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Item 7. Management’s Discussion and Analysis

2025-03-31 compared with 2024-03-12 · 312 added, 241 removed, 437 unchanged (56% of the section changed)

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Executive Summary

We are a Maryland real estate investment trust, or "REIT," formed in August 2012 that specializes in acquiring, investing in, and managing residential mortgage- and real estate-related and other assets.

Our primary objective is to generate attractive current yields and risk-adjusted total returns for our shareholders by making investments that we believe compensate us appropriately for the risks associated with them.

We seek to attain this objective by constructing and actively managing a portfolio consisting primarily of residential mortgage-backed securities, or "RMBS," for which the principal and interest payments are guaranteed by a U.S.

government agency or a U.S.

government-sponsored entity, or "Agency RMBS," and RMBS that do not carry such guarantees, or "non-Agency RMBS," such as RMBS backed by prime jumbo, Alternative A-paper, mortgage loans that are not deemed "qualified mortgage," or "QM," loans under the rules of the Consumer Financial Protection Bureau, or "non-QM loans," mortgages on single-family-rental properties, manufactured housing, and subprime residential mortgage loans.

We also acquire and manage corporate collateralized loan obligations, or "CLOs." We also may opportunistically acquire other types of mortgage- and real estate-related asset classes, such as commercial mortgage-backed securities, or "CMBS," residential mortgage loans, mortgage servicing rights and credit risk transfer securities.

We believe that being able to combine Agency RMBS with non-Agency RMBS and other mortgage- and real estate-related asset classes, along with opportunistic investments in CLOs, enables us to balance a range of risks.

We were initially formed through a strategic venture among affiliates of Ellington Management Group, L.L.C., an investment management firm and registered investment adviser with a 29-year history of investing in a broad spectrum of residential and commercial mortgage-backed securities, or "MBS," and related derivatives, with an emphasis on the RMBS market, and the Blackstone Tactical Opportunity Funds, or the "Blackstone Funds." We are externally managed and advised by our Manager, an affiliate of Ellington.

From our inception until August 2021, the Blackstone Funds had held special non-voting membership interests in the holding company that owns our Manager.

In August 2021, an Ellington affiliate purchased these

special non-voting membership interests from the Blackstone Funds.

We use leverage in our strategies and to date have financed our assets exclusively through repurchase agreements, which we account for as collateralized borrowings.

We were initially formed in August 2012 as a Maryland company and have historically specialized in acquiring, investing in, and managing residential mortgage- and real estate-related assets, while electing to be taxed as a REIT under the Code.

On March 29, 2024, our Board of Trustees approved a strategic transformation, the "CLO Strategic Transformation," of our investment strategy to focus on corporate collateralized loan obligations, or "CLOs." In connection with the CLO Strategic Transformation, we revoked our election to be taxed as a REIT for tax year 2024, rebranded as Ellington Credit Company, and began operating as a taxable C-Corp.

As a taxable C-Corp, we conduct our operations so that neither we nor any of our subsidiaries are required to register as an investment company under the 1940 Act.

This includes holding a core portfolio of liquid Agency MBS pools in order to maintain our exemption from the 1940 Act.

During this time, we also plan to take advantage of our significant existing net operating loss carryforwards to offset the majority of our U.S.

federal taxable income.

On April 1, 2025, we intend to convert to a Delaware closed-end fund registered under the 1940 Act that will elect to be treated as a regulated investment company (a "RIC") under the Code (such actions, collectively, the "Conversion").

We obtained shareholder approval of certain matters related to the Conversion at a special meeting of shareholders held on January 17, 2025 (the "Special Meeting").

In conjunction with the Conversion, we intend to liquidate the vast majority of our remaining mortgage- and real estate-related assets and, upon the effectiveness of the Conversion, we intend to operate so as to qualify to be taxed as a RIC under subchapter M of the Code.

After the Conversion, we would generally not be subject to corporate tax.

Following the CLO Strategic Transformation, we now seek to attain this objective by constructing and actively managing a portfolio of corporate CLOs, primarily mezzanine debt and equity tranches, which are typically collateralized by portfolios consisting primarily of below-investment-grade senior secured loans with a large number of discrete underlying borrowers across various industry sectors.

CLOs are a form of asset-backed security collateralized by syndicated corporate loans which receive interest and principal cash flows from these underlying loans.

Senior debt tranches are paid first, then mezzanine debt tranches, and finally, equity.

Additionally, we may also invest in CLO loan accumulation facilities, which are entities that acquire corporate loans and other similar corporate credit-related assets in anticipation of ultimately collateralizing a CLO transaction.

We are externally managed and advised by our Manager, an affiliate of Ellington.

Ellington has a longstanding record of investing in the CLO sector.

In connection with the CLO Strategic Transformation, on June 25, 2024, our Board of Trustees unanimously approved the Management Agreement where, in addition to carrying over the removal of certain provisions related to the maintenance of our REIT status (which had been made in the prior amendment), our Board of Trustees determined to more closely align the management fee arrangement between us and our Manager with the advisory fee structures of CLO-focused registered closed-end funds.

We currently use leverage in our strategies and to date have financed our assets exclusively through repurchase agreements, which we account for as collateralized borrowings.

As of December 31, 2024, we had outstanding borrowings under repurchase agreements in the amount of $563.0 million with 14 counterparties;

93% of such borrowings were collateralized by Agency RMBS.

We have elected to be taxed as a REIT for U.S.

federal income tax purposes.

Accordingly, we generally will not be subject to U.S.

federal income taxes on our taxable income that we distribute currently to our shareholders as long as we maintain our qualification as a REIT.

We intend to conduct our operations so that neither we nor any of our subsidiaries is required to register as an investment company under the Investment Company Act of 1940, as amended, or the "Investment Company Act."

89% of such borrowings were collateralized by Agency RMBS and 11% were collateralized by CLOs.

As part of the Conversion, we intend to sell our remaining liquid Agency MBS pools and operate in compliance with 1940 Act requirements.

As of December 31, 2024, our book value per share was $6.53 as compared to $7.32 as of December 31, 2023, respectively.

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Market Overview

• After increasing the target range for the federal funds rate by a cumulative 4.25% in 2022, the U.S.

Federal Reserve, or the "Federal Reserve," slowed the pace of its interest rate hikes in 2023.

In 2023, at its January/February meeting, the Federal Reserve raised the target range by 25 basis points to 4.50%–4.75%, which was its smallest increase since March 2022.

In March 2023, in response to stress in the banking system, which included the failures of Silicon Valley Bank and Signature Bank, the Federal Deposit Insurance Corporation, or "FDIC," took steps to guarantee all deposits of those two failed banks, including deposits above the standard limit of $250,000.

Meanwhile, concerns around the solvency of Credit Suisse Group AG prompted the Swiss Government to provide liquidity assistance and other financial support in conjunction with a merger of Credit Suisse Group AG into UBS Group AG.

In addition, the Federal Reserve announced additional liquidity support through the creation of the Bank Term Funding Program, which provided loans with terms of up to one year to banks and other eligible depository institutions for qualified collateral, which included U.S.

Treasury securities and Agency RMBS, at their par values.

Other central banks around the world also announced plans to increase liquidity to financial institutions.

Later in March 2023, at its monthly meeting, the Federal Reserve declared that the "U.S.

banking system is sound and resilient" and increased the target range for the federal funds rate by an additional 25 basis points to 4.75%–5.00%.

Next, the Federal Reserve increased the target range by an additional 25 basis points in May 2023, paused in June, increased by an additional 25 basis points in July to a range of 5.25%–5.50%, and then maintained that range at each of its meetings from September through December, noting in December that "inflation has eased over the past year but remains elevated." In a dovish shift, the Summary of Economic Projections released by the Federal Reserve in December implied three interest rate cuts in 2024.

However, minutes from the December 2023 meeting released in early January 2024 revealed that during the meeting Federal Reserve participants "reaffirmed that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down," seemingly lowering the likelihood of a cut during the first quarter of 2024.

Throughout 2023, the Federal Reserve continued to reinvest only principal payments that exceeded monthly caps of $60 billion on U.S.

Treasury securities and $35 billion on Agency RMBS.

• Interest rates were highly volatile during much of 2023, and many parts of the yield curve continued to be inverted.

After falling in January, interest rates increased in February and early March, particularly short-term interest rates, as the yield on the 2-year U.S.

Treasury surpassed 5% for the first time since June 2007.

Then, in mid-March 2023, concerns about the stress in the banking system spurred a flight to safety, which drove interest rates down significantly.

Overall, the yield on the 2-year U.S.

Treasury decreased by 40 basis points to 4.03% in the first quarter, while the yield on the 10-year U.S.

Treasury decreased by 41 basis points to 3.47%.

Interest rate volatility spiked in mid-March 2023, with the MOVE Index surpassing its COVID-related highs and reaching its highest level since 2008.

After trading in a relatively tight range in April and early May of 2023, interest rates rose steadily in the latter half of the second quarter, and the inversion of the yield curve deepened.

Overall, the yield on the 2-year U.S.

Treasury increased by 87 basis points to 4.90%, quarter over quarter, while the yield on the 10-year U.S.

Treasury increased by

37 basis points to 3.84%.

Meanwhile, interest rate volatility, as measured by the MOVE Index, declined during the quarter, particularly in June 2023 following the resolution of the federal government's debt ceiling dispute.

In the third quarter of 2023, interest rates increased, particularly long-term interest rates, which caused the inversion of the yield curve to subside somewhat.

The yield on the 2-year U.S.

Treasury increased by 15 basis points quarter over quarter to 5.04%, while the yield on the 10-year U.S.

Treasury increased by 73 basis points quarter over quarter to 4.57%.

Toward the end of the quarter, the 2-year U.S.

Treasury yield reached its highest level since July 2006, and the 10-year U.S.

Treasury yield reached its highest level since October 2007.

Meanwhile, interest rate volatility, as measured by the MOVE Index, remained elevated throughout the quarter.

In the fourth quarter, interest rates reversed course and began to decline, as the market anticipated the conclusion of the Federal Reserve's interest rate hiking cycle.

For the quarter, the yield on the 2-year U.S.

Treasury decreased by 79 basis points to 4.25%, while the 10-year U.S.

Treasury yield decreased by 69 basis points to 3.88%.

The MOVE Index increased modestly from the previous quarter.

For the full year 2023, the 2-year U.S.

Treasury yield decreased by 18 basis points, while the 10-year yield increased by 1 basis point.

• Secured Overnight Financing Rates, or "SOFR" rates, rose sharply from the start of the year through July 31, 2023, with one-month term SOFR increasing by 96 basis points to 5.32% and three-month term SOFR rising by 78 basis points to 5.37%.

Beginning in August 2023, SOFR rates were relatively stable with one-month term SOFR ending the year at 5.35% and three-month term SOFR ending the year at 5.33%.

Many of our financing costs are based on SOFR.

• Mortgage rates moved in sympathy with long-term interest rates during 2023.

The Freddie Mac survey 30-year mortgage rate declined from 6.41% at the start of the year to 5.95% in mid-January, and then steadily rose to 6.74% in early March, before declining to 6.24% by the end of the first quarter.

From there, mortgage rates rose steadily for much of 2023, with the Freddie Mac 30-year mortgage rate peaking at 7.79% on October 26 th , its highest level since October 2000.

The survey rate then reversed course and fell sharply over the final two months of 2023, declining to 6.42% on December 28 th , approximately where it started the year.

After reaching a 25-year low at the end of 2022, the Mortgage Bankers Association's Refinance Index increased by 53% in the first quarter of 2023, before declining through the end of November, driven by higher mortgage rates.

The index temporarily rose in mid-December 2023 with lower mortgage rates, and declined again toward the end of December 2023.

Overall, the index increased by 15% year over year but remained at historically depressed levels.

Prepayment speeds also remained at historically low levels throughout 2023.

The Fannie Mae 30-year MBS registered a CPR of 4.5 in December 2023, unchanged year over year, reaching a 2023 low of 3.7 in January and a 2023 high of 6.4 in June.

• Despite higher mortgage rates for much of 2023, the S&P CoreLogic Case-Schiller US National Home Price NSA Index increased by 5.5% during the year.

The National Association of Realtors Housing Affordability Index declined by 7% during 2023, as higher mortgage rates and record home prices continued to stress housing affordability.

real GDP increased at an annualized rate of 2.2% in the first quarter, 2.1% in the second quarter, 4.9% in the third quarter, and an estimated annualized rate of 3.2% in the fourth quarter.

Meanwhile, the unemployment rate remained low throughout 2023, starting the year at 3.5% and registering 3.7% as of year end.

• Inflation, while still elevated, declined during each of the first six months of 2023.

The year-over-year percentage change in the Consumer Price Index for All Urban Consumers ("CPI-U"), not seasonally adjusted, declined from 6.4% in January 2023 to 3.0% in June 2023.

Year-over-year inflation then increased again in the third quarter of 2023, registering 3.7% in September, before declining modestly in the fourth quarter, registering 3.4% in December.

• After a historically difficult year in 2022, MBS performance was mixed in 2023.

Following strong absolute and relative performance in January 2023, MBS performance reversed course in mid-February and especially in March, as concerns in the banking sector caused volatility to surge.

Overall for the first quarter of 2023, the Bloomberg Barclays U.S.

MBS Index ("BB MBS Index") generated a positive return of 2.53% but a negative excess return (on a duration-adjusted basis) of (0.50%) relative to the Bloomberg Barclays U.S.

Federal Reserve Policy

• In 2024, the U.S.

Federal Reserve maintained its federal funds rate target range of 5.25%–5.50% across its first five meetings.

At the September meeting, the Federal Reserve cut rates for the first time in four years, reducing the target range by 50 basis points to 4.75%–5.00%.

The Federal Reserve cited a balance in risks to its employment and inflation goals.

• Subsequent meetings in November and December brought additional 25-basis-point cuts, bringing the range to 4.25%–4.50%.

However, the December Summary of Economic Projections signaled a slower pace of rate cuts in 2025, with only two 25-basis-point reductions anticipated.

Chair Powell noted further progress lowering inflation as a prerequisite for additional cuts.

• In June, the Federal Reserve reduced the pace of its balance sheet contraction by lowering the cap on portfolio runoff of U.S.

Treasury securities from $60 billion to $25 billion, while maintaining the $35 billion cap on Agency RMBS.

Interest Rates

• Following sharp declines in the fourth quarter of 2023, interest rates rose in the first quarter of 2024 as expectations for Federal Reserve rate cuts shifted later in the year.

The 2-year U.S.

Treasury yield increased by 37 basis points to 4.62%, while the 10-year U.S.

Treasury yield rose by 32 basis points to 4.20%.

Interest rate volatility declined, with the MOVE Index reaching a two-year low by quarter-end.

In the second quarter, interest rates rose in April before declining in May and June, ending slightly higher overall.

The 2-year U.S.

Treasury yield increased by 13 basis points to 4.75%, and the 10-year U.S.

Treasury yield rose by 20 basis points to 4.40%.

Volatility spiked in mid-April but fell through the quarter's end.

The third quarter saw significant declines in interest rates, particularly short-term rates.

The 10-year U.S.

Treasury yield exceeded the 2-year yield for the first time since July 2022.

The 2-year yield dropped by 111 basis points to 3.64%, and the 10-year yield fell by 62 basis points to 3.78%.

Volatility spiked in early August and September before subsiding.

In the fourth quarter, interest rates reversed course again, with the 2-year U.S.

Treasury yield rising 60 basis points to 4.24% and the 10-year U.S.

Treasury yield increasing 79 basis points to 4.57%.

The MOVE Index peaked ahead of the U.S.

presidential election but declined by year-end.

For 2024 as a whole, the 2-year U.S.

Treasury yield decreased by 1 basis point, while the 10-year yield rose by 69 basis points.

• Mortgage rates closely tracked long-term interest rate movements.

The Freddie Mac survey 30-year mortgage rate rose to 7.22% in May before declining to 6.08% by late September.

Mortgage rates spiked again in the fourth quarter, ending the year at 6.85%.

• SOFR rates were stable in the first half of 2024 but fell sharply in the second half, reflecting the Federal Reserve rate cuts.

For the full year, one-month SOFR decreased 102 basis points to 4.33%, while three-month SOFR fell 103 basis points to 4.31%.

SOFR rates drive many of our financing costs.

Housing and Economic Indicators

• Housing price metrics showed modest gains for the full year.

The S&P CoreLogic Case-Schiller US National Home Price Index increased by 3.9%, while the National Association of Realtors Housing Affordability Index rose 0.2%.

• The Mortgage Bankers Association's Refinance Index, although still low on an historical basis, rose significantly in the first three quarters of 2024, tripling between the start of the year and September 27 th .

However, the index declined sharply in the fourth quarter, ending 2024 only slightly higher year-over-year.

• Similarly, mortgage prepayment speeds increased during the year but remained at relatively low levels.

Prepayment speeds for Fannie Mae 30-year RMBS started at 4.4 CPR in January 2024 and trended upward for most of the year, reaching a peak of 8.3 CPR in October.

Prepayment speeds then declined towards year-end, with Fannie Mae 30-year RMBS registering 6.0 CPR in December.

real GDP grew at annualized rates of 1.6% in the first quarter, 3.0% in the second quarter, and 3.1% in the third quarter, with an estimated growth rate of 2.3% in the fourth quarter.

Unemployment edged up from 3.8% to 4.1% by year-end.

• Inflation trended lower, with the 12-month percentage change in the Consumer Price Index for All Urban Consumers, not seasonally adjusted, falling from 3.1% in January to a low of 2.4% in September before ending the year at 2.9%.

Fixed Income Performance

• MBS returns were mixed, with the Bloomberg U.S.

MBS Index posting a full-year positive return of 1.20% and a positive excess return (on a duration-adjusted basis) of 0.37% relative to the Bloomberg U.S.

Treasury Index.

In the second quarter of 2023, the BB MBS Index generated a negative return of (0.66%) but a positive excess return of 0.79%, driven by strong outperformance in June.

For the third quarter, the BB MBS Index posted a negative return of (4.13%) and a negative excess return of (0.88%) relative to the Bloomberg Barclays U.S.

Treasury Index, driven by underperformance of the mortgage basis in September 2023.

That underperformance continued into October, but over the final two months of the year, volatility declined and yield spreads tightened and overall for the fourth quarter of 2023, the BB MBS Index

generated a positive return of 7.31% and an excess return of 1.26%.

For the full year 2023, the BB MBS Index generated a positive return of 5.05% and an excess return of 0.68%.

• Similarly, after negative performance in 2022, the Bloomberg Barclays U.S.

Corporate Bond Index ("BB IG Index") generated positive results on both an absolute and relative basis in 2023, driven by strong results in the fourth quarter of 2023.

For the full year 2023, the BB IG Index generated a return of 8.52% on an absolute basis and an excess return of 4.55%.

Meanwhile, the Bloomberg Barclays U.S.

Corporate High Yield Bond Index ("BB HY Index") generated positive returns in each quarter of 2023 on both an absolute and relative basis.

For the full year 2023, the BB HY Index generated a positive return of 13.45% and an excess return of 8.86%.

equities were also volatile during 2023, but performed well overall for the year, with the Dow Jones Industrial Average increasing by 13.7%, the S&P 500 rising by 24.2%, and the NASDAQ up 43.4%.

Meanwhile, London's FTSE 100 index increased by 3.8% for the year, and the MSCI World global equity index increased by 21.8%.

The VIX volatility index spiked in mid-March 2023 in response to the stress in the banking system and again in late September and October, before falling through year end.

The performance of both indices was volatile, particularly in the fourth quarter, when returns were sharply negative overall.

• Corporate bonds fared better.

The Bloomberg U.S.

Corporate Bond Index returned 2.13% with an excess return of 2.46%, while the Bloomberg High Yield Bond Index posted an 8.19% return and 5.02% excess return.

Corporate credit spreads tightened, with the Markit CDX North America Investment Grade and High Yield Indices narrowing by 7 and 45 basis points, respectively.

Leveraged Loans and CLOs

• Including $800 billion in repricings, U.S.

leveraged loan issuance reached a record $1.5 trillion in 2024, per PitchBook|LCD.

CLO new issue volume also hit a record, exceeding $200 billion, according to BofA Global Research.

• Default rates on U.S.

leveraged loans declined in 2024.

According to PitchBook|LCD the twelve-month trailing default rate on the Morningstar LSTA Leveraged Loan Index fell to 0.80% as of September 30 th , compared to 1.53% at the start of the year.

Default rates rose slightly to 0.91% by December 31 st , but remained well below the 10-year historical average of 1.62%.

• Additionally, prices on leveraged loans increased, with the Morningstar LSTA US Leveraged Loan Index rising by $1.10 over the year, reaching $97.33 as of December 31 st .

• European leveraged loans followed a similar trend, with default rates declining significantly year over year, to 0.42% from 1.62%.

Prices increased as well, with the Morningstar LSTA EU Leveraged Loan Index rising by €1.96 to €98.01.

Equity Markets

equities posted another strong year in 2024:

the Dow Jones rose 12.9%, the S&P 500 gained 23.3%, and the NASDAQ climbed 28.6%.

The FTSE 100 and MSCI World Indexes also posted gains of 5.7% and 17.0%, respectively.

• Equity volatility spiked at several points during 2024, with the VIX reaching, in early August, its highest level since October 2020.

Portfolio Overview and Outlook

As of December 31, 2023, our mortgage-backed securities portfolio consisted of $706.0 million of fixed-rate Agency "specified pools," $7.1 million of Agency RMBS backed by adjustable rate mortgages, or "Agency ARMs", $14.9 million of Agency reverse mortgage pools, $7.4 million of Agency interest-only securities, or "Agency IOs", $9.4 million of non-Agency RMBS, and $11.3 million of non-Agency interest-only securities, or "non-Agency IOs".

Specified pools are fixed-rate Agency pools consisting of mortgages with special characteristics, such as mortgages with low loan balances, mortgages backed by investor properties, mortgages originated through government-sponsored refinancing programs, and mortgages with various other characteristics.

The size of our Agency RMBS holdings decreased by 16% to $728.0 million as of December 31, 2023, compared to $863.3 million as of December 31, 2022.

The decline was driven by paydowns and net sales, primarily during the second half of the year.

Over the course of the year, our holdings of non-Agency RMBS decreased by 25% to $9.4 million, while our holdings of interest-only securities increased by 7% to $18.7 million.

In addition, during the second half of the year, we started rotating a portion of our investment capital to corporate CLOs.

As of December 31, 2023 our holdings of corporate CLO investments totaled $17.4 million.

CLOs are a form of asset-backed security collateralized by syndicated corporate loans.

We could continue to increase our capital allocation to CLO mezzanine debt and CLO equity investments, based on market opportunities or other factors.

Our debt-to-equity ratio, adjusted for unsettled purchases and sales, decreased to 5.3:1 as of December 31, 2023, as compared to 7.6:1 as of December 31, 2022.

The decline was primarily due to a decrease in borrowings on our smaller Agency RMBS portfolio and significantly higher shareholders' equity, partially offset by a small increase in borrowings on our CLO portfolio.

Our CLO portfolio expanded nearly tenfold year over year to $171.1 million as of December 31, 2024, from $17.4 million, as we rotated investment capital into CLOs in conjunction with the CLO Strategic Transformation.

As of December 31, 2024, our CLO portfolio consisted of $99.1 million of CLO equity tranches, ($91.8 million dollar-denominated, $7.3 million non-dollar denominated) and $72.0 million of CLO notes, specifically mezzanine debt tranches ($55.2 million dollar-denominated, $16.8 million non-dollar denominated).

In conjunction with the Conversion, we intend to liquidate the vast majority of our remaining mortgage- and real estate-related assets and rotate all investment capital into CLOs.

Moving forward, we expect our CLO holdings to continue to be a blend of CLO equity and CLO debt investments, with the capital allocations fluctuating over time based on market opportunities.

In addition, we intend to continue to invest in both dollar-denominated and non-dollar denominated CLO investments, based on relative value opportunities, but expect the majority of our CLO investments will continue to be dollar-denominated.

The size of our Agency RMBS holdings decreased by 30% to $512.3 million as of December 31, 2024, compared to $728.0 million as of December 31, 2023, primarily driven by net sales in conjunction with the CLO Strategic Transformation, as well as paydowns.

Meanwhile, we sold our remaining non-Agency RMBS and interest only securities throughout the year and held only a de minimis amount at year end.

As of December 31, 2024, our mortgage-backed securities portfolio consisted almost entirely of $512.3 million of fixed-rate Agency "specified pools," and a de minimis amount of Agency interest-only securities, or "Agency IOs." Specified pools are fixed-rate Agency pools consisting of mortgages with special characteristics, such as mortgages with low loan balances, mortgages backed by investor properties, mortgages originated through government-sponsored refinancing programs, and mortgages with various other characteristics.

Our debt-to-equity ratio, adjusted for unsettled trades, decreased to 2.9:1 as of December 31, 2024, as compared to 5.3:1 as of December 31, 2023.

The decline was driven by significantly higher shareholder's equity and less leverage on our CLO investments relative to Agency investments.

Our debt-to-equity ratio may fluctuate period over period based on portfolio management decisions, market conditions, capital markets activities, and the timing of security purchase and sale transactions.

As of December 31, 2023, 93% of our borrowings were secured by Agency RMBS.

As of December 31, 2023, we had cash and cash equivalents of $38.5 million, in addition to other unencumbered assets of $22.9 million.

This compares to cash and cash equivalents of $34.8 million and other unencumbered assets of $2.9 million as of December 31, 2022.

The first quarter of 2023 began on a constructive note with interest rates and volatility declining and Agency RMBS yield spreads tightening in January.

However, markets reversed course in mid-February on renewed anxiety over inflation and what the Federal Reserve’s response would be.

Then in March, turmoil in the banking system put further pressure on Agency yield spreads.

Overall, Agency RMBS underperformed U.S.

Treasury securities and interest rate swaps (which are the primary instruments we use to hedge our interest rate risk) in the first quarter with the most pronounced underperformance coming on sub-5% coupon RMBS, where our Agency RMBS was concentrated, due to concerns over future selling from distressed regional banks.

FDIC-directed sales of RMBS from failed regional banks commenced at the start of the second quarter of 2023, which pressured yield spreads but also drove strong RMBS demand into May, even as interest rate volatility remained elevated.

Then in June, yield spreads tightened following the resolution of the debt ceiling dispute, and Agency RMBS outperformed hedging instruments for the quarter.

In the third quarter of 2023, Agency RMBS faced the significant headwinds of elevated market volatility and rising long-term interest rates, resulting in wider yield spreads and Agency RMBS underperformance relative to hedging instruments.

In the fourth quarter of 2023, interest rates and volatility increased in October, which drove yield spreads wider in most fixed income sectors, including Agency RMBS.

Markets then reversed course, however, with interest rates and volatility declining, and yield spreads tightening, through year end.

Overall for the fourth quarter, Agency RMBS outperformed hedging instruments, with lower and intermediate coupon RMBS exhibiting the most pronounced outperformance.

Overall, we had positive net income in the Agency RMBS strategy for the year, driven by net gains on our interest rate hedges, which exceeded net losses on our Agency RMBS and negative net interest income.

Average pay-ups on our specified pool portfolio decreased to 1.01% as of December 31, 2023, as compared to 1.26% as of December 31, 2022.

During the year, we continued to hedge interest rate risk primarily through the use of interest rate swaps, and to a lesser extent, short positions in TBAs, U.S.

As of December 31, 2024, 89% of our borrowings were secured by Agency RMBS and 11% were secured by CLOs.

During the year, we continued to hedge interest rate risk through the use of interest rate swaps and short positions in U.S.

Treasury securities and futures.

We ended the year with a net long TBA position on a notional basis, but a net short TBA position as measured by 10-year equivalents.

We ended the year with a net short TBA position on a notional basis, but a net long TBA position as measured by 10-year equivalents.

10-year equivalents for a group of positions represent the amount of 10-year U.S.

Treasury securities that would be expected to experience a similar change in market value under a standard parallel move in interest rates.

In the fourth quarter, our newly established corporate CLO portfolio contributed positively to our results, driven by net interest income and net gains.

Similar to Agency RMBS, yield spreads on most CLOs widened in October before tightening in November and December, finishing the fourth quarter tighter overall.

Finally, our non-Agency RMBS portfolio and interest-only securities generated strong results for the year, driven by net interest income and net gains.

Our net mortgage assets-to-equity ratio—which we define as the net aggregate market value of our mortgage-backed securities (including the underlying market values of our long and short TBA positions) divided by shareholders' equity attributable to our mortgage-related strategies—slightly declined during the year.

The decrease was driven by lower leverage employed in our mortgage-related strategies at December 31, 2023, despite having a net long TBA position as of December 31, 2023 as compared to a net short TBA position as of December 31, 2022.

We also maintained modest credit hedge and currency hedge portfolios at year end.

As of December 31, 2024, we had cash and cash equivalents of $31.8 million, in addition to other unencumbered assets of $79.2 million.

This compares to cash and cash equivalents of $38.5 million, and other unencumbered assets of $22.9 million, as of December 31, 2023.

CLO Performance

In 2024, the U.S.

CLO market benefited from strengthening loan fundamentals and robust demand for leveraged loans, as well as from spread tightening across credit risk assets broadly.

The trailing-twelve-month payment default rate for the Morningstar LSTA U.S.

Leveraged Loan Index (the "U.S.

LL Index") declined to 91 basis points at the end of 2024, which was 62 basis points lower year over year, while the balance of loans in the U.S.

LL Index rated CCC+ or below declined to 5.3%, the lowest level since October 2022.

LL Index price rose $1.10 to $97.33 at year-end, which combined with interest payments drove a total return for the year of nearly 9%.

Leveraged loan prepayment and repricing rates surged in 2024, with prepayment rates on the U.S.

LL Index increasing to 28% from 18% on a trailing-twelve-month basis, as borrowers took advantage of highly accessible capital markets to refinance debt at lower spreads, extend maturities, and increase liquidity.

As a result, the broadly syndicated loan market saw gross issuance of nearly $1.5 trillion for the year, the largest annual issuance amount on record, split between $650 billion of new loan issuance and refinancings, and more than $800 billion in repricings.

The wave of issuance was met by significant demand for the asset class, driven by a record year of CLO new issuance as well (over $200 billion in 2024), in addition to nearly $9 billion of net capital inflows into leveraged loan retail funds.

On balance, the U.S.

LL Index experienced net issuance of only $21 billion year-over-year.

Net issuance in the U.S.

CLO market was similarly limited in 2024.

The European CLO market also enjoyed strengthening loan fundamentals in 2024, benefiting from a full year default rate of just 42 basis points—120 basis points lower than 2023's default rate.

However, loan prepayment rates rose less than in the U.S., increasing to 13.1 CPR (+2.6 CPR year over year).

As a result of lower loan prepayment rates, the amount outstanding underlying the European leveraged loan index grew by 11%, compared to 2% in the U.S.

In both the U.S.

and Europe, declining default rates contributed to strong demand for CLO debt and equity tranches, and along with limited net CLO issuance, drove CLO mezzanine and equity credit spreads tighter over the course of 2024.

Additionally, high prepayment rates in the U.S.

drove substantial deleveraging in many seasoned CLOs, contributing to incremental credit spread tightening in many mezzanine tranches.

However, investors remained wary of credit dispersion and lower-quality loan portfolios in the U.S., driving debt spreads modestly wider for certain CLOs with elevated exposure to such assets.

In Europe, while CLO mezzanine tranches did not benefit as much from elevated prepayment rates and rapid deal deleveraging, they were aided by reduced credit dispersion in their underlying loan portfolios relative to U.S.

CLO equity performance, while positive in 2024, was mixed relative to CLO mezzanine performance.

While declining default rates contributed to demand for CLO equity tranches and alleviated credit losses, rapid prepayment rates in the loan market led to both price declines for loans trading above par and compression in loan floating rate spreads.

This occurred as a result of large volumes of loans trading at premiums to par being refinanced at par and replaced with lower-spread loans, triggering mark-to-market losses in some CLO equity profiles as both their interest payments (due to lower excess interest in the CLO) and underlying asset values declined in tandem.

Loan repayment rate effects were somewhat mitigated by tightening CLO debt spreads, which allowed some deals to refinance their debt or reset their debt (which also included reinvestment period extension in addition to debt cost reduction).

Deals that were able to exercise refinancing or reset options, typically those with higher existing costs of debt and better-performing portfolios, delivered stronger equity returns in 2024.

In Europe, CLO equity performance was generally stronger as a result of slower prepayment speeds, rendering the negative impact of the repayment of premium loans less pronounced, as well as low default rates.

Our CLO strategy had strong results for the year, led by robust net interest income and net gains in our U.S.

and European CLO debt portfolios, supported by opportunistic sales, tighter credit spreads on held positions, and redemptions of several of our discount seasoned CLO mezzanine tranches.

Performance from CLO equity was modestly positive, with net interest income exceeding net unrealized losses.

Non-Agency Performance

Our non-Agency RMBS portfolio and interest-only securities generated positive results for the year, driven by net interest income and net gains associated with several profitable sales.

Agency Performance

In the first quarter of 2024 Agency MBS underperformed as expectations for a Federal Reserve rate cut were delayed, pushing interest rates higher and yield spreads wider, especially in February.

Spreads recovered in March due to lower volatility

and capital inflows, but Agency MBS generated a modestly negative excess return to U.S.

Treasury securities overall for the quarter.

In April, renewed inflation concerns and a hawkish Federal Reserve caused Agency MBS yield spreads to widen.

However, declining interest rates and volatility in May and June reversed most of the widening, leading to slight underperformance against benchmark indices for the quarter.

The third quarter saw falling interest rates, a steepening yield curve, and tightening Agency MBS yield spreads as markets anticipated Federal Reserve rate cuts.

In September, the Federal Reserve reduced the target range for the federal funds rate by 50 basis points and signaled further cuts, leading Agency MBS to outperform benchmark indices in the quarter.

In the fourth quarter, rising interest rates and intra-quarter volatility caused Agency MBS to underperform relative to benchmark indices.

For 2024, the Bloomberg Barclays U.S.

MBS Index posted a positive return of 1.20% and a positive excess return (on a duration-adjusted basis) of 0.37% relative to the Bloomberg U.S.

Treasury Index.

Our Agency portfolio generated positive results for the year as well, with net gains on interest rate hedges exceeding net losses on Agency MBS.

Average pay-ups on our specified pool portfolio decreased to 0.20% as of December 31, 2024, as compared to 1.01% as of December 31, 2023, as we rotated into highly liquid pools with low pay-ups in preparation for the Conversion.

Our net mortgage assets-to-equity ratio—which we define as the net aggregate market value of our mortgage-backed securities (including the underlying market values of our long and short TBA positions) divided by total shareholders' equity —declined year over year.

The decrease was driven by significantly higher shareholders' equity and a smaller Agency RMBS portfolio.

From time to time, in response to market opportunities and other factors, we increase or decrease our net mortgage assets-to-equity ratio by varying the sizes of our net short TBA position and/or our long RMBS portfolio in relation to the portion of our overall shareholders' equity employed in our mortgage-related strategies.

The following table summarizes our net mortgage assets-to-equity ratio and provides additional details, for the last five quarters, to illustrate this fluctuation.

Notional Amount of Long TBAs Notional Amount of Short TBAs Fair Value of Mortgage-backed Securities Net Long (Short) TBA Underlying Market Value (1)

Notional Amount of Long TBAs Notional Amount of Short TBAs Fair Value

of MBS Net Long (Short) TBA Underlying Market Value (1)

Net Mortgage Assets-to-Equity Ratio

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December 31, 2023 (2)

107,422 (78,285) 756,131 36,679 5.8:1

(1) Market value represents the current market value of the underlying Agency RMBS (on a forward delivery basis) as of period end.

We expect to continue to target specified pools that, taking into account their particular composition and based on our prepayment projections, should:

(1) generate attractive yields relative to other Agency RMBS and U.S.

Treasury securities, (2) have less prepayment sensitivity to government policy shocks, and/or (3) create opportunities for trading gains once the market recognizes their value, which for newer pools may come only after several months, when actual prepayment experience can be observed.

We believe that our research team, proprietary prepayment models, and extensive databases remain essential tools in our implementation of this strategy.

(2) Conformed to current period presentation.

The following table summarizes prepayment rates for our portfolio of fixed-rate specified pools (excluding those backed by reverse mortgages) for the three-month periods ended December 31, 2024, September 30, 2024, June 30, 2024, March 31, 2024, and December 31, 2023.

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December 31, 2024 December 31, 2023

Coupon (%) Current Principal Fair Value Weighted Average Loan Age (Months) Current Principal Fair Value Weighted

Coupon (%) Current Principal Fair Value Weighted Average Loan Age (Months) Weighted Average Coupon Current Principal Fair Value Weighted Average Loan Age (Months) Weighted Average Coupon

(In thousands) (In thousands)

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4.50–4.99 — — — — % 51 50 167 4.50 %

4.50–4.99 51 50 167 146 145 155

Total 15-year fixed-rate mortgages — — — — % 28,647 27,847 78 3.46 %

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6.50–6.99 — — — — % 991 1,019 6 6.50 %

6.50–6.99 991 1,019 6 — — —

Total 20-year fixed-rate mortgages — — — — % 8,524 7,863 41 3.30 %

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Total fixed-rate Agency RMBS $ 536,948 $ 512,307 18 4.86 % $ 734,681 $ 706,004 50 4.21 %

For the year ended December 31, 2023, we had total net realized and unrealized gains on our Agency securities of $0.2 million, or $0.01 per share.

Our Agency portfolio turnover was approximately 87% for the year ended December 31, 2023 and we recognized net realized losses of $(59.2) million.

For the year ended December 31, 2023, we continued to hedge interest rate risk primarily through the use of interest rate swaps, and to a lesser extent, short positions in TBAs, U.S.

For the year ended December 31, 2024, we had total net realized and unrealized losses on our Agency securities of $(16.1) million, or $(0.68) per share, and net realized losses of $(24.8) million, or $(1.05) per share.

For the year ended December 31, 2024, we continued to hedge interest rate risk through the use of interest rate swaps and short positions in TBAs, U.S.

Treasury securities, and futures.

We had total net realized and unrealized gains of $10.8 million, or $0.73 per share, on our interest rate hedging portfolio, as sharply rising interest rates in the

second and third quarters of the year drove a significant gain on our interest rate hedges during those periods.

These gains were partially offset by net losses in the first and fourth quarters, driven by declining interest rates.

These gains exclude net realized and unrealized gains of $0.6 million, or $0.04 per share, on our long TBAs held for investment.

We ended the year with a net long TBA position on a notional basis, but a net short TBA position as measured by 10-year equivalents.

We had total net realized and unrealized gains of $24.1 million, or $1.02 per share, on our interest rate hedging portfolio, driven by the increase in interest rates during the year.

These gains exclude net realized and unrealized losses of $(4.2) million, or $(0.18) per share, on our long TBAs held for investment.

We ended the quarter with a net short TBA position on a notional basis, but a net long position as measured by 10-year equivalents.

Ten-year equivalents for a group of positions represent the amount of 10-year U.S.

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The relative makeup of our interest rate hedging portfolio can change materially from period to period.

We may also selectively hedge our corporate CLO and/or non-Agency RMBS investments;

as of December 31, 2023, we had a small credit hedge position in place.

After giving effect to dividends declared during the year ended December 31, 2023 of $0.96 per share, our book value per share decreased to $7.32 as of December 31, 2023, from $8.40 as of December 31, 2022, and we had a negative economic return of (1.4)% for the year ended December 31, 2023.

As of December 31, 2024, we also maintained a modest credit and foreign currency hedge portfolio.

After giving effect to dividends declared during the year ended December 31, 2024 of $0.96 per share, our book value per share decreased to $6.53 as of December 31, 2024, from $7.32 as of December 31, 2023, and we had an economic return of 2.3% for the year ended December 31, 2024.

Economic return for a period is computed by adding back dividends declared during the period to ending book value per share, and comparing that amount to book value per share as of the beginning of the period.

We believe that our adaptive and active style of portfolio management is well suited to the current MBS market environment, which, especially given the current effects and future uncertainties related to quantitative tightening, shifting central bank and government policies, regulatory changes, and disruptive technological developments, exhibits high levels of interest rate risk, prepayment risk (including extension risk), financing and liquidity risk.

For the year ended December 31, 2023, our average repo borrowing cost increased to 5.18%, as compared to 1.40% for the year ended December 31, 2022.

This increase in average repo borrowing cost was the result of a sharp increase in short-term interest rates during the year ended December 31, 2023.

As of December 31, 2023 and December 31, 2022, the weighted average borrowing rate on our repurchase agreements was 5.58% and 3.70%, respectively.

For the years ended December 31, 2024 and 2023, our average repo borrowing cost was 5.48% and 5.18%, respectively, driven by increases in short-term interest rates year over year and the growth of our CLO portfolio, as our CLO portfolio has higher borrowing costs compared to our Agency RMBS portfolio.

As of December 31, 2024 and 2023, the weighted average borrowing rate on our repurchase agreements was 4.81% and 5.58%, respectively.

While large banks still dominate the repo market, non-bank firms, not subject to the same regulations as banks, are active in providing repo financing.

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Our debt-to-equity ratio was 2.9:1 as of December 31, 2024, as compared to 5.4:1 as of December 31, 2023.

Adjusted for unsettled purchases and sales, our debt-to equity ratio was 5.3:1 as of December 31, 2023, as compared to 7.6:1 as of December 31, 2022.

The decline was primarily due to a decrease in borrowings on our smaller Agency RMBS portfolio (reflecting in part the ongoing rotation of investment capital from RMBS to corporate CLOs) and significantly higher shareholders' equity.

Adjusted for unsettled trades, our debt-to equity ratio was also 2.9:1 as of December 31, 2024, as compared to 5.3:1 as of December 31, 2023.

The year over year decline was driven by significantly higher shareholders' equity and less leverage on our CLO investments (relative to Agency investments), which constituted a significantly larger proportion of our overall portfolio as of December 31, 2024, compared to December 31, 2023.

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Electing the fair value option allows us to record changes in fair value in our Consolidated Statement of Operations, which, in our view, more appropriately reflects the results of our operations for a particular reporting period as all securities activities will be recorded in a similar manner.

such, the mortgage-backed securities are recorded at fair value on our Consolidated Balance Sheet and the period change in fair value is recorded in current period earnings on our Consolidated Statement of Operations as a component of Change in net unrealized gains (losses) on securities.

As such, the mortgage-backed securities are recorded at fair value on our Consolidated Balance Sheet and the period change in fair value is recorded in current period earnings on our Consolidated Statement of Operations as a component of Change in net unrealized gains (losses) on securities.

Purchase and sales transactions are generally recorded on trade date.

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However, many of our financial instruments are not traded in an active market.

Therefore, management generally uses third-party valuations when available.

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.

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GAAP of these items as described above.

See the Note 2 of the notes to our consolidated financial statements for more information on the assumptions and methods that we use to amortize purchase premiums and accrete purchase discounts.

See Note 2 of the notes to our consolidated financial statements for more information on the assumptions and methods that we use to amortize purchase premiums and accrete purchase discounts.

Income Taxes :

We made an election to be taxed as a REIT for U.S.

federal income tax purposes and are generally not subject to corporate-level federal and state income tax on net income we distribute to our shareholders within the prescribed time frames.

We revoked our REIT election for tax year 2024 and currently operate as a taxable C-Corp.

We are subject to U.S.

federal, state, and local income tax.

We may take positions with respect to certain tax issues which depend on legal interpretation of facts or applicable tax regulations.

Should the relevant tax regulators successfully challenge any such positions, we might be found to have a tax

liability that has not been recorded in the accompanying consolidated financial statements.

Should the relevant tax regulators successfully challenge any such positions, we might be found to have a tax liability that has not been recorded in the accompanying consolidated financial statements.

Also, management's conclusions regarding the authoritative guidance may be subject to review and adjustment at a later date based on changing tax laws, regulations, and interpretations thereof.

As of December 31, 2023, the REIT had a net operating loss carry-forward of approximately $39 million.

See Note 2 to our consolidated financial statements for additional details on income taxes.

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Cost Average Cost (1)

Credit Portfolio:

Dollar Denominated:

CLO Notes $ 65,954 $ 55,157 $ 83.63 $ 55,363 $ 83.94 $ 16,876 $ 14,491 $ 85.87 $ 14,441 $ 85.57

CLO Equity n/a 91,832 n/a 97,267 n/a n/a 2,926 n/a 2,947 n/a

Total Dollar Denominated CLOs 146,989 152,630 17,417 17,388

Corporate Debt 1,787 428 23.95 398 22.27 — — — — —

Corporate Equity n/a 56 n/a 75 n/a n/a — n/a — n/a

Non-Agency RMBS (2)

— — — — — 9,953 9,409 94.53 8,189 82.28

Non-Agency IOs n/a — n/a — n/a n/a 11,310 n/a 8,700 n/a

Total Dollar Denominated Credit 147,473 153,103 38,136 34,277

Non-Dollar Denominated:

CLO Notes 17,368 16,835 96.93 17,219 99.14 — — — — —

CLO Equity n/a 7,298 n/a 7,995 n/a n/a — n/a — n/a

Total non-Dollar Denominated CLOs 24,133 25,214 — —

Total Credit 171,606 178,317 38,136 34,277

Agency Portfolio:

Dollar Denominated:

Agency RMBS (2)

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Total Agency 512,309 519,630 735,412 751,433

Credit Portfolio:

CLO Notes 16,876 14,491 85.87 14,441 85.57 — — — — —

CLO Equity n/a 2,926 n/a 2,947 n/a — — — — —

Non-Agency RMBS (2)

9,953 9,409 94.53 8,189 82.28 16,895 12,566 74.38 12,414 73.48

Non-Agency IOs n/a 11,310 n/a 8,700 n/a n/a 8,138 n/a 6,289 n/a

Preferred equity securities — — — — — n/a 208 n/a 202 n/a

Total Credit 38,136 34,277 20,912 18,905

Dollar Denominated:

Treasury securities sold short (23,603) (22,578) 95.66 (22,962) 97.28 — — — — —

Reverse repurchase agreements 23,000 23,000 100.00 23,000 100.00 — — — — —

Total $ 773,548 $ 785,710 $ 893,510 $ 966,946

Total, net $ 684,337 $ 697,985 $ 773,548 $ 785,710

(1) Expressed as a percentage of the current principal balance.

(2) Excludes IOs.

As of December 31, 2023, 89% of our invested capital was allocated to mortgage-related securities and 11% was allocated to corporate CLOs.

The majority of our mortgage-related securities are Agency RMBS, which include investments in Agency pools and Agency collateralized mortgage obligations, or "CMOs."

Our most prevalent method of financing RMBS is through short-term repos, which generally have maturities of 364 days or less.

The weighted average lives of the RMBS that we own are generally much longer.

Consequently, the weighted average term of our repurchase agreement financings will almost always be substantially shorter than the expected average maturity of our RMBS.

This mismatch in maturities, together with the uncertainty of RMBS prepayments, and other potential changes in timing and/or amount of cash flows on our RMBS assets, creates the risk that changes in interest rates will cause our financing costs with respect to our RMBS to increase relative to the income on our RMBS over the term of our investments.

As of December 31, 2024, 72% of our invested capital, calculated based on risk capital, was allocated to corporate CLOs and 28% was allocated to mortgage-related securities.

Substantially all of our mortgage-related securities are Agency RMBS, which include investments in Agency pools.

Our most prevalent method of financing RMBS and CLOs is through short-term repos, which generally have maturities of 364 days or less.

The weighted average lives of the RMBS and CLOs that we own are generally much longer.

Consequently, the weighted average term of our repurchase agreement financings will almost always be substantially shorter than the expected average maturity of our RMBS and CLOs.

This mismatch in maturities, together with the uncertainty of prepayments on the

underlying mortgage or corporate loans, and other potential changes in the timing and/or amount of cash flows, creates the risk that changes in interest rates will cause our financing costs with respect to our RMBS and CLOs to increase relative to the income on these assets over the term of our investments.

In addition, changes in the fair value of our RMBS and CLO investments, whether as a result of changes in market conditions, prepayments, or other factors, may trigger changes in margin requirements, in which counterparties to our repurchase agreements may require us post additional collateral to re-establish the agreed-upon collateralization requirements.

Financial Derivatives

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Futures 170 2,284

Credit default swaps 705 —

Forwards 83 —

Total financial derivatives–assets, at fair value 41,867 74,279

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To the extent that the benchmark rates used to calculate the payments we receive on our interest rate swaps continue to be highly correlated with our repo borrowing costs, our interest rate swap contracts should help to reduce the variability of our overall repo borrowing costs, thus reducing risk to the extent we hold fixed-rate assets that are financed with repo borrowings.

In the case of TBAs, many of our positions are short TBA positions with negative duration, meaning that should interest rates rise, the value of the short position would be expected to increase.

This expected increase in value would then serve to offset corollary expected increases in our current and/or future borrowing costs under our repurchase agreements, and so in this manner our short TBA positions serve as a hedge against potential increases in interest rates.

In the case of TBAs, many of our positions are short TBA positions with negative duration, meaning that should interest rates rise, we would expect to profit from these positions.

These profits would then serve to offset corollary expected increases in our current and/or future borrowing costs under our repurchase agreements, and so in this manner our short TBA positions serve as a hedge against potential increases in interest rates.

While we use TBAs to hedge interest rate risk and certain other risks, we also hold net long positions in certain TBA securities as a means of acquiring exposure to Agency RMBS.

CLOs, on the other hand, generally have less interest rate risk than fixed-rate RMBS, because they are primarily backed by floating-rate loans.

As a result, we had no interest rate hedges in place with respect to our CLO portfolio at year end.

Credit Risk Hedging

We also selectively enter into credit-hedging positions in order to protect against adverse credit events with respect to our CLO and/or non-Agency RMBS investments, subject to maintaining our qualification as a REIT.

Our credit hedging portfolio can vary significantly from period to period, and can encompass a wide variety of financial instruments, including corporate debt or equity-related instruments, RMBS- or CMBS-related instruments, or instruments involving other markets.

Our hedging instruments can include both "single-name" instruments (i.e., instruments referencing one underlying entity or security) and hedging instruments referencing indices.

We opportunistically enter into short credit positions using derivative instruments to protect against adverse credit events and/or spread widening risk with respect to our CLOs, or other assets, subject to maintaining our exemption from the 1940 Act prior to the Conversion.

The derivative instruments that we use for credit hedging purposes may include contracts referencing the secured or unsecured debt or equity of certain corporations, as well as contracts referencing indices comprised of corporate debt and equity.

We may also utilize tranches or option contracts on corporate credit or equity indices, as well as contracts referencing various MBS indices and other derivative instruments.

Currently, our credit hedges consist of CDS on corporate bond indices, although there are periods of time where we have no credit hedges in place.

The composition and relative mix of our hedging instruments may vary from period to period given the amount of our liabilities outstanding or anticipated to be entered into, the overall market environment and our view as to which instruments best enable us to execute our hedging goals.

At year end, we held a modest credit hedge portfolio.

Foreign Currency Hedging

To the extent that we hold instruments denominated in currencies other than U.S.

dollars, we may enter into transactions to offset the potential adverse effects of changes in currency exchange rates.

In particular, we may use currency forward contracts and other currency-related derivatives to mitigate this risk.

At year end, we maintained foreign currency hedges in connection with our European CLO holdings.

The following table summarizes our outstanding liabilities under repurchase agreements as of December 31, 2024 and 2023.

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As of December 31, 2024 and 2023, our total debt-to-equity ratio was 2.9:1 and 5.4:1, respectively.

Collateral transferred with respect to our outstanding repo borrowings, including net cash collateral posted or (received), had an aggregate fair value of $0.8 billion and $0.9 billion, as of December 31, 2023 and December 31, 2022, respectively.

Collateral transferred with respect to our outstanding repo borrowings, including net cash collateral posted or (received), had an aggregate fair value of $0.6 billion and $0.8 billion, as of December 31, 2024 and 2023, respectively.

Our debt-to-equity ratio may fluctuate period over period based on portfolio management decisions, market conditions, capital markets conditions, and the timing of security purchase and sale transactions.

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As of December 31, 2024, our shareholders' equity increased to $193.7 million from $136.2 million as of December 31, 2023.

This increase principally consisted of net proceeds from the issuance of shares of $33.6 million and a net gain of $4.6 million, partially offset by dividends declared of $14.5 million.

This increase principally consisted of net proceeds from the issuance of shares of $73.6 million and a net income of $6.6 million, partially offset by dividends declared of $23.1 million.

As of December 31, 2024, our book value per share was $6.53, as compared to $7.32 as of December 31, 2023.

Results of Operations for the Years Ended December 31, 2023 and 2022

Results of Operations

The following table summarizes our results of operations for the years ended December 31, 2024 and 2023:

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Net realized and change in net unrealized gains (losses) on financial derivatives

9,630 107,529

Other, net (665) —

Total Other Income (Loss) 811 12,801

Net Income (Loss) before income taxes 7,096 4,559

Income tax expense (benefit) 510 —

Net Income (Loss) $ 6,586 $ 4,559

Net Income (Loss) Per Common Share $ 0.28 $ 0.31

Results of Operations for the Years Ended December 31, 2024 and 2023

Net Income (Loss)

Net income (loss) for the year ended December 31, 2024 was $6.6 million, as compared to $4.6 million for the year ended December 31, 2023.

The reversal in our results of operations year over year was primarily due to a total other income in the current period as compared to a total other loss in the prior period.

Gains in the current year were partially offset by a significant increase in interest expense, primarily as a result of higher financing costs stemming from the significant increase in short-term interest rates during 2023.

The period-over-period change in our results of operations was primarily due to positive net interest income in the current period, as compared to negative net interest income in the prior period, partially offset by a decline in total other income and an increase in total expenses.

Interest Income

Our portfolio as of both December 31, 2023 and 2022 consisted primarily of Agency RMBS, and to a lesser extent, non-Agency RMBS, and as of December 31, 2023, CLO investments.

Our portfolio as of December 31, 2024 consisted of credit investments, primarily CLOs, and Agency RMBS.

As of December 31, 2023, our portfolio consisted primarily Agency RMBS, with credit investments including CLOs and non-Agency RMBS.

Before interest expense, we earned approximately $45.4 million and $38.8 million in interest income on these securities for the years ended December 31, 2024 and 2023, respectively.

The year-over-year increase in interest income primarily resulted from higher asset yields on both our Agency and credit portfolios and to a lesser extent higher average holdings on our credit portfolio, partially offset by lower average holdings on our Agency RMBS portfolio.

The period-over-period increase in interest income was driven by higher asset yields in both our Agency and credit portfolios, along with higher average holdings in our credit portfolio which have a significantly higher yield relative to our Agency portfolio.

The Catch-up Amortization Adjustment causes variability in our interest income and portfolio yields.

For the year ended December 31, 2023, we had a negative Catch-up Amortization Adjustments of approximately $(0.1) million, which decreased interest income.

For the year ended December 31, 2022, we had a positive Catch-up Amortization Adjustments of approximately $3.1 million, which increased interest income.

For the years ended December 31, 2024 and 2023, we had a negative Catch-up Amortization Adjustments of approximately $(0.5) million and $(0.1) million, respectively, which decreased interest income.

Excluding the Catch-up Amortization Adjustments, the weighted average yield of our overall portfolio was 6.57% and 4.09% for the years ended December 31, 2024 and 2023, respectively.

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Our total interest expense for the years ended December 31, 2024 and 2023 was $34.8 million and $45.3 million, respectively, which primarily consisted of interest expense on our repo borrowings.

The year-over-year increase in our total interest expense resulted mainly from higher financing costs stemming from the significant increase in short-term interest rates.

The year-over-year decrease in total interest expense primarily resulted from lower overall borrowings driven by growth of the CLO portfolio, which carries significantly less leverage compared to Agency RMBS.

The decline in our total interest expense was partially offset by higher financing costs stemming from elevated short-term interest rates during the first half of the year.

In addition, the growth in our CLO portfolio also contributed to an increase in our average cost of funds, which partially offset the decline in interest expense, as our CLO portfolio has higher borrowing costs compared to our Agency RMBS portfolio.

The following table provides details of our borrowings under repurchase agreements for the years ended December 31, 2024 and 2023:

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Repurchase Agreements:

CLO $ 26,165 $ 1,594 6.09 % $ 576 $ 39 6.85 %

Non-Agency RMBS 9,025 614 6.81 % 14,921 976 6.54 %

Total Credit 35,190 2,208 6.28 % 15,497 1,015 6.55 %

Agency RMBS 543,768 29,557 5.44 % 822,543 42,386 5.15 %

Credit 15,497 1,015 6.55 % 9,686 313 3.23 %

838,040 43,401 5.18 % 992,061 13,711 1.38 %

Subtotal 578,958 31,765 5.49 % 838,040 43,401 5.18 %

Treasury securities 23,370 1,235 5.28 % 16,023 849 5.30 %

Total $ 602,328 $ 33,000 5.48 % $ 854,063 $ 44,250 5.18 %

(1) Excludes U.S.

(1) Amounts exclude interest expense on cash and cash equivalents (including when received as margin) and short positions in U.S.

Treasury securities.

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Repurchase Agreements:

CLO $ 26,165 $ 1,594 6.09 % $ 576 $ 39 6.85 %

Non-Agency RMBS 9,025 614 6.81 % 14,921 976 6.54 %

Total Credit 35,190 2,208 6.28 % 15,497 1,015 6.55 %

Agency RMBS 543,768 29,557 5.44 % 822,543 42,386 5.15 %

Credit 15,497 1,015 6.55 % 9,686 313 3.23 %

578,958 31,765 5.49 % 838,040 43,401 5.18 %

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Treasury securities, was 2.21%, resulting in a net interest margin of 4.37%.

By comparison, for the year ended December 31, 2022, the weighted average yield of our portfolio of Agency and non-Agency RMBS excluding the impact of the Catch-up Amortization Adjustment was 2.80%, while our total adjusted average cost of funds, including interest rate swaps and short U.S.

By comparison, for the year ended December 31, 2023, the weighted average yield of our portfolio of Agency and credit portfolios excluding the impact of the Catch-up Amortization Adjustment was 4.09%, while our total adjusted average cost of funds, including interest rate swaps and net short U.S.

Treasury securities, was 2.66%, resulting in a net interest margin of 1.43%.

Management Fees

For each of the years ended December 31, 2023 and 2022, our management fee expense was approximately $1.8 million.

For the years ended December 31, 2024 and 2023, our management fee expense was approximately $2.5 million and $1.8 million, respectively.

Management fees are calculated based on our shareholders' equity at the end of each quarter.

The increase in the management fee period over period was driven by higher shareholders' equity during the year ended December 31, 2024.

Other Operating Expenses

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For the years ended December 31, 2024 and 2023, our other operating expenses were approximately $6.2 million and $3.7 million, respectively.

The increase in other operating expenses for the year ended December 31, 2023 was primarily due to an increase in professional fees.

The increase in other operating expenses for the year ended December 31, 2024 was primarily due to increases in professional fees, compensation expense, and other operating expenses related to the CLO Strategic Transformation.

Other Income (Loss)

Other income (loss) consists of net realized and net change in unrealized gains (losses) on securities and financial derivatives.

For the year ended December 31, 2024, Other income (loss) was $0.8 million, consisting primarily of net realized and unrealized gains of $19.9 million on our financial derivatives, which were partially offset by net realized and unrealized losses of $(18.4) million on our securities.

Net realized and unrealized gains of $19.9 million on our financial derivatives consisted of net realized and unrealized gains of $26.2 million on our interest rate swaps and $0.4 million on our forwards, partially offset by net realized and unrealized losses of $(4.1) million on our U.S.

Treasury futures, $(1.8) million on our TBAs, $(0.7) million on our credit default swaps, and $(0.1) million on Euro FX futures.

The net gain on our financial derivatives was primarily the result of rising interest rates during much of 2024, partially offset by net losses in the third quarter driven by

declining interest rates in that period.

Net realized and unrealized losses of $(18.4) million on our securities consisted primarily of net realized and unrealized losses of $(16.1) million on our on our Agency RMBS, $(3.7) million on our corporate CLOs, and $(0.4) million on our U.S.

Treasury securities, partially offset by net realized and unrealized gains of $1.9 million on our non-Agency RMBS.

For the year ended December 31, 2023, Other income (loss) was $12.8 million, consisting of net realized and unrealized gains of $9.6 million and $3.2 million on our financial derivatives and securities, respectively.

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Treasury securities.

For the year ended December 31, 2022, Other income (loss) was $(45.3) million, consisting primarily of net realized and unrealized losses of $(152.8) million on our securities, which were partially offset by net realized and unrealized gains of $107.5 million on our financial derivatives.

Net realized and unrealized losses of $(152.8) million on our securities consists primarily of net realized and unrealized losses of $(156.2) million on our Agency RMBS, driven by significantly lower asset prices year over year due to rising interest rates and widening yield spreads.

The net realized and unrealized gains on our financial derivatives of $107.5 million consisted of net realized and unrealized gains of $64.4 million on our interest rate swaps, $22.2 million on our net short positions in TBAs, and $20.9 million on our U.S.

Treasury futures.

The net gains on our financial derivatives were primarily the result of the significant increase in interest rates, and in the case of short positions in TBAs, also of widening yields spreads.

Income Tax Expense (Benefit)

We revoked our election to be taxed as a REIT, effective January 1, 2024, and operated as a taxable C-Corporation during 2024.

While we operate as a taxable C-Corporation, we plan to use our existing net operating loss carryforwards (“NOLs”) to offset a majority of our US federal taxable income;

to the extent that those NOLs are unable to offset our income, whether a majority or at all, our income is subject to the typical corporate federal and state income tax rates.

For the year ended December 31, 2024, income tax expense (benefit) was $0.5 million.

No such expense was recorded for the year ended December 31, 2023, during which time we operated as a REIT.

As a REIT, we generally were not subject to U.S.

federal income tax on our REIT taxable income that was distributed to our shareholders.

Adjusted Distributable Earnings

We calculate Adjusted Distributable Earnings as net income (loss), excluding realized and change in net unrealized gains and (losses) on securities and financial derivatives, and excluding other income or loss items that are of a non-recurring nature, if any.

Adjusted Distributable Earnings includes net realized and change in net unrealized gains (losses) associated with periodic settlements on interest rate swaps.

Adjusted Distributable Earnings also excludes the effect of the Catch-up Amortization Adjustment on interest income.

We calculate Adjusted Distributable Earnings as net income (loss) adjusted for:

(i) net realized and change in net unrealized gains and (losses) on securities, financial derivatives, and foreign currency transactions;

(ii) net realized and change in net unrealized gains (losses) associated with periodic settlements on interest rate swaps;

(iii) other income or loss items that are of a non-recurring nature, if any;

(iv) Catch-up Amortization Adjustment (as defined below);

and (v) provision for income taxes.

The Catch-up Amortization Adjustment is a quarterly adjustment to premium amortization or discount accretion triggered by changes in actual and projected prepayments on our Agency RMBS (accompanied by a corresponding offsetting adjustment to realized and unrealized gains and losses).

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(ii) we use it to evaluate the effective net yield provided by our portfolio, after the effects of financial leverage;

and (iii) we believe that presenting Adjusted Distributable Earnings assists our investors in measuring and evaluating our operating performance, and

comparing our operating performance to that of our residential mortgage REIT peers.

and (iii), we believe that presenting Adjusted Distributable Earnings assists investors in measuring and evaluating our operating performance, and comparing our operating performance to that of our peers.

Our calculation of Adjusted Distributable Earnings may differ from the calculation of similarly titled non-GAAP financial measures by our peers, with the result that these non-GAAP financial measures might not be directly comparable;

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GAAP, it should be considered supplementary to, and not as a substitute for, net income (loss) computed in accordance with U.S.

Furthermore, Adjusted Distributable Earnings is different from REIT taxable income.

As a result, the determination of whether we have met the requirement to distribute at least 90% of our annual REIT taxable income (subject to certain adjustments) to its shareholders, in order to maintain qualification as a REIT, is not based on whether we have distributed 90% of our Adjusted Distributable Earnings.

In setting our dividend, our Board of Trustees considers our earnings, liquidity, financial condition, REIT distribution requirements, and financial covenants, along with other factors that the Board of Trustees may deem relevant from time to time.

In setting our dividends, our Board of Trustees considers our earnings, liquidity, financial condition, distribution requirements, and financial covenants, along with other factors that the Board of Trustees may deem relevant from time to time.

The following table reconciles, for the years ended December 31, 2024 and 2023, Adjusted Distributable Earnings to the line on the Consolidated Statement of Operations entitled Net Income (Loss), which we believe is the most directly comparable U.S.

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Year Ended December 31,

(In thousands except for share amounts) 2023 2022

(In thousands except for share amounts and per share amounts) 2024 2023

Net Income (Loss) $ 6,586 $ 4,559

Income tax expense (benefit) 510 —

Net Income (Loss) before income taxes $ 7,096 $ 4,559

Net realized (gains) losses on securities 18,068 58,103

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Change in net unrealized gains (losses) on accrued periodic settlements of interest rate swaps (8,013) 13,690

Non-recurring expenses 102 —

Strategic Transformation costs and other adjustments (1)

Negative (positive) component of interest income represented by Catch-up Amortization Adjustment 491 62

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Adjusted Distributable Earnings Per Share $ 1.17 $ 0.87

(1) For the year ended December 31, 2024, includes $1.7 million of expenses incurred primarily in connection with our strategic transformation, $0.8 million of net realized and unrealized (gains) losses on foreign currency translation, which is included in Other, net on the Consolidated Statement of Operations.

For the year ended December 31, 2023, includes $0.1 million, respectively, of non-recurring transaction-related expenses.

Liquidity and Capital Resources

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Our short-term (the 12 months following period end) and long-term (beyond 12 months from period end) liquidity requirements include acquisition costs for assets we acquire, payment of our management fee, compliance with margin requirements under our repurchase agreements, TBA and other financial derivative contracts, repayment of repurchase agreement borrowings to the extent we are unable or unwilling to extend our repurchase agreements, the payment of dividends, and payment of our general operating expenses.

Our capital resources primarily include cash on hand, cash flow from our investments (including monthly principal and interest payments received on our securities and proceeds from the sale of securities), borrowings under repurchase agreements, and proceeds from equity offerings.

Our capital resources primarily include cash on hand, cash flow from our investments (including periodic principal and interest payments received on our securities and proceeds from the sale of securities), borrowings under repurchase agreements, and proceeds from equity offerings.

We expect that these sources of funds will be sufficient to meet our short-term and long-term liquidity needs.

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June 30, 2024 (1)

578,503 687,433 700,152

March 31, 2024 683,171 675,226 683,171

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March 31, 2022 1,211,163 1,133,738 1,211,163

(1) During this quarter, our borrowings decreased as we continue to transition our portfolio, in connection with our strategic transformation, out of highly leveraged positions such as Agency RMBS to a higher concentration of CLOs, which are typically leveraged at lower levels.

As of December 31, 2024, we had an aggregate amount at risk under our repurchase agreements with 18 counterparties of $55.7 million.

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As of December 31, 2023, we had an aggregate amount at risk under our derivatives contracts, excluding TBAs, with three counterparties of approximately $47.1 million.

Additionally, we had $17.1 million and $21.1 million of initial margin for cleared OTC derivatives received from central clearinghouses as of December 31, 2024 and 2023, respectively.

Amounts at risk under our derivatives contracts represent the excess, if any, for each counterparty of the fair value of our derivative contracts plus our collateral held directly by the counterparty less the counterparty's collateral held by us.

If a particular counterparty's collateral

held by us is greater than the aggregate fair value of the financial derivatives plus our collateral held directly by the counterparty, there is no amount at risk for the particular counterparty.

If a particular counterparty's collateral held by us is greater than the aggregate fair value of the financial derivatives plus our collateral held directly by the counterparty, there is no amount at risk for the particular counterparty.

We purchase and sell TBAs and Agency pass-through certificates on a when-issued or delayed delivery basis.

The delayed delivery for these securities means that these transactions are more prone to market fluctuations between the trade date and the ultimate settlement date, and therefore are more vulnerable, especially in the absence of margining arrangements with respect to these transactions, to increasing amounts at risk with the applicable counterparties.

As of December 31, 2024, in connection with our forward settling TBA and Agency pass-through certificates, we had an aggregate amount at risk with six counterparties of approximately $1.2 million.

As of December 31, 2023, in connection with our forward settling TBA and Agency pass-through certificates, we had an aggregate amount at risk with seven counterparties of approximately $1.7 million.

As of December 31, 2022, in connection with our forward settling TBA and Agency pass-through certificates, we had an aggregate amount at risk with eight counterparties of approximately $4.6 million.

Amounts at risk in connection with our forward settling TBA and Agency pass-through certificates represent the excess, if any, for each counterparty of the net fair value of the forward settling contracts plus our collateral held directly by the counterparty less the counterparty's collateral held by us.

Amounts at risk in connection with our forward settling TBA and Agency pass-through certificates represent the excess, if any,

for each counterparty of the net fair value of the forward settling contracts plus our collateral held directly by the counterparty less the counterparty's collateral held by us.

If a particular counterparty's collateral held by us is greater than the aggregate fair value of the forward settling contracts plus our collateral held directly by the counterparty, there is no amount at risk for the particular counterparty.

As of December 31, 2024, we had cash and cash equivalents of $31.8 million.

The timing and frequency of distributions will be determined by our Board of Trustees based upon a variety of factors deemed relevant by our trustees, including restrictions under applicable law, our capital requirements, and the REIT requirements of the Code.

The declaration of dividends to our shareholders and the amount of such dividends are at the discretion of our Board of Trustees.

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The following paragraphs summarize our cash flows for the years ended December 31, 2024 and 2023.

For the year ended December 31, 2024, our operating activities provided net cash of $9.1 million and our investing activities provided net cash of $116.4 million.

Our repo activity used to finance our purchase of securities (including repayments, in conjunction with the sales of securities, of amounts borrowed under our repurchase agreements as well as collateral posted in connection with our repo activity) used net cash of $183.9 million.

Thus our operating and investing activities, when combined with such net financing activities, used net cash of $58.3 million.

We also received proceeds from the issuance of common shares, net of commissions and offering costs paid of $73.8 million and we used $22.2 million to pay dividends.

As a result of these activities, there was a decrease in our holdings of cash and cash equivalents of $6.7 million, from $38.5 million as of December 31, 2023 to $31.8 million as of December 31, 2024.

For the year ended December 31, 2023, our operating activities used net cash of $10.0 million and our investing activities provided net cash of $85.7 million.

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As a result of these activities, there was an increase in our cash holdings of $3.7 million, from $34.8 million as of December 31, 2022 to $38.5 million as of December 31, 2023.

For the year ended December 31, 2022, our operating activities provided net cash of $22.4 million and our investing activities provided net cash of $110.5 million.

Thus our operating and investing activities, when combined with our net repo financing activities, used net cash of $22.0 million.

We also received net proceeds from the issuance of common shares, net of commissions and offering costs paid of $2.0 million.

We used $13.9 million to pay dividends, and $0.3 million to repurchase common shares.

As a result of these activities, there was a decrease in our cash holdings of $34.2 million, from $69.0 million as of December 31, 2021 to $34.8 million as of December 31, 2022.

On April 2, 2021, we implemented an "at-the-market" offering program, or "ATM program," by entering into equity distribution agreements with third party sales agents under which we are authorized to offer and sell up to $75.0 million of common shares from time to time.

The 2021 ATM program was terminated in connection with the establishment of the 2023 ATM program, hereinafter defined.

We have implemented an "at-the-market" offering program, or "ATM program," by entering into equity distribution agreements with third party sales agents.

On November 14, 2023, we implemented an “at the market” offering program, or the "2023 ATM program," by entering into equity distribution agreements with third party sales agents under which we are authorized to offer and sell up to $100.0 million of common shares from time to time.

In the aggregate, under the 2021 ATM program and 2023 ATM program, during the year ended December 31, 2023, we issued 5,183,037 common shares which provided $33.6 million of net proceeds after $0.5 million of commissions and $0.2 million of offering costs.

As of December 31, 2023, we had $85.9 million of common shares available to be issued remaining under the 2023 ATM program.

From commencement

of the 2023 ATM program through March 1, 2024, we issued 3,480,148 common shares under the 2023 ATM program, which provided $21.2 million of net proceeds after $0.2 million of commissions and $0.2 million of offering costs.

During the year ended December 31, 2024, we issued 10,964,023 common shares which provided $73.6 million of net proceeds after $0.6 million of commissions and $0.5 million of offering costs.

As of December 31, 2024, we had $11.2 million of common shares available to be issued under the 2023 ATM program.

Subsequent to December 31, 2024, we amended the 2023 ATM Program on January 13, 2025 and again on February 11, 2025 to authorize to offer and sell up to an additional $90.0 million of common shares from time to time.

Between January 1, 2025 and March 28, 2025, we have issued 8,075,118 common shares;

as of March 28, 2025, we had approximately $48.5 million of common shares authorized to be issued under the amended 2023 ATM program.

On June 13, 2018, our Board of Trustees approved the adoption of a share repurchase program under which we are authorized to repurchase up to 1.2 million common shares.

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Repurchases are at our discretion, subject to applicable law, share availability, price and our financial performance, among other considerations.

Under the current repurchase program adopted on June 13, 2018, we have repurchased 474,192 common shares through May 12, 2023 at an average price per share of $9.21 and an aggregate cost of $4.4 million, and have authorization to repurchase an additional 725,808 common shares.

We did not purchase any shares under this program during the year ended December 31, 2023.

We did not purchase any shares under this program during the years ended December 31, 2024 and 2023.

Under the current repurchase program adopted on June 13, 2018, we have repurchased 167,476 common shares through March 28, 2025 at an average price per share of $5.84 and an aggregate cost of $1.0 million, and have authorization to repurchase an additional 558,332 common shares.

Based on our current portfolio, amount of free cash on hand, debt-to-equity ratio and current and anticipated availability of credit, we believe that our capital resources will be sufficient to enable us to meet anticipated short-term and long-term liquidity requirements.

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For a description of the management agreement provisions, see Note 9 to our consolidated financial statements.

We enter into repurchase agreements with third-party broker-dealers whereby we sell securities to such broker-dealers at agreed-upon purchase prices at the initiation of the repurchase agreements and agree to repurchase such securities at predetermined repurchase prices and termination dates, thus providing the broker-dealers with an implied interest rate on the funds initially transferred to us by the broker-dealers.

We enter into repurchase agreements with third-party broker-dealers whereby we sell securities to such broker-dealers at

agreed-upon purchase prices at the initiation of the repurchase agreements and agree to repurchase such securities at predetermined repurchase prices and termination dates, thus providing the broker-dealers with an implied interest rate on the funds initially transferred to us by the broker-dealers.

We may enter into reverse repurchase agreements with third-party broker-dealers whereby we purchase securities under agreements to resell at an agreed-upon price and date.

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As such, we are not materially exposed to any market, credit, liquidity, or financing risk that could arise if we had engaged in such relationships.

Virtually all of our assets and liabilities are interest rate-sensitive in nature.

Virtually all of our assets and liabilities are interest rate-sensitive in nature to varying degrees.

As a result, interest rates and other factors generally influence our performance more than does inflation.

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For example, if higher inflation is not matched by an increase in wages, inflation could cause the real income of the borrowers whose loans underlie our non-Agency RMBS to decline.

A decline in the real income of consumers could also cause a decline in consumer spending, which could negatively impact the profitability of many of the corporate borrowers whose loans underlie our corporate CLOs.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis