains) losses on financial derivatives(10,216)10,551 
Amortization of premiums and accretion of discounts, net1,090 785 
Share based compensation72 45 
(Increase) decrease in assets:
Interest receivable(120)(163)
Other assets(238)(236)
Increase (decrease) in liabilities:
Accrued expenses549 112 
Interest payable(932)(1,259)
Management fees payable to affiliate25 10 
Net cash provided by (used in) operating activities(1,205)(2,383)
Cash flows provided by (used in) investing activities:
Purchases of securities(435,617)(503,821)
Proceeds from sale of securities437,761 432,897 
Principal repayments of securities20,321 19,549 
Proceeds from investments sold short107,893 154,751 
Repurchase of investments sold short(107,308)(142,811)
Proceeds from disposition of financial derivatives8,216 9,101 
Purchase of financial derivatives(3,428)(7,381)
Payments made on reverse repurchase agreements(687,682)(339,896)
Proceeds from reverse repurchase agreements687,682 337,868 
Due from brokers, net(867)749 
Due to brokers, net13,677 (6,115)
Net cash provided by (used in) investing activities40,648 (45,109)
See Notes to Consolidated Financial Statements
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ELLINGTON CREDIT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
Three-Month Period Ended
March 31, 2024March 31, 2023
Cash flows provided by (used in) financing activities:
Net proceeds from the issuance of common shares(1)
$7,430 $3,516 
Offering costs paid(122) 
Dividends paid(4,659)(3,269)
Borrowings under repurchase agreements1,178,581 1,462,864 
Repayments of repurchase agreements(1,224,953)(1,429,649)
Due from brokers, net(1,687)11,358 
Due to brokers, net(10,124)4,513 
Cash provided by (used in) financing activities(55,534)49,333 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS(16,091)1,841 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD38,533 34,816 
CASH AND CASH EQUIVALENTS, END OF PERIOD$22,442 $36,657 
Supplemental disclosure of cash flow information:
Interest paid$11,030 $10,969 
Dividends payable1,586 1,106 
(1)Net of discount and commissions.
See Notes to Consolidated Financial Statements
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ELLINGTON CREDIT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(UNAUDITED)
1. Organization and Investment Objective
Ellington Credit Company, or "EARN," (formerly Ellington Residential Mortgage REIT) was initially formed as a Maryland real estate investment trust, or "REIT," on August 2, 2012, and commenced operations on September 25, 2012, with a focus on acquiring, investing in, and managing residential mortgage- and real estate-related assets through its wholly owned subsidiaries. EARN conducts its business through its wholly owned subsidiaries, EARN OP GP LLC, or the "General Partner," and Ellington Residential Mortgage LP, or the "Operating Partnership," which were formed as a Delaware limited liability company and a Delaware limited partnership, respectively, on July 31, 2012 and commenced operations on September 25, 2012. The Operating Partnership conducts its business of acquiring, investing in, and managing targeted assets through its wholly owned subsidiaries. EARN, the General Partner, the Operating Partnership, and their consolidated subsidiaries are hereafter defined as the "Company."
On March 29, 2024, the Company's Board of Trustees approved a strategic transformation, the "CLO Strategic Transformation," of the Company's investment strategy to focus on corporate collateralized loan obligations, or "CLOs." In connection with the CLO Strategic Transformation, the Company revoked its status as a REIT under the Internal Revenue Code of 1986, as amended, or "the Code," and, effective January 1, 2024, conducts its operations as a taxable C-Corp and maintains its exclusion from registration under the Investment Company Act of 1940, as amended, or the "Investment Company Act." On April 19, 2024, the Company changed its name and amended its declaration of trust and bylaws accordingly. Later in 2024, the Company intends to convert to a closed-end fund to be treated as a regulated investment company, or "RIC," subject to shareholder approval of certain matters. After such conversion to a closed-end fund, the Company would be required to comply with the rules and regulations of the Investment Company Act.
The Company began acquiring and actively managing a portfolio CLOs during the year ended December 31, 2023. The Company's targeted investments may range from unrated first loss securities to AAA senior securities.
Prior to the CLO Strategic Transformation, the Company focused on acquiring and managing 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 RMBS that do not carry such guarantees, or "non-Agency RMBS," such as RMBS backed by prime jumbo, Alternative A-paper, manufactured housing, and subprime residential mortgage loans. Agency RMBS include both Agency pools and Agency collateralized mortgage obligations, or "CMOs," and non-Agency RMBS primarily consist of non-Agency CMOs, both investment grade and non-investment grade. As a result of the CLO Strategic Transformation, the Company intends to gradually liquidate its portfolio of mortgage-related assets and invest its capital in CLOs.
Ellington Credit Company Management LLC, formerly known as Ellington Residential Mortgage Management LLC, or the "Manager," serves as the Manager of the Company pursuant to the terms of the Fifth Amended and Restated Management Agreement, as amended, or the "Management Agreement." The Manager is an affiliate of Ellington Management Group, L.L.C., or "EMG," an investment management firm that is an SEC-registered investment adviser with a longstanding history of investing in CLOs across a wide variety of market conditions. In accordance with the terms of the Management Agreement and the Services Agreement (as described in Note 9), the Manager is responsible for administering the Company's business activities and day-to-day operations, and performs certain services, subject to oversight by the Board of Trustees. See Note 9 for further information on the Management Agreement.
2. Significant Accounting Policies
(A) Basis of Presentation: The Company's unaudited interim consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, or "U.S. GAAP," and Regulation S-X. Entities in which the Company has a controlling financial interest, through ownership of the majority of the entities' voting equity interests, or through other contractual rights that give the Company control, are consolidated by the Company. All inter-company balances and transactions have been eliminated. The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and those differences could be material. In management's opinion, all material adjustments considered necessary for a fair statement of the Company's interim consolidated financial statements have been included and are only of a normal recurring nature. Interim results are not necessarily indicative of the results that may be expected for the entire fiscal year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2023.
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(B) Valuation: The Company applies ASC 820-10, Fair Value Measurement ("ASC 820-10"), to its holdings of financial instruments. ASC 820-10 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the observability of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
Level 1—inputs to the valuation methodology are observable and reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Currently, the types of financial instruments the Company generally includes in this category are exchange-traded derivatives and equities;
Level 2—inputs to the valuation methodology other than quoted prices included in Level 1 are observable for the asset or liability, either directly or indirectly. Currently, the types of financial instruments that the Company generally includes in this category are Agency RMBS, U.S. Treasury securities, certain non-Agency RMBS, CLOs, and actively traded derivatives such as TBAs, interest rate swaps, swaptions, credit default swaps, or "CDS", foreign currency forwards, and other over-the-counter derivatives; and
Level 3—inputs to the valuation methodology are unobservable and significant to the fair value measurement. Currently, this category generally includes certain CLOs, CDS, and RMBS, such as certain non-Agency RMBS and certain Agency interest only securities, or "IOs," where there is less price transparency.
For certain financial instruments, the various inputs that management uses to measure fair value may fall into different levels of the fair value hierarchy. For each such financial instrument, the determination of which category within the fair value hierarchy is appropriate is based on the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the various inputs that management uses to measure fair value, with the highest priority given to inputs that are observable and reflect quoted prices (unadjusted) for identical assets or liabilities in active markets (Level 1), and the lowest priority given to inputs that are unobservable and significant to the fair value measurement (Level 3). The assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument. The Company may use valuation techniques consistent with the market and income approaches to measure the fair value of its assets and liabilities. The market approach uses third-party valuations and information obtained from market transactions involving identical or similar assets or liabilities. The income approach uses projections of the future economic benefits of an instrument to determine its fair value, such as in the discounted cash flow methodology. The inputs or methodology used for valuing financial instruments are not necessarily an indication of the risk associated with investing in these financial instruments. The leveling of each financial instrument is reassessed at the end of each period. Transfers between levels of the fair value hierarchy are assumed to occur at the end of the reporting period.
Summary Valuation Techniques
For financial instruments that are traded in an "active market," the best measure of fair value is the quoted market price. However, many of the Company's financial instruments are not traded in an active market. Therefore, management generally uses third-party valuations when available. If third-party valuations are not available, management uses other valuation techniques, such as the discounted cash flow methodology. The following are summary descriptions, for the various categories of financial instruments, of the valuation methodologies management uses in determining fair value of the Company's financial instruments in such categories. Management utilizes such methodologies to assign a fair value (the estimated price that, in an orderly transaction at the valuation date, would be received to sell an asset, or paid to transfer a liability, as the case may be) to each such financial instrument.
For the Company's investments in securities and TBAs, management seeks to obtain at least one third-party valuation, and often obtains multiple valuations when available. Management has been able to obtain third-party valuations on the vast majority of these instruments and expects to continue to solicit third-party valuations in the future. Management generally values each financial instrument at the average of third-party valuations received and not rejected as described below. Third-party valuations are not binding, management may adjust the valuations it receives (e.g., downward adjustments for odd lots), and management may challenge or reject a valuation when, based on its validation criteria, management determines that such valuation is unreasonable or erroneous. Furthermore, based on its validation criteria, management may determine that the average of the third-party valuations received for a given instrument does not result in what management believes to be the fair value of such instrument, and in such circumstances management may override this average with its own good faith valuation. The validation criteria may take into account output from management's own models, recent trading activity in the same or similar instruments, and valuations received from third parties. The use of proprietary models requires the use of a significant amount of judgment and the application of various assumptions including, but not limited to, assumptions concerning future prepayment rates and default rates.
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Given their relatively high level of price transparency, Agency RMBS pass-throughs, and TBAs are typically designated as Level 2 assets. Non-Agency RMBS, CLOs, and Agency interest only and inverse interest only RMBS are generally classified as either Level 2 or Level 3 based on the analysis of available market data and/or third-party valuations. Furthermore, the methodology used by the third-party valuation providers is reviewed at least annually by management, so as to ascertain whether such providers are utilizing observable market data to determine the valuations that they provide.
Interest rate swaps, swaptions, and foreign currency forwards are typically valued based on internal models that use observable market data, including applicable interest rates and foreign currency rates in effect as of the measurement date; the model-generated valuations are then typically compared to counterparty valuations for reasonableness; These financial derivatives are generally designated as Level 2 instruments.
For financial derivatives with greater price transparency, such as CDS on corporate indices, market-standard pricing sources are used to obtain valuations; these financial derivatives are generally classified as Level 2.
In valuing its derivatives, the Company also considers the creditworthiness of both the Company and its counterparties, along with collateral provisions contained in each derivative agreement.
The Company's reverse repurchase agreements and repurchase agreements are carried at cost, which approximates fair value. Reverse repurchase agreements and repurchase agreements are classified as Level 2 assets and liabilities based on the adequacy of the collateral and their short term nature.
The Company's valuation process, including the application of validation criteria, is directed by the Manager's Valuation Committee ("Valuation Committee") and overseen by the Company's audit committee. The Valuation Committee includes senior level executives from various departments within the Manager, and each quarter the Valuation Committee reviews and approves the valuations of the Company's investments. The valuation process also includes a monthly review by the Company's third party administrator. The goal of this review is to replicate various aspects of the Company's valuation process based on the Company's documented procedures.
Because of the inherent uncertainty of valuation, the estimated fair value of the Company's financial instruments may differ significantly from the values that would have been used had a ready market for the financial instruments existed, and the differences could be material to the consolidated financial statements.
(C) Accounting for Securities: Purchases and sales of securities are recorded on trade date and realized and unrealized gains and losses are calculated based on identified cost.
The Company has chosen to make a fair value election pursuant to ASC 825-10, Financial Instruments, for its securities portfolio. Electing the fair value option, or "FVO," allows the Company to record changes in fair value in the Consolidated Statement of Operations, which, in management's view, more appropriately reflects the results of operations for a particular reporting period as all securities activities will be recorded in a similar manner. As such, securities are recorded at fair value on the Consolidated Balance Sheet and the period change in fair value is recorded in current period earnings on the Consolidated Statement of Operations as a component of Change in net unrealized gains (losses) on securities.
The Company applies the principles of ASU 2016-13, Financial Instruments—Credit Losses ("ASU 2016-13") and evaluates the cost basis of its securities on at least a quarterly basis under ASC 326-30, Financial Instruments—Credit Losses: Available-for-Sale Debt Securities ("ASC 326-30"). When the fair value of a security is less than its amortized cost basis as of the balance sheet date, the security's cost basis is considered impaired. The Company must evaluate the decline in the fair value of the impaired security and determine whether such decline resulted from a credit loss or non-credit related factors. In its assessment of whether a credit loss exists, the Company compares the present value of estimated future cash flows of the impaired security with the amortized cost basis of such security. The estimated future cash flows reflect those that a "market participant" would use and typically include assumptions related to fluctuations in interest rates, prepayment speeds, default rates, collateral performance, and the timing and amount of projected credit losses, as well as incorporating observations of current market developments and events. Cash flows are discounted at an interest rate equal to the current yield used to accrete interest income. If the present value of estimated future cash flows is less than the amortized cost basis of the security, an expected credit loss exists and is included in Unrealized gains (losses) on securities and loans, net, on the Consolidated Statement of Operations. If it is determined as of the financial reporting date that all or a portion of a security's cost basis is not collectible, then the Company will recognize a realized loss to the extent of the adjustment to the security's cost basis. This adjustment to the amortized cost basis of the security is reflected in Net realized gains (losses) on securities, on the Consolidated Statement of Operations.
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(D) Interest Income: Coupon interest income on investment securities is accrued based on the outstanding principal balance or notional amount and the current coupon rate on each security. The Company amortizes purchase premiums and accretes purchase discounts on its fixed-income securities. For RMBS that are deemed to be of high credit quality at the time of purchase, premiums and discounts are generally amortized/accreted into interest income over the life of such securities using the effective interest method. For such RMBS whose cash flows vary depending on prepayments, an effective yield retroactive to the time of purchase is periodically recomputed based on actual prepayments and changes in projected prepayment activity, and a catch-up adjustment, or "Catch-up Amortization Adjustment," is made to amortization to reflect the cumulative impact of the change in effective yield.
For RMBS that are deemed not to be of high credit quality at the time of purchase, interest income is recognized based on the effective interest method. For purposes of estimating future expected cash flows, management uses assumptions including, but not limited to, assumptions for future prepayment rates, default rates, and loss severities (each of which may in turn incorporate various macro-economic assumptions, such as future housing prices). These assumptions are re-evaluated not less than quarterly. Changes in estimated future cash flows, as applied to the current amortized cost of the security, may result in a prospective change in the yield/interest income recognized on such securities.
Certain of the Company's debt securities, at the date of acquisition, have experienced or are expected to experience more-than-insignificant deterioration in credit quality since origination. If at the date of acquisition for a particular asset the Company projects a significant difference between contractual cash flows and expected cash flows, it establishes an initial estimate for credit losses as an upward adjustment to the acquisition cost of the asset for the purpose of calculating interest income using the effective yield method.
The Company's accretion of discounts and amortization of premiums on securities for U.S. federal and other tax purposes is likely to differ from the accounting treatment under U.S. GAAP of these items as described above.
(E) Cash and Cash Equivalents: Cash and cash equivalents include cash and short term investments with original maturities of three months or less at the date of acquisition. Cash and cash equivalents typically include amounts held in interest bearing overnight accounts and amounts held in money market funds, and these balances generally exceed insured limits. The Company holds its cash at institutions that it believes to be highly creditworthy.
(F) Due from brokers/Due to brokers: Due from brokers and Due to brokers accounts on the Consolidated Balance Sheet include collateral transferred to or received from counterparties, including clearinghouses, along with receivables and payables for open and/or closed derivative positions.
(G) Financial Derivatives: The Company enters into various types of financial derivatives subject to its investment guidelines. The Company's financial derivatives are predominantly subject to bilateral master trade agreements or clearing in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The Company may be required to deliver or may receive cash or securities as collateral upon entering into derivative transactions. In addition, changes in the relative value of financial derivative transactions may require the Company or the counterparty to post or receive additional collateral. In the case of cleared financial derivatives, the clearinghouse becomes the Company's counterparty and a futures commission merchant acts as intermediary between the Company and the clearinghouse with respect to all facets of the related transaction, including the posting and receipt of required collateral. Collateral received by the Company is reflected on the Consolidated Balance Sheet as "Due to Brokers." Conversely, collateral posted by the Company is reflected as "Due from Brokers" on the Consolidated Balance Sheet. The types of financial derivatives that have been utilized by the Company to date include interest rate swaps, TBAs, swaptions, and futures.
Swaps: The Company enters into various types of swaps including interest rate swaps and credit default swaps. The primary risk associated with the Company's interest rate swap activity is interest rate risk. The primary risk associated with the Company's credit default swaps and total return swaps is credit risk. The Company is subject to interest rate risk exposure in the normal course of pursuing its investment objectives.
Interest rate swaps are contractual agreements whereby one party pays a floating interest rate on a notional principal amount and receives a fixed-rate payment on the same notional principal, or vice versa, for a fixed period of time.
A credit default swap is a contract under which one party agrees to compensate another party for the financial loss associated with the occurrence of a "credit event" in relation to a "reference amount" or notional value of a "reference asset" (usually a bond, loan, or an index or basket of bonds or loans). The definition of a credit event may vary from contract to contract. A credit event may occur (i) when the reference asset (or underlying asset, in the case of a reference asset that is an index or basket) fails to make scheduled principal or interest payments to its holders, (ii) with respect to credit default swaps referencing mortgage/asset-backed securities and indices, when the reference asset (or underlying asset, in the case of a
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reference asset that is an index or basket) is downgraded below a certain rating level, or (iii) with respect to credit default swaps referencing corporate entities and indices, upon an event of default of the obligor of the reference asset (or underlying obligor, in the case of a reference asset that is an index).
Swaps change in value with movements in interest rates or total return of the reference securities. During the term of swap contracts, changes in value are recognized as unrealized gains or losses on the Consolidated Statement of Operations. When a contract is terminated, the Company realizes a gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Company's basis in the contract, if any. Periodic payments or receipts required by swap agreements are recorded as unrealized gains or losses when accrued and realized gains or losses when received or paid. Upfront payments paid and/or received by the Company to open swap contracts are recorded as an asset and/or liability on the Consolidated Balance Sheet and are recorded as a realized gain or loss on the termination date.
TBA Securities: The Company transacts in the forward settling TBA market. A TBA position is a forward contract for the purchase ("long position") or sale ("short position") of Agency RMBS at a predetermined price, face amount, issuer, coupon, and maturity on an agreed-upon future delivery date. For each TBA contract and delivery month, a uniform settlement date for all market participants is determined by the Securities Industry and Financial Markets Association. The specific Agency RMBS to be delivered into the contract at the settlement date are not known at the time of the transaction. The Company typically does not take delivery of TBAs, but rather enters into offsetting transactions and settles the associated receivable and payable balances with its counterparties. The Company uses TBAs to mitigate interest rate risk, usually by taking short positions. The Company also invests in TBAs as a means of acquiring additional exposure to Agency RMBS, or for speculative purposes, including holding long positions.
TBAs are accounted for by the Company as financial derivatives. The difference between the contract price and the fair value of the TBA position as of the reporting date is included in Change in net unrealized gains (losses) on financial derivatives in the Consolidated Statement of Operations. Upon settlement of the TBA contract, the realized gain (loss) on the TBA contract is equal to the net cash amount received (paid).
Options: The Company enters into swaption contracts. It may purchase or write put, call, straddle, or other similar options contracts. The Company enters into options contracts primarily to help mitigate interest rate risk. When the Company purchases an options contract, the option asset is initially recorded at an amount equal to the premium paid, if any, and is subsequently marked-to-market. Premiums paid for purchasing options contracts that expire unexercised are recognized on the expiration date as realized losses. If an options contract is exercised, the premium paid is subtracted from the proceeds of the sale or added to the cost of the purchase to determine whether the Company has realized a gain or loss on the related investment transaction. When the Company writes an options contract, the option liability is initially recorded at an amount equal to the premium received, if any, and is subsequently marked-to-market. Premiums received for writing options contracts that expire unexercised are recognized on the expiration date as realized gains. If an options contract is exercised, the premium received is subtracted from the cost of the purchase or added to the proceeds of the sale to determine whether the Company has realized a gain or loss on the related investment transaction. When the Company enters into a closing transaction, the Company will realize a gain or loss depending upon whether the amount from the closing transaction is greater or less than the premiums paid or received. In general, the Company's options contracts contain forward-settling premiums. In this case, no money is exchanged upfront; instead, the agreed-upon premium is paid by the buyer upon expiration of the options contract, regardless of whether or not the options contract is exercised. Unrealized gains or (losses) resulting from the options contract being marked-to-market are included in Change in net unrealized gains (losses) on financial derivatives in the Consolidated Statement of Operations. Realized gains or (losses) are included in Net realized gains (losses) on financial derivatives on the Consolidated Statement of Operations.
Futures Contracts: The Company enters into futures contract, typically U.S. Treasury futures contracts. A futures contract is an exchange-traded agreement to buy or sell an asset for a set price on a future date. Initial margin deposits are made upon entering into futures contracts and can be either in the form of cash or securities. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by marking-to-market to reflect the current market value of the contract. Unrealized gains or (losses) are included in Change in net unrealized gains (losses) on financial derivatives in the Consolidated Statement of Operations. Variation margin payments are made or received periodically, depending upon whether unrealized losses or gains are incurred. When the contract is closed, the Company records a realized gain or loss equal to the difference between the proceeds of the closing transaction and the Company's basis in the contract. Realized gains or (losses) are included in Net realized gains (losses) on financial derivatives on the Consolidated Statement of Operations.
Forward Currency Contracts: A forward currency contract is an agreement between two parties to purchase or sell a specific quantity of currency with the delivery and settlement at a specific future date and exchange rate. During the period the forward currency contract is open, changes in the value of the contract are recognized as unrealized gains or losses. When the
12


contract is settled, the Company records a realized gain or loss equal to the difference between the proceeds of the closing transaction and the Company's basis in the contract.
Financial derivative assets are included in Financial derivatives–assets, at fair value on the Consolidated Balance Sheet while financial derivative liabilities are included in Financial derivatives–liabilities, at fair value on the Consolidated Balance Sheet. The Company has chosen to elect the FVO for its financial derivatives. Electing the FVO allows the Company to record changes in fair value in the Consolidated Statement of Operations, which, in management's view, more appropriately reflects the results of operations for a particular reporting period as all securities activities will be recorded in a similar manner. Changes in unrealized gains and losses on financial derivatives are included in Change in net unrealized gains (losses) on financial derivatives, on the Consolidated Statement of Operations. Realized gains and losses on financial derivatives are included in Net realized gains (losses) on financial derivatives on the Consolidated Statement of Operations.
(H) Repurchase Agreements: The Company enters into repurchase agreements with third-party broker-dealers, whereby it sells securities under agreements to repurchase at an agreed upon price and date. The Company accounts for repurchase agreements as collateralized borrowings, with the initial sale price representing the amount borrowed, and with the future repurchase price consisting of the amount borrowed plus interest, at the implied interest rate of the repurchase agreement, on the amount borrowed over the term of the repurchase agreement. The interest rate on a repurchase agreement is based on competitive market rates (or competitive market spreads, in the case of agreements with floating interest rates) at the time such agreement is entered into. When the Company enters into a repurchase agreement, the lender establishes and maintains an account containing cash and/or securities having a value not less than the repurchase price, including accrued interest, of the repurchase agreement. Repurchase agreements are carried at their contractual amounts, which approximate fair value due to their short-term nature.
(I) Reverse Repurchase Agreements: The Company enters into reverse repurchase agreement transactions with third-party broker-dealers, whereby it purchases securities under agreements to resell at an agreed upon price and date. The interest rate on a reverse repurchase agreement is based on competitive market rates (or competitive market spreads, in the case of agreements with floating interest rates) at the time such agreement is entered into. Reverse repurchase agreements are carried at their contractual amounts, which approximate fair value due to their short-term nature.
Repurchase and reverse repurchase agreements that are conducted with the same counterparty can be reported on a net basis if they meet the requirements of ASC 210-20, Balance Sheet Offsetting. There are currently no repurchase and reverse repurchase agreements reported on a net basis in the Company's consolidated financial statements.
(J) Securities Sold Short: The Company may purchase or engage in short sales of U.S. Treasury securities to mitigate the potential impact of changes in interest rates on the performance of its portfolio. When the Company sells securities short, it typically satisfies its security delivery settlement obligation by borrowing or purchasing the security sold short from the same or a different counterparty. When borrowing a security sold short from a counterparty, the Company generally is required to deliver cash or securities to such counterparty as collateral for the Company's obligation to return the borrowed security.
The Company has chosen to make the fair value election pursuant to ASC 825-10, Financial Instruments, for its securities sold short. Electing the FVO allows the Company to record changes in fair value in the Consolidated Statement of Operations, which, in management's view, more appropriately reflects the results of operations for a particular reporting period as all securities activities will be recorded in a similar manner. As such, securities sold short are recorded at fair value on the Consolidated Balance Sheet and the period change in fair value is recorded in current period earnings on the Consolidated Statement of Operations as a component of Change in net unrealized gains (losses) on securities. A realized gain or loss will be recognized upon the termination of a short sale if the market price is less or greater than the original sale price. Such realized gain or loss is recorded on the Company's Consolidated Statement of Operations in Net realized gains (losses) on securities.
(K) Offering Costs/Deferred Offering Costs/Underwriters' Discounts: Offering costs, underwriters' discounts and commissions and fees, are charged against shareholders' equity within Additional paid-in-capital. Offering costs typically include legal, accounting, and other fees associated with the cost of raising equity capital.
(L) Share Based Compensation: The Company applies the provisions of ASC 718, Compensation—Stock Compensation ("ASC 718"), with regard to its equity incentive plans. ASC 718 covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. ASC 718 requires that compensation cost relating to share-based payment transactions be recognized in the financial statements. The cost is measured based on the fair value, at the grant date, of the equity or liability instruments issued and is amortized over the vesting period. Restricted shares issued to the Company's independent trustees and partially dedicated personnel are participating securities and receive dividends prior to vesting. Fair value for such awards is based on the closing stock price on the New York Stock Exchange at the grant date. The vesting period for restricted share
13


awards is typically one to two years. Shares issued to the Company's independent trustees and partially dedicated personnel are subject to tax withholding upon vesting. The Company's independent trustees and partially dedicated personnel are permitted to forfeit a portion of their vested shares to pay such withholding tax. Forfeited shares decrease the total number of shares issued and outstanding and are immediately retired upon settlement.
(M) Dividends: Dividends payable are recorded on the declaration date.
(N) Expenses: Expenses are recognized as incurred on the Consolidated Statement of Operations.
(O) Earnings Per Share: In accordance with the provisions of ASC 260, Earnings per Share, the Company calculates basic income (loss) per share by dividing net income (loss) for the period by the weighted average of the Company's common shares outstanding for that period. Diluted income (loss) per share takes into account the effect of dilutive instruments, such as share options and warrants, and uses the average share price for the period in determining the number of incremental shares that are to be added to the weighted average number of shares outstanding.
(P) Foreign Currency: The functional currency of the Company is U.S. dollars. Assets and liabilities denominated in foreign currencies are remeasured into U.S. dollars at current exchange rates at the following dates: (i) assets, liabilities, and unrealized gains/losses—at the valuation date; and (ii) income, expenses, and realized gains/losses—at the accrual/transaction date. For investments and financial derivatives denominated in a foreign currency, the Company isolates the portion of realized and change in unrealized gain (loss) resulting from changes in the foreign currency exchange rate from the fluctuations arising from changes in fair value (as measured in such foreign currency). Changes in realized and change in unrealized gain (loss) due to foreign currency are included in Other, net, on the Consolidated Statement of Operations.
The Company's reporting currency is U.S. Dollars. If the Company has investments in unconsolidated entities that have a functional currency other than U.S. Dollars, the fair value is translated to U.S. dollars using the current exchange rate at the valuation date. The cumulative translation adjustment, if any, associated with the Company's investments in unconsolidated entities is recorded in accumulated other comprehensive income (loss), a component of consolidated shareholders' equity.
(Q) Share Repurchases: Common shares that are repurchased by the Company subsequent to issuance are immediately retired upon settlement and decrease the total number of shares issued and outstanding. The cost of such share repurchases is charged against Additional paid-in-capital on the Company's Consolidated Balance Sheet.
(R) Income Taxes: The Company has revoked its previous election to be taxed as a REIT under Sections 856 through 860 of the Code and will operate as a C-Corp subject to U.S. federal, state, and local corporate income taxes for the tax year beginning January 1, 2024. The Company's financial results reflect provisions for any current or deferred income taxes.
The Company follows the authoritative guidance on accounting for and disclosure of uncertainty on tax positions, which requires management to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. For uncertain tax positions, the tax benefit to be recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company did not have any unrecognized tax benefits resulting from tax positions related to the current period or its open tax years (2020, 2021, 2022, and 2023). In the normal course of business, the Company may be subject to examination by federal, state, local, and foreign jurisdictions, where applicable, for the current period and its open tax years. The Company 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 of such positions, the Company might be found to have a tax liability that has not been recorded in the accompanying consolidated financial statements. 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. The Company recognizes interest and penalties, if any, related to uncertain tax positions, as income tax expense included in Income tax expense (benefit) on the Consolidated Statement of Operations. See Note 11 for additional details on income taxes.
(S) Recent Accounting Pronouncements: In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures ("ASU 2023-09") which requires disaggregated information about a reporting entities effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, with early adoption permitted. ASU 2023-09 will be applied on a prospective basis with the option to apply ASU 2023-09 retrospectively. The Company is still assessing the impact of ASU 2023-09 on the Company's consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting—Improvements to Reportable Segment Disclosures ("ASU 2023-07") which requires incremental disclosures related to an entity's reportable segments, including identifying significant segment expense categories and any multiple measures of segment profit or loss used by the CODM.
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Additionally, ASU 2023-07 provides further guidance on interim reporting, disclosures required by entities with a single reportable segment, and recasting of previously reported segment information. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning after December 15, 2024, with early adoption permitted. ASU 2023-07 will be applied on a retrospective basis unless it is impracticable to do so. While the Company is still assessing the impact of ASU 2023-07, it is not expected to have a material impact on the Company's consolidated financial statements.
3. Investment in Securities
The Company's securities portfolio primarily consists of Agency and non-Agency RMBS and corporate CLOs, and may also include U.S. Treasury securities and preferred equity securities. The Company's Agency RMBS include mortgage pass-through certificates and CMOs representing interests in or obligations backed by pools of residential mortgage loans issued or guaranteed by a U.S. government agency or government-sponsored enterprise, or "GSE." The securities in the Company's non-Agency RMBS and CLO portfolios are not issued or guaranteed by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, or any agency of the U.S. Government and are therefore subject to greater credit risk.
The following tables present details of the Company's investments in securities as of March 31, 2024 and December 31, 2023.
March 31, 2024:
Unamortized Premium (Discount)Gross UnrealizedWeighted Average
($ in thousands)Current Principal
Amortized Cost
GainsLossesFair Value
Coupon(1)(2)
Yield
Life
(Years)
(3)
RMBS:
Agency:
15-year fixed-rate mortgages$28,173 $193 $28,366 $12 $(1,005)$27,373 3.77%3.44%2.87
20-year fixed-rate mortgages4,387 347 4,734 4 (504)4,234 4.49%2.74%5.19
30-year fixed-rate mortgages720,307 (20,207)700,100 3,448 (17,142)686,406 4.49%4.78%6.36
Adjustable rate mortgages7,043 788 7,831  (792)7,039 4.88%2.69%4.04
Reverse mortgages13,565 1,777 15,342  (1,133)14,209 6.10%2.67%4.62
Interest only securities(4)
 n/a  n/a 5,454 1,160 (113)6,501 2.76%16.25%5.86
Non-Agency:
Principal and interest securities9,942 (1,808)8,134 1,537 (24)9,647 9.38%10.89%5.48
Interest only securities(4)
 n/a  n/a 8,432 3,113  11,545 0.22%16.40%9.03
CLO Notes39,096 (6,683)32,413 1,622 (274)33,761 12.22%16.18%4.40
CLO Equity n/a  n/a 11,602 169 (444)11,327 n/a26.49%6.18
Total$822,513 $(25,593)$822,408 $11,065 $(21,431)$812,042 4.92%5.67%6.12
(1)Weighted average coupon represents the weighted average coupons of the securities, rather than, in the case of collateralized securities, the weighted average coupon rates on the underlying collateral.
(2)Total weighted average coupon excludes CLO equity securities and interest only RMBS.
(3)Expected average lives of RMBS are generally shorter than stated contractual maturities. Average lives are affected by the contractual maturities of the underlying mortgages, scheduled periodic payments of principal, and unscheduled prepayments of principal.
(4)Weighted average coupon is based on a notional principal amount of $76.3 million and $1.04 billion, for Agency and non-Agency interest only securities, respectively.
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December 31, 2023:
Unamortized Premium (Discount)Gross UnrealizedWeighted Average
($ in thousands)Current Principal
Amortized Cost
Gains
LossesFair Value
Coupon(1)(2)
Yield
Life
(Years)(3)
RMBS:
Agency:
15-year fixed-rate mortgages$28,647 $118 $28,765 $32 $(950)$27,847 3.46%3.20%2.90
20-year fixed-rate mortgages8,524 509 9,033 4 (1,174)7,863 3.30%2.21%5.68
30-year fixed-rate mortgages697,510 (15,131)682,379 8,180 (20,265)670,294 4.26%4.42%6.51
Adjustable rate mortgages7,127 933 8,060  (941)7,119 4.68%2.74%4.45
Reverse mortgages14,406 2,183 16,589  (1,715)14,874 5.92%2.94%4.50
Interest only securities(4)
n/an/a6,607 971 (163)7,415 2.77%15.64%6.10
Non-Agency:
Principal and interest securities9,953 (1,764)8,189 1,231 (11)9,409 9.39%10.72%5.80
Interest only securities(4)
n/an/a8,700 2,610  11,310 0.22%16.69%9.03
CLO Notes16,876 (2,435)14,441 123 (73)14,491 12.16%15.26%5.66
CLO Equityn/an/a2,947 51 (72)2,926 n/a35.84%5.87
Total$783,043 $(15,587)$785,710 $13,202 $(25,364)$773,548 4.49%4.92%6.32
(1)Weighted average coupon represents the weighted average coupons of the securities, rather than, in the case of collateralized securities, the coupon rates on the underlying collateral.
(2)Total weighted average coupon excludes CLO equity securities and interest only RMBS.
(3)Expected average lives of RMBS are generally shorter than stated contractual maturities. Average lives are affected by the contractual maturities of the underlying mortgages, scheduled periodic payments of principal, and unscheduled prepayments of principal.
(4)Weighted average coupon is based on a notional principal amount of $83.8 million and $1.05 billion, for Agency and non-Agency interest only securities, respectively.
By Estimated Weighted Average Life
As of March 31, 2024:
($ in thousands)
Agency RMBSAgency IOs
Estimated Weighted Average Life(1)
Fair
Value
Amortized Cost
Weighted Average Coupon(2)
Fair ValueAmortized Cost
Weighted Average Coupon(2)
Less than three years$85,771 $85,781 5.83 %$1,820 $1,437 2.09 %
Greater than three years and less than seven years290,993 297,357 5.02 %1,481 1,246 4.35 %
Greater than seven years and less than eleven years362,497 373,235 3.80 %3,200 2,771 3.44 %
Total$739,261 $756,373 4.49 %$6,501 $5,454 2.76 %
(1)Expected average lives of RMBS are generally shorter than stated contractual maturities.
(2)Weighted average coupon represents the weighted average coupons of the securities rather than the coupon rates on the underlying collateral.
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($ in thousands)
Non-Agency RMBSNon-Agency IOs
CLOs(3)
Estimated Weighted Average Life(1)
Fair ValueAmortized Cost
Weighted Average Coupon(2)
Fair ValueAmortized Cost
Weighted Average Coupon(2)
Fair ValueAmortized Cost
Weighted Average Coupon(2)
Less than three years$1,764 $1,756 7.45 %$ $  %$7,392 $6,754 11.55 %
Greater than three years and less than seven years6,058 5,228 11.34 %   %23,620 22,942 12.24 %
Greater than seven years and less than eleven years1,825 1,150 5.94 %11,545 8,432 0.22 %2,749 2,717 14.06 %
Total$9,647 $8,134 9.38 %$11,545 $8,432 0.22 %$33,761 $32,413 12.22 %
(1)Expected average lives of RMBS and CLOs are generally shorter than stated contractual maturities.
(2)Weighted average coupon represents the weighted average coupons of the securities rather than the coupon rates on the underlying collateral.
(3)CLOs excludes CLO Equity.
As of December 31, 2023:
($ in thousands)
Agency RMBSAgency IOs
Estimated Weighted Average Life(1)
Fair
Value
Amortized Cost
Weighted Average Coupon(2)
Fair ValueAmortized Cost
Weighted Average Coupon(2)
Less than three years$85,958 $85,990 5.67 %$1,774 $1,566 2.10 %
Greater than three years and less than seven years297,251 303,424 4.67 %1,796 1,570 3.72 %
Greater than seven years and less than eleven years344,788 355,412 3.58 %3,845 3,471 3.53 %
Total$727,997 $744,826 4.25 %$7,415 $6,607 2.77 %
(1)Expected average lives of RMBS are generally shorter than stated contractual maturities.
(2)Weighted average coupon represents the weighted average coupons of the securities rather than the coupon rates on the underlying collateral.
($ in thousands)
Non-Agency RMBSNon-Agency IOs
CLOs(3)
Estimated Weighted Average Life(1)
Fair ValueAmortized Cost
Weighted Average Coupon(2)
Fair ValueAmortized Cost
Weighted Average Coupon(2)
Fair ValueAmortized Cost
Weighted Average Coupon(2)
Less than three years$1,764 $1,749 7.45 %$ $  %$ $  %
Greater than three years and less than seven years5,834 5,271 11.39 %   %13,114 13,078 11.99 %
Greater than seven years and less than eleven years1,217 1,169 6.07 %11,310 8,700 0.22 %1,377 1,363 14.06 %
Greater than eleven years594  5.79 %   %   %
Total$9,409 $8,189 9.39 %$11,310 $8,700 0.22 %$14,491 $14,441 12.16 %
(1)Expected average lives of RMBS are generally shorter than stated contractual maturities.
(2)Weighted average coupon represents the weighted average coupons of the securities rather than the coupon rates on the underlying collateral.
(3)CLOs excludes CLO Equity.
The following tables reflect the components of net interest income (expense) by security type for the three-month period ended March 31, 2024 and 2023:
Three-Month Period Ended
March 31, 2024
Three-Month Period Ended
March 31, 2023
($ in thousands)
Net Coupon
Interest
Net AmortizationNet Interest
Income (Expense)
Net Coupon
Interest
Net AmortizationNet Interest
Income (Expense)
Agency RMBS$8,457 $(1,054)$7,403 $9,274 $(1,084)$8,190 
Non-Agency RMBS897 (333)564 659 (82)577 
CLOs1,288 (44)1,244    
U.S. Treasury securities(68)30 (38)   
Total$10,574 $(1,401)$9,173 $9,933 $(1,166)$8,767 
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For the three-month periods ended March 31, 2024 and 2023, the Catch-up Amortization Adjustment was $(0.9) million and $(0.3) million, respectively.
At March 31, 2024, the Company had gross unrealized losses on securities of $(21.4) million, of which $(1.2) million relates primarily to adverse changes in estimated future cash flows on CLOs and Agency IOs. At December 31, 2023, the Company had gross unrealized losses on securities of $(25.4) million, of which $(0.2) million relates primarily to adverse changes in estimated future cash flows on CLOs and Agency IOs.
The Company determined for certain securities that a portion of such securities' cost basis is not collectible; for the three-month periods ended March 31, 2024 and 2023, the Company recognized realized losses on such securities of $(13) thousand and $(0.2) million, respectively. Such realized losses are reflected in Net realized gains (losses) on securities, on the Consolidated Statement of Operations.
4. Valuation
The following tables present the Company's financial instruments measured at fair value on:
March 31, 2024:
(In thousands)
DescriptionLevel 1Level 2Level 3Total
Assets:
Securities:
Agency RMBS:
15-year fixed-rate mortgages$ $27,373 $ $27,373 
20-year fixed-rate mortgages 4,234  4,234 
30-year fixed-rate mortgages 686,406  686,406 
Adjustable rate mortgages 7,039  7,039 
Reverse mortgages 14,209  14,209 
Interest only securities 2,581 3,920 6,501 
Non-Agency RMBS 15,364 5,828 21,192 
CLOs 19,492 25,596 45,088 
Total securities, at fair value 776,698 35,344 812,042 
Financial derivatives–assets, at fair value:
TBAs 134  134 
Interest rate swaps 81,993  81,993 
Futures203   203 
Total financial derivatives–assets, at fair value203 82,127  82,330 
Total securities and financial derivatives–assets, at fair value$203 $858,825 $35,344 $894,372 
Liabilities:
Financial derivatives–liabilities, at fair value:
TBAs$ $(208)$ $(208)
Interest rate swaps (4,831) (4,831)
Credit default swaps (707) (707)
Total financial derivatives–liabilities, at fair value$ $(5,746)$ $(5,746)
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December 31, 2023:
(In thousands)
DescriptionLevel 1Level 2Level 3Total
Assets:
Securities:
Agency RMBS:
15-year fixed-rate mortgages$ $27,847 $ $27,847 
20-year fixed-rate mortgages 7,863  7,863 
30-year fixed-rate mortgages 670,294  670,294 
Adjustable rate mortgages 7,119  7,119 
Reverse mortgages 14,874  14,874 
Interest only securities 4,253 3,162 7,415 
Non-Agency RMBS 10,443 10,276 20,719 
CLOs 11,816 5,601 17,417 
Total securities, at fair value 754,509 19,039 773,548 
Financial derivatives–assets, at fair value:
TBAs