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Our annual report features photos of government agencies whose policies have a significant impact on our investment process and the valuations of the assets we trade.

About Ellington Residential Mortgage REIT

Ellington Residential Mortgage REIT is a mortgage real estate investment trust that specializes in acquiring, investing in and managing residential mortgage- and real estate-related assets, with a primary focus on residential mortgage-backed securities for which the principal and interest payments are guaranteed by a U.S. government agency or a U.S. government-sponsored enterprise. Ellington Residential Mortgage REIT is externally managed and advised by Ellington Residential Mortgage Management LLC, an affiliate of Ellington Management Group, L.L.C.

Our Portfolio (as of December 31, 2015)



The Capitol Building

The Capitol Building

Financial Highlights

For the year ended December 31,
in thousands, except per share data 2015 2014 2013
Summary of Operations
Net interest income $34,515 $42,313 $24,810
Net realized and change in net unrealized gain (loss) on securities (9,327) 51,007 (63,602)
Net realized and change in net unrealized gain (loss) on financial derivatives (20,013) (71,400) 41,204
Net income (loss) 30 16,168 (1,914)
Cash dividends declared 18,286 20,118 10,418
Basic and diluted earnings per share $— $1.77 $(0.29)
Core earnings per share $2.41 $3.04 $2.09
Cash dividends declared per share $2.00 $2.20 $1.14
As of December 31,
2015 2014
Balance Sheet Data
Mortgage-backed securities, at fair value $1,242,266 $1,393,303
Cash and cash equivalents 40,166 45,237
Financial derivatives at fair value, net (2,542) (5,628)
Repurchase agreements (1,222,719) (1,323,080)
Total shareholders' equity 144,855 163,365
Book value per share $15.86 $17.86
Common shares outstanding 9,135 9,149
Debt-to-equity ratio 8.4:1 8.1:1

The Federal Reserve Building

The Federal Reserve Building

Dear Fellow Shareholders:

On behalf of the entire Ellington team, it is my pleasure to address you once again in our Annual Report to briefly review 2015 performance and share our outlook for 2016.

In what was generally a down market for Agency REITs, Ellington Residential managed to preserve shareholder value in 2015, delivering a break-even economic return on book value for the full year. Looking back over the nearly three-year period since our initial public offering, we have outperformed the Agency REIT peer group as a whole. Meanwhile, our core earnings continues to comfortably cover our dividend, which currently represents an annualized yield of 11.3% based on our December 31st book value, and a yield of 14.7% based on our March 17th closing price.

Our objective since our inception remains unchanged: to generate attractive, risk-adjusted returns by combining research-driven security selection with active trading and hedging, rather than by just taking a buy-and-hold approach. We seek to capture upside in good markets and control downside in difficult markets. The future path of interest rates is impacted by multiple factors, many of which are impossible to predict. Therefore, instead of having a single-minded view of what the future will hold, we try to construct and manage our portfolios to perform over a wide range of potential economic scenarios.

We entered 2015 mindful of the risk of continued interest rate volatility and an increasing level of prepayment risk, driven not only by a drop in mortgage rates, but also by the increasing market share being captured by certain non-bank mortgage originators, who possess lower cost structures and more sophisticated technology platforms than their competitors. We believed that in the Agency RMBS market, specified pools would outperform TBAs, given the Federal Reserve's reduced presence in the market. We also believed that steadily improving fundamentals in the housing market would continue to drive positive returns in the non-Agency market. As a result, we maintained our allocation to non-Agency RMBS in the portfolio, with the intent of actively trading our positions as we uncovered relative value opportunities throughout the year, while also staying nimble so as to be able to capitalize on any severe dislocations in the credit markets. As always, we maintained a disciplined interest rate hedging strategy, meant to protect against dramatic swings in the value of our portfolio during times of large movements in interest rates.

While many of our expectations came to pass in 2015, the year ended up presenting a number of challenges. First and most significantly, our fixed payer interest rate swap hedges significantly underperformed, as interest rate swap spreads tightened dramatically throughout the second half of the year. In the fall, 10-year interest rate swap spreads actually became negative for the first time since late 2010, and then quickly reached double-digit negative spreads for the first time ever. Second, mortgage rates never quite dropped enough to trigger a sustained prepayment wave, so the IO market didn't experience the kind of dislocations that we were hoping for; as a result, we did not see satisfactory entry points to accumulate more IOs. Similarly, while the overall credit markets experienced high degrees of volatility in the second half of the year, we chose not to increase our allocation to credit, waiting instead for more compelling entry points. Despite these challenges in what was a particularly difficult year for Agency REITs, we were able to preserve shareholder capital and even generate a small amount of income for the full year.

Looking forward, we see exceptional value in Agency RMBS, with very attractive spreads and many favorable market technicals. We remain poised to increase our allocations to both interest-only securities and non-Agency RMBS. With mortgage rates hovering near levels not seen since early 2013, and with global credit markets continuing to experience high levels of volatility, we are hopeful that we will soon see suitably compelling opportunities in these sectors. We remain nimble given the high liquidity of our portfolio, allowing us to quickly reposition ourselves as market conditions change and opportunities arise.

Thank you again for your continued support and confidence, and we look forward to a successful 2016.


Laurence Penn
Chief Executive Officer and President


Fannie Mae Corporate Headquarters

Fannie Mae Corporate Headquarters

Trustees & Officers

Board of Trustees

Thomas F. Robards
Chairman of the Board of Trustees and
Principal of Robards & Co, LLC

Robert B. Allardice, III
Director, The Hartford Financial Services
Group, Inc.

Menes O. Chee
Senior Managing Director, Blackstone
Tactical Opportunities Group

David Miller
Senior Advisor, Blackstone Tactical
Opportunities Group

Ronald I. Simon, Ph.D.
Financial Consultant and Investor

Laurence Penn
Chief Executive Officer and President

Michael W. Vranos
Co-Chief Investment Officer and
Founder and Chief Executive Officer of
Ellington Management Group, L.L.C.


Laurence Penn
Chief Executive Officer and President

Michael W. Vranos
Co-Chief Investment Officer

Mark Tecotzky
Co-Chief Investment Officer

Lisa Mumford
Chief Financial Officer and Treasurer

Daniel Margolis
General Counsel

Christopher M. Smernoff

Jason Frank
Secretary and Corporate Counsel

Company Information

Corporate Headquarters

Ellington Residential Mortgage REIT
53 Forest Avenue
Old Greenwich, CT 06870

Independent Registered
Public Accounting Firm

PricewaterhouseCoopers LLP
300 Madison Avenue
New York, NY 10017

Corporate Counsel

Hunton & Williams LLP
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, VA 23219

Stock Transfer Agent

American Stock Transfer & Trust
Company, LLC
6201 15th Avenue
Brooklyn, NY 11219

Annual Meeting of Shareholders

Ellington Residential Mortgage REIT's
Annual Meeting of Shareholders
will be held on May 17, 2016, at
11:00 am Eastern Time at the
Hyatt Regency
1800 East Putnam Avenue
Old Greenwich, CT 06870

Freddie Mac Corporate Headquarters

The Federal Reserve Building