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Audit Committee

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Audit Committee

Thomas F. Robards Robert B. Allardice III David J. Miller Ronald I. Simon Ph. D.
  • Member
  • Chair
  • Financial Expert
  • Independent Director
Audit Committee Charter



The purposes of the Audit Committee (the “Committee”) of the Board of Trustees
(the “Board”) of Ellington Residential Mortgage REIT (the “Company”) shall be to
provide assistance to the Board in fulfilling its legal and fiduciary obligations with
respect to matters involving the accounting, auditing, financial reporting and internal
control functions of the Company and its subsidiaries, including, without limitation,
assisting the Board’s oversight of (i) the integrity of the Company’s financial statements,
(ii) the Company’s compliance with legal and regulatory requirements, (iii) the
independent auditors’ (as defined below) qualifications and independence and (iv) the
performance of the independent auditors and the Company’s internal audit function. In
addition, the Committee shall be responsible for reviewing and approving the disclosure
required by Regulation S-K, Item 407(d)(3)(i) (“Item 407”) of the Securities and
Exchange Commission (the “Commission”), relating to the report to be included in the
Company’s annual proxy statement.

Within the scope of its purpose, the Committee shall have unrestricted access to
any of the Company’s activities and personnel and shall have authority to retain
independent counsel or other consultants as necessary in its judgment to assist or advise
the Committee, and the Company shall provide funds to pay the costs and expenses of
persons so retained. In addition, the Company shall provide funds to pay the
compensation of the independent auditors appointed by the Committee and the ordinary
administrative expenses of the Committee.

While the Committee has the responsibilities and authority set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or reviews or to
determine that the Company's financial statements and disclosures are complete and
accurate and are in accordance with generally accepted accounting principles and
applicable rules and regulations or that the Company's internal controls over financial
reporting are in compliance with law and other applicable requirements. These are the
responsibilities of management and the independent auditors.

The Company’s management has the primary responsibility for the financial
statements and the reporting process, including the Company’s system of internal
controls and disclosure controls and procedures. The independent auditors audit the
Company's financial statements and express an opinion on the financial statements based
on the audit. The Committee oversees (i) the accounting and financial reporting processes
of the Company and (ii) the audits or reviews of the financial statements of the Company
on behalf of the Board.


The Committee shall consist of three or more independent trustees as determined
from time to time by the Board.

No trustee may serve as a member of the Committee if such trustee serves on the
audit committee of more than three public companies, unless the Board determines that
such simultaneous service would not impair the ability of such trustee to effectively serve
on the Committee.

The chairperson of the Committee shall be designated by the Board, provided that
if the Board does not so designate a chairperson, the members of the Committee, by a
majority vote, may designate a chairperson.

Any vacancy on the Committee shall be filled by the Board. No member of the
Committee shall be removed except by the Board.

The members of the Committee shall meet the independence and experience
requirements of the New York Stock Exchange (the “NYSE”), Section 10A(m)(3) of the
Securities Exchange Act of 1934, as amended, and the rules and regulations of the
Commission. All members of the Committee shall be financially literate in accordance
with the rules of the NYSE and at least one member shall be an audit committee financial
expert as defined by the Commission.


The Committee shall meet as often as it determines necessary to carry out its
duties and responsibilities, but no less frequently than once every fiscal quarter. The
Committee, in its discretion, may ask members of management or others to attend its
meetings (or portions thereof) and to provide pertinent information as necessary. The
Committee shall meet separately on a periodic basis with (i) management, (ii) the director
or other supervisor of the Company’s internal auditing department or other person
responsible for the internal audit function and (iii) the independent auditors, in each case
to discuss any matters that the Committee or any of the above persons or firms believe
warrant Committee attention.

The Committee will be governed by the same rules regarding meetings, action
without meetings, notice, waiver of notice and quorum and voting requirements as are
applicable to the Board. The Committee may adopt its own rules of procedure not
inconsistent with (i) any provision of this Charter, (ii) any provision of the Company’s
declaration of trust, (iii) any provision of the Company’s bylaws, or (iv) any applicable
federal or state law.

The Committee may form subcommittees of independent trustees for any purpose
that the Committee deems appropriate and may delegate to such subcommittees such
power and authority as the Committee deems appropriate; provided, however, that no
subcommittee shall consist of fewer than two members; and provided, further that the
Committee shall not delegate to a subcommittee any power or authority required by any
law, regulation or listing standard to be exercised by the Committee as a whole.

Following each of its meetings, the Committee shall deliver an oral report on the
meeting to the Board, including a description of all actions taken by the Committee at the
meeting. The Committee shall keep written minutes of its meetings, which minutes shall
be maintained with the books and records of the Company.


Selection, Evaluation and Oversight of the Auditors

The Committee shall have the following duties and responsibilities with respect to
the selection, evaluation and oversight of the Company’s auditors:

(a) To be directly responsible for the appointment, compensation, retention and
oversight of the work of any registered public accounting firm engaged for the purpose of
preparing or issuing an audit report or performing other audit, review or attestation
services for the Company, and each such registered public accounting firm shall report
directly to the Committee (the registered public accounting firm engaged for the purpose
of preparing or issuing an audit report, the “independent auditors”);

(b) To review and, in its sole discretion, approve in advance the independent
auditors’ annual engagement letter, including the proposed fees contained therein, as well
as all audit and all permitted non-audit engagements and relationships between the
Company and such independent auditors (which approval shall be made after receiving
input from the Company’s management, if desired). Approval of audit and permitted nonaudit services will be made by the Committee or by one or more members of the
Committee as shall be designated by the Committee and the persons granting such
approval shall report such approval to the Committee at the next scheduled meeting;

(c) To review the performance and independence of the independent auditors
(including establishing policies with respect to hiring employees or former employees of
the independent auditors), and, in its sole discretion (subject, if applicable, to shareholder
ratification), make decisions regarding the replacement or termination of the independent
auditors when circumstances warrant; and

(d) To at least annually, obtain and review a report by the independent auditors

     (i) the independent auditors’ internal quality-control procedures;

     (ii) any material issues raised by the most recent internal quality
     control review, or peer review, of the independent auditors, or by
     any inquiry or investigation by any governmental or professional
     authorities, within the preceding five years, respecting one or more
     independent audits carried out by the independent auditors, and
     any steps taken to deal with any such issues;

     (iii) all relationships between the independent auditors and the
     Company (including a description of each category of services
     provided by the independent auditors to the Company and a list of
     the fees billed for each such category); and

     (iv) a confirmation in writing from the independent auditors that they
     are independent of the Company in accordance with current
     regulatory requirements.

Oversight of Annual Audit and Quarterly Reviews

The Committee shall have the following duties and responsibilities with respect to
the oversight of the Company’s annual audit and quarterly reviews (with regard to
quarterly reviews, when applicable):

(a) To review and discuss with the independent auditors their annual audit plan,
including the timing and scope of audit activities and progress and results during the year;

(b) To review with management, the independent auditors and the director or
other supervisor of the Company’s internal auditing department, the following
information which is required to be reported by the independent auditors:

     (i) all critical accounting policies and practices to be used;

     (ii) all alternative treatments of financial information that have been
     discussed by the independent auditors and management,
     ramifications of the use of such alternative disclosures and
     treatments, and the treatment preferred by the independent

     (iii) all other material written communications between the independent
     auditors and management, such as any management letter and any
     schedule of unadjusted differences; and

     (iv) any material financial or non-financial arrangements of the
     Company which do not appear on the financial statements of the

(c) To review with management, the independent auditors and, if appropriate, the
director or other supervisor of the Company’s internal auditing department, the

     (i) the Company’s annual audited financial statements and quarterly
     financial statements including “Management’s Discussion and
     Analysis of Financial Condition and Results of Operations”;

     (ii) major issues regarding accounting principles and financial
     statement presentation, including any significant changes in the
     Company’s selection or application of accounting principles;

     (iii) any analyses prepared by management and/or the independent
     auditors setting forth significant financial reporting issues and
     judgments made in connection with the preparation of the financial
     statements, including analyses of the effects of alternative
     generally accepted accounting principles methods on the
     Company’s financial statements; and

     (iv) the effect of regulatory and accounting initiatives, as well as offbalance
     sheet structures, on the financial statements of the Company;

(d) To review on a regular basis with the independent auditors any significant
problems or difficulties encountered by the independent auditors in the course of any
audit work, including management’s response with respect thereto, any restrictions on the
scope of the independent auditors’ activities or on access to requested information, and
any significant disagreements with management. In connection therewith, the Committee
shall review with the independent auditors the following:

     (i) any accounting adjustments that were proposed by the independent
     auditors but were rejected by management; and

     (ii) any “management” or “internal control” letter issued by the
     independent auditors to the Company.

Oversight of the Financial Reporting Process and Internal Controls

The Committee shall have the following duties and responsibilities with respect to
the oversight of the Company’s financial reporting process and internal controls:

(a) To review the adequacy and effectiveness of the Company’s accounting and
internal control policies and procedures on a regular basis;

(b) To review with the Chief Executive Officer, Chief Financial Officer and
independent auditors, periodically, the following:

     (i) all significant deficiencies and material weaknesses in the design
     or operation of internal control over financial reporting which are
     reasonably likely to adversely affect the Company’s ability to
     record, process, summarize and report financial information and
     progress made on remediation plans; and

     (ii) any fraud, whether or not material, that involves management or
     other employees who have a significant role in the Company’s
     internal control over financial reporting;

(c) To discuss guidelines and policies governing the process by which senior
management of the Company and the relevant departments of the Company, including
the internal auditing department, assess and manage the Company’s exposure to risk, as
well as the Company’s major financial risk exposures and the steps management has
taken to monitor and control such exposures;

(d) To review with management the progress and results of internal audit projects,
and, when deemed necessary or appropriate by the Committee, direct the Company’s
Chief Executive Officer to assign additional internal audit projects to the director or other
supervisor of the Company’s internal auditing department; and

(e) To establish and maintain free and open means of communication between and
among the Committee, the independent auditors, the Company’s internal auditing
department and management, including providing such parties with appropriate
opportunities to meet separately and privately with the Committee on a periodic basis.


The Committee shall have the following miscellaneous duties and responsibilities:

(a) To establish procedures for (i) the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal accounting controls
or auditing matters, and (ii) the confidential, anonymous submission by employees of the
Company of concerns regarding questionable accounting or auditing matters;

(b) To secure independent expert advice to the extent the Committee determines it
to be appropriate, including retaining, with or without Board approval, independent
counsel, accountants, consultants or others, to assist the Committee in fulfilling its duties
and responsibilities, the cost of such independent expert advisors to be borne by the

(c) To report regularly to the Board on its activities, as appropriate. In connection
therewith, the Committee shall review with the Board any issues that arise with respect to
the quality or integrity of the Company’s financial statements, the Company’s
compliance with legal or regulatory requirements, the performance and independence of
the independent auditors, or the performance of the internal audit function;

(d) To issue annually the Committee’s report required by Item 407 and to publish
the report in the Company’s annual proxy statement as required by the Commission;

(e) To review and approve the Company’s earnings press releases;

(f) To discuss financial information and earnings guidance provided to analysts
and rating agencies (if any) (such discussion may be general rather than specific (i.e., the
Committee may discuss the types of information to be disclosed and type of presentation
to be made and need not discuss each instance of such disclosures in advance)); and

(f) To perform such additional activities, and consider such other matters, within
the scope of its responsibilities, as the Committee or the Board deems necessary or


The Committee shall, on an annual basis, evaluate its performance. In conducting this review, the Committee shall evaluate whether this Charter appropriately addresses the matters that are or shall be within its scope and shall recommend such changes as it deems necessary or appropriate. The Committee shall address all matters that the Committee considers relevant to its performance, including a review and assessment of the adequacy of this Charter, and the annual performance evaluation shall be conducted in such manner as the Committee deems appropriate.

The Committee shall deliver to the Board a report, which may be oral, setting forth the results of its evaluation, including any recommended amendments to this Charter and any recommended changes to the Company’s or the Board’s policies or procedures.


The Committee may conduct or authorize investigations into or studies of matters
within the Committee’s scope of responsibilities, and may retain, at the Company’s
expense, such independent counsel or other consultants or advisers as it deems necessary.

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