Ellington Credit Co 10-K

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Executive Summary We were initially formed in August 2012 as a Maryland company and had historically specialized in acquiring, investing in, and managing residential mortgage- and real estate-related assets, while electing to be taxed as a REIT under the Code. On March 29, 2024, our Board approved a strategic transformation (the "CLO Strategic Transformation") of our investment strategy to focus on corporate collateralized loan obligations ("CLOs"). In connection with the CLO Strategic Transformation, we revoked our election to be taxed as a REIT beginning with tax year 2024, rebranded as Ellington Credit Company, and operated as a taxable C-Corporation during the interim period from January 1, 2024 through March 31, 2025. As a taxable C-Corporation, we continued to conduct our operations so that neither we nor any of our subsidiaries were required to register as an investment company under the Investment Company Act of 1940, as amended (the "1940 Act"). This included holding a core portfolio of liquid Agency RMBS pools in order to maintain our exemption from the 1940 Act. During this period, we also sought to take advantage of our significant existing net operating loss carryforwards to offset the majority of our U.S. federal taxable income. On April 1, 2025 (the "Conversion Date"), we converted to a Delaware closed-end fund registered under the 1940 Act that has applied and will elect to be treated as a regulated investment company (a "RIC") under the Internal Revenue Code of 1986, as amended (the "Code") (such actions, collectively, the "Conversion"). We obtained shareholder approval of certain matters related to the Conversion at a special meeting of shareholders held on January 17, 2025 (the "Special Meeting"). Our primary investment objectives are to generate attractive current yields and risk-adjusted total returns for our shareholders. We seek to achieve these objectives by acquiring and managing a portfolio of corporate CLOs, with an emphasis on CLO mezzanine debt and equity tranches, and related investments, and opportunistically mitigating its credit risk, foreign currency risk, and interest rate risk, by using a variety of hedging instruments. Our acquisition and management decisions will depend on prevailing market conditions and our targeted asset classes may vary over time in response to market conditions. We are advised by an affiliate of Ellington, Ellington Credit Company Management LLC (the "Adviser"). We currently use leverage and to date have financed our assets exclusively through repurchase agreements, which we account for as collateralized borrowings. As of March 31, 2025, we had outstanding borrowings under repurchase agreements in the amount of $517.5 million with 13 counterparties; 87% of such borrowings were collateralized by Agency RMBS and 13% were collateralized by CLOs. Following the Conversion, we liquidated our remaining mortgage-related assets, and we intend to operate so as to qualify to be taxed as a RIC under subchapter M of the Code moving forward. As a RIC, we generally do not have to pay corporate-level federal income tax on any net ordinary income or capital gain that we distribute to our stockholders as dividends if we meet certain source-of-income, distribution, and asset diversification requirements. As of March 31, 2025, our book value per share was $6.08 as compared to $6.53 and $7.32 as of December 31, 2024 and 2023, respectively. Trends and Recent Market Developments Market Overview Federal Reserve Policy • After lowering its target range for the federal funds rate by a full percentage point to 4.25%–4.50% in the second half of 2024, the U.S. Federal Reserve (the "Federal Reserve") maintained that range at its January and March 2025 meetings. In its March announcement, the Federal Reserve noted that “uncertainty around the economic outlook has increased.” • The Federal Reserve announced that it would further reduce the pace of its balance sheet contraction, beginning in April, by lowering the cap on portfolio runoff of U.S. Treasury securities from $25 billion to $5 billion, while maintaining the $35 billion cap on Agency RMBS runoff. Tariff Policy • During the first quarter of 2025, the administration announced a new round of tariffs, primarily on imports from China, Canada, and Mexico, along with additional tariffs on certain goods and sectors. The administration also announced plans for broad “reciprocal” tariffs aimed at matching the tariff rates that other countries impose on U.S. exports. 61 These announcements caused volatility to increase in financial markets, contributing to notable declines in major equity indices during the final weeks of the first quarter. Interest Rates • After rising sharply in the fourth quarter of 2024, interest rates declined significantly in the first quarter of 2025, with yields on the 2- and 10-year U.S. Treasury securities falling by 36 basis points quarter over quarter, ending at 3.88% and 4.21%, respectively. Meanwhile, interest rate volatility—as measured by the MOVE Index—declined in the early part of the quarter before reversing course and finishing slightly higher overall. • Mortgage rates rose at the beginning of the first quarter of 2025, with the Freddie Mac survey 30-year mortgage rate increasing from 6.85% at the start of the year to 7.04% by mid-January. However, mortgage rates subsequently declined, with the 30-year mortgage rate falling to 6.65% by the end of the quarter. • Secured Overnight Financing Rates (“SOFR”) were largely unchanged over the first quarter of 2025. The one-month SOFR rate declined by 1 basis point to 4.32%, while the three-month SOFR rate declined by 2 basis points to 4.29% at quarter end. SOFR rates drive many of our financing costs. Housing and Economic Indicators • Following a 3.9% increase in 2024, the S&P CoreLogic Case-Shiller US National Home Price NSA Index rose by 1.3% over the first three months of 2025. Meanwhile, the National Association of Realtors Housing Affordability Index increased by 2.3% during the first three months of 2025, reflecting a modest improvement in affordability with lower mortgage rates. • The Mortgage Bankers Association’s Refinance Index, while still low by historical standards, rose by 80% quarter over quarter, indicating a pickup in refinancing activity amid slightly lower mortgage rates. • Mortgage prepayment speeds also increased but remained low overall, with Fannie Mae 30-year MBS registering CPRs of 5.2 in January, 5.1 in February, and 6.6 in March. • U.S. real GDP contracted at an estimated annualized rate of 0.3% in the first quarter of 2025, after growing by 2.4% in the prior quarter. Meanwhile, the unemployment rate edged higher, rising from 4.0% in January to 4.1% in February and 4.2% in March. • Inflation, as measured by the 12-month change in the Consumer Price Index for All Urban Consumers (“CPI-U"), not seasonally adjusted, registered 3.0% in January, 2.8% in February, and 2.4% in March 2025. This compares to 12-month changes of 2.6% in October, 2.7% in November, and 2.9% in December 2024. Fixed Income Performance • For the first quarter of 2025, the Bloomberg U.S. MBS Index posted a positive return of 3.06% but a negative excess return (on a duration-adjusted basis) of (0.07%) relative to the Bloomberg U.S. Treasury Index. • The Bloomberg U.S. Corporate Bond Index generated a positive return of 2.31% but a negative excess return of (0.85%), while the Bloomberg U.S. Corporate High Yield Bond Index generated a positive return of 1.00% but a negative excess return of (1.13%), for the first quarter of 2025. Corporate credit spreads widened during the quarter, with spreads on the Markit CDX North America Investment Grade and High Yield Indices rising by 65 and 12 basis points quarter-over-quarter, respectively. Leveraged Loans and CLOs • After reaching record highs in 2024, U.S. leveraged loan and CLO issuance remained strong in the first quarter of 2025. Including nearly $200 million in repricings, U.S leveraged loan issuance totaled $387 billion, according to PitchBook|LCD. Meanwhile, U.S. CLO issuance approached $133 billion, including $90 billion in refinancings and resets, according to BofA Global Research. • After declining in 2024, default rates on U.S. leveraged loans declined further in the first quarter of 2025. According to Pitchbook|LCD, the twelve-month trailing default rate on the Morningstar LSTA Leveraged Loan Index decreased to 0.82% at quarter end, down from 0.91% at December 31st. • Leveraged loan prices also moved lower, with the Morningstar LSTA US Leveraged Loan Index falling by $1.02 to $96.31 as of March 31st. • European leveraged loans mirrored these trends, as default rates declined to 0.29% from 0.42% quarter over quarter. Prices also fell, with the Morningstar LSTA EU Leveraged Loan Index dropping by €0.38 to €97.63. 62 Equity Markets • After strong gains in 2024, U.S. equity markets declined in the first quarter of 2025, with some indices recording their worst quarterly performance since 2022, driven largely by growing uncertainty around trade policy. In the first quarter, the NASDAQ fell by 10.4%, the S&P 500 fell by 4.6%, and the Dow Jones Industrial Average fell by 1.3%. In contrast, London's FTSE 100 index rose by 5.0%, while the MSCI World global equity index fell by 2.1%. • Equity volatility rose during the first quarter of 2025, with the VIX spiking in mid-March amid heightened investor concerns. Portfolio Overview and Outlook Our CLO portfolio grew by 46% to $249.9 million as of March 31, 2025, from $171.1 million as of December 31, 2024, as we purchased additional CLOs in conjunction with the CLO Strategic Transformation. As of March 31, 2025, our CLO portfolio consisted of $164.4 million of CLO equity tranches, ($151.3 million dollar-denominated, $13.1 million non-dollar denominated) and $85.5 million of CLO notes, specifically mezzanine debt tranches ($64.0 million dollar-denominated, $21.5 million non-dollar denominated). We expect our CLO holdings to continue to be a blend of CLO equity and CLO debt investments, with the capital allocations fluctuating over time based on market opportunities. In addition, we intend to continue to invest in both dollar-denominated and non-dollar denominated CLO investments, based on relative value opportunities, but expect the majority of our CLO investments will continue to be dollar-denominated. The size of our Agency RMBS holdings decreased slightly to $503.9 million as of March 31, 2025, compared to $512.3 million as of December 31, 2024. While we continued to hold a core portfolio of liquid Agency RMBS in order to maintain our exemption from the 1940 Act (prior to the Conversion), we substantially increased our net short TBA position, which by March 31 st almost entirely offset our Agency RMBS holdings. Shortly after the Conversion, we sold our remaining Agency RMBS and liquidated our remaining TBA positions. As of March 31, 2025, our mortgage-backed securities portfolio consisted of $503.9 million of fixed-rate Agency "specified pools," and a de minimis amount of Agency interest-only securities, or "Agency IOs." Specified pools are fixed-rate Agency pools consisting of mortgages with special characteristics, such as mortgages with low loan balances, mortgages backed by investor properties, mortgages originated through government-sponsored refinancing programs, and mortgages with various other characteristics. Our debt-to-equity ratio, adjusted for unsettled trades, decreased to 2.2:1 as of March 31, 2025, as compared to 2.9:1 as of December 31, 2024, driven by higher shareholders’ equity and the use of significantly less leverage in our Agency RMBS portfolio. Our debt-to-equity ratio may fluctuate period over period based on portfolio management decisions, market conditions, capital markets activities, and the timing of security purchase and sale transactions. As of March 31, 2025, 87% of our borrowings were secured by Agency RMBS and 13% were secured by CLOs. In addition to using short positions in TBAs, we also hedged our interest rate risk during the period using interest rate swaps, U.S. Treasury securities, and futures. At March 31, 2025, all of our interest rate hedges were in short TBA positions. We also maintained small credit hedge and foreign currency hedge portfolios during the period and at March 31, 2025. As of March 31, 2025, we had cash and cash equivalents of $17.4 million, in addition to other unencumbered assets of $151.5 million. This compares to cash and cash equivalents of $31.8 million, and other unencumbered assets of $79.2 million, as of December 31, 2024. CLO Performance For the three-month period ended March 31, 2025, CLO markets started on a constructive note, supported by sustained demand for leveraged loans, improving fundamentals for corporate borrowers, and strong capital inflows into floating-rate leveraged loan funds as investors positioned for a “higher for longer” interest rate environment. However, volatility increased as the quarter progressed—particularly in March—driven by growing investor concerns over proposed tariffs and the associated risk of an economic slowdown. This heightened volatility, coupled with elevated CLO issuance throughout the quarter, negatively pressured CLO prices in both the U.S. and Europe. U.S. leveraged loan prices declined in the first calendar quarter of 2025, largely due to a sharp drop in March driven by weakness in lower-quality loans, particularly those more sensitive to higher tariff rates. This decompression within the loan index weighed on CLO mezzanine tranches, particularly those with elevated exposure to riskier assets. Meanwhile, U.S. loan prepayment rates, though still high by historical standards, declined quarter over quarter, resulting in reduced deleveraging for seasoned CLOs which adversely impacted mezzanine tranches priced at discounts. 63 While lower quarter over quarter, prepayment activity remained brisk in January and February, which pressured U.S. CLO equity tranches as net interest margin compression continued. This occurred as many floating-rate loans, typically those with higher coupon spreads, were refinanced and replaced with lower-coupon spreads. While this refinancing activity also led to a quarter-over-quarter decline in CLO equity NAVs, which presented a headwind to CLO equity tranche valuations, it also should limit future refinancing opportunities — a potential tailwind for CLO equity. Furthermore, CLO equity tranches with exposure to lower-quality loans, particularly those with exposure to higher tariffs, also underperformed. In Europe, declining leveraged loan prices also pressured credit spreads, though European CLOs outperformed their U.S. counterparts, supported by rising prepayment rates which boosted deal deleveraging, and relatively low default rates. Against this backdrop, our CLO strategy generated negative results for the three-month period ended March 31, 2025, with mark-to-market losses exceeding net interest income and modest gains on our credit hedges. Agency Performance Agency RMBS yield spreads tightened in January and February, before reversing course and widening in March, driven in part by rising volatility related to uncertain tariff policies. For the three-month period ended March 31, 2025, the U.S. Agency MBS Index generated a negative excess return of (0.07%). Our Agency portfolio generated positive results during each month of the period, with net gains on Agency RMBS exceeding net losses on interest rate hedges for January and February, and net gains on short TBA positions exceeding net losses on Agency RMBS in March. Average pay-ups on our specified pool portfolio increased to 0.23% as of March 31, 2025, as compared to 0.20% as of December 31, 2024. Our net mortgage assets-to-equity ratio—which we define as the net aggregate market value of our mortgage-backed securities (including the underlying market values of our long and short TBA positions) divided by total shareholders' equity —declined as we substantially increased our net short TBA position, which at period end almost entirely offset our Agency RMBS holdings. The following table summarizes our net mortgage assets-to-equity ratio and provides additional details, for the last five quarters, to illustrate this fluctuation. Notional Amount of Long TBAs Notional Amount of Short TBAs Fair Value of MBS Net Long (Short) TBA Underlying Market Value (1) Net Mortgage Assets-to-Equity Ratio ($ In thousands) March 31, 2025 $ — $ (519,616) $ 503,894 $ (502,941) 0.0:1 December 31, 2024 61,190 (69,156) 512,309 (15,175) 2.6:1 September 30, 2024 320,168 (201,374) 473,464 101,202 3.0:1 June 30, 2024 216,728 (173,074) 551,248 29,242 4.0:1 March 31, 2024 66,220 (66,830) 766,954 (3) 5.4:1 (1) Market value represents the current market value of the underlying Agency RMBS (on a forward delivery basis) as of period end. The following table summarizes prepayment rates for our portfolio of fixed-rate specified pools (excluding those backed by reverse mortgages) for the three-month periods ended March 31, 2025, December 31, 2024, September 30, 2024, June 30, 2024, and March 31, 2024. Three-Month Period Ended March 31, 2025 December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024 Three-Month Constant Prepayment Rates (1) 7.2 9.5 7.5 6.7 5.2 (1) Excludes recent purchases of fixed rate Agency specified pools with no prepayment history. 64 The following table provides details about the composition of our portfolio of fixed-rate specified pools (excluding those backed by reverse mortgages) as of March 31, 2025 and December 31, 2024. March 31, 2025 December 31, 2024 Coupon (%) Current Principal Fair Value Weighted Average Loan Age (Months) Weighted Average Coupon Current Principal Fair Value Weighted Average Loan Age (Months) Weighted Average Coupon (In thousands) (In thousands) Fixed-rate Agency RMBS: 30-year fixed-rate mortgages: 2.50–2.99 $ 24,459 $ 20,375 40 2.50 % $ 25,728 $ 20,980 37 2.50 % 3.50–3.99 55,108 49,701 35 3.50 % 55,966 49,505 32 3.50 % 4.00–4.49 58,097 54,157 27 4.00 % 93,905 85,833 15 4.00 % 4.50–4.99 54,574 52,262 17 4.50 % 55,755 52,504 14 4.50 % 5.00–5.49 106,267 104,274 19 5.00 % 96,309 93,163 24 5.00 % 5.50–5.99 136,559 136,756 16 5.50 % 94,550 93,457 12 5.50 % 6.00–6.49 36,409 37,098 9 6.00 % 45,589 45,954 9 6.00 % 6.50–6.99 47,636 49,269 14 6.50 % 69,146 70,911 12 6.50 % Total 30-year fixed-rate mortgages 519,109 503,892 20 4.90 % 536,948 512,307 18 4.86 % Total fixed-rate Agency RMBS $ 519,109 $ 503,892 20 4.90 % $ 536,948 $ 512,307 18 4.86 % For the three-month period ended March 31, 2025, we had total net unrealized gains on our Agency securities of $8.7 million, or $0.25 per share, and net realized losses of $(1.1) million, or $(0.03) per share. For the three-month period ended March 31, 2025, we continued to hedge interest rate risk through the use of interest rate swaps and short positions in TBAs, U.S. Treasury securities, and futures. At March 31, 2025, all of our interest rate hedges were in short TBA positions, and we had no long TBA positions. We had total net realized and unrealized losses of $(5.5) million, or $(0.16) per share, on our interest rate hedging portfolio, driven by the decrease in interest rates during the period. These gains exclude net realized and unrealized losses of $(0.4) million, or $(0.01) per share, on our long TBAs held for investment. The relative makeup of our interest rate hedging portfolio can change materially from period to period. As of March 31, 2025, we also maintained modest credit and foreign currency hedge portfolios. After giving effect to dividends declared during the three-month period ended March 31, 2025 of $0.24 per share, our book value per share decreased to $6.08 as of March 31, 2025, from $6.53 as of December 31, 2024, and we had an economic return of (3.2%) for the three-month period ended March 31, 2025. Economic return for a period is computed by adding back dividends declared during the period to ending book value per share, and comparing that amount to book value per share as of the beginning of the period. Financing For the three-month periods ended March 31, 2025 and December 31, 2024, our average repo borrowing cost was 4.66% and 5.04%, respectively, driven by the decline in short-term interest rates period over period, partially offset by the growth of our CLO portfolio, which has higher borrowing costs compared to Agency RMBS. As of March 31, 2025 and December 31, 2024, the weighted average borrowing rate on our repurchase agreements was 4.56% and 4.81%, respectively. While large banks still dominate the repo market, non-bank firms, not subject to the same regulations as banks, are active in providing repo financing. Most of our outstanding repo financing is still provided by banks and bank affiliates; however, we have also entered into repo agreements with non-bank dealers. Our debt-to-equity ratio was 2.3:1 as of March 31, 2025, as compared to 2.9:1 as of December 31, 2024. Adjusted for unsettled trades, our debt-to equity ratio was 2.2:1 as of March 31, 2025, as compared to 2.9:1 as of December 31, 2024. The decline was driven by higher shareholders' equity and use of significantly less l 65 everage in our Agency RMBS portfolio. Our debt-to-equity ratio may fluctuate period over period based on portfolio management decisions, market conditions, capital markets activities, and the timing of security purchase and sale transactions. Critical Accounting Estimates Our consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, or "U.S. GAAP," and Regulation S-X. Entities in which we have a controlling financial interest, through ownership of the majority of the entities' voting equity interests, or through other contractual rights that give us control, are consolidated by us. All inter-company balances and transactions have been eliminated. The preparation of our consolidated financial statements in accordance with U.S. GAAP requires us 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. Our critical accounting estimates are those which require assumptions to be made about matters that are highly uncertain. Actual results could differ from those estimates and such differences could have a material impact on our financial condition and/or results of operations. We believe that all of the decisions and assessments upon which our consolidated financial statements are based were reasonable at the time made based upon information available to us at that time. We rely on the experience of our Adviser and Ellington and analysis of historical and current market data in order to arrive at what we believe to be reasonable estimates. See Note 2 of the notes to our consolidated financial statements for a complete discussion of our significant accounting policies. We have identified our most critical accounting estimates to be the following: Valuation : We have elected the fair value option for the vast majority of our assets and liabilities for which such election is permitted, as provided for under ASC 825, Financial Instruments ("ASC 825"). Electing the fair value option allows us to record changes in fair value in our Consolidated Statement of Operations, which, in our view, more appropriately reflects the results of our operations for a particular reporting period as all securities activities will be recorded in a similar manner. As such, the mortgage-backed securities are recorded at fair value on our Consolidated Balance Sheet and the period change in fair value is recorded in current period earnings on our Consolidated Statement of Operations as a component of Change in net unrealized gains (losses) on securities. Purchase and sales transactions are generally recorded on trade date. Realized and unrealized gains and losses are calculated based on identified cost. For financial instruments that are traded in an "active market," the best measure of fair value is the quoted market price. However, many of our financial instruments are not traded in an active market. Therefore, management generally uses third-party valuations when available. If third-party valuations are not available, management uses other valuation techniques, such as the discounted cash flow methodology. Summary descriptions, for the various categories of financial instruments, of the valuation methodologies management uses in determining fair value of our financial instruments are detailed in Note 2 of the notes to our consolidated financial statements. Management utilizes such methodologies to assign a good faith fair value (the estimated price that, in an orderly transaction at the valuation date, would be received to sell an asset, or paid to transfer a liability, as the case may be) to each such financial instrument. See the notes to our consolidated financial statements for more information on valuation techniques used by management in the valuation of our assets and liabilities. Because of the inherent uncertainty of valuation, the estimated fair value of our financial instruments may differ significantly from the values that would have been used had a ready market for the financial instruments existed, and the differences could be material to our consolidated financial statements. The determination of estimated fair value of those of our financial instruments that are not traded in an active market requires the use of both macroeconomic and microeconomic assumptions and/or inputs, which are generally based on current market and economic conditions. Changes in market and/or economic conditions could have a significant adverse effect on the estimated fair value of our financial instruments. Changes to assumptions, including assumed market yields, may significantly impact the estimated fair value of our investments. Our valuations are sensitive to changes in interest rates; see the interest rate sensitivity analysis included in Item 3. Quantitative and Qualitative Disclosures about Market Risk in this Transition Report on Form 10-K for further information. Interest Income : Coupon interest income on investment securities is accrued based on the outstanding principal balance and the current coupon rate on each security. We generally amortize premiums and accrete discounts on our fixed-income investments using the effective interest method. For certain of our securities, 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 macroeconomic assumptions, such as future housing prices, GDP growth rates, and unemployment rates). These assumptions require the use of a significant amount of judgment. Any resulting changes in effective yield are recognized prospectively based on the current amortized cost of the investment as adjusted for 66 credit impairment, if any. The effective yield on our debt securities that are deemed to be of high credit quality (including Agency RMBS, exclusive of interest only securities) can be significantly impacted by our estimate of future prepayments. Future prepayment rates are difficult to predict. We estimate prepayment rates over the remaining life of our securities using models that generally incorporate the forward yield curve, current mortgage rates, mortgage rates on the outstanding loans, age and size of the outstanding loans, and other factors. We compare estimated prepayments to actual prepayments on a quarterly basis, and effective yields are recalculated retroactive to the time of purchase. When differences arise between our previously calculated effective yields and our current calculated effective yields, a catch-up adjustment, or "Catch-up Amortization Adjustment," is made to interest income to reflect the cumulative impact of the changes in effective yields. For the three-month periods ended March 31, 2025 and 2024, we recognized a Catch-up Amortization Adjustment of $(0.2) million and $(0.9) million, respectively. The Catch-up Amortization Adjustment is reflected as an increase (decrease) to interest income on the Consolidated Statement of Operations. Our accretion of discounts and amortization of premiums on securities for U.S. federal and other tax purposes is likely to differ from the accounting treatment under U.S. GAAP of these items as described above. See Note 2 of the notes to our consolidated financial statements for more information on the assumptions and methods that we use to amortize purchase premiums and accrete purchase discounts. Income Taxes : We revoked our REIT election beginning with tax year 2024 and operated as a taxable C-Corporation through March 31, 2025. During this period, we were subject to U.S. federal, state, and local income tax. We may take positions with respect to certain tax issues which depend on legal interpretation of facts or applicable tax regulations. Should the relevant tax regulators successfully challenge any such positions, we might be found to have a tax liability that has not been recorded in the accompanying consolidated financial statements. Also, management's conclusions regarding the authoritative guidance may be subject to review and adjustment at a later date based on changing tax laws, regulations, and interpretations thereof. See Note 2 to our consolidated financial statements for additional details on income taxes. Recent Accounting Pronouncements Refer to the notes to our consolidated financial statements for a description of relevant recent accounting pronouncements. 67 Financial Condition Investment portfolio The following tables summarize our securities portfolio as of March 31, 2025 and December 31, 2024 and 2023: March 31, 2025 ($ In thousands) Current Principal Fair Value Average Price (1) Cost Average Cost (1) Credit Portfolio: Dollar Denominated: CLOs CLO Notes $ 74,818 $ 63,998 $ 85.54 $ 68,402 $ 91.42 CLO Equity n/a 151,323 n/a 167,649 n/a Total Dollar Denominated CLOs 215,321 236,051 Corporate Debt 1,814 434 23.93 397 21.89 Corporate Equity n/a 56 n/a 76 n/a Total Dollar Denominated Credit 215,811 236,524 Non-Dollar Denominated: CLOs CLO Notes 22,479 21,450 95.42 21,405 95.22 CLO Equity n/a 13,086 n/a 13,962 n/a Total non-Dollar Denominated CLOs 34,536 35,367 Total Credit 250,347 271,891 Agency Portfolio: Dollar Denominated: Agency RMBS (2) 30-year fixed-rate mortgages 519,109 503,892 97.07 502,508 96.80 Total Agency RMBS 519,109 503,892 97.07 502,508 96.80 Agency IOs n/a 2 n/a 2 n/a Total Agency 503,894 502,510 Total $ 754,241 $ 774,401 (1) Expressed as a percentage of the current principal balance. (2) Excludes IOs. 68 December 31, 2024 December 31, 2023 ($ In thousands) Current Principal Fair Value Average Price (1) Cost Average Cost (1) Current Principal Fair Value Average Price (1) Cost Average Cost (1) Credit Portfolio: Dollar Denominated: CLOs CLO Notes $ 65,954 $ 55,157 $ 83.63 $ 55,363 $ 83.94 $ 16,876 $ 14,491 $ 85.87 $ 14,441 $ 85.57 CLO Equity n/a 91,832 n/a 97,267 n/a n/a 2,926 n/a 2,947 n/a Total Dollar Denominated CLOs 146,989 152,630 17,417 17,388 Corporate Debt 1,787 428 23.95 398 22.27 — — — — — Corporate Equity n/a 56 n/a 75 n/a n/a — n/a — n/a Non-Agency RMBS (2) — — — — — 9,953 9,409 94.53 8,189 82.28 Non-Agency IOs n/a — n/a — n/a n/a 11,310 n/a 8,700 n/a Total Dollar Denominated Credit 147,473 153,103 38,136 34,277 Non-Dollar Denominated: CLOs CLO Notes 17,368 16,835 96.93 17,219 99.14 — — — — — CLO Equity n/a 7,298 n/a 7,995 n/a n/a — n/a — n/a Total non-Dollar Denominated CLOs 24,133 25,214 — — Total Credit 171,606 178,317 38,136 34,277 Agency Portfolio: Dollar Denominated: Agency RMBS (2) 15-year fixed-rate mortgages — — — — — 28,647 27,847 97.21 28,765 100.41 20-year fixed-rate mortgages — — — — — 8,524 7,863 92.25 9,033 105.97 30-year fixed-rate mortgages 536,948 512,307 95.41 519,628 96.77 697,510 670,294 96.10 682,379 97.83 ARMs — — — — — 7,127 7,119 99.89 8,060 113.09 Reverse mortgages — — — — — 14,406 14,874 103.25 16,589 115.15 Total Agency RMBS 536,948 512,307 95.41 519,628 96.77 756,214 727,997 96.27 744,826 98.49 Agency IOs n/a 2 n/a 2 n/a n/a 7,415 n/a 6,607 n/a Total Agency 512,309 519,630 735,412 751,433 Dollar Denominated: U.S. Treasury securities sold short (23,603) (22,578) 95.66 (22,962) 97.28 — — — — — Reverse repurchase agreements 23,000 23,000 100.00 23,000 100.00 — — — — — Total, net $ 684,337 $ 697,985 $ 773,548 $ 785,710 (1) Expressed as a percentage of the current principal balance. (2) Excludes IOs. As of March 31, 2025, 81% of our invested capital, calculated based on risk capital, was allocated to corporate CLOs and 19% was allocated to mortgage-related securities. Substantially all of our mortgage-related securities are Agency RMBS, which include investments in Agency pools. Our most prevalent method of financing RMBS and CLOs is through short-term repos, which generally have maturities of 364 days or less. The weighted average lives of the RMBS and CLOs that we own are generally much longer. Consequently, the weighted average term of our repurchase agreement financings will almost always be substantially shorter than the expected average maturity of our RMBS and CLOs. This mismatch in maturities, together with the uncertainty of prepayments on the underlying mortgage or corporate loans, and other potential changes in the timing and/or amount of cash flows, creates the risk that changes in interest rates will cause our financing costs with respect to our RMBS and CLOs to increase relative to the income on these assets over the term of our investments. In addition, changes in the fair value of our RMBS and CLO investments, whether as a result of changes in market conditions, prepayments, or other factors, may trigger changes in margin 69 requirements, in which counterparties to our repurchase agreements may require us to post additional collateral to re-establish the agreed-upon collateralization requirements. Financial Derivatives The following table summarizes our portfolio of financial derivative holdings as of March 31, 2025 and December 31, 2024 and 2023: (In thousands) March 31, 2025 December 31, 2024 December 31, 2023 Financial derivatives–assets, at fair value: TBA securities purchase contracts $ — $ — $ 654 TBA securities sale contracts 138 592 — Fixed payer interest rate swaps 181 39,125 67,719 Fixed receiver interest rate swaps — 1,192 3,622 Futures 157 170 2,284 Credit default swaps — 705 — Forwards — 83 — Total financial derivatives–assets, at fair value 476 41,867 74,279 Financial derivatives–liabilities, at fair value: TBA securities purchase contracts — (1,363) (13) TBA securities sale contracts (282) — (1,863) Fixed payer interest rate swaps — (1,401) (4,182) Fixed receiver interest rate swaps (187) (194) (576) Futures — (811) (63) Credit default swaps (488) (1,912) (632) Total financial derivatives–liabilities, at fair value (957) (5,681) (7,329) Total $ (481) $ 36,186 $ 66,950 Pursuant to our hedging program prior to Conversion, we engage in a variety of interest rate hedging activities that are designed to reduce the interest rate risk with respect to the liabilities incurred to acquire or hold RMBS. These interest rate hedges generally seek to reduce the interest rate sensitivity of our liabilities or, in other words, reduce the volatility of our financing cost over time attributable to interest rate changes. Our interest rate hedging transactions may include: • Interest rate swaps (a contract exchanging a variable rate for a fixed rate, or vice versa); • Interest rate swaptions (options to enter into interest rate swaps at a future date); • TBA forward contracts on Agency pass-through certificates; • Short sales of U.S. Treasury securities; • Eurodollar and U.S. Treasury futures; and • Other derivatives. We generally enter into these transactions to offset the potential adverse effects of rising interest rates on short-term repurchase agreements. Our repurchase agreements generally have maturities of up to 364 days and carry interest rates that are determined by reference to a benchmark rate such as SOFR for those same periods. As each then-existing fixed-rate repo borrowing matures, it will generally be replaced with a new fixed-rate repo borrowing based on market interest rates established at that future date. In the case of interest rate swaps, most of our contracts are structured such that we receive payments based on a variable interest rate and make payments based on a fixed interest rate. The variable interest rate on which payments are received is generally calculated based on various reset mechanisms for a benchmark rate such as SOFR. To the extent that the benchmark rates used to calculate the payments we receive on our interest rate swaps continue to be highly correlated with our repo borrowing costs, our interest rate swap contracts should help to reduce the variability of our overall repo borrowing costs, thus reducing risk to the extent we hold fixed-rate assets that are financed with repo borrowings. In the case of TBAs, many of our positions are short TBA positions with negative duration, meaning that should interest rates rise, we would expect to profit from these positions. These profits would then serve to offset corollary expected increases 70 in our current and/or future borrowing costs under our repurchase agreements, and so in this manner our short TBA positions serve as a hedge against potential increases in interest rates. CLOs, on the other hand, generally have less interest rate risk than fixed-rate RMBS, because they are primarily backed by floating-rate loans. As a result, we had no interest rate hedges in place with respect to our CLO portfolio as of March 31, 2025. Credit Risk Hedging We opportunistically enter into short credit positions using derivative instruments to protect against adverse credit events and/or credit spread widening risk with respect to our CLOs, or other assets. The derivative instruments that we use for credit hedging purposes may include contracts referencing the secured or unsecured debt or equity of certain corporations, as well as contracts referencing indices comprised of corporate debt and equity. We may also utilize tranches or option contracts on corporate credit or equity indices, as well as contracts referencing various MBS indices and other derivative instruments. Currently, our credit hedges consist of CDS on corporate bond indices, although there are periods of time where we have no credit hedges in place. The composition and relative mix of our hedging instruments may vary from period to period given the amount of our liabilities outstanding or anticipated to be entered into, the overall market environment and our view as to which instruments best enable us to execute our hedging goals. As of March 31, 2025, we held a modest credit hedge portfolio. Foreign Currency Hedging To the extent that we hold instruments denominated in currencies other than U.S. dollars, we may enter into transactions to offset the potential adverse effects of changes in currency exchange rates. In particular, we may use currency forward contracts and other currency-related derivatives to mitigate this risk. As of March 31, 2025, we maintained foreign currency hedges in connection with our European CLO holdings. Leverage The following table summarizes our outstanding liabilities under repurchase agreements as of March 31, 2025 and December 31, 2024. We had no other borrowings outstanding. March 31, 2025 December 31, 2024 December 31, 2023 Weighted Average Weighted Average Weighted Average Remaining Days to Maturity Borrowings Outstanding Interest Rate Remaining Days to Maturity Borrowings Outstanding Interest Rate Remaining Days to Maturity Borrowings Outstanding Interest Rate Remaining Days to Maturity (In thousands) (In thousands) 30 days or less $ 486,568 4.55 % 9 $ 538,614 4.78 % 15 $ 713,678 5.56 % 17 31-60 days 30,970 4.84 45 24,360 5.57 43 6,131 6.69 46 61-90 days — — — — — — 9,734 6.47 67 Total $ 517,538 4.56 % 11 $ 562,974 4.81 % 16 $ 729,543 5.58 % 17 We finance our assets with what we believe to be a prudent amount of leverage, which will vary from time to time based upon the particular characteristics of our portfolio, availability of financing, and market conditions. As of March 31, 2025 and December 31, 2024 and 2023, our total debt-to-equity ratio was 2.3:1, 2.9:1, and 5.4:1, respectively. Collateral transferred with respect to our outstanding repo borrowings, including net cash collateral posted or (received), had an aggregate fair value of $0.6 billion as of both March 31, 2025 and December 31, 2024 and $0.8 billion as of December 31, 2023. Our debt-to-equity ratio may fluctuate period over period based on portfolio management decisions, market conditions, capital markets conditions, and the timing of security purchase and sale transactions. Shareholders' Equity As of March 31, 2025, our shareholders' equity increased to $228.5 million from $193.7 million as of December 31, 2024. This increase principally consisted of net proceeds from the issuance of shares of $52.1 million partially offset by dividends declared of $8.7 million, a net loss of $(7.9) million, and share repurchases of $1.0 million. As of March 31, 2025, our book value per share was $6.08, as compared to $6.53 as of December 31, 2024. 71 Results of Operations Results of Operations for the Three-Month Periods Ended March 31, 2025 and 2024 The following table summarizes our results of operations for the three-month periods ended March 31, 2025 and 2024: Three-Month Period Ended (In thousands except for per share amounts) March 31, 2025 March 31, 2024 Interest Income (Expense) Interest income $ 15,462 $ 10,379 Interest expense (6,215) (10,100) Net interest income (expense) 9,247 279 Expenses Management fees to affiliate 860 538 Other operating expenses 1,722 1,089 Total expenses 2,582 1,627 Other Income (Loss) Net realized and change in net unrealized gains (losses) on securities (7,649) (8,063) Net realized and change in net unrealized gains (losses) on financial derivatives (7,920) 13,675 Other, net 1,028 — Total Other Income (Loss) (14,541) 5,612 Net Income (Loss) before income taxes (7,876) 4,264 Income tax expense (benefit) (6) 303 Net Income (Loss) $ (7,870) $ 3,961 Net Income (Loss) Per Common Share $ (0.23) $ 0.20 Net Income (Loss) Net income (loss) for the three-month period ended March 31, 2025 was $(7.9) million, as compared to $4.0 million for the three-month period ended March 31, 2024. The period-over-period change in our results of operations was primarily due to total other loss and in increase in total expenses in the current period, as compared to total other income in the prior period, partially offset by an increase in net interest income. Interest Income Our portfolio as of March 31, 2025 consisted of credit investments, primarily CLOs, and Agency RMBS. As of March 31, 2024, our portfolio consisted primarily of Agency RMBS, with credit investments including CLOs and non-Agency RMBS. Before interest expense, we earned approximately $14.7 million and $9.2 million in interest income on these securities for the three-month periods ended March 31, 2025 and 2024, respectively. The period-over-period increase in interest income was driven by higher asset yields in both our Agency and credit portfolios, along with higher average holdings in our credit portfolio which have a significantly higher yield relative to our Agency portfolio. The Catch-up Amortization Adjustment causes variability in our interest income and portfolio yields. For the three-month periods ended March 31, 2025 and 2024, we had a negative Catch-up Amortization Adjustments of approximately $(0.2) million and $(0.9) million, respectively, which decreased interest income. Excluding the Catch-up Amortization Adjustments, the weighted average yield of our overall portfolio was 8.58% and 5.20% for the three-month periods ended March 31, 2025 and 2024, respectively. The following table details our interest income, average holdings of yield-bearing assets, and weighted average yield based on amortized cost for the three-month periods ended March 31, 2025 and 2024: Credit (1) Agency (1) Total (1) (In thousands) Interest Income Average Holdings Yield Interest Income Average Holdings Yield Interest Income Average Holdings Yield Three-month period ended March 31, 2025 $ 8,353 $ 201,810 16.56 % $ 6,329 $ 491,511 5.15 % $ 14,682 $ 693,321 8.47 % Three-month period ended March 31, 2024 $ 1,808 $ 44,071 16.41 % $ 7,403 $ 732,617 4.04 % $ 9,211 $ 776,688 4.74 % 72 (1) Amounts exclude interest income on cash and cash equivalents (including when posted as margin), long U.S. Treasury securities, and reverse repurchase agreements. Interest Expense For the three-month periods ended March 31, 2025 and 2024, the majority of interest expense that we incurred was related to our repo borrowings, which we use to finance our assets. We also incur interest expense in connection with our short positions in U.S. Treasury securities as well as on our counterparties' cash collateral held by us. Our total interest expense for the three-month periods ended March 31, 2025 and 2024 was $6.2 million and $10.1 million, respectively, which primarily consisted of interest expense on our repo borrowings. The period-over-period decrease in total interest expense primarily resulted from lower overall borrowings driven by growth of the CLO portfolio, which carries significantly less leverage compared to Agency RMBS, and lower financing costs stemming from the decline in short-term interest rates. The following table (1) provides details of our borrowings under repurchase agreements for the three-month periods ended March 31, 2025 and 2024: Three-Month Period Ended March 31, 2025 Three-Month Period Ended March 31, 2024 Average Borrowed Funds Interest Expense Average Cost of Funds Average Borrowed Funds Interest Expense Average Cost of Funds ($ In thousands) Repurchase Agreements: Credit: CLO $ 61,651 $ 826 5.43 % $ 3,940 $ 67 6.84 % Non-Agency RMBS — — — % 10,535 178 6.80 % Total Credit 61,651 826 5.43 % 14,475 245 6.81 % Agency RMBS 438,696 4,936 4.56 % 655,270 9,092 5.58 % Subtotal 500,347 5,762 4.67 % 669,745 9,337 5.61 % U.S. Treasury securities 30,475 338 4.50 % 5,481 72 5.30 % Total $ 530,822 $ 6,100 4.66 % $ 675,226 $ 9,409 5.60 % (1) Amounts exclude interest expense on cash and cash equivalents (including when received as margin) and short positions in U.S. Treasury securities. Adjusted Cost of Funds Among other instruments, we use interest rate swaps and U.S. Treasury securities to hedge against the risk to our borrowings of rising interest rates. As an alternative cost of funds measure, we add to our repo borrowing cost the net periodic amounts paid or payable by us on our interest rate swaps and the net interest (income) expense we incur on our positions in U.S. Treasury securities, and express the total as a percentage of our average outstanding repurchase agreement borrowings on yield-bearing assets (excluding U.S. Treasury securities). 73 The following table details the components of our adjusted cost of funds (1) for the three-month periods ended March 31, 2025 and 2024: Three-Month Period Ended March 31, 2025 Three-Month Period Ended March 31, 2024 ($ In thousands) Average Borrowed Funds (2) Interest Expense (Benefit) Average Cost of Funds Average Borrowed Funds (2) Interest Expense (Benefit) Average Cost of Funds Repurchase Agreements: Credit: CLO $ 61,651 $ 826 5.43 % $ 3,940 $ 67 6.84 % Non-Agency RMBS — — — % 10,535 178 6.80 % Total Credit 61,651 826 5.43 % 14,475 245 6.81 % Agency RMBS 438,696 4,936 4.56 % 655,270 9,092 5.58 % Subtotal (3) 500,347 5,762 4.67 % 669,745 9,337 5.61 % Adjustments: Net interest (income) expense related to U.S. Treasury securities (4) 38 0.03 % (21) (0.01) % Net periodic expense (benefit) paid or payable on interest rate swaps (1,721) (1.39) % (5,701) (3.43) % Total Adjusted Cost of Funds $ 500,347 $ 4,079 3.31 % $ 669,745 $ 3,615 2.17 % (1) This metric does not take into account other instruments that we use to hedge interest rate risk, such as TBAs, swaptions, and futures. (2) Excludes average borrowed funds related to repurchase agreements collateralized by U.S. Treasury securities. (3) Excludes U.S. Treasury securities. (4) Includes interest expense from repurchase agreements collateralized by U.S. Treasury securities and from positions in short U.S. Treasury securities and interest income from reverse repurchase agreements collateralized by U.S. Treasury securities and from positions in long U.S. Treasury securities. For the three-month period ended March 31, 2025, the weighted average yield on our Agency RMBS and credit portfolios excluding the impact of the Catch-up Amortization Adjustment was 8.58%, while our total adjusted average cost of funds, including interest rate swaps and net short U.S. Treasury securities, was 3.31%, resulting in a net interest margin of 5.27%. By comparison, for the three-month period ended March 31, 2024, the weighted average yield of our portfolio of Agency and credit portfolios excluding the impact of the Catch-up Amortization Adjustment was 5.20%, while our total adjusted average cost of funds, including interest rate swaps and net short U.S. Treasury securities, was 2.17%, resulting in a net interest margin of 3.03%. Management Fees For the three-month periods ended March 31, 2025 and 2024, our management fee expense was approximately $0.9 million and $0.5 million, respectively. Management fees are calculated based on our shareholders' equity at the end of each quarter. The increase in the management fee period over period was driven by higher shareholders' equity as of March 31, 2025. Other Operating Expenses Other operating expenses, as presented above, includes professional fees, compensation expense, insurance expense, and various other operating expenses included on the Consolidated Statement of Operations incurred in connection with the operation of our business. For the three-month periods ended March 31, 2025 and 2024, our other operating expenses were approximately $1.7 million and $1.1 million, respectively. The increase in other operating expenses for the three-month period ended March 31, 2025 was primarily due to increases in professional fees, compensation expense, and other operating expenses related to the CLO Strategic Transformation. Other Income (Loss) Other income (loss) consists of net realized and net change in unrealized gains (losses) on securities and financial derivatives. For the three-month period ended March 31, 2025, Other income (loss) was $(14.5) million, consisting primarily of net realized and unrealized losses of $(7.9) million on our financial derivatives and $(7.6) million on our securities. Net realized and unrealized losses of $(7.9) million on our financial derivatives consisted of net realized and unrealized losses of $(8.9) million on our TBAs, $(0.5) million on our Euro FX futures, and $(0.4) million on our forwards, partially offset by net realized and unrealized gains of $1.3 million on our interest rate swaps, $0.5 million on our U.S. Treasury futures, and $0.1 million on our credit default swaps. The net loss on our financial derivatives was primarily the result of falling interest rates during the period. Net realized and unrealized losses of $(7.6) million on our securities consisted primarily of net realized and unrealized 74 losses of $(16.4) million on our corporate CLOs, partially offset by net realized and unrealized gains $7.6 million on our Agency RMBS and $1.2 million on U.S. Treasury securities. For the three-month period ended March 31, 2024, Other income (loss) was $5.6 million, consisting primarily of net realized and unrealized gains of $13.7 million on our financial derivatives, which were partially offset by net realized and unrealized losses of $(8.1) million on our securities. Net realized and unrealized gains of $13.7 million on our financial derivatives consisted of net realized and unrealized gains of $15.7 million on our interest rate swaps and $0.4 million on our TBAs, partially offset primarily by net realized and unrealized losses of $(2.2) million on our U.S. Treasury and Euro FX futures, and $(0.2) million on our credit default swaps. The net gain on our financial derivatives was primarily the result of rising interest rates during the quarter. Net realized and unrealized losses of $(8.1) million on our securities, also driven by rising interest rates, consisted primarily of net realized and unrealized losses of $(10.8) million on our Agency RMBS, partially offset by net realized and unrealized gains of $1.2 million on our corporate CLOs, $0.8 million on our non-Agency RMBS, and $0.7 million on our U.S. Treasury securities. Income Tax Expense (Benefit) We revoked our election to be taxed as a REIT, effective January 1, 2024, and operated as a taxable C-Corporation until the Conversion Date. We plan to use our existing net operating loss carryforwards (“NOLs”) to offset a majority of our U.S. federal taxable income recognized while we operated as a taxable C-Corporation; to the extent that those NOLs are unable to offset any portion of our taxable income, such portion is subject to the typical corporate federal and state income tax rates. For the three-month periods ended March 31, 2025 and 2024, our income tax expense (benefit) was $(6) thousand and $0.3 million, respectively. Adjusted Distributable Earnings We calculate Adjusted Distributable Earnings as net income (loss) adjusted for: (i) net realized and change in net unrealized gains and (losses) on securities, financial derivatives, and foreign currency transactions; (ii) net realized and change in net unrealized gains (losses) associated with periodic settlements on interest rate swaps; (iii) other income or loss items that are of a non-recurring nature, if any; (iv) Catch-up Amortization Adjustment (as defined below); and (v) provision for income taxes. The Catch-up Amortization Adjustment is a quarterly adjustment to premium amortization or discount accretion triggered by changes in actual and projected prepayments on our Agency RMBS (accompanied by a corresponding offsetting adjustment to realized and unrealized gains and losses). The adjustment is calculated as of the beginning of each quarter based on our then-current assumptions about cashflows and prepayments, and can vary significantly from quarter to quarter. Adjusted Distributable Earnings is a supplemental non-GAAP financial measure. We believe that the presentation of Adjusted Distributable Earnings provides information useful to investors, because: (i) we believe that it is a useful indicator of both current and projected long-term financial performance, in that it excludes the impact of certain current period earnings components that we believe are less useful in forecasting long-term performance and dividend-paying ability; (ii) we use it to evaluate the effective net yield provided by our portfolio, after the effects of financial leverage; and (iii), we believe that presenting Adjusted Distributable Earnings assists investors in measuring and evaluating our operating performance, and comparing our operating performance to that of our peers. Our calculation of Adjusted Distributable Earnings may differ from the calculation of similarly titled non-GAAP financial measures by our peers, with the result that these non-GAAP financial measures might not be directly comparable; Adjusted Distributable Earnings excludes certain items, such as most realized and unrealized gains and losses, that may impact the amount of cash that is actually available for distribution. In addition, because Adjusted Distributable Earnings is an incomplete measure of our financial results and differs from net income (loss) computed in accordance with U.S. GAAP, it should be considered supplementary to, and not as a substitute for, net income (loss) computed in accordance with U.S. GAAP. In setting our dividends, our Board considers our earnings, liquidity, financial condition, distribution requirements, and financial covenants, along with other factors that the Board may deem relevant from time to time. 75 The following table reconciles, for the three-month periods ended March 31, 2025 and 2024, Adjusted Distributable Earnings to the line on the Consolidated Statement of Operations entitled Net Income (Loss), which we believe is the most directly comparable U.S. GAAP measure: Three-Month Period Ended (In thousands except for share amounts and per share amounts) March 31, 2025 March 31, 2024 Net Income (Loss) $ (7,870) $ 3,961 Income tax expense (benefit) (6) 303 Net Income (Loss) before income taxes $ (7,876) $ 4,264 Adjustments: Net realized (gains) losses on securities (377) 9,823 Change in net unrealized (gains) losses on securities 8,026 (1,760) Net realized (gains) losses on financial derivatives (17,594) (3,459) Change in net unrealized (gains) losses on financial derivatives 25,514 (10,216) Net realized gains (losses) on periodic settlements of interest rate swaps 8,060 5,812 Change in net unrealized gains (losses) on accrued periodic settlements of interest rate swaps (6,340) (111) Strategic Transformation costs and other adjustments (1) (643) 75 Negative (positive) component of interest income represented by Catch-up Amortization Adjustment 183 884 Subtotal 16,829 1,048 Adjusted Distributable Earnings $ 8,953 $ 5,312 Weighted Average Shares Outstanding 34,811,555 19,548,408 Adjusted Distributable Earnings Per Share $ 0.26 $ 0.27 (1) For the three-month period ended March 31, 2025, includes $(0.9) million of net realized and unrealized (gains) losses on foreign currency translation, which is included in Other, net on the Consolidated Statement of Operations and $0.3 million of expenses incurred primarily in connection with our strategic transformation. For the three-month period ended March 31, 2024, includes $0.1 million, respectively, of expenses incurred primarily in connection with our strategic transformation. Results of Operations for the Years Ended December 31, 2024 and 2023 The following table summarizes our results of operations for the years ended December 31, 2024 and 2023: Year Ended December 31, (In thousands except for per share amounts) 2024 2023 Interest Income (Expense) Interest income $ 49,863 $ 42,549 Interest expense (34,794) (45,256) Net interest income (expense) 15,069 (2,707) Expenses Management fees to affiliate 2,539 1,804 Other operating expenses 6,245 3,731 Total expenses 8,784 5,535 Other Income (Loss) Net realized and change in net unrealized gains (losses) on securities (18,432) 3,171 Net realized and change in net unrealized gains (losses) on financial derivatives 19,908 9,630 Other, net (665) — Total Other Income (Loss) 811 12,801 Net Income (Loss) before income taxes 7,096 4,559 Income tax expense (benefit) 510 — Net Income (Loss) $ 6,586 $ 4,559 Net Income (Loss) Per Common Share $ 0.28 $ 0.31 76 Net Income (Loss) Net income (loss) for the year ended December 31, 2024 was $6.6 million, as compared to $4.6 million for the year ended December 31, 2023. The period-over-period change in our results of operations was primarily due to positive net interest income in the current period, as compared to negative net interest income in the prior period, partially offset by a decline in total other income and an increase in total expenses. Interest Income Our portfolio as of December 31, 2024 consisted of credit investments, primarily CLOs, and Agency RMBS. As of December 31, 2023, our portfolio consisted primarily Agency RMBS, with credit investments including CLOs and non-Agency RMBS. Before interest expense, we earned approximately $45.4 million and $38.8 million in interest income on these securities for the years ended December 31, 2024 and 2023, respectively. The period-over-period increase in interest income was driven by higher asset yields in both our Agency and credit portfolios, along with higher average holdings in our credit portfolio which have a significantly higher yield relative to our Agency portfolio. The Catch-up Amortization Adjustment causes variability in our interest income and portfolio yields. For the years ended December 31, 2024 and 2023, we had a negative Catch-up Amortization Adjustments of approximately $(0.5) million and $(0.1) million, respectively, which decreased interest income. Excluding the Catch-up Amortization Adjustments, the weighted average yield of our overall portfolio was 6.57% and 4.09% for the years ended December 31, 2024 and 2023, respectively. The following table details our interest income, average holdings of yield-bearing assets, and weighted average yield based on amortized cost for the years ended December 31, 2024 and 2023: Agency (1) Credit (1) Total (1) (In thousands) Interest Income Average Holdings Yield Interest Income Average Holdings Yield Interest Income Average Holdings Yield Year ended December 31, 2024 $ 29,047 $ 596,906 4.87 % $ 16,341 $ 101,009 16.18 % $ 45,388 $ 697,915 6.50 % Year ended December 31, 2023 $ 36,186 $ 928,386 3.90 % $ 2,645 $ 22,678 11.66 % $ 38,831 $ 951,064 4.08 % (1) Amounts exclude interest income on cash and cash equivalents (including when posted as margin), long U.S. Treasury securities, and reverse repurchase agreements. Interest Expense For the years ended December 31, 2024 and 2023, the majority of interest expense that we incurred was related to our repo borrowings, which we use to finance our assets. We also incur interest expense in connection with our short positions in U.S. Treasury securities as well as on our counterparties' cash collateral held by us. Our total interest expense for the years ended December 31, 2024 and 2023 was $34.8 million and $45.3 million, respectively, which primarily consisted of interest expense on our repo borrowings. The year-over-year decrease in total interest expense primarily resulted from lower overall borrowings driven by growth of the CLO portfolio, which carries significantly less leverage compared to Agency RMBS. The decline in our total interest expense was partially offset by higher financing costs stemming from elevated short-term interest rates during the first half of the year. In addition, the growth in our CLO portfolio also contributed to an increase in our average cost of funds, which partially offset the decline in interest expense, as our CLO portfolio has higher borrowing costs compared to our Agency RMBS portfolio. 77 The following table (1) provides details of our borrowings under repurchase agreements for the years ended December 31, 2024 and 2023: Year Ended December 31, 2024 Year Ended December 31, 2023 Average Borrowed Funds Interest Expense Average Cost of Funds Average Borrowed Funds Interest Expense Average Cost of Funds ($ In thousands) Repurchase Agreements: Credit: CLO $ 26,165 $ 1,594 6.09 % $ 576 $ 39 6.85 % Non-Agency RMBS 9,025 614 6.81 % 14,921 976 6.54 % Total Credit 35,190 2,208 6.28 % 15,497 1,015 6.55 % Agency RMBS 543,768 29,557 5.44 % 822,543 42,386 5.15 % Subtotal 578,958 31,765 5.49 % 838,040 43,401 5.18 % U.S. Treasury securities 23,370 1,235 5.28 % 16,023 849 5.30 % Total $ 602,328 $ 33,000 5.48 % $ 854,063 $ 44,250 5.18 % (1) Amounts exclude interest expense on cash and cash equivalents (including when received as margin) and short positions in U.S. Treasury securities. Adjusted Cost of Funds Among other instruments, we use interest rate swaps and U.S. Treasury securities to hedge against the risk to our borrowings of rising interest rates. As an alternative cost of funds measure, we add to our repo borrowing cost the net periodic amounts paid or payable by us on our interest rate swaps and the net interest (income) expense we incur on our positions in U.S. Treasury securities, and express the total as a percentage of our average outstanding repurchase agreement borrowings on yield-bearing assets (excluding U.S. Treasury securities). The following table details the components of our adjusted cost of funds (1) for the years ended December 31, 2024 and 2023: Year Ended December 31, 2024 Year Ended December 31, 2023 ($ In thousands) Average Borrowed Funds (3) Interest Expense (Benefit) Average Cost of Funds Average Borrowed Funds (3) Interest Expense (Benefit) Average Cost of Funds Repurchase Agreements: Credit (2) : CLO $ 26,165 $ 1,594 6.09 % $ 576 $ 39 6.85 % Non-Agency RMBS 9,025 614 6.81 % 14,921 976 6.54 % Total Credit 35,190 2,208 6.28 % 15,497 1,015 6.55 % Agency RMBS 543,768 29,557 5.44 % 822,543 42,386 5.15 % Subtotal (4) 578,958 31,765 5.49 % 838,040 43,401 5.18 % Adjustments: Net interest (income) expense related to U.S. Treasury securities (5) 125 0.02 % 9 — % Net periodic expense (benefit) paid or payable on interest rate swaps (19,105) (3.30) % (21,078) (2.52) % Total Adjusted Cost of Funds $ 578,958 $ 12,785 2.21 % $ 838,040 $ 22,332 2.66 % (1) This metric does not take into account other instruments that we use to hedge interest rate risk, such as TBAs, swaptions, and futures. (2) Conformed to current period presentation. (3) Excludes average borrowed funds related to repurchase agreements collateralized by U.S. Treasury securities. (4) Excludes U.S. Treasury securities. (5) Includes interest expense from repurchase agreements collateralized by U.S. Treasury securities and from positions in short U.S. Treasury securities and interest income from reverse repurchase agreements collateralized by U.S. Treasury securities and from positions in long U.S. Treasury securities. 78 For the year ended December 31, 2024, the weighted average yield on our Agency RMBS and credit portfolios excluding the impact of the Catch-up Amortization Adjustment was 6.57%, while our total adjusted average cost of funds, including interest rate swaps and net short U.S. Treasury securities, was 2.21%, resulting in a net interest margin of 4.37%. By comparison, for the year ended December 31, 2023, the weighted average yield of our portfolio of Agency and credit portfolios excluding the impact of the Catch-up Amortization Adjustment was 4.09%, while our total adjusted average cost of funds, including interest rate swaps and net short U.S. Treasury securities, was 2.66%, resulting in a net interest margin of 1.43%. Management Fees For the years ended December 31, 2024 and 2023, our management fee expense was approximately $2.5 million and $1.8 million, respectively. Management fees are calculated based on our shareholders' equity at the end of each quarter. The increase in the management fee period over period was driven by higher shareholders' equity during the year ended December 31, 2024. Other Operating Expenses Other operating expenses, as presented above, includes professional fees, compensation expense, insurance expense, and various other operating expenses included on the Consolidated Statement of Operations incurred in connection with the operation of our business. For the years ended December 31, 2024 and 2023, our other operating expenses were approximately $6.2 million and $3.7 million, respectively. The increase in other operating expenses for the year ended December 31, 2024 was primarily due to increases in professional fees, compensation expense, and other operating expenses related to the CLO Strategic Transformation. Other Income (Loss) Other income (loss) consists of net realized and net change in unrealized gains (losses) on securities and financial derivatives. For the year ended December 31, 2024, Other income (loss) was $0.8 million, consisting primarily of net realized and unrealized gains of $19.9 million on our financial derivatives, which were partially offset by net realized and unrealized losses of $(18.4) million on our securities. Net realized and unrealized gains of $19.9 million on our financial derivatives consisted of net realized and unrealized gains of $26.2 million on our interest rate swaps and $0.4 million on our forwards, partially offset by net realized and unrealized losses of $(4.1) million on our U.S. Treasury futures, $(1.8) million on our TBAs, $(0.7) million on our credit default swaps, and $(0.1) million on Euro FX futures. The net gain on our financial derivatives was primarily the result of rising interest rates during much of 2024, partially offset by net losses in the third quarter driven by declining interest rates in that period. Net realized and unrealized losses of $(18.4) million on our securities consisted primarily of net realized and unrealized losses of $(16.1) million on our on our Agency RMBS, $(3.7) million on our corporate CLOs, and $(0.4) million on our U.S. Treasury securities, partially offset by net realized and unrealized gains of $1.9 million on our non-Agency RMBS. For the year ended December 31, 2023, Other income (loss) was $12.8 million, consisting of net realized and unrealized gains of $9.6 million and $3.2 million on our financial derivatives and securities, respectively. Net realized and unrealized gains of $9.6 million on our financial derivatives consisted of net realized and unrealized gains of $8.3 million on our TBAs and $2.6 million on our interest rate swaps, partially offset by net realized and unrealized losses of $(0.8) million on our U.S Treasury futures and $(0.4) million on our credit default swaps. The net gain on our financial derivatives was primarily the result of sharply rising interest rates in the second and third quarters of the year. These gains were partially offset by net losses in the first and fourth quarters, driven by declining interest rates. Net realized and unrealized gains of $3.2 million on our securities consisted primarily of net realized and unrealized gains of $1.5 million on our non-Agency RMBS and $1.4 million on our U.S. Treasury securities. Income Tax Expense (Benefit) We revoked our election to be taxed as a REIT, effective January 1, 2024, and operated as a taxable C-Corporation during 2024. While we operate as a taxable C-Corporation, we plan to use our existing net operating loss carryforwards (“NOLs”) to offset a majority of our US federal taxable income; to the extent that those NOLs are unable to offset our income, whether a majority or at all, our income is subject to the typical corporate federal and state income tax rates. For the year ended December 31, 2024, income tax expense (benefit) was $0.5 million. No such expense was recorded for the year ended December 31, 2023, during which time we operated as a REIT. As a REIT, we generally were not subject to U.S. federal income tax on our REIT taxable income that was distributed to our shareholders. 79 Adjusted Distributable Earnings The following table reconciles, for the years ended December 31, 2024 and 2023, Adjusted Distributable Earnings to the line on the Consolidated Statement of Operations entitled Net Income (Loss), which we believe is the most directly comparable U.S. GAAP measure: Year Ended December 31, (In thousands except for share amounts and per share amounts) 2024 2023 Net Income (Loss) $ 6,586 $ 4,559 Income tax expense (benefit) 510 — Net Income (Loss) before income taxes $ 7,096 $ 4,559 Adjustments: Net realized (gains) losses on securities 18,068 58,103 Change in net unrealized (gains) losses on securities 364 (61,274) Net realized (gains) losses on financial derivatives (38,487) (28,562) Change in net unrealized (gains) losses on financial derivatives 18,579 18,932 Net realized gains (losses) on periodic settlements of interest rate swaps 27,118 7,388 Change in net unrealized gains (losses) on accrued periodic settlements of interest rate swaps (8,013) 13,690 Strategic Transformation costs and other adjustments (1) 2,452 102 Negative (positive) component of interest income represented by Catch-up Amortization Adjustment 491 62 Subtotal 20,572 8,441 Adjusted Distributable Earnings $ 27,668 $ 13,000 Weighted Average Shares Outstanding 23,576,696 14,875,314 Adjusted Distributable Earnings Per Share $ 1.17 $ 0.87 (1) For the year ended December 31, 2024, includes $1.7 million of expenses incurred primarily in connection with our strategic transformation, $0.8 million of net realized and unrealized (gains) losses on foreign currency translation, which is included in Other, net on the Consolidated Statement of Operations. For the year ended December 31, 2023, includes $0.1 million, respectively, of non-recurring transaction-related expenses. Liquidity and Capital Resources Liquidity refers to our ability to generate and obtain adequate amounts of cash to meet our requirements, including repaying our borrowings, funding and maintaining RMBS and other assets, paying dividends, and other general business needs. Our short-term (the 12 months following period end) and long-term (beyond 12 months from period end) liquidity requirements include acquisition costs for assets we acquire, payment of our management fee, compliance with margin requirements under our repurchase agreements, TBA and other financial derivative contracts, repayment of repurchase agreement borrowings to the extent we are unable or unwilling to extend our repurchase agreements, the payment of dividends, and payment of our general operating expenses. Our capital resources primarily include cash on hand, cash flow from our investments (including periodic principal and interest payments received on our securities and proceeds from the sale of securities), borrowings under repurchase agreements, and proceeds from equity offerings. We expect that these sources of funds will be sufficient to meet our short-term and long-term liquidity needs. We borrow funds in the form of repurchase agreements. The terms of our repo borrowings are predominantly governed by Master Repurchase Agreements, or "MRAs," which generally conform to the terms in the standard master repurchase agreement as published by the Securities Industry and Financial Markets Association as to repayment and margin requirements. In addition, each lender may require that we include supplemental terms and conditions to the standard master repurchase agreement. Typical supplemental terms and conditions include the addition of or changes to provisions relating to margin calls, net asset value requirements, cross default provisions, certain key person events, changes in corporate structure, and requirements that all controversies related to the repurchase agreement be litigated in a particular jurisdiction. These provisions may differ for each of our lenders. As of March 31, 2025 and December 31, 2024 and 2023, we had $517.5 million, $563.0 million, and $729.5 million outstanding under our repurchase agreements, respectively. As of March 31, 2025, our outstanding repurchase agreements were with 13 counterparties. The amounts borrowed under our repurchase agreements are generally subject to the application of "haircuts." A haircut is the percentage discount that a repo lender applies to the market value of an asset serving as collateral for a repo borrowing, for the purpose of determining whether such repo borrowing is adequately collateralized. As of March 31, 2025 and December 31, 80 2024 and 2023, the weighted average contractual haircut applicable to the assets that serve as collateral for our outstanding repo borrowings was 9.4%, 9.5% and 5.7%, respectively. The following table details total outstanding borrowings, average outstanding borrowings, and the maximum outstanding borrowings at any month end for each quarter under repurchase agreements for the past twelve quarters. Quarter Ended Borrowings Outstanding at Quarter End Average Borrowings Outstanding Maximum Borrowings Outstanding at Any Month End (In thousands) March 31, 2025 $ 517,538 $ 530,822 $ 517,538 December 31, 2024 562,974 522,275 562,974 September 30, 2024 486,921 526,138 542,365 June 30, 2024 (1) 578,503 687,433 700,152 March 31, 2024 683,171 675,226 683,171 December 31, 2023 729,543 781,615 787,217 September 30, 2023 811,180 877,620 900,511 June 30, 2023 875,030 880,957 883,043 March 31, 2023 875,670 876,846 897,629 December 31, 2022 842,455 899,752 881,401 September 30, 2022 938,046 928,942 940,321 June 30, 2022 950,339 1,070,229 1,087,826 (1) During this quarter, our borrowings decreased as we continued to transition our portfolio, in connection with our strategic transformation, out of highly leveraged positions such as Agency RMBS to a higher concentration of CLOs, which are typically leveraged at lower levels. As of March 31, 2025, we had an aggregate amount at risk under our repurchase agreements with 14 counterparties of $49.6 million. As of December 31, 2024, we had an aggregate amount at risk under our repurchase agreements with 18 counterparties of $55.7 million. As of December 31, 2023, we had an aggregate amount at risk under our repurchase agreements with 19 counterparties of $50.1 million. Amounts at risk represent the excess, if any, for each counterparty of the fair value of collateral held by such counterparty over the amounts outstanding under repurchase agreements. If the amounts outstanding under repurchase agreements with a particular counterparty are greater than the collateral held by the counterparty, there is no amount at risk for the particular counterparty. Amounts at risk under our repurchase agreements as of March 31, 2025 and December 31, 2024 and 2023, does not include $3.3 million, $3.1 million, and $0.5 million, respectively, of net accrued interest receivable, which is defined as accrued interest on securities held as collateral less interest payable on cash borrowed. Our derivatives are predominantly subject to bilateral master trade agreements or clearing in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the "Dodd-Frank Act." We may be required to deliver or receive cash or securities as collateral upon entering into derivative transactions. Changes in the relative value of derivative transactions may require us or the counterparty to post or receive additional collateral. Entering into derivative contracts involves market risk in excess of amounts recorded on our balance sheet. In the case of cleared derivatives, the clearinghouse becomes our counterparty and the future commission merchant acts as an intermediary between us and the clearinghouse with respect to all facets of the related transaction, including the posting and receipt of required collateral. As of March 31, 2025, we had an aggregate amount at risk under our derivative contracts, excluding TBAs, with two counterparties of approximately $3.3 million. As of December 31, 2024, we had an aggregate amount at risk under our derivatives contracts, excluding TBAs, with three counterparties of approximately $31.3 million. As of December 31, 2023, we had an aggregate amount at risk under our derivatives contracts, excluding TBAs, with three counterparties of approximately $47.1 million. Additionally, we had $0.5 million, $17.1 million, and $21.1 million of initial margin for cleared OTC derivatives received from central clearinghouses as of March 31, 2025 and December 31, 2024 and 2023, respectively. Amounts at risk under our derivatives contracts represent the excess, if any, for each counterparty of the fair value of our derivative contracts plus our collateral held directly by the counterparty less the counterparty's collateral held by us. If a particular counterparty's collateral held by us is greater than the aggregate fair value of the financial derivatives plus our collateral held directly by the counterparty, there is no amount at risk for the particular counterparty. Prior to the Conversion we would purchase and sell TBAs and Agency pass-through certificates on a when-issued or delayed delivery basis. The delayed delivery for these securities means that these transactions are more prone to market 81 fluctuations between the trade date and the ultimate settlement date, and therefore are more vulnerable, especially in the absence of margining arrangements with respect to these transactions, to increasing amounts at risk with the applicable counterparties. As of March 31, 2025, in connection with our forward settling TBA and Agency pass-through certificates, we had an aggregate amount at risk with one counterparty of approximately $2 thousand. As of December 31, 2024, in connection with our forward settling TBA and Agency pass-through certificates, we had an aggregate amount at risk with six counterparties of approximately $1.2 million. As of December 31, 2023, in connection with our forward settling TBA and Agency pass-through certificates, we had an aggregate amount at risk with seven counterparties of approximately $1.7 million. Amounts at risk in connection with our forward settling TBA and Agency pass-through certificates represent the excess, if any, for each counterparty of the net fair value of the forward settling contracts plus our collateral held directly by the counterparty less the counterparty's collateral held by us. If a particular counterparty's collateral held by us is greater than the aggregate fair value of the forward settling contracts plus our collateral held directly by the counterparty, there is no amount at risk for the particular counterparty. Shortly after the Conversion, we sold our remaining Agency RMBS and liquidated our remaining TBA positions. As of March 31, 2025 and December 31, 2024 and 2023, we had cash and cash equivalents of $17.4 million, $31.8 million, and $38.5 million, respectively. The timing and frequency of distributions will be determined by our Board based upon a variety of factors deemed relevant by our trustees, including restrictions under applicable law and our capital requirements. The declaration of dividends to our shareholders and the amount of such dividends are at the discretion of our Board. The following table sets forth the dividend distributions authorized by our Board for the periods indicated below: Three-Month Period Ended March 31, 2025: Dividend Per Share Dividend Amount Declaration Date Record Date Payment Date (In thousands) $ 0.08 $ 3,005 March 7, 2025 March 31, 2025 April 25, 2025 0.08 2,977 February 10, 2025 February 28, 2025 March 25, 2025 0.08 2,733 January 8, 2025 January 31, 2025 February 25, 2025 Year Ended December 31, 2024: Dividend Per Share Dividend Amount Declaration Date Record Date Payment Date (In thousands) $ 0.08 $ 2,372 December 6, 2024 December 31, 2024 January 27, 2025 0.08 2,304 November 7, 2024 November 29, 2024 December 26, 2024 0.08 2,304 October 7, 2024 October 31, 2024 November 25, 2024 0.08 2,237 September 9, 2024 September 30, 2024 October 25, 2024 0.08 2,160 August 7, 2024 August 30, 2024 September 25, 2024 0.08 2,026 July 8, 2024 July 31, 2024 August 26, 2024 0.08 1,691 June 10, 2024 June 28, 2024 July 25, 2024 0.08 1,638 May 7, 2024 May 31, 2024 June 25, 2024 0.08 1,610 April 8, 2024 April 30, 2024 May 28, 2024 0.08 1,586 March 7, 2024 March 29, 2024 April 25, 2024 0.08 1,586 February 7, 2024 February 29, 2024 March 25, 2024 0.08 1,585 January 8, 2024 January 31, 2024 February 26, 2024 82 Year Ended December 31, 2023: Dividend Per Share Dividend Amount Declaration Date Record Date Payment Date (In thousands) $ 0.08 $ 1,488 December 7, 2023 December 29, 2023 January 25, 2024 0.08 1,332 November 7, 2023 November 30, 2023 December 26, 2023 0.08 1,307 October 6, 2023 October 31, 2023 November 27, 2023 0.08 1,270 September 7, 2023 September 29, 2023 October 25, 2023 0.08 1,258 August 7, 2023 August 31, 2023 September 25, 2023 0.08 1,209 July 10, 2023 July 31, 2023 August 25, 2023 0.08 1,150 June 7, 2023 June 30, 2023 July 25, 2023 0.08 1,115 May 8, 2023 May 31, 2023 June 26, 2023 0.08 1,106 April 10, 2023 April 28, 2023 May 25, 2023 0.08 1,106 March 7, 2023 March 31, 2023 April 25, 2023 0.08 1,103 February 7, 2023 February 28, 2023 March 27, 2023 0.08 1,096 January 9, 2023 January 31, 2023 February 27, 2023 On April 3, 2025, the Board approved a monthly dividend in the amount of $0.08 per share payable on May 27, 2025 to shareholders of record as of April 30, 2025. On May 7, 2025, the Board approved a monthly dividend in the amount of $0.08 per share payable on June 30, 2025 to shareholders of record as of May 30, 2025. On June 9, 2025, the Board approved a monthly dividend in the amount of $0.08 per share payable on July 31, 2025 to shareholders of record as of June 30, 2025. At those times when cash flows from our operating activities are insufficient to fund our dividend payments, we fund such dividend payments through cash flows from our investing and/or financing activities, and in some cases from additional cash on hand. The following paragraphs summarize our cash flows for the three-month periods ended March 31, 2025 and 2024 and years ended December 31, 2024 and 2023. For the three-month period ended March 31, 2025, our operating activities provided net cash of $9.2 million and our investing activities used net cash of $27.1 million. Our repo activity used to finance our purchase of securities (including repayments, in conjunction with the sales of securities, of amounts borrowed under our repurchase agreements as well as collateral posted in connection with our repo activity) used net cash of $39.7 million. Thus our operating and investing activities, when combined with such net financing activities, used net cash of $57.7 million. We also received proceeds from the issuance of common shares, net of commissions and offering costs paid of $52.3 million and we used $1.0 million to repurchase our common shares and $8.1 million to pay dividends. As a result of these activities, there was a decrease in our holdings of cash and cash equivalents of $14.5 million, from $31.8 million as of December 31, 2024 to $17.4 million as of March 31, 2025. For the three-month period ended March 31, 2024, our operating activities used net cash of $1.2 million and our investing activities provided net cash of $40.6 million. Our repo activity used to finance our purchase of securities (including repayments, in conjunction with the sales of securities, of amounts borrowed under our repurchase agreements as well as collateral posted in connection with our repo activity) used net cash of $58.2 million. Thus our operating and investing activities, when combined with our net repo financing activities, used net cash of $18.7 million. We also received proceeds from the issuance of common shares, net of commissions and offering costs paid of $7.3 million. We also used $4.7 million to pay dividends. As a result of these activities, there was a decrease in our cash holdings of $16.1 million, from $38.5 million as of December 31, 2023 to $22.4 million as of March 31, 2024. For the year ended December 31, 2024, our operating activities provided net cash of $9.1 million and our investing activities provided net cash of $116.4 million. Our repo activity used to finance our purchase of securities (including repayments, in conjunction with the sales of securities, of amounts borrowed under our repurchase agreements as well as collateral posted in connection with our repo activity) used net cash of $183.9 million. Thus our operating and investing activities, when combined with such net financing activities, used net cash of $58.3 million. We also received proceeds from the issuance of common shares, net of commissions and offering costs paid of $73.8 million and we used $22.2 million to pay dividends. As a result of these activities, there was a decrease in our holdings of cash and cash equivalents of $6.7 million, from $38.5 million as of December 31, 2023 to $31.8 million as of December 31, 2024. 83 For the year ended December 31, 2023, our operating activities used net cash of $10.0 million and our investing activities provided net cash of $85.7 million. Our repo activity used to finance our purchase of securities (including repayments, in conjunction with the sales of securities, of amounts borrowed under our repurchase agreements as well as collateral posted in connection with our repo activity) used net cash of $91.4 million. Thus our operating and investing activities, when combined with our net repo financing activities, used net cash of $15.7 million. We also received proceeds from the issuance of common shares, net of commissions and offering costs paid of $33.6 million. We also used $14.1 million to pay dividends. As a result of these activities, there was an increase in our cash holdings of $3.7 million, from $34.8 million as of December 31, 2022 to $38.5 million as of December 31, 2023. On November 14, 2023, we implemented an “at the market” offering ("ATM") program (the "2023 ATM program), by entering into equity distribution agreements with third party sales agents under which we are authorized to offer and sell up to $100.0 million of common shares from time to time. On January 13, 2025 and February 11, 2025, the Company amended the equity distribution agreements (collectively the "EDA Amendments") with each of the sales agents. The EDA Amendments authorize the Company to offer and sell up to $90.0 million of common stock from time to time (the "2025 Common ATM Program"); the 2023 ATM Program and 2025 ATM Program are collectively referred to as the "ATM Programs." During the three-month period ended March 31, 2025, we issued 8,075,118 common shares which provided $52.1 million of net proceeds after $0.4 million of commissions and $0.1 million of offering costs. During the year ended December 31, 2024, we issued 10,964,023 common shares which provided $73.6 million of net proceeds after $0.6 million of commissions and $0.5 million of offering costs. 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. As of March 31, 2025, we had $48.5 million of common shares available to be issued under the 2023 ATM program. Subsequent to the Conversion, we are no longer able to utilize the 2023 ATM program. On June 13, 2018, our Board approved the adoption of a share repurchase program under which we are authorized to repurchase up to 1.2 million common shares (the "2018 Share Repurchase Program"). The 2018 Share Repurchase Program, which is open-ended in duration, allows us to make repurchases from time to time on the open market or in negotiated transactions, including through Rule 10b5-1 plans. Repurchases are at our discretion, subject to applicable law, share availability, price and our financial performance, among other considerations. During the three-month period ended March 31, 2025, we repurchased 167,476 common shares at an average price per share of $5.84 and a total cost of $1.0 million. We did not repurchase any shares under this program during the three-month period ended March 31, 2024. Subsequent to the Conversion, we are no longer able to utilize the 2018 Share Repurchase Program. Based on our current portfolio, amount of free cash on hand, debt-to-equity ratio and current and anticipated availability of credit, we believe that our capital resources will be sufficient to enable us to meet anticipated short-term and long-term liquidity requirements. Contractual Obligations and Commitments We are a party to an advisory agreement with the Adviser. Pursuant to that agreement, the Adviser is entitled to receive a management fee, a performance fee, reimbursement of certain expenses and, in certain circumstances, a termination fee. Such fees and expenses do not have fixed and determinable payments. For a description of the advisory agreement provisions, see Note 9 to our consolidated financial statements. We enter into repurchase agreements with third-party broker-dealers whereby we sell securities to such broker-dealers at agreed-upon purchase prices at the initiation of the repurchase agreements and agree to repurchase such securities at predetermined repurchase prices and termination dates, thus providing the broker-dealers with an implied interest rate on the funds initially transferred to us by the broker-dealers. We may enter into reverse repurchase agreements with third-party broker-dealers whereby we purchase securities under agreements to resell at an agreed-upon price and date. In general, we most often will enter into reverse repurchase agreement transactions in order to effectively borrow securities that we can then deliver to counterparties to whom we have made short sales of the same securities. The implied interest rates on the repurchase agreements and reverse repurchase agreements we enter into are based upon competitive market rates at the time of initiation. Repurchase agreements and reverse repurchase agreements that are conducted with the same counterparty may be reported on a net basis if they meet the requirements of ASC 210-20, Balance Sheet, Offsetting . As of both March 31, 2025 and December 31, 2024 and 2023, there were no repurchase agreements and reverse repurchase agreements reported on a net basis on the Consolidated Balance Sheet. As of March 31, 2025, we had $517.5 million of outstanding borrowings with 13 counterparties. Off-Balance Sheet Arrangements As of March 31, 2025, we did not have any relationships with unconsolidated entities or financial partnerships, such as 84 entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide funding to any such entities. As such, we are not materially exposed to any market, credit, liquidity, or financing risk that could arise if we had engaged in such relationships. Inflation Virtually all of our assets and liabilities are interest rate-sensitive in nature to varying degrees. As a result, interest rates and other factors generally influence our performance more than does inflation. Our activities and balance sheet are measured with reference to historical cost and/or fair market value without considering inflation. However, elevated long-term inflation could adversely impact the performance of our investment portfolio, or the prices of our investments, or both. For example, if higher inflation is not matched by an increase in wages, inflation could cause the real income of consumers to decline. A decline in the real income of consumers could also cause a decline in consumer spending, which could negatively impact the profitability of many of the corporate borrowers whose loans underlie our corporate CLOs.