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Item 8. Financial Statements and Supplementary Data

2025-03-31 compared with 2024-03-12 · 374 added, 223 removed, 834 unchanged (42% of the section changed)

Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page

CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2024 AND DECEMBER 31, 2023

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Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders of Ellington Residential Mortgage REIT

To the Board of Trustees and Shareholders of Ellington Credit Company

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Ellington Residential Mortgage REIT and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations, of shareholders' equity and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of Ellington Credit Company and its subsidiaries (the "Company") as of December 31, 2024 and 2023, and the related consolidated statements of operations, of shareholders' equity and of cash flows for the years then ended, including the related notes (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

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As described in Notes 2 and 4 to the consolidated financial statements, the Company held $104.1 million of total level 3 investments in securities, at fair value as of December 31, 2024.

The Company has chosen to make a fair value election for its securities portfolio.

The Company has chosen to elect the fair value option for its investments in securities.

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.

Management’s estimate of fair value may be based on several assumptions, including but not limited to management’s estimates of yield, projected collateral prepayments, projected collateral losses and projected collateral recoveries, as applicable.

Fair value measurements are impacted by the interrelationships of these assumptions.

The principal considerations for our determination that performing procedures relating to the valuation of certain level 3 investments in securities is a critical audit matter are (i) the significant judgment by management in determining the fair value of these investments, which in turn led to (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to the valuation of these level 3 investments and the interrelated assumptions related to yield, projected collateral prepayments, projected collateral losses, and projected collateral recoveries, as applicable;

Management’s estimate of fair value may be based on several assumptions, including but not limited to management’s estimates of yield.

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

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(ii) comparing management’s estimate of fair value to independent sources, where available;

and (iii) the involvement of professionals with specialized skill and knowledge to assist in developing an independent range of estimates of fair value by applying assumptions related to yield, projected collateral prepayments, projected collateral losses, and projected collateral recoveries as applicable.

and (iii) the involvement of professionals with specialized skill and knowledge to assist in developing an independent range of estimates of fair value by applying assumptions related to yield.

/s/ PricewaterhouseCoopers LLP

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We have served as the Company's auditor since 2012.

ELLINGTON RESIDENTIAL MORTGAGE REIT

ELLINGTON CREDIT COMPANY

CONSOLIDATED BALANCE SHEETS

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Receivable for securities sold 11,077 51,132

Interest receivable 4,522 3,326

Interest and principal receivable 10,536 4,522

Total Assets $ 824,092 $ 945,690

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Dividend payable 2,372 1,488

Accrued expenses 1,153 1,097

Accrued expenses and other liabilities 1,488 1,153

Management fee payable to affiliate 729 513

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Preferred shares, par value $0.01 per share, 100,000,000 shares authorized;

(0 shares issued and outstanding, respectively)

(1,000 and 0 shares issued and outstanding, respectively)

Common shares, par value $0.01 per share, 500,000,000 shares authorized;

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Total Liabilities and Shareholders' Equity $ 824,092 $ 945,690

(1) Conformed to current period presentation.

(1) Includes assets pledged as collateral to counterparties.

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See Notes to Consolidated Financial Statements

ELLINGTON RESIDENTIAL MORTGAGE REIT

ELLINGTON CREDIT COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

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Change in net unrealized gains (losses) on financial derivatives ( 18,579 ) ( 18,932 )

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

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See Notes to Consolidated Financial Statements

ELLINGTON RESIDENTIAL MORTGAGE REIT

ELLINGTON CREDIT COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

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Share based compensation 255 255

Repurchase of common shares ( 40,021 ) — ( 262 ) ( 262 )

Forfeiture of common shares to satisfy tax withholding obligations ( 6,806 ) — — —

Dividends declared (2)

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10,964,023 110 73,448 73,558

Preferred shares issued 1,000 1 1

Issuance of restricted shares 90,229 1 ( 1 ) —

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(1) Net of discounts and commissions and offering costs.

(2) For the years ended December 31, 2023 and 2022, dividends totaling $ 0.96 and $ 1.04 , respectively, per common share outstanding, were declared.

(2) For each of the years ended December 31, 2024 and 2023, dividends totaling $ 0.96 , per common share outstanding, were declared.

See Notes to Consolidated Financial Statements

ELLINGTON RESIDENTIAL MORTGAGE REIT

ELLINGTON CREDIT COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

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Change in net unrealized (gains) losses on financial derivatives 18,579 18,932

Realized (gains) losses Other (net)—foreign currency translation ( 109 ) —

Change in net unrealized (gains) losses Other (net)—foreign currency translation 863 —

Amortization of premiums and accretion of discounts, net 3,868 913

Share based compensation 442 255

(Increase) decrease in assets:

(Increase) decrease in operating assets:

Interest receivable ( 487 ) ( 1,196 )

Other assets ( 213 ) —

Increase (decrease) in liabilities:

Increase (decrease) in operating liabilities:

Accrued expenses 357 43

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See Notes to Consolidated Financial Statements

ELLINGTON RESIDENTIAL MORTGAGE REIT

ELLINGTON CREDIT COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

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$ 74,062 $ 33,805

Proceeds from the issuance of preferred shares 1 —

Offering costs paid ( 221 ) ( 231 )

Repurchase of common shares — ( 262 )

Dividends paid ( 22,215 ) ( 14,122 )

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Interest paid $ 35,728 $ 47,141

Income tax paid 829 —

Dividends payable 2,372 1,488

Share based compensation (non-cash) 442 255

(1) Net of discount and commissions.

See Notes to Consolidated Financial Statements

ELLINGTON RESIDENTIAL MORTGAGE REIT

ELLINGTON CREDIT COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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Organization and Investment Objective

Ellington Residential Mortgage REIT, or "EARN," was formed as a Maryland real estate investment trust, or "REIT," on August 2, 2012, and commenced operations on September 25, 2012.

Ellington Credit Company, or "EARN," (formerly Ellington Residential Mortgage REIT) was initially formed as a Maryland real estate investment trust, or "REIT," on August 2, 2012, and commenced operations on September 25, 2012, with a focus on acquiring, investing in, and managing residential mortgage- and real estate-related assets through its wholly owned subsidiaries.

EARN conducts its business through its wholly owned subsidiaries, EARN OP GP LLC, or the "General Partner," and Ellington Residential Mortgage LP, or the "Operating Partnership," which were formed as a Delaware limited liability company and a Delaware limited partnership, respectively, on July 31, 2012 and commenced operations on September 25, 2012.

The Operating Partnership conducts its business of acquiring, investing in, and managing residential mortgage- and real estate-related assets through its wholly owned subsidiaries.

The Operating Partnership conducts its business of acquiring, investing in, and managing targeted assets through its wholly owned subsidiaries.

EARN, the General Partner, the Operating Partnership, and their consolidated subsidiaries are hereafter defined as the "Company."

Ellington Residential Mortgage Management LLC, or the "Manager," serves as the Manager of the Company pursuant to the terms of the Fifth Amended and Restated Management Agreement, or the "Management Agreement." The Manager is an affiliate of Ellington Management Group, L.L.C., or "EMG," an investment management firm that is an SEC-registered investment adviser with a 29-year history of investing in a broad spectrum of mortgage-backed securities and related derivatives, with an emphasis on the residential mortgage-backed securities, or "RMBS," market.

In accordance with the terms of the Management Agreement and the Services Agreement (as described in Note 9), the Manager is responsible for administering the Company's business activities and day-to-day operations, and performs certain services, subject to oversight by the Board of Trustees.

See Note 9 for further information on the Management Agreement.

The Company acquires and manages RMBS, for which the principal and interest payments are guaranteed by a U.S.

On March 29, 2024, the Company's Board of Trustees approved a strategic transformation, the "CLO Strategic Transformation," of the Company's investment strategy to focus on corporate collateralized loan obligations, or "CLOs." In connection with the CLO Strategic Transformation, the Company revoked its status as a REIT under the Internal Revenue Code of 1986, as amended, or "the Code," and, effective January 1, 2024, conducts its operations as a taxable C-Corp and maintains its exclusion from registration under the Investment Company Act of 1940, as amended, or the "1940 Act." On April 19, 2024, the Company changed its name and amended its declaration of trust and bylaws accordingly.

After obtaining shareholder approval of certain matters related to the CLO Strategic Transformation at a special meeting of shareholders held on January 17, 2025, the "Special Meeting", the Company intends to convert to a Delaware closed-end fund registered under the 1940 Act that will elect to be treated as a regulated investment company, or "RIC," on April 1, 2025, or the "Conversion";

see Note 13 for additional details.

After the Conversion, the Company will be required to comply with the rules and regulations of the 1940 Act.

Subsequent to the commencement of the CLO Strategic Transformation, the Company, subject to maintaining its exclusion from registration under the 1940 Act prior to the Conversion, is focused on acquiring 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.

Additionally, the Company 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.

In order to maintain its exclusion from registration under the 1940 Act, the Company also maintains a core portfolio of Agency MBS.

Prior to the CLO Strategic Transformation, the Company focused on acquiring and managing RMBS, for which the principal and interest payments are guaranteed by a U.S.

government agency or a U.S.

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Agency RMBS include both Agency pools and Agency collateralized mortgage obligations, or "CMOs," and non-Agency RMBS primarily consist of non-Agency CMOs, both investment grade and non-investment grade.

The Company also acquires and manages collateralized loan obligations, or "CLOs." The Company also invests in other instruments including, but not limited to, forward-settling To-Be-Announced Agency pass-through certificates, or "TBAs," interest rate swaps, U.S.

Treasury securities, U.S.

Treasury futures, other financial derivatives, and cash equivalents.

The Company may also acquire and manage other types of assets such as commercial mortgage-backed securities, or "CMBS," residential mortgage loans, mortgage servicing rights, and credit risk transfer securities.

The Company's targeted investments may range from unrated first loss securities to AAA senior securities.

The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, or "the Code," and conducts its operations to qualify and be taxed as a REIT.

As a REIT, the Company is required to distribute annually at least 90 % of its taxable income.

As long as the Company continues to qualify as a REIT, it will not be subject to U.S.

federal corporate taxes on its taxable income to the extent that it distributes all of its annual taxable income to its shareholders within the time limits prescribed by the Code.

It is the intention of the Company to distribute at least 100 % of its taxable income, after application of available tax attributes, within the time limits prescribed by the Code, which may extend into the subsequent taxable year.

As a result of the CLO Strategic Transformation, the Company intends to gradually liquidate its portfolio of mortgage-related assets and invest its capital in CLOs.

Ellington Credit Company Management LLC, formerly Ellington Residential Mortgage Management LLC, or the "Manager," serves as the Manager of the Company pursuant to the terms of a management agreement, as described in Note 9.

The Manager is an affiliate of Ellington Management Group, L.L.C., or "EMG," an investment management firm that is an SEC-registered investment adviser with a longstanding history of investing in CLOs across a wide variety of market conditions.

In accordance with the terms of the Previous Management Agreement, the New Management Agreement, and the Services Agreement (each as defined and described in Note 9), the Manager is responsible for administering the Company's business activities and day-to-day operations, and performs certain services, subject to oversight by the Board of Trustees.

Significant Accounting Policies

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The preparation of consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and

liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates and those differences could be material.

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Currently, the types of financial instruments that the Company generally includes in this category are Agency RMBS, U.S.

Treasury securities, certain non-Agency RMBS, CLOs, and actively traded derivatives such as TBAs, interest rate swaps, swaptions, credit default swaps, or "CDS", and other over-the-counter derivatives;

Treasury securities, certain non-Agency RMBS, CLOs, and actively traded derivatives such as TBAs, interest rate swaps, swaptions, credit default swaps, or "CDS", foreign currency forwards, and other over-the-counter derivatives;

• Level 3—inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Currently, this category generally includes certain CLOs, CDS, and RMBS, such as certain non-Agency RMBS and certain Agency interest only securities, or "IOs," where there is less price transparency.

Currently, this category generally includes certain CLOs, private corporate debt and equity investments, CDS, and RMBS, such as certain non-Agency RMBS and certain Agency interest only securities, or "IOs," where there is less price transparency.

For certain financial instruments, the various inputs that management uses to measure fair value may fall into different levels of the fair value hierarchy.

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The validation criteria may take into account output from management's own models, recent trading activity in the same or similar instruments, and valuations received from third parties.

The use of proprietary models requires the use of a significant amount of judgment and the application of various assumptions including, but not limited to, assumptions concerning future prepayment rates and default rates.

The use of proprietary models requires the use of a significant

amount of judgment and the application of various assumptions including, but not limited to, assumptions concerning future prepayment rates and default rates.

Given their relatively high level of price transparency, Agency RMBS pass-throughs, and TBAs are typically designated as Level 2 assets.

Non-Agency RMBS, CLOs, and Agency interest only and inverse interest only RMBS are generally classified as either Level 2 or Level 3 based on the analysis of available market data and/or third-party valuations.

Non-Agency RMBS, CLOs, corporate debt, and Agency interest only and inverse interest only RMBS are generally classified as either Level 2 or Level 3 based on the analysis of available market data and/or third-party valuations.

Furthermore, the methodology used by the third-party valuation providers is reviewed at least annually by management, so as to ascertain whether such providers are utilizing observable market data to determine the valuations that they provide.

Interest rate swaps and swaptions are typically valued based on internal models that use observable market data, including applicable interest rates in effect as of the measurement date;

Interest rate swaps, swaptions, and foreign currency forwards are typically valued based on internal models that use observable market data, including applicable interest rates and foreign currency rates in effect as of the measurement date;

the model-generated valuations are then typically compared to counterparty valuations for reasonableness;

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In valuing its derivatives, the Company also considers the creditworthiness of both the Company and its counterparties, along with collateral provisions contained in each derivative agreement.

The Company's repurchase and reverse repurchase agreements are carried at cost, which approximates fair value.

The Company's reverse repurchase agreements and repurchase agreements are carried at cost, which approximates fair value.

Reverse repurchase agreements and repurchase agreements are classified as Level 2 assets and liabilities based on the adequacy of the collateral and their short term nature.

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Purchases and sales of securities are recorded on trade date and realized and unrealized gains and losses are calculated based on identified cost.

The Company has chosen to make a fair value election pursuant to ASC 825-10, Financial Instruments , for its securities portfolio.

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

Investments in securities are recorded in accordance with ASC 320, Investments—Debt and Equity Securities ("ASC 320") or ASC 325-40, Beneficial Interests in Securitized Financial Assets ("ASC 325-40").

The Company generally classifies its securities as available-for-sale.

The Company has chosen to elect the the fair value option, or "FVO," pursuant to ASC 825, Financial Instruments ("ASC 825") for its investments in securities.

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

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

The Company applies the principles of ASU 2016-13, Financial Instruments—Credit Losses ("ASU 2016-13") and evaluates the cost basis of its securities on at least a quarterly basis under ASC 326-30, Financial Instruments—Credit Losses:

Many of the Company's investments in securities, such as CLOs, are issued by entities that are deemed to be VIEs.

For the majority of such investments, the Company has determined it is not the primary beneficiary of such VIEs and therefore has not consolidated such VIEs.

The Company's maximum risk of loss in these unconsolidated VIEs is generally limited to the fair value of the Company's investment in the VIE.

The Company evaluates the cost basis of its securities on at least a quarterly basis under ASC 326-30, Financial Instruments—Credit Losses:

Available-for-Sale Debt Securities ("ASC 326-30").

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The estimated future cash flows reflect those that a "market participant" would use and typically include assumptions related to fluctuations in interest rates, prepayment speeds, default rates, collateral performance, and the timing and amount of projected credit losses, as well as incorporating observations of current market developments and events.

Cash flows are discounted at an interest rate equal to the current yield used to accrete interest income.

Cash flows are discounted at an interest rate equal to the

current yield used to accrete interest income.

If the present value of estimated future cash flows is less than the amortized cost basis of the security, an expected credit loss exists and is included in Unrealized gains (losses) on securities and loans, net, on the Consolidated Statement of Operations.

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(D) Interest Income:

Coupon interest income on investment securities is accrued based on the outstanding principal balance or notional amount and the current coupon rate on each security.

The Company amortizes purchase premiums and accretes purchase discounts on its fixed-income securities.

Coupon interest income on fixed-income investments is accrued based on the outstanding principal balance or notional amount and the current coupon rate.

The Company amortizes purchase premiums and accretes purchase discounts on its debt securities.

For RMBS that are deemed to be of high credit quality at the time of purchase, premiums and discounts are generally amortized/accreted into interest income over the life of such securities using the effective interest method.

For such RMBS whose cash flows vary depending on prepayments, an effective yield retroactive to the time of purchase is periodically recomputed based on actual prepayments and changes in projected prepayment activity, and a catch-up adjustment, or "Catch-up Amortization Adjustment," is made to amortization to reflect the cumulative impact of the change in effective yield.

For RMBS that are deemed not to be of high credit quality at the time of purchase, interest income is recognized based on the effective interest method.

For debt securities (generally RMBS and CLOs) that are deemed not to be of high credit quality at the time of purchase, interest income is recognized based on the effective interest method.

For purposes of estimating future expected cash flows, management uses assumptions including, but not limited to, assumptions for future prepayment rates, default rates, and loss severities (each of which may in turn incorporate various macro-economic assumptions, such as future housing prices).

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If at the date of acquisition for a particular asset the Company projects a significant difference between contractual cash flows and expected cash flows, it establishes an initial estimate for credit losses as an upward adjustment to the acquisition cost of the asset for the purpose of calculating interest income using the effective yield method.

In estimating future cash flows on the Company's debt securities, there are a number of assumptions that are subject to significant uncertainties and contingencies;

these estimates require the use of a significant amount of judgment.

The Company's accretion of discounts and amortization of premiums on securities for U.S.

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GAAP of these items as described above.

(E) Cash and Cash Equivalents:

(E) Other Income:

In connection with certain of the Company's CLO equity investments the Company receives distributions from fee letters associated to such CLO equity positions.

Distributions from such fee letters are based upon a percentage of the collateral manager's fees.

Income from fee letters is included in Other, net, on the Consolidated Statement of Operations.

(F) Cash and Cash Equivalents:

Cash and cash equivalents include cash and short term investments with original maturities of three months or less at the date of acquisition.

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The Company holds its cash at institutions that it believes to be highly creditworthy.

(F) Due from brokers/Due to brokers:

(G) Due from brokers/Due to brokers:

Due from brokers and Due to brokers accounts on the Consolidated Balance Sheet include collateral transferred to or received from counterparties, including clearinghouses, along with receivables and payables for open and/or closed derivative positions.

(G) Financial Derivatives:

The Company enters into various types of financial derivatives subject to its investment guidelines, which include restrictions associated with maintaining its qualification as a REIT.

(H) Financial Derivatives:

The Company enters into various types of financial derivatives subject to its investment guidelines.

The Company's financial derivatives are predominantly subject to bilateral master trade agreements or clearing in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

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Interest rate swaps are contractual agreements whereby one party pays a floating interest rate on a notional principal amount and receives a fixed-rate payment on the same notional principal, or vice versa, for a fixed period of time.

A credit default swap is a contract under which one party agrees to compensate another party for the financial loss associated with the occurrence of a "credit event" in relation to a "reference amount" or notional value of a "reference asset" (usually a bond, loan, or an index or basket of bonds or loans).

The definition of a credit event may vary from contract to contract.

A credit event may occur (i) when the reference asset (or underlying asset, in the case of a reference asset that is an index or basket) fails to make scheduled principal or interest payments to its holders, (ii) with respect to credit default swaps referencing mortgage/asset-backed securities and indices, when the reference asset (or underlying asset, in the case of a reference asset that is an index or basket) is downgraded below a certain rating level, or (iii) with respect to credit default swaps referencing corporate entities and indices, upon an event of default of the obligor of the reference asset (or underlying obligor, in the case of a reference asset that is an index).

A credit event may occur (i) when the reference asset (or underlying asset, in the case of a reference asset that is an index or basket) fails to make scheduled principal or interest payments to its holders, (ii) with respect to credit default swaps referencing asset-backed securities and indices, when the reference asset (or underlying asset, in the case of a reference asset that is an index or basket) is downgraded below a certain rating level, or (iii) with respect to credit default swaps referencing corporate entities and indices, upon an event of default of the obligor of the reference asset (or underlying obligor, in the case of a reference asset that is an index).

Swaps change in value with movements in interest rates or total return of the reference securities.

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When a contract is terminated, the Company realizes a gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Company's basis in the contract, if any.

Periodic payments or receipts required by swap agreements

are recorded as unrealized gains or losses when accrued and realized gains or losses when received or paid.

Periodic payments or receipts required by swap agreements are recorded as unrealized gains or losses when accrued and realized gains or losses when received or paid.

Upfront payments paid and/or received by the Company to open swap contracts are recorded as an asset and/or liability on the Consolidated Balance Sheet and are recorded as a realized gain or loss on the termination date.

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Realized gains or (losses) are included in Net realized gains (losses) on financial derivatives on the Consolidated Statement of Operations.

Forward Currency Contracts :

A forward currency contract is an agreement between two parties to purchase or sell a specific quantity of currency with the delivery and settlement at a specific future date and exchange rate.

During the period the forward currency contract is open, changes in the value of the contract are recognized as unrealized gains or losses.

When the contract is settled, the Company records a realized gain or loss equal to the difference between the proceeds of the closing transaction and the Company's basis in the contract.

Financial derivative assets are included in Financial derivatives–assets, at fair value on the Consolidated Balance Sheet while financial derivative liabilities are included in Financial derivatives–liabilities, at fair value on the Consolidated Balance Sheet.

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Realized gains and losses on financial derivatives are included in Net realized gains (losses) on financial derivatives on the Consolidated Statement of Operations.

(H) Repurchase Agreements:

(I) Repurchase Agreements:

The Company enters into repurchase agreements with third-party broker-dealers, whereby it sells securities under agreements to repurchase at an agreed upon price and date.

The Company accounts for repurchase

agreements as collateralized borrowings, with the initial sale price representing the amount borrowed, and with the future repurchase price consisting of the amount borrowed plus interest, at the implied interest rate of the repurchase agreement, on the amount borrowed over the term of the repurchase agreement.

The Company accounts for repurchase agreements as collateralized borrowings, with the initial sale price representing the amount borrowed, and with the future repurchase price consisting of the amount borrowed plus interest, at the implied interest rate of the repurchase agreement, on the amount borrowed over the term of the repurchase agreement.

The interest rate on a repurchase agreement is based on competitive market rates (or competitive market spreads, in the case of agreements with floating interest rates) at the time such agreement is entered into.

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Repurchase agreements are carried at their contractual amounts, which approximate fair value due to their short-term nature.

(I) Reverse Repurchase Agreements:

(J) Reverse Repurchase Agreements:

The Company enters into reverse repurchase agreement transactions with third-party broker-dealers, whereby it purchases securities under agreements to resell at an agreed upon price and date.

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There are currently no repurchase and reverse repurchase agreements reported on a net basis in the Company's consolidated financial statements.

(J) Securities Sold Short:

(K) Securities Sold Short:

The Company may purchase or engage in short sales of U.S.

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

A realized gain or loss will be recognized upon the termination of a short sale if the market price is less or greater than the original sale price.

A realized gain or loss will be

recognized upon the termination of a short sale if the market price is less or greater than the original sale price.

Such realized gain or loss is recorded on the Company's Consolidated Statement of Operations in Net realized gains (losses) on securities.

(K) Offering Costs/Deferred Offering Costs/Underwriters' Discounts:

(L) Offering Costs/Deferred Offering Costs/Underwriters' Discounts:

Offering costs, underwriters' discounts and commissions and fees, are charged against shareholders' equity within Additional paid-in-capital.

Offering costs typically include legal, accounting, and other fees associated with the cost of raising equity capital.

(L) Share Based Compensation:

(M) Share Based Compensation:

The Company applies the provisions of ASC 718, Compensation—Stock Compensation ("ASC 718"), with regard to its equity incentive plans.

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Forfeited shares decrease the total number of shares issued and outstanding and are immediately retired upon settlement.

(M) Dividends:

(N) Dividends:

Dividends payable are recorded on the declaration date.

(N) Expenses:

(O) Expenses:

Expenses are recognized as incurred on the Consolidated Statement of Operations.

(O) Earnings Per Share:

(P) Earnings Per Share:

In accordance with the provisions of ASC 260, Earnings per Share , the Company calculates basic income (loss) per share by dividing net income (loss) for the period by the weighted average of the Company's common shares outstanding for that period.

Diluted income (loss) per share takes into account the effect of dilutive instruments, such as share options and warrants, and uses the average share price for the period in determining the number of incremental shares that are to be added to the weighted average number of shares outstanding.

(P) Share Repurchases:

(Q) Foreign Currency :

The functional currency of the Company is U.S.

Assets and liabilities denominated in foreign currencies are remeasured into U.S.

dollars at current exchange rates at the following dates:

(i) assets, liabilities, and unrealized gains/losses—at the valuation date;

and (ii) income, expenses, and realized gains/losses—at the accrual/transaction date.

For investments and financial derivatives denominated in a foreign currency, the Company isolates the portion of realized and change in unrealized gain (loss) resulting from changes in the foreign currency exchange rate from the fluctuations arising from changes in fair value (as measured in such foreign currency).

Changes in realized and change in unrealized gain (loss) due to foreign currency are included in Other, net, on the Consolidated Statement of Operations.

The Company's reporting currency is U.S.

If the Company has investments in unconsolidated entities that have a functional currency other than U.S.

Dollars, the fair value is translated to U.S.

dollars using the current exchange rate at the valuation date.

The cumulative translation adjustment, if any, associated with the Company's investments in unconsolidated entities is recorded in accumulated other comprehensive income (loss), a component of consolidated shareholders' equity.

(R) Share Repurchases:

Common shares that are repurchased by the Company subsequent to issuance are immediately retired upon settlement and decrease the total number of shares issued and outstanding.

The cost of such share repurchases is charged against Additional paid-in-capital on the Company's Consolidated Balance Sheet.

(Q) Income Taxes:

The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Code.

As a REIT, the Company is generally not subject to corporate-level federal and state income tax on net income it distributes to its shareholders within the prescribed timeframes.

To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including distributing at least 90 % of its annual taxable income to shareholders.

Even if the Company qualifies as a REIT, it may be subject to certain federal, state, local and foreign taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income.

If the Company fails to qualify as a REIT, and does not qualify for certain statutory relief provisions, it will be subject to U.S.

federal, state, and local income taxes and may be precluded from qualifying as a REIT for the four taxable years following the year in which the Company fails to qualify as a REIT.

(S) Income Taxes:

The Company has revoked its previous election to be taxed as a REIT under Sections 856 through 860 of the Code and will operate as a C-Corp subject to U.S.

federal, state, and local corporate income taxes for the tax year beginning January 1, 2024.

The Company's financial results reflect provisions for any current or deferred income taxes.

The Company follows the authoritative guidance on accounting for and disclosure of uncertainty on tax positions, which requires management to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position.

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

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

Should the relevant tax regulators successfully challenge any of such positions, the Company might be found to have a tax liability that has not been recorded in the

accompanying consolidated financial statements.

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

There were no amounts accrued for penalties or interest as of or during the periods presented in these consolidated financial statements.

(R) Recent Accounting Pronouncements:

The Company recognizes interest and penalties, if any, related to uncertain tax positions, as income tax expense included in Income tax expense (benefit) on the Consolidated Statement of Operations.

See Note 11 for additional details on income taxes.

(T) Segment Reporting:

An operating segment is defined as a component of an entity that (i) engages in business activities from which revenues are recognized and expenses incurred, (ii) has discrete financial information available, and (iii) is evaluated on a regular basis by the Chief Operating Decision Maker (the "CODM") for decision-making purposes, including investment and operating decisions, including capital and resource allocation decisions;

and communicates results, strategy, and other relevant information to the Board of Trustees and shareholders.

The Company's CODM is, collectively, its Chief Executive Officer and President and its Co-Chief Investment Officers.

The Company operates through a single operating and reporting segment with an objective to generate attractive current yields and risk-adjusted total returns for its shareholders by acquiring, investing in, and managing its targeted assets.

The Company’s CODM assesses performance and makes investment and operating decisions based on net income reported on the Consolidated Statement of Operations, among other metrics.

Significant expenses are separately disclosed on the Consolidated Statements of Operations.

(U) Recent Accounting Pronouncements:

In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses (" ASU 2024-03").

ASU 2024-03 requires public entities to provide tabular disclosure of certain expenses including employee compensation, on an interim and annual basis, in the notes to the financial statements.

ASU 2024-03 is effective for annual periods beginning after December 15, 2026, and interim periods in fiscal years beginning after December 15, 2027, with early adoption permitted.

ASU 2024-03 should be applied on either a prospective basis to financial statements issued for reporting periods after the effective date of ASU 2024-03 or retrospectively to any or all prior periods presented in the financial statements.

ASU 2023-09 is not expected to have a material impact on the Company's consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures ("ASU 2023-09") which requires disaggregated information about a reporting entities effective tax rate reconciliation as well as information on income taxes paid.

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ASU 2023-09 will be applied on a prospective basis with the option to apply ASU 2023-09 retrospectively.

While the Company is still assessing the impact of ASU 2023-09, it is not expected to have a material impact on the Company's consolidated financial statements.

The Company is still assessing the impact of ASU 2023-09 on the Company's consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting—Improvements to Reportable Segment Disclosures ("ASU 2023-07") which requires incremental disclosures related to an entity's reportable segments, including identifying significant segment expense categories and any multiple measures of segment profit or loss used by the CODM.

Additionally, ASU 2023-07 provides further guidance on interim reporting, disclosures required by entities with a single reportable segment, and recasting of previously reported segment information.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning after December 15, 2024, with early adoption permitted.

ASU 2023-07 will be applied on a retrospective basis unless it is impracticable to do so.

While the Company is still assessing the impact of ASU 2023-07, it is not expected to have a material impact on the Company's consolidated financial statements.

ASU 2023-07 became effective for fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company has applied ASU 2023-07 on a retrospective basis, which did not have a material impact on the Company's consolidated financial statements.

Investment in Securities

The Company's securities portfolio primarily consists of Agency and non-Agency RMBS and corporate CLOs, and may also include U.S.

Treasury securities and preferred equity securities.

The Company's securities portfolio primarily consists of corporate CLOs and Agency RMBS, and may also include non-Agency RMBS, U.S.

Treasury securities, and corporate debt and equity securities.

The Company's corporate CLO portfolio primarily comprises 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.

The Company's Agency RMBS include mortgage pass-through certificates and CMOs representing interests in or obligations backed by pools of residential mortgage loans issued or guaranteed by a U.S.

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Gains Losses Fair Value Coupon (1)(2)

15-year fixed-rate mortgages $ 28,647 $ 118 $ 28,765 $ 32 $ ( 950 ) $ 27,847 3.46 % 3.20 % 2.90

20-year fixed-rate mortgages 8,524 509 9,033 4 ( 1,174 ) 7,863 3.30 % 2.21 % 5.68

CLO Notes $ 83,322 $ ( 10,740 ) $ 72,582 $ 1,382 $ ( 1,972 ) $ 71,992 11.69 % 15.05 % 2.89

CLO Equity n/a n/a 105,262 795 ( 6,927 ) 99,130 n/a 12.12 % 9.86

Corporate debt 1,787 ( 1,389 ) 398 30 — 428 — % — % 1.32

Corporate equity n/a n/a 75 — ( 19 ) 56 n/a n/a n/a

30-year fixed-rate mortgages 536,948 ( 17,320 ) 519,628 1,696 ( 9,017 ) 512,307 4.86 % 5.26 % 7.26

Adjustable rate mortgages 7,127 933 8,060 — ( 941 ) 7,119 4.68 % 2.74 % 4.45

Reverse mortgages 14,406 2,183 16,589 — ( 1,715 ) 14,874 5.92 % 2.94 % 4.50

Interest only securities (4)

n/a n/a 2 — — 2 1.20 % 11.27 % 2.76

Principal and interest securities 9,953 ( 1,764 ) 8,189 1,231 ( 11 ) 9,409 9.39 % 10.72 % 5.80

Interest only securities (4)

n/a n/a 8,700 2,610 — 11,310 0.22 % 16.69 % 9.03

CLO Notes 16,876 ( 2,435 ) 14,441 123 ( 73 ) 14,491 12.16 % 15.26 % 5.66

CLO Equity n/a n/a 2,947 51 ( 72 ) 2,926 n/a 35.84 % 5.87

Total Long 622,057 ( 29,449 ) 697,947 3,903 ( 17,935 ) 683,915 5.76 % 7.29 % 7.17

Treasury securities ( 23,603 ) 641 ( 22,962 ) 384 — ( 22,578 ) 4.02 % 4.32 % 9.86

Total Short ( 23,603 ) 641 ( 22,962 ) 384 — ( 22,578 ) 4.02 % 4.32 % 9.86

Total $ 598,454 $ ( 28,808 ) $ 674,985 $ 4,287 $ ( 17,935 ) $ 661,337 5.70 % 6.50 % 7.26

(1) Weighted average coupon represents the weighted average coupons of the securities, rather than, in the case of collateralized securities, the weighted average coupon rates on the underlying collateral.

(2) Total weighted average coupon excludes interest only RMBS and CLO equity securities.

(2) Total long and total weighted average coupon excludes CLO equity securities, corporate equity, and interest only RMBS.

(3) Expected average lives of RMBS are generally shorter than stated contractual maturities.

Average lives are affected by the contractual maturities of the underlying mortgages, scheduled periodic payments of principal, and unscheduled prepayments of principal.

(4) Weighted average coupon is based on a notional principal amount of $ 83.8 million and $ 1.05 billion, for Agency and non-Agency interest only securities, respectively.

(4) Weighted average coupon is based on a notional principal amount of $ 29 thousand, for Agency interest only securities.

December 31, 2023:

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n/a n/a 8,700 2,610 — 11,310 0.22 % 16.69 % 9.03

Preferred equity securities n/a n/a 202 6 — 208 n/a n/a n/a

Total Long 943,185 8,058 966,946 4,631 ( 78,068 ) 893,509 3.66 % 3.49 % 7.99

Treasury securities ( 500 ) 1 ( 499 ) 1 — ( 498 ) 3.88 % 3.89 % 6.92

Total Short ( 500 ) 1 ( 499 ) 1 — ( 498 ) 3.88 % 3.89 % 6.92

CLO Notes 16,876 ( 2,435 ) 14,441 123 ( 73 ) 14,491 12.16 % 15.26 % 5.66

CLO Equity n/a n/a 2,947 51 ( 72 ) 2,926 n/a 35.84 % 5.87

Total $ 783,043 $ ( 15,587 ) $ 785,710 $ 13,202 $ ( 25,364 ) $ 773,548 4.49 % 4.92 % 6.32

(1) Weighted average coupon represents the weighted average coupons of the securities, rather than, in the case of collateralized securities, the coupon rates on the underlying collateral.

(2) Conformed to current period presentation.

Total long, total short, and total weighted average coupon excludes interest only RMBS and preferred equity securities.

(2) Total weighted average coupon excludes CLO equity securities and interest only RMBS.

(3) Expected average lives of RMBS are generally shorter than stated contractual maturities.

Average lives are affected by the contractual maturities of the underlying mortgages, scheduled periodic payments of principal, and unscheduled prepayments of principal.

(4) Weighted average coupon is based on a notional principal amount of $ 61.1 million and $ 700.5 million, for Agency and non-Agency interest only securities, respectively.

(4) Weighted average coupon is based on a notional principal amount of $ 83.8 million and $ 1.05 billion, for Agency and non-Agency interest only securities, respectively.

By Estimated Weighted Average Life

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($ in thousands)

CLOs and Other Securities (1)

Agency RMBS Agency IOs

Estimated Weighted Average Life (2)

Value Amortized Cost Weighted Average Coupon (2)

Fair Value Amortized Cost Weighted Average Coupon (3)

Less than three years $ 85,958 $ 85,990 5.67 % $ 1,774 $ 1,566 2.10 %

Greater than three years and less than seven years 297,251 303,424 4.67 % 1,796 1,570 3.72 %

Greater than seven years and less than eleven years 344,788 355,412 3.58 % 3,845 3,471 3.53 %

Total $ 727,997 $ 744,826 4.25 % $ 7,415 $ 6,607 2.77 %

(1) Expected average lives of RMBS are generally shorter than stated contractual maturities.

(2) Weighted average coupon represents the weighted average coupons of the securities rather than the coupon rates on the underlying collateral.

($ in thousands)

Non-Agency RMBS Non-Agency IOs CLOs (3)

Estimated Weighted Average Life (1)

Fair Value Amortized Cost Weighted Average Coupon (2)

Value Amortized Cost Weighted Average Coupon (2)

Fair Value Amortized Cost Weighted Average Coupon (2)

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Greater than seven years and less than eleven years 1,013 1,055 12.00 % 312,181 319,358 4.23 % — — — %

Greater than eleven years 594 — 5.79 % — — — % — — — %

Total $ 72,420 $ 72,980 11.45 % $ 512,307 $ 519,628 4.86 % $ 2 $ 2 1.20 %

(1) Expected average lives of RMBS and CLOs are generally shorter than stated contractual maturities.

(2) Weighted average coupon represents the weighted average coupons of the securities rather than the coupon rates on the underlying collateral.

(1) CLOs excludes CLO Equity;

Other Securities includes corporate debt.

(2) Expected average lives of RMBS, Agency IOs, and CLOs are generally shorter than stated contractual maturities.

(3) Weighted average coupon represents the weighted average coupons of the securities rather than the coupon rates on the underlying collateral.

As of December 31, 2023:

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Greater than seven years and less than eleven years 344,788 355,412 3.58 % 3,845 3,471 3.53 %

Greater than eleven years 1,214 1,279 4.50 % — — — %

Total $ 727,997 $ 744,826 4.25 % $ 7,415 $ 6,607 2.77 %

(1) Expected average lives of RMBS are generally shorter than stated contractual maturities.

(1) Expected average lives of RMBS and Agency IOs are generally shorter than stated contractual maturities.

(2) Weighted average coupon represents the weighted average coupons of the securities rather than the coupon rates on the underlying collateral.

($ in thousands)

Non-Agency RMBS Non-Agency IOs

Non-Agency RMBS Non-Agency IOs CLOs (3)

Estimated Weighted Average Life (1)

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Fair Value Amortized Cost Weighted Average Coupon (2)

Less than three years $ 1,764 $ 1,749 7.45 % $ — $ — — % $ — $ — — %

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Total $ 9,409 $ 8,189 9.39 % $ 11,310 $ 8,700 0.22 % $ 14,491 $ 14,441 12.16 %

(1) Conformed to current period presentation.

(1) Expected average lives of RMBS are generally shorter than stated contractual maturities.

(2) Weighted average coupon represents the weighted average coupons of the securities rather than the coupon rates on the underlying collateral.

(3) CLOs excludes CLO Equity.

The following tables reflect the components of net interest income (expense) by security type for the years ended December 31, 2024 and 2023:

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Income (Expense)

CLOs $ 18,670 $ ( 3,581 ) $ 15,089 $ 222 $ 109 $ 331

Agency RMBS 29,493 ( 446 ) 29,047 38,029 ( 1,843 ) 36,186

Non-Agency RMBS 2,242 ( 596 ) 1,646 2,883 ( 569 ) 2,314

CLOs 222 109 331 — — —

Treasury securities ( 339 ) ( 29 ) ( 368 ) ( 86 ) ( 114 ) ( 200 )

Other securities (1)

584 41 625 ( 339 ) ( 29 ) ( 368 )

Total $ 50,989 $ ( 4,582 ) $ 46,407 $ 40,795 $ ( 2,332 ) $ 38,463

(1) Other securities includes corporate debt and U.S.

Treasury securities.

For the years ended December 31, 2024 and 2023, the Catch-up Amortization Adjustment was $( 0.5 ) million and $( 0.1 ) million, respectively.

At December 31, 2024, the Company had gross unrealized losses on securities of $( 17.9 ) million, of which $( 2.0 ) million relates primarily to adverse changes in estimated future cash flows on CLOs.

At December 31, 2023, the Company had gross unrealized losses on securities of $( 25.4 ) million, of which $( 0.2 ) million relates primarily to adverse changes in estimated future cash flows on CLOs and Agency IOs.

At December 31, 2022, the Company had gross unrealized losses on securities of $( 78.1 ) million, of which $( 0.2 ) million relates primarily to adverse changes in estimated future cash flows on Agency IOs.

The Company determined for certain securities that a portion of such securities' cost basis is not collectible;

for the years ended December 31, 2023 and 2022, the Company recognized realized losses on such securities of $( 0.5 ) million and $( 1.6 ) million, respectively.

for the years ended December 31, 2024 and 2023, the Company recognized realized losses on such securities of $( 13 ) thousand and $( 0.5 ) million, respectively.

Such realized losses are reflected in Net realized gains (losses) on securities, on the Consolidated Statement of Operations.

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Description Level 1 Level 2 Level 3 Total

15-year fixed-rate mortgages $ — $ 27,847 $ — $ 27,847

20-year fixed-rate mortgages — 7,863 — 7,863

CLOs $ — $ 67,498 $ 103,624 $ 171,122

Corporate debt — — 428 428

Corporate equity — — 56 56

30-year fixed-rate mortgages — 512,307 — 512,307

Adjustable rate mortgages — 7,119 — 7,119

Reverse mortgages — 14,874 — 14,874

Interest only securities — — 2 2

Non-Agency RMBS — 10,443 10,276 20,719

CLOs — 11,816 5,601 17,417

Total securities, at fair value — 579,805 104,110 683,915

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Futures 170 — — 170

Credit default swaps — 705 — 705

Forwards — 83 — 83

Total financial derivatives–assets, at fair value 170 41,697 — 41,867

Total securities and financial derivatives–assets, at fair value 170 621,502 104,110 725,782

Securities sold short:

Treasury securities sold short, at fair value — ( 22,578 ) — ( 22,578 )

Financial derivatives–liabilities, at fair value:

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Total financial derivatives–liabilities, at fair value ( 811 ) ( 4,870 ) — ( 5,681 )

Treasury securities sold short and financial derivatives–liabilities, at fair value $ ( 811 ) $ ( 27,448 ) $ — $ ( 28,259 )

December 31, 2023:

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Non-Agency RMBS — 10,443 10,276 20,719

Preferred equity securities 208 — — 208

CLOs — 11,816 5,601 17,417

Total securities, at fair value — 754,509 19,039 773,548

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Interest rate swaps — 71,341 — 71,341

Futures 2,284 — — 2,284

Total financial derivatives–assets, at fair value 2,284 71,995 — 74,279

Total securities and financial derivatives–assets, at fair value 2,284 826,504 19,039 847,827

Securities sold short:

Treasury securities sold short, at fair value $ — $ ( 498 ) $ — $ ( 498 )

Financial derivatives–liabilities, at fair value:

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Futures ( 63 ) — — ( 63 )

Credit default swaps — ( 632 ) — ( 632 )

Total financial derivatives–liabilities, at fair value $ ( 63 ) $ ( 7,266 ) $ — $ ( 7,329 )

Total securities sold short and financial derivatives–liabilities, at fair value $ ( 82 ) $ ( 3,535 ) $ — $ ( 3,617 )

(1) Conformed to current period presentation.

The following tables present additional information about the Company's investments which are measured at fair value for which the Company has utilized Level 3 inputs to determine fair value.

The tables below include roll-forwards of the Company's financial instruments for the years ended December 31, 2024 and 2023 (including change in fair value), for financial instruments classified by the Company within Level 3 of the valuation hierarchy.

Year Ended December 31, 2024:

(In thousands) Non-Agency RMBS Agency RMBS CLOs

(In thousands) CLOs Corporate Debt Corporate Equity Agency RMBS Non-Agency RMBS

Beginning balance as of December 31, 2023 $ 5,601 $ — $ — $ 3,162 $ 10,276

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Proceeds from sales ( 42,997 ) ( 5 ) — ( 3,010 ) ( 10,898 )

Principal repayments ( 226 ) ( 382 ) —

(Amortization)/accretion, net ( 3,045 ) — — ( 437 ) ( 428 )

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The table above incorporates changes in net unrealized gains (losses) for both Level 3 financial instruments held by the Company at December 31, 2024, as well as Level 3 financial instruments disposed of by the Company during the year ended December 31, 2024.

For Level 3 financial instruments held by the Company as of December 31, 2023, change in net unrealized gains (losses) of $ 0.4 million, $ 0.6 million, and $ 34 thousand, for the year ended December 31, 2023 relate to non-Agency RMBS, Agency RMBS, and CLOs, respectively.

For Level 3 financial instruments held by the Company as of December 31, 2024, change in net unrealized gains (losses) of $( 6.0 ) million, $ 30 thousand, and $( 19 ) thousand for the year ended December 31, 2024 relate to CLOs, corporate debt, and corporate equity, respectively.

At December 31, 2024, the Company transferred $ 44.3 million of assets from Level 3 to Level 2 and $ 14.6 million of assets from Level 2 to Level 3.

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Year Ended December 31, 2023:

(In thousands) Non-Agency RMBS Agency RMBS

(In thousands) Non-Agency RMBS Agency RMBS CLOs

Beginning balance as of December 31, 2022 $ 11,834 $ 4,085 $ —

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The table above incorporates changes in net unrealized gains (losses) for both Level 3 financial instruments held by the Company as of December 31, 2023, as well as Level 3 financial instruments disposed of by the Company during the year ended December 31, 2023.

For Level 3 financial instruments held by the Company as of December 31, 2022, change in net unrealized gains (losses) of $ 0.3 million and $ 1.2 million, for the year ended December 31, 2022 relate to non-Agency RMBS and Agency RMBS, respectively.

For Level 3 financial instruments held by the Company as of December 31, 2023, change in net unrealized gains (losses) of $ 0.4 million, $ 0.6 million, and $ 34 thousand for the year ended December 31, 2023 relate to non-Agency RMBS, Agency RMBS, and CLOs, respectively.

At December 31, 2023, the Company transferred $ 0.9 million of assets from Level 3 to Level 2 and $ 1.8 million of assets from Level 2 to Level 3.

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The level designation of each financial instrument is reassessed at the end of each period, and is based on pricing information received from third party pricing sources.

The following table identifies the significant unobservable inputs that affect the valuation of the Company's Level 3 assets and liabilities as of December 31, 2023:

December 31, 2023:

The following table identifies the significant unobservable inputs that affect the valuation of the Company's Level 3 financial instruments as of December 31, 2024:

Valuation Technique

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(In thousands)

Non-Agency RMBS $ 8,135 Market quotes Non-Binding Third-Party Valuation $ 0.39 $ 97.91 $ 20.34

2,141 Discounted Cash Flows

$ 10,276 Yield 5.8 % 17.6 % 10.1 %

Projected Collateral Prepayments 30.8 % 40.1 % 38.1 %

Projected Collateral Losses 0.7 % 7.8 % 5.6 %

Projected Collateral Recoveries 6.3 % 13.1 % 10.7 %

Agency RMBS–Interest Only Securities $ 2,169 Market quotes Non-Binding Third-Party Valuation $ 3.41 $ 16.30 $ 7.18

993 Option Adjusted Spread ("OAS") LIBOR OAS (2)

36 5,076 1,386

$ 3,162 Projected Collateral Prepayments 32.6 % 67.1 % 45.8 %

CLOs $ 63,080 Market quotes Non-Binding Third-Party Valuation $ 7.50 $ 99.00 $ 63.45

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103,624 Yield (2)

9.4 % 55.4 % 17.8 %

Agency RMBS–Interest Only Securities 2 Option Adjusted Spread ("OAS") LIBOR OAS (3)

1,007 1,007 1,007

Corporate equity 56 Discounted Cash Flows Yield 18.5 % 22.6 % 20.3 %

Corporate debt 428 Discounted Cash Flows Yield 11.1 % 50.4 % 17.1 %

(1) Averages are weighted based on the fair value of the related instrument.

(2) Excludes $ 4.3 million of CLOs which have estimated yields greater than 100%.

Including such positions our weighted average yield would be 25.1 %.

(3) Shown in basis points.

Third-party non-binding valuations are validated by comparing such valuations to internally generated prices based on the Company's models and, when available, to recent trading activity in the same or similar instruments.

For those instruments valued using discounted cash flows, collateral prepayments, losses, recoveries, and scheduled amortization are projected over the remaining life of the collateral and expressed as a percentage of the collateral's current principal balance.

For those instruments valued using discounted cash flows, such estimates of future cash flows may incorporate projections of interest and principal payments, fee rebates, credit losses, and redemptions.

For those assets valued using the LIBOR Option Adjusted Spread, or "OAS," valuation methodology, cash flows are projected using management's models over multiple interest rate scenarios, and these projected cash flows are then discounted using the LIBOR rates (which are calculated by using an assumed spread over projected Secured Overnight Financing Rates, or "SOFR" rates) implied by each interest rate scenario.

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Material changes in any of the inputs above in isolation could result in a significant change to reported fair value measurements.

Fair value measurements are impacted by the interrelationships of these inputs.

For example, a higher expectation of collateral prepayments will generally result in a lower expectation of collateral losses.

Conversely, higher losses will generally result in lower prepayments.

Losses and recoveries do not represent a significant input for the Company's Agency RMBS interest only securities, given the guarantee of the issuing GSE.

The following table summarizes the estimated fair value of all other financial instruments not included in the disclosures above as of December 31, 2024 and 2023:

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Financial Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions.

Specifically, the Company's primary source of financing is repurchase agreements and the Company enters into financial derivative and other instruments to manage exposure to variable cash flows on portions of its borrowings under those repurchase agreements.

Since the interest rates on repurchase agreements typically change with market interest rates such as the Secured Overnight Financing Rate, or "SOFR," the Company is constantly exposed to changing interest rates, which accordingly affects cash flows associated with the Company's borrowings.

To mitigate the effect of changes in these interest rates and their related cash flows, the Company may enter into a variety of derivative contracts, including interest rate swaps, futures, swaptions, CDS, and TBAs.

Additionally, from time to time, the Company may use short positions in U.S.

Treasury securities to mitigate its interest rate risk.

The Company manages certain risks associated with its investments and borrowings, including interest rate, credit, liquidity, and foreign exchange rate risk primarily by managing the amount, sources, and duration of its investments and borrowings, and through the use of derivative financial instruments.

The Company's derivative financial instruments are used to manage differences in the amount, timing, and duration of its known or expected cash receipts and its known or expected cash payments principally related to its investments and borrowings, as well as to mitigate changes in the fair value of its investments that are caused by changes in overall market conditions.

The following table details the fair value of the Company's holdings of financial derivatives as of December 31, 2024 and 2023:

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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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2049 3,564 1,156 1.63 5.39 25.83

2050 780 394 0.64 5.39 26.54

2052 10,000 2,151 2.28 5.38 28.31

Total $ 887,437 $ 63,537 2.54 % 5.38 % 6.68

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2040 500 ( 194 ) 4.49 0.84 15.81

Total $ 119,810 $ 998 4.49 % 3.88 % 8.54

December 31, 2023:

Weighted Average

Maturity Notional Amount Fair Value Pay Rate Receive Rate Remaining Years to Maturity

(In thousands)

2026 $ 61 $ — 5.38 % 4.06 % 2.45

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2033 95,829 3,572 5.39 3.96 9.62

Total $ 188,160 $ 3,046 5.38 % 3.71 % 8.36

December 31, 2022:

Weighted Average

Maturity Notional Amount Fair Value Pay Rate Receive Rate Remaining Years to Maturity

(In thousands)

2034 23,000 ( 54 ) 5.38 3.44 10.01

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($ in thousands)

Long Contracts:

Treasury Futures $ 84,600 $ 2,284 2.69

Short Contracts:

Treasury Futures $ ( 5,400 ) $ 6 3.00

Euro FX Futures ( 10,250 ) 164 2.53

Long Contracts:

Treasury Futures 134,400 ( 811 ) 2.87

Total, net $ 118,750 $ ( 641 ) 2.85

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(4) Net carrying value represents the difference between the market value of the TBA contract as of period end and the cost basis and is reported in Financial derivatives-assets at fair value and Financial derivatives-liabilities at fair value on the Consolidated Balance Sheet.

Credit Default Swaps

The following table provides information about the Company's credit default swaps as of December 31, 2024 and 2023:

December 31, 2024 December 31, 2023

Notional Fair Value Weighted Average Remaining Term (Years) Notional Fair Value Weighted Average Remaining Term (Years)

($ in thousands)

Credit default swaps on corporate bond indices $ 23,825 $ 705 4.47 $ — $ — —

Credit default swaps on corporate bond indices ( 52,886 ) ( 1,912 ) 4.75 ( 25,943 ) ( 632 ) 4.98

$ ( 29,061 ) $ ( 1,207 ) 4.66 $ ( 25,943 ) $ ( 632 ) 4.98

(1) Long notional represents contracts where the Company has written protection and short notional represents contracts where the Company has purchased protection.

From time to time the Company enters into credit derivative contracts for which the Company sells credit protection ("written credit derivatives").

As of December 31, 2024, all of the Company's open written credit derivatives were credit default swaps on corporate bond indices, for which the Company receives periodic payments at fixed rates from credit protection buyers, and is obligated to make payments to the credit protection buyer upon the occurrence of a "credit event" with respect to underlying reference assets.

As of December 31, 2024, the Company held written credit derivatives with a notional value of $ 23.8 million and a fair value of $ 0.7 million.

Implied credit spreads may be used to determine the market value of such contracts and are reflective of the cost of buying/selling credit protection.

Higher spreads would indicate a greater likelihood that a seller will be obligated to perform ( i.e.

, make protection payments) under the contract.

In situations where the credit quality of the underlying reference assets has deteriorated, the percentage of notional values that would be paid up front to enter into a new such contract ("points up front") is frequently used as an indication of credit risk.

Credit protection sellers entering the market in such situations would expect to be paid points up front corresponding to the approximate fair value of the contract.

As of December 31, 2024, the implied credit spread on the Company's outstanding written credit derivative ranged between 45 and 289 basis points.

Total net up-front payments (paid) or received relating to written credit derivatives outstanding as of December 31, 2024 was $ 0.7 million.

The table below details the average notional values of the Company's financial derivatives, using absolute value of month end notional values, for the years ended December 31, 2024 and 2023:

7 unchanged sentences

Credit default swaps 39,320 14,989

Forwards 1,803 —

Gains and losses on the Company's financial derivatives for the years ended December 31, 2024 and 2023 are summarized in the tables below:

6 unchanged sentences

Credit default swaps ( 773 ) ( 773 ) 83 83

Forwards 336 336 $ 83 $ 83

Total $ 27,118 $ 11,369 $ 38,487 $ ( 8,013 ) $ ( 10,566 ) $ ( 18,579 )

5 unchanged sentences

Futures ( 3,149 ) ( 3,149 ) 2,303 2,303

Credit default swaps ( 238 ) ( 238 ) ( 187 ) ( 187 )

Total $ 7,388 $ 21,174 $ 28,562 $ 13,690 $ ( 32,622 ) $ ( 18,932 )

At December 31, 2023, the Company purchased protection on credit default swaps on corporate bond indices with a notional value of $ 25.9 million and a fair value of $( 0.6 ) million;

the weighted average remaining maturity on such contracts was 5.0 years.

Borrowings under Repurchase Agreements

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The Company is generally permitted to sell or re-pledge any securities posted by the counterparty as collateral;

however, upon termination of the repurchase agreement, or

other circumstance in which the counterparty is no longer required to post such margin, the Company must return to the counterparty the same security that had been posted.

however, upon termination of the repurchase agreement, or other circumstance in which the counterparty is no longer required to post such margin, the Company must return to the counterparty the same security that had been posted.

The contractual amount (loan amount) of the Company's repurchase agreements approximates fair value, based on the short-term nature of the debt and the adequacy of the collateral.

21 unchanged sentences

As of December 31, 2024 and 2023, the fair value of securities transferred as collateral under outstanding borrowings under repurchase agreements was $ 611.3 million and $ 791.5 million, respectively.

Collateral transferred under outstanding borrowings under repurchase agreements as of December 31, 2023 and 2022, includes RMBS in the amount of $ 51.0 million and $ 33.0 million, respectively, that were sold prior to period end but for which such sale had not yet settled.

Collateral transferred under outstanding borrowings under repurchase agreements as of December 31, 2024 and 2023, includes investments in the amount of $ 10.5 million and $ 51.0 million, respectively, that were sold prior to period end but for which such sale had not yet settled.

In addition as of December 31, 2024 and 2023, the Company posted to/(received from) repurchase agreement counterparties net cash collateral of $ 4.2 million and $( 11.2 ) million, respectively, as a result of margin calls with various repurchase agreement counterparties.

Additionally, as of December 31, 2023, repurchase agreement counterparties posted RMBS of $ 0.8 million to the Company as a result of margin calls.

Additionally, as of December 31, 2024 and 2023, repurchase agreement counterparties posted/(received) RMBS of $( 3.1 ) million and $ 0.8 million, respectively, to/(from) the Company as a result of margin calls.

Amount at risk represents the excess, if any, for each counterparty of the fair value of collateral held by such counterparty over the amounts outstanding under repurchase agreements.

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Financial derivatives–assets $ 41,867 $ ( 2,561 ) $ — $ ( 29,768 ) $ 9,538

Reverse repurchase agreements 23,000 — ( 23,000 ) — —

Financial derivatives–liabilities ( 5,681 ) 2,561 — 1,826 ( 1,294 )

4 unchanged sentences

As of December 31, 2024, the fair value of financial instruments transferred or pledged as collateral on the Company's repurchase agreements, net of the fair value of any financial instruments received by the Company as the result of margin calls, were $ 614.5 million.

As of December 31, 2023, total cash collateral (received) pledged on financial derivative assets and financial derivative liabilities excludes $ 1.4 million and $ 0.1 million, respectively, of net excess cash collateral.

As of December 31, 2024, total cash collateral (received) pledged on financial derivative assets and financial derivative liabilities excludes $ 31 thousand and $ 2.6 million, respectively, of net excess cash collateral.

(3) When collateral is pledged to or pledged by a counterparty, it is often pledged or posted with respect to all positions with such counterparty, and in such cases such collateral cannot be specifically identified as relating to a particular asset or liability.

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Financial derivatives–assets $ 74,279 $ ( 6,851 ) $ — $ ( 42,344 ) $ 25,084

Reverse repurchase agreements 499 ( 499 ) — — —

Financial derivatives–liabilities ( 7,329 ) 6,851 — 374 ( 104 )

3 unchanged sentences

Therefore, the Company has reduced the amount of financial instruments transferred or pledged as collateral related to the Company's repurchase agreements and cash collateral pledged on the Company's financial derivative assets and liabilities.

Total financial instruments transferred or pledged as collateral on the Company's repurchase agreements as of December 31, 2022 were $ 882.0 million.

As of December 31, 2022, total cash collateral on financial derivative assets excludes $ 4.3 million of net excess cash collateral.

As of December 31, 2023, the fair value of financial instruments transferred or pledged as collateral on the Company's repurchase agreements, net of the fair value of any financial instruments received by the Company as a result of margin calls, were $ 790.6 million.

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As of December 31, 2024 and 2023, the Company did not have any dilutive instruments outstanding.

The following table presents a reconciliation of the earnings/(losses) and shares used in calculating basic EPS years ended December 31, 2023 and 2022:

The following table presents a reconciliation of the earnings/(losses) and shares used in calculating basic EPS for the years ended December 31, 2024 and 2023:

(In thousands except for share amounts) December 31, 2024 December 31, 2023

Net income (loss) $ 6,586 $ 4,559

$ 4,559 $ ( 30,198 )

Basic and diluted weighted average shares outstanding

14,875,314 13,163,106

Basic and diluted weighted average common shares outstanding 23,576,696 14,875,314

Basic and diluted earnings per share $ 0.28 $ 0.31

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Management Agreement

The Company is party to the Management Agreement, which has a current term that expires on September 24, 2024, and has been, and is expected to be, renewed automatically each year thereafter for an additional one-year period, subject to certain termination rights.

The Company was party to the Fifth Amended and Restated Management Agreement, (the "Previous Management Agreement").

On June 25, 2024, the Company Board of Trustees unanimously approved the Sixth Amended and Restated Management Agreement, (the "New Management Agreement") which replaced the Previous Management Agreement.

The New Management Agreement became effective beginning July 1, 2024.

The Company is externally managed and advised by the Manager.

Pursuant to the terms of the Management Agreement, the Manager provides the Company with its management team, including its officers, and appropriate support personnel.

Pursuant to the terms of the Previous Management Agreement and the New Management Agreement (collectively the "Management Agreement"), the Manager provides the Company with its management team, including its officers, and appropriate support personnel.

The Company does not have any employees.

The Manager is responsible for the day-to-day operations of the Company.

The Manager receives an annual management fee in an amount equal to 1.50 % per annum of shareholders' equity (as defined in the Management Agreement) as of the end of each fiscal quarter (before deductions for any management fee with respect to such fiscal period).

The management fee is payable quarterly in arrears.

For each of the years ended December 31, 2023 and 2022, the total management fee incurred was $ 1.8 million.

Services Agreement

The Manager and EMG are parties to a services agreement, pursuant to which EMG is required to provide to the Manager sufficient personnel, services, and resources to enable the Manager to carry out its obligations and responsibilities under the Management Agreement.

The Company is a named third-party beneficiary to the services agreement and, as a result, has, as a non-exclusive remedy, a direct right of action against EMG in the event of any breach by the Manager of any of its duties, obligations, or agreements under the Management Agreement that arise out of or result from any breach by EMG of its obligations under the services agreement.

The services agreement will terminate upon the termination of the Management Agreement.

Pursuant to the services agreement, the Manager makes certain payments to EMG in connection with the services provided.

The Manager and EMG have overlapping ownership and are under common control.

For periods prior to July 1, 2024, under the terms of the Previous Management Agreement, the Manager received an annual management fee in an amount equal to 1.50 % per annum of shareholders' equity (as defined in the Previous Management Agreement) as of the end of each fiscal quarter (before deductions for any management fee with respect to such fiscal period).

The management fee was payable quarterly in arrears.

Under the terms of the New Management Agreement, for periods beginning after June 30, 2024, the Manager receives an annual management fee in an amount equal to 1.50 % per annum of the Company's Net Asset Value, calculated as the Company's total assets minus its total liabilities (the "Base Management Fee").

The Base Management Fee is payable quarterly in arrears.

For the years ended December 31, 2024 and 2023, the total management fee incurred was $ 2.5 million and $ 1.8 million, respectively.

In addition to the Base Management Fee, pursuant to the New Management Agreement, the Company will pay the Manager a performance fee (the "Performance Fee").

The Performance Fee is calculated and payable quarterly in arrears based upon the Company's Pre-Performance Fee Net Investment Income, with respect to each fiscal quarter.

Pre-Performance Fee Net Investment Income for any fiscal quarter means, interest income (including accretions of discounts, amortization of premiums, and payment-in-kind income), dividend income, and any other income (including any fee income) earned or accrued by the Company during such fiscal quarter, minus the Company’s operating expenses for such quarter (which, for this purpose, will not include any litigation-related expenses, any extraordinary expenses, or Performance Fee).

Pre-Performance Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.

For purposes of computing Pre-Performance Fee Net Investment Income, the calculation methodology will look through total return swaps as if the Company owned the referenced assets directly.

As a result, Pre-Performance Fee Net Investment Income includes net interest (whether positive or negative) associated with a total return swap, which is the difference between (a) the interest income and transaction fees related to the reference assets and (b) all interest and other expenses paid by the Company to the total return swap counterparty.

In the case of an interest rate swap, Pre-Performance Fee Net Investment Income includes the net payments and net accruals of periodic payments.

The Performance Fee is subject to a hurdle rate of 2.00 % per quarter, or 8.00 % per annum (the "Hurdle Rate"), and is subject to a "catch-up" feature.

Specifically:

• If the Company’s Pre-Performance Fee Net Investment Income for a fiscal quarter does not exceed the result obtained by multiplying the Net Asset Value attributable to common equity at the end of the immediately preceding fiscal quarter by the Hurdle Rate (the "Hurdle Amount") for such quarter, then no Performance Fee is payable to the Manager with respect to such quarter;

• If the Company’s Pre-Performance Fee Net Investment Income for a fiscal quarter exceeds the Hurdle Amount for such quarter but is less than or equal to 121.21 % of the Hurdle Amount, then 100 % of the portion of the Company’s Pre-Performance Fee Net Investment Income that exceeds the Hurdle Amount (the “Catch-Up”) is payable to the Manager as the Performance Fee with respect to such quarter.

Therefore, once the Company’s Pre-Performance Fee Net Investment Income for such quarter exactly reaches 121.21 % of the Hurdle Amount, the Manager will have accrued a Performance Fee with respect to such quarter that is exactly equal to 17.5 % of the Pre-Performance Fee Net Investment Income (because 21.21 % of the Hurdle Amount (which is the Pre-Performance Fee Net Investment Income captured by the Manager during the Catch-Up phase) is equal to 17.5 % of 121.21 % of the Hurdle Amount (which is the entire Pre-Performance Fee Net Investment Income at the end of the Catch-Up phase));

• If the Company’s Pre-Performance Fee Net Investment Income for a fiscal quarter exceeds 121.21 % of the Hurdle Amount for such quarter, then 17.5 % of the Company’s Pre-Performance Fee Net Investment Income is payable to the Manager as the Performance Fee with respect to such quarter.

With respect to the Performance Fee, there will be no accumulation of the Hurdle Amount from quarter to quarter, no claw back of amounts previously paid if the Pre-Performance Fee Net Investment Income in any subsequent quarter is below the Hurdle Amount for such subsequent quarter, and no delay or adjustment of payment if the Pre-Performance Fee Net Investment Income in any prior quarter was below the Hurdle Amount for such prior quarter.

The Manager has agreed to waive all of the Performance Fees payable under the New Management Agreement for all periods through December 31, 2024.

For the year ended December 31, 2024, the Company incurred a performance fee of $ 2.4 million which was fully waived by the Manager.

The New Management Agreement has an initial term expiring on June 25, 2025, unless terminated earlier in accordance with its terms.

Thereafter, the New Management Agreement will continue to renew automatically each year for an additional one-year period, unless the Company or the Manager exercise its respective termination rights.

Expense Reimbursement

4 unchanged sentences

The Company will not reimburse the Manager for the salaries and other compensation of the Manager's personnel except that the Company will be responsible for expenses incurred by the Manager in employing certain dedicated or partially dedicated personnel as further described below.

The Company reimburses the Manager for the allocable share of the compensation, including, without limitation, wages, salaries, and employee benefits paid or reimbursed, as approved by the Compensation Committee of the Board of Trustees, to certain dedicated or partially dedicated personnel who spend all or a portion of their time managing the Company's affairs,

based upon the percentage of time devoted by such personnel to the Company's affairs.

In their capacities as officers or personnel of the Manager or its affiliates, such personnel will devote such portion of their time to the Company's affairs as is necessary to enable the Company to operate its business.

During the years ended December 31, 2023 and 2022, the Company reimbursed the Manager $ 2.7 million and $ 2.3 million, respectively, for previously incurred operating and compensation expenses.

As of both December 31, 2023 and 2022, the outstanding payable to the Manager for operating and compensation expenses was $ 0.4 million and is included in Accrued expenses on the Consolidated Balance Sheet.

For the years ended December 31, 2024 and 2023, the Company reimbursed the Manager $ 4.7 million and $ 2.7 million, respectively, for previously incurred operating and compensation expenses.

As of December 31, 2024 and 2023, the outstanding payable to the Manager for operating and compensation expenses was $ 0.3 million and $ 0.4 million, respectively, and is included in Accrued expenses on the Consolidated Balance Sheet.

Termination Fee

The Management Agreement requires the Company to pay a termination fee to the Manager in the event of (1) the Company's termination or non-renewal of the Management Agreement without cause or (2) the Manager's termination of the Management Agreement upon a default by the Company in the performance of any material term of the Management Agreement.

Such termination fee will be equal to 5 % of Shareholders' Equity, as defined in the Management Agreement as of the month-end preceding the date of the notice of termination or non-renewal of the Management Agreement.

The Company has authorized 500,000,000 common shares, $ 0.01 par value per share, and 100,000,000 preferred shares, $ 0.01 par value per share.

The Board of Trustees may authorize the issuance of additional shares of either class.

Such termination fee will be equal to 5 % of Shareholders' Equity, as defined in the Management Agreement as of

the month-end preceding the date of the notice of termination or non-renewal of the Management Agreement.

The Company will not be required to pay any termination fee as a result of the CLO Strategic Transformation or the Conversion.

Services Agreement

The Manager and EMG are parties to a services agreement, pursuant to which EMG is required to provide the Manager sufficient personnel, services, and resources to enable the Manager to carry out its obligations and responsibilities under the Management Agreement.

The services agreement will terminate upon the termination of the Management Agreement.

Pursuant to the services agreement, the Manager makes certain payments to EMG in connection with the services provided.

The Manager and EMG have overlapping ownership and are under common control.

Transactions with Affiliates

The Company may from time to time enter into a purchase or sales transaction of investments with an affiliate of EMG.

Pursuant to the terms of the Management Agreement, EMG may enter into such transactions where it acts both on the behalf of the Company and on behalf of the other party to the transaction.

Unless approved in advance by a majority of our independent trustees or pursuant to and in accordance with a policy that has been approved by a majority of our independent trustees, all such affiliated transactions must be effected at the then-prevailing market prices.

Pursuant to our Manager's current policies and procedures, assets for which there are no readily observable market prices may be purchased or sold in cross transactions (i) at prices based upon third-party bids received through auction, (ii) at the average of the highest bid and lowest offer quoted by third-party dealers, or (iii) according to another pricing methodology approved by our Manager's Chief Compliance Officer.

During the year ended December 31, 2024, the Company entered into transactions with an affiliated entity whereby the Company purchased securities with a principal balance of $ 10.2 million at a cost of $ 5.3 million.

The price of each affiliated transaction was determined using the Manager's current policies and procedures utilizing an average of several bid prices received through auction.

As of December 31, 2024 the fair value of such securities purchased from affiliates of EMG had a principal balance and fair value of $ 9.8 million and $ 4.0 million, respectively.

During the year ended December 31, 2024, the Company recognized net income on such securities of $0.2 million.

Preferred Shares

The Company has authorized 100,000,000 preferred shares, $ 0.01 par value per share.

The Board of Trustees may authorize the issuance of additional shares.

On December 9, 2024, the Company issued 1,000 Series A Preferred Shares, par value $ 0.01 per share, or the "Preferred Shares," with each Preferred Share having 25 thousand votes.

Any votes cast by the holder of the Preferred Shares are required to “mirror” the actual votes cast by the common shareholders.

The Preferred Shares were sold to the Manager for an aggregate purchase price of $ 1 thousand.

The Preferred Shares must vote together with the Company's outstanding common shares as a single class;

they only have the right to vote on proposals related to the CLO Strategic Transformation;

they are not entitled to receive dividends of any kind;

and they must be automatically redeemed, at par, upon the earliest of:

(i) if such redemption is authorized and directed by the Board in its sole discretion, automatically and effective on such time and date specified by the Board in its sole discretion, (ii) automatically upon the approval of the Conversion Proposals by the Company's shareholders at any meeting of shareholders, or (iii) immediately prior to the record date of the 2025 Annual Meeting.

As of December 31, 2024, there were 1,000 preferred shares outstanding.

The Company did not have any preferred shares outstanding as of December 31, 2023.

Subsequent to year end, the Company fully redeemed the Preferred Shares;

see Note 13 for additional details.

Common Shares

The Company has authorized 500,000,000 common shares, $ 0.01 par value per share.

The Board of Trustees may authorize the issuance of additional shares.

As of December 31, 2024 and 2023, there were 29,651,553 and 18,601,464 common shares outstanding, respectively.

No preferred shares have been issued.

Detailed below is a roll forward of the Company's common shares outstanding for the years ended December 31, 2024 and 2023:

3 unchanged sentences

Share Activity:

Common shares repurchased — ( 40,021 )

Common shares issued 10,964,023 5,183,037

8 unchanged sentences

Independent trustees:

32,920 September 13, 2023 September 12, 2024

23,152 September 11, 2024 January 18, 2025

Partially dedicated employees:

7 unchanged sentences

On June 13, 2018, the Company's Board of Trustees approved the adoption of a share repurchase program under which the Company is authorized to repurchase up to 1.2 million common shares.

The program, which is open-ended in duration, allows the Company to make repurchases from time to time on the open market or in negotiated transactions, including through

Rule 10b5-1 plans.

The program, which is open-ended in duration, allows the Company to make repurchases from time to time on the open market or in negotiated transactions, including through Rule 10b5-1 plans.

Repurchases are at the Company's discretion, subject to applicable law, share availability, price and its financial performance, among other considerations.

During the year ended December 31, 2022, the Company repurchased 40,021 of its common shares at an aggregate cost of $ 0.3 million, and an average price per share of $ 6.56 .

From inception of the current share repurchase program adopted on June 13, 2018 through December 31, 2024, the Company repurchased 474,192 of its common shares at an aggregate cost of $ 4.4 million, and an average price per share of $ 9.21 .

The Company did not repurchase any shares during the year ended December 31, 2023.

On April 2, 2021, the Company implemented an "at-the-market" offering program, or the "2021 ATM program," by entering into equity distribution agreements with third party sales agents under which it was 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.

The Company did not repurchase any shares during either of the years ended December 31, 2024 and 2023.

On November 14, 2023, the Company 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 it was 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, the Company issued 5,183,037 common shares, which provided $ 33.6 million of net proceeds after $ 0.7 million of commissions and offering costs.

During the year ended December 31, 2024, the Company issued 10,964,023 common shares, which provided $ 73.6 million of net proceeds after $ 1.1 million of commissions and offering costs.

As of December 31, 2024, the Company's remaining authorization under the 2023 ATM program was $ 11.2 million.

Distribution Policy

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

Distributions to shareholders generally will be taxable as ordinary income, although a portion of such distributions may be designated as long-term capital gain or qualified dividend income, or may constitute a return of capital.

1 unchanged sentence

federal income tax treatment.

It is the intention of the Company to distribute at least 100 % of its REIT taxable income, after application of available tax attributes, within the time limits prescribed by the Internal Revenue Code, which may extend into the subsequent taxable year.

The Company revoked its prior REIT election, effective for the tax year beginning January 1, 2024, and operates as a taxable C-Corp, subject to applicable U.S.

federal, state, and local income tax.

Cash dividends declared by the Company that do not exceed its current or accumulated earnings and profits are considered ordinary income to shareholders for income tax purposes.

Distributions in excess of the Company's current and accumulated earnings and profits are characterized as return of capital or are treated by shareholders as capital gains.

The following table details the tax characteristics of the Company's dividends declared on its common stock for the years ended December 31, 2024 and 2023.

Year Ended December 31,

Tax Characteristic 2024 2023

Ordinary income 24.1 % 38.0 %

Return of capital 75.9 % 62.0 %

100.0 % 100.0 %

Certain foreign and domestic subsidiaries of the Company are taxed as corporations for U.S.

federal, state, and local income tax purposes.

To the extent that those entities incur, or are expected to incur, U.S.

federal, state, or local income taxes, or foreign income taxes, such tax expense is recognized by the Company.

The Company accounts for income taxes in accordance with ASC 740, Income Taxes , or "ASC 740." Deferred income taxes reflect the net tax effects of temporary differences that may exist between the carrying amounts of assets and liabilities under U.S.

GAAP and the carrying amounts used for income tax purposes.

For the year ended December 31, 2024, the Company recorded an income tax expense (benefit) of $ 0.5 million.

No such expense was recorded for the year ended December 31, 2023, during which time the Company was operating as a REIT and generally not subject to income tax.

The Company evaluates its deferred tax assets for recoverability using an approach which considers the relative impact of negative and positive evidence, including historical profitability and projections of future taxable income.

As of December 31, 2024, the Company anticipates utilizing deferred tax assets of approximately $ 1.2 million, to offset a portion of its taxable income for its 2024 fiscal year;

the Company has recorded a valuation allowance of $ 11.1 million to fully reserve against the remaining deferred tax assets.

The following table summarizes the Company's (benefit) provision for income tax for the year ended December 31, 2024.

The Company did not record any provision for income tax for the year ended December 31, 2023.

(In thousands) December 31, 2024

Current provision for income tax

Federal $ 238

Total current provision for income tax, net 510

Deferred (benefit) provision for income tax

Total deferred (benefit) provision for income tax, net —

Total (benefit) provision for income tax $ 510

The following table details the components of the Company's net deferred tax asset (liability) as of December 31, 2024

(In thousands) December 31, 2024

Deferred tax asset

Net operating loss available for carry-back and carry-forward (1)

Net capital loss carry-forward —

Basis difference for investments —

Valuation allowance ( 11,147 )

Deferred tax asset —

Deferred tax liability

Basis difference for investments —

Valuation allowance —

Deferred tax liability —

Net deferred tax asset (liability), net of valuation allowance $ —

(1) Includes state net operating losses available for carry-back and carry-forward as of December 31, 2024 of $ 2.8 million.

These deferred tax assets were fully offset by a valuation allowance.

The Company had a pre-tax U.S.

federal net operating loss carryforward ("NOL Carryforward") of approximately $ 39.8 million as of December 31, 2024;

such NOL Carryforward has an unlimited carryforward period.

As a result of the change from a REIT to a taxable C-Corp, as of January 1, 2024, the Company established a deferred tax asset related to its NOL Carryforward, which it can utilize to offset a majority of its U.S.

federal taxable income and a portion of its state and local taxable income, as detailed below.

The following table details the reconciliation between the Company's U.S.

federal and state statutory income tax rate and the effective tax rate for the year ended December 31, 2024.

Year Ended December 31, 2024

Federal statutory rate 21.00 %

State statutory rate, net of federal benefit 6.34 %

Change in valuation allowance ( 20.15 ) %

Effective tax rate 7.19 %

Based on its analysis of any potential uncertain income tax positions, the Company concluded that it did not have any uncertain tax positions that meet the recognition or measurement criteria of ASC 740 as of December 31, 2024 or 2023.

Tax authorities in the relevant jurisdictions may select the Company's tax returns for audit and propose adjustments before the expiration of the statute of limitations.

Tax returns filed for the Company's open tax years or any ongoing audits remain open to adjustment in the major tax jurisdictions.

Commitments and Contingencies

6 unchanged sentences

Subsequent Events

On January 8, 2024 , the Board of Trustees approved a monthly dividend in the amount of $ 0.08 per share payable on February 26, 2024 to shareholders of record as of January 31, 2024 .

On February 7, 2024 , the Board of Trustees approved a monthly dividend in the amount of $ 0.08 per share payable on March 25, 2024 to shareholders of record as of February 29, 2024 .

Special Meeting and Conversion

On January 17, 2025, the Company held the Special Meeting during which it obtained shareholder approval of certain matters related to the Conversion;

the Company intends to convert to a RIC on April 1, 2025.

In accordance with the terms of the Subscription and Investment Representation Agreement entered into by the Company and the Manager, the Series A Preferred Shares were fully redeemed at par immediately after the conclusion of the Special Meeting.

On January 8, 2025 , the Board of Trustees approved a monthly dividend in the amount of $ 0.08 per share paid on February 25, 2025 to shareholders of record as of January 31, 2025 .

On February 10, 2025 , the Board of Trustees approved a monthly dividend in the amount of $ 0.08 per share paid on March 25, 2025 to shareholders of record as of February 28, 2025 .

On March 7, 2025 , the Board of Trustees approved a monthly dividend in the amount of $ 0.08 per share payable on April 25, 2025 to shareholders of record as of March 31, 2025 .

Issuance of Common Shares

From January 1, 2025 through March 28, 2025, the Company has issued 8,075,118 common shares, which provided $ 52.2 million of net proceeds after $ 0.5 million of commissions and offering costs.

Repurchase of Common Shares

From January 1, 2025 through March 28, 2025, the Company has repurchased 167,476 common shares at an aggregate cost of $ 1.0 million and an average price per share of $ 5.84 .

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

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 8. Financial Statements and Supplementary Data