Ellington Credit Co 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2025 AND DECEMBER 31, 2024 AND 2023 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2025 AND 2024 AND YEARS ENDED DECEMBER 31, 2024 AND DECEMBER 31, 2023 Report of Independent Registered Public Accounting Firm (PCAOB ID NO. 238 ) 89 Consolidated Balance Sheets 91 Consolidated Statements of Operations 92 Consolidated Statements of Shareholders' Equity 93 Consolidated Statements of Cash Flows 94 Notes to Consolidated Financial Statements 96 88 Report of Independent Registered Public Accounting Firm To the Board of Trustees and Shareholders of Ellington Credit Company Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Ellington Credit Company and its subsidiaries (the "Company") as of March 31, 2025, December 31, 2024 and 2023, and the related consolidated statements of operations, of shareholders' equity and of cash flows for the three-month period ended March 31, 2025, and for the two years in the period ended December 31, 2024 , including the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2025, December 31, 2024 and 2023, and the results of its operations, shareholders’ equity and its cash flows for the three-month period ended March 31, 2025, and for the two years in the period ended December 31, 2024 in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Valuation of Certain Level 3 Investments in Securities As described in Notes 2 and 4 to the consolidated financial statements, the Company held $133.9 million of total level 3 investments in securities, at fair value as of March 31, 2025. The Company has chosen to elect the fair value option for its investments in securities. Management generally uses third-party valuations when available, if third-party valuations are not available, management uses other valuation techniques, such as the discounted cash flow methodology. Management’s estimate of fair value may be based on several assumptions, including but not limited to management’s estimates of yield. The principal considerations for our determination that performing procedures relating to the valuation of certain level 3 investments in securities is a critical audit matter are (i) the significant judgment by management in determining the fair value of these investments, which in turn led to (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to the valuation of these level 3 investments and the assumptions related to yield. 89 Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, for a sample of investments (i) testing the completeness and accuracy of data provided by management; (ii) comparing management’s estimate of fair value to independent sources, where available. /s/ PricewaterhouseCoopers LLP New York, New York June 23, 2025 We have served as the Company's auditor since 2012. 90 ELLINGTON CREDIT COMPANY CONSOLIDATED BALANCE SHEETS March 31, 2025 December 31, 2024 December 31, 2023 (In thousands except for share amounts) ASSETS Cash and cash equivalents $ 17,375 $ 31,840 $ 38,533 Securities, at fair value (1) 754,241 683,915 773,548 Due from brokers 4,308 21,517 3,245 Financial derivatives–assets, at fair value 476 41,867 74,279 Reverse repurchase agreements — 23,000 — Receivable for securities sold 336 11,077 51,132 Interest and principal receivable 6,414 10,536 4,522 Other assets 407 340 431 Total Assets $ 783,557 $ 824,092 $ 945,690 LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Repurchase agreements $ 517,538 $ 562,974 $ 729,543 Payable for securities purchased 27,439 1,997 12,139 Due to brokers 914 30,671 54,476 Financial derivatives–liabilities, at fair value 957 5,681 7,329 U.S. Treasury securities sold short, at fair value — 22,578 — Dividend payable 3,005 2,372 1,488 Accrued expenses and other liabilities 2,416 1,488 1,153 Management fee payable to affiliate 860 729 513 Interest payable 1,927 1,876 2,811 Total Liabilities 555,056 630,366 809,452 SHAREHOLDERS' EQUITY Preferred shares, par value $0.01 per share, 100,000,000 shares authorized; (0, 1,000, and 0 shares issued and outstanding, respectively) — 1 — Common shares, par value $0.01 per share, 500,000,000 shares authorized; (37,559,195, 29,651,553, and 18,601,464 shares issued and outstanding, respectively) 376 297 186 Additional paid-in-capital 399,869 348,587 274,698 Accumulated deficit ( 171,744 ) ( 155,159 ) ( 138,646 ) Total Shareholders' Equity 228,501 193,726 136,238 Total Liabilities and Shareholders' Equity $ 783,557 $ 824,092 $ 945,690 (1) Includes assets pledged as collateral to counterparties. See Note 6 for additional details on the Company's borrowings and related collateral. See Notes to Consolidated Financial Statements 91 ELLINGTON CREDIT COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS Three-Month Period Ended Year Ended March 31, 2025 March 31, 2024 December 31, 2024 December 31, 2023 (In thousands except for per share amounts) (Unaudited) INTEREST INCOME (EXPENSE) Interest income $ 15,462 $ 10,379 $ 49,863 $ 42,549 Interest expense ( 6,215 ) ( 10,100 ) ( 34,794 ) ( 45,256 ) Total net interest income (expense) 9,247 279 15,069 ( 2,707 ) EXPENSES Management fees to affiliate 860 538 2,539 1,804 Professional fees 603 339 2,107 1,132 Compensation expense 427 270 1,555 735 Insurance expense 93 94 370 382 Other operating expenses 599 386 2,213 1,482 Total expenses 2,582 1,627 8,784 5,535 OTHER INCOME (LOSS) Net realized gains (losses) on securities 377 ( 9,823 ) ( 18,068 ) ( 58,103 ) Net realized gains (losses) on financial derivatives 17,594 3,459 38,487 28,562 Change in net unrealized gains (losses) on securities ( 8,026 ) 1,760 ( 364 ) 61,274 Change in net unrealized gains (losses) on financial derivatives ( 25,514 ) 10,216 ( 18,579 ) ( 18,932 ) Other, net 1,028 — ( 665 ) — Total other income (loss) ( 14,541 ) 5,612 811 12,801 Net income (loss) before income taxes ( 7,876 ) 4,264 7,096 4,559 Income tax expense (benefit) ( 6 ) 303 510 — NET INCOME (LOSS) $ ( 7,870 ) $ 3,961 $ 6,586 $ 4,559 NET INCOME (LOSS) PER COMMON SHARE: Basic and Diluted $ ( 0.23 ) $ 0.20 $ 0.28 $ 0.31 See Notes to Consolidated Financial Statements 92 ELLINGTON CREDIT COMPANY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Common Shares Common Shares, par value Preferred Shares Preferred Shares, par value Additional Paid-in-Capital Accumulated (Deficit) Earnings Total (In thousands except for share amounts) BALANCE, December 31, 2022 13,377,840 $ 134 — $ — $ 240,940 $ ( 128,665 ) $ 112,409 Common shares issued (1) 5,183,037 52 33,503 33,555 Issuance of restricted shares 47,393 — — — Share based compensation 255 255 Forfeiture of common shares to satisfy tax withholding obligations ( 6,806 ) — — — Dividends declared (2) ( 14,540 ) ( 14,540 ) Net income (loss) 4,559 4,559 BALANCE, December 31, 2023 18,601,464 186 — — 274,698 ( 138,646 ) 136,238 Common shares issued (1) 10,964,023 110 73,448 73,558 Preferred shares issued 1,000 1 1 Issuance of restricted shares 90,229 1 ( 1 ) — Share based compensation 442 442 Forfeiture of common shares to satisfy tax withholding obligations ( 4,163 ) — — — Dividends declared (2) ( 23,099 ) ( 23,099 ) Net income (loss) 6,586 6,586 BALANCE, December 31, 2024 29,651,553 $ 297 1,000 $ 1 $ 348,587 $ ( 155,159 ) $ 193,726 Common shares issued (1) 8,075,118 81 52,055 52,136 Preferred shares redeemed ( 1,000 ) ( 1 ) ( 1 ) Share based compensation 203 203 Repurchase of common shares ( 167,476 ) ( 2 ) ( 976 ) ( 978 ) Dividends declared (2) ( 8,715 ) ( 8,715 ) Net income (loss) ( 7,870 ) ( 7,870 ) BALANCE, March 31, 2025 37,559,195 $ 376 — $ — $ 399,869 $ ( 171,744 ) $ 228,501 BALANCE, December 31, 2023 18,601,464 $ 186 — $ — $ 274,698 $ ( 138,646 ) $ 136,238 Common shares issued (1)(3) 1,218,146 12 7,391 7,403 Issuance of restricted shares (3) — — — — Share based compensation (3) 72 72 Dividends declared (2)(3) ( 4,757 ) ( 4,757 ) Net income (loss) (3) 3,961 3,961 BALANCE, March 31, 2024 (3) 19,819,610 $ 198 — $ — $ 282,161 $ ( 139,442 ) $ 142,917 (1) Net of discounts and commissions and offering costs. (2) For each of the three-month periods ended March 31, 2025 and 2024, dividends totaling $ 0.24 per common share outstanding, were declared. For each of the years ended December 31, 2024 and 2023, dividends totaling $ 0.96 per common share outstanding, were declared. (3) Unaudited. See Notes to Consolidated Financial Statements 93 ELLINGTON CREDIT COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS Three-Month Period Ended Year Ended March 31, 2025 March 31, 2024 December 31, 2024 December 31, 2023 (In thousands) (Unaudited) Cash flows provided by (used in) operating activities: Net income (loss) $ ( 7,870 ) $ 3,961 $ 6,586 $ 4,559 Reconciliation of net income (loss) to net cash provided by (used in) operating activities: Net realized (gains) losses on securities ( 377 ) 9,823 18,068 58,103 Change in net unrealized (gains) losses on securities 8,026 ( 1,760 ) 364 ( 61,274 ) Net realized (gains) losses on financial derivatives ( 17,594 ) ( 3,459 ) ( 38,487 ) ( 28,562 ) Change in net unrealized (gains) losses on financial derivatives 25,514 ( 10,216 ) 18,579 18,932 Realized (gains) losses Other (net)—foreign currency translation 14 — ( 109 ) — Change in net unrealized (gains) losses Other (net)—foreign currency translation ( 960 ) — 863 — Amortization of premiums and accretion of discounts, net 858 1,090 3,868 913 Share based compensation 203 72 442 255 (Increase) decrease in operating assets: Interest receivable 485 ( 120 ) ( 487 ) ( 1,196 ) Other assets ( 67 ) ( 238 ) ( 213 ) — Increase (decrease) in operating liabilities: Accrued expenses 797 549 357 43 Interest payable 51 ( 932 ) ( 935 ) ( 1,885 ) Management fees payable to affiliate 131 25 216 90 Net cash provided by (used in) operating activities 9,211 ( 1,205 ) 9,112 ( 10,022 ) Cash flows provided by (used in) investing activities: Purchases of securities ( 571,885 ) ( 435,617 ) ( 1,359,455 ) ( 1,783,926 ) Proceeds from sale of securities 509,354 437,761 1,368,975 1,760,591 Principal repayments of securities 24,943 20,321 80,805 97,975 Proceeds from investments sold short 3,988 107,893 247,286 531,019 Repurchase of investments sold short ( 26,426 ) ( 107,308 ) ( 224,441 ) ( 531,680 ) Proceeds from disposition of financial derivatives 74,446 8,216 85,935 31,441 Purchase of financial derivatives ( 36,043 ) ( 3,428 ) ( 44,457 ) ( 23,533 ) Payments made on reverse repurchase agreements ( 298,220 ) ( 687,682 ) ( 2,439,903 ) ( 5,977,852 ) Proceeds from reverse repurchase agreements 321,220 687,682 2,416,903 5,978,351 Due from brokers, net 1,830 ( 867 ) ( 2,730 ) 2,009 Due to brokers, net ( 30,350 ) 13,677 ( 12,470 ) 1,328 Net cash provided by (used in) investing activities ( 27,143 ) 40,648 116,448 85,723 See Notes to Consolidated Financial Statements 94 ELLINGTON CREDIT COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) Three-Month Period Ended Year Ended March 31, 2025 March 31, 2024 December 31, 2024 December 31, 2023 Cash flows provided by (used in) financing activities: (Unaudited) Net proceeds from the issuance of common shares (1) $ 52,277 $ 7,430 $ 74,062 $ 33,805 Proceeds from the issuance of preferred shares — — 1 — Repurchase of preferred shares ( 1 ) — — — Offering costs paid ( 10 ) ( 122 ) ( 221 ) ( 231 ) Repurchase of common shares ( 978 ) — — — Dividends paid ( 8,082 ) ( 4,659 ) ( 22,215 ) ( 14,122 ) Borrowings under repurchase agreements 2,263,843 1,178,581 9,256,420 7,173,099 Repayments of repurchase agreements ( 2,309,902 ) ( 1,224,953 ) ( 9,422,616 ) ( 7,286,011 ) Due from brokers, net 5,677 ( 1,687 ) ( 6,576 ) 13,702 Due to brokers, net 643 ( 10,124 ) ( 11,108 ) 7,774 Cash provided by (used in) financing activities 3,467 ( 55,534 ) ( 132,253 ) ( 71,984 ) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ( 14,465 ) ( 16,091 ) ( 6,693 ) 3,717 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 31,840 38,533 38,533 34,816 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 17,375 $ 22,442 $ 31,840 $ 38,533 Supplemental disclosure of cash flow information: Interest paid $ 6,164 $ 11,030 $ 35,728 $ 47,141 Income tax paid — — 829 — Dividends payable 3,005 1,586 2,372 1,488 Share based compensation (non-cash) 203 72 442 255 (1) Net of discount and commissions. See Notes to Consolidated Financial Statements 95 ELLINGTON CREDIT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2025 1. Organization and Investment Objective Ellington Credit Company ("EARN") (formerly Ellington Residential Mortgage REIT) was initially formed as a Maryland real estate investment trust ("REIT") on August 2, 2012, and commenced operations on September 25, 2012, with a focus on acquiring, investing in, and managing residential mortgage- and real estate-related assets through its wholly owned subsidiaries. EARN conducts its business through its wholly owned subsidiaries, EARN OP GP LLC (the "General Partner"), and Ellington Residential Mortgage LP (the "Operating Partnership"), which were formed as a Delaware limited liability company and a Delaware limited partnership, respectively, on July 31, 2012 and commenced operations on September 25, 2012. The Operating Partnership conducts its business of acquiring, investing in, and managing targeted assets through its wholly owned subsidiaries. EARN, the General Partner, the Operating Partnership, and their consolidated subsidiaries are hereafter defined as the "Company." On March 29, 2024, the Company's Board of Trustees approved a strategic transformation (the "CLO Strategic Transformation"), of the Company's investment strategy to focus on corporate collateralized loan obligations ("CLOs"). In connection with the CLO Strategic Transformation, the Company revoked its status as a REIT under the Internal Revenue Code of 1986, as amended ("the Code") and, effective January 1, 2024, conducts its operations as a taxable C-Corporation and maintains its exclusion from registration under the Investment Company Act of 1940, as amended (the "1940 Act"). On April 19, 2024, the Company changed its name and amended its declaration of trust and bylaws accordingly. After obtaining shareholder approval of certain matters related to the CLO Strategic Transformation at a special meeting of shareholders held on January 17, 2025 (the "Special Meeting"), the Company intends to convert to a Delaware closed-end fund registered under the 1940 Act that will elect to be treated as a regulated investment company ("RIC"), on April 1, 2025 (the "Conversion"); see Note 13 for additional details. After the Conversion, the Company will be required to comply with the rules and regulations of the 1940 Act. Subsequent to the commencement of the CLO Strategic Transformation, the Company, subject to maintaining its exclusion from registration under the 1940 Act prior to the Conversion, is focused on acquiring and actively managing a portfolio of corporate CLOs, primarily mezzanine debt and equity tranches, which are typically collateralized by portfolios consisting primarily of below-investment-grade senior secured loans with a large number of discrete underlying borrowers across various industry sectors. Additionally, the Company may also invest in CLO loan accumulation facilities, which are entities that acquire corporate loans and other similar corporate credit-related assets in anticipation of ultimately collateralizing a CLO transaction. In order to maintain its exclusion from registration under the 1940 Act, the Company also maintained a core portfolio of Agency RMBS prior to the Conversion. Prior to the CLO Strategic Transformation, the Company focused on acquiring and managing RMBS, for which the principal and interest payments are guaranteed by a U.S. government agency or a U.S. government-sponsored entity, or "Agency RMBS," and RMBS that do not carry such guarantees, or "non-Agency RMBS," such as RMBS backed by prime jumbo, Alternative A-paper, manufactured housing, and subprime residential mortgage loans. Agency RMBS include both Agency pools and Agency collateralized mortgage obligations, or "CMOs," and non-Agency RMBS primarily consist of non-Agency CMOs, both investment grade and non-investment grade. As a result of the CLO Strategic Transformation, the Company has gradually liquidated a significant portion of its portfolio of mortgage-related assets and has continued to purchase additional CLOs. Ellington Credit Company Management LLC, formerly Ellington Residential Mortgage Management LLC, or the "Manager," serves as the Manager of the Company pursuant to the terms of a management agreement, as described in Note 9. The Manager is an affiliate of Ellington Management Group, L.L.C., or "EMG," an investment management firm that is an SEC-registered investment adviser with a longstanding history of investing in CLOs across a wide variety of market conditions. In accordance with the terms of the Previous Management Agreement, the New Management Agreement, and the Services Agreement (each as defined and described in Note 9), the Manager is responsible for administering the Company's business activities and day-to-day operations, and performs certain services, subject to oversight by the Board of Trustees. 2. Significant Accounting Policies (A) Basis of Presentation: The Company's 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 the Company has a controlling financial interest, through ownership of the majority of the entities' voting equity interests, or through other contractual rights that give the Company control, are consolidated by the Company. All inter-company balances and transactions have been eliminated. The preparation of consolidated financial statements in conformity 96 with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and those differences could be material. In management's opinion, all material adjustments considered necessary for a fair statement of the Company's consolidated financial statements have been included and are only of a normal recurring nature. (B) Valuation: The Company applies ASC 820-10, Fair Value Measurement ("ASC 820-10"), to its holdings of financial instruments. ASC 820-10 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the observability of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: • Level 1—inputs to the valuation methodology are observable and reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Currently, the types of financial instruments the Company generally includes in this category are exchange-traded derivatives and equities; • Level 2—inputs to the valuation methodology other than quoted prices included in Level 1 are observable for the asset or liability, either directly or indirectly. Currently, the types of financial instruments that the Company generally includes in this category are Agency RMBS, U.S. Treasury securities, certain non-Agency RMBS, CLOs, and actively traded derivatives such as TBAs, interest rate swaps, swaptions, credit default swaps, or "CDS", foreign currency forwards, and other over-the-counter derivatives; and • Level 3—inputs to the valuation methodology are unobservable and significant to the fair value measurement. Currently, this category generally includes certain CLOs, private corporate debt and equity investments, CDS, and RMBS, such as certain non-Agency RMBS and certain Agency interest only securities, or "IOs," where there is less price transparency. For certain financial instruments, the various inputs that management uses to measure fair value may fall into different levels of the fair value hierarchy. For each such financial instrument, the determination of which category within the fair value hierarchy is appropriate is based on the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the various inputs that management uses to measure fair value, with the highest priority given to inputs that are observable and reflect quoted prices (unadjusted) for identical assets or liabilities in active markets (Level 1), and the lowest priority given to inputs that are unobservable and significant to the fair value measurement (Level 3). The assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument. The Company may use valuation techniques consistent with the market and income approaches to measure the fair value of its assets and liabilities. The market approach uses third-party valuations and information obtained from market transactions involving identical or similar assets or liabilities. The income approach uses projections of the future economic benefits of an instrument to determine its fair value, such as in the discounted cash flow methodology. The inputs or methodology used for valuing financial instruments are not necessarily an indication of the risk associated with investing in these financial instruments. The leveling of each financial instrument is reassessed at the end of each period. Transfers between levels of the fair value hierarchy are assumed to occur at the end of the reporting period. Summary Valuation Techniques For financial instruments that are traded in an "active market," the best measure of fair value is the quoted market price. However, many of the Company's 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. The following are summary descriptions, for the various categories of financial instruments, of the valuation methodologies management uses in determining fair value of the Company's financial instruments in such categories. Management utilizes such methodologies to assign a 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. For the Company's investments in securities and TBAs, management seeks to obtain at least one third-party valuation, and often obtains multiple valuations when available. Management has been able to obtain third-party valuations on the vast majority of these instruments and expects to continue to solicit third-party valuations in the future. Management generally values each financial instrument at the average of third-party valuations received and not rejected as described below. Third-party valuations are not binding, management may adjust the valuations it receives (e.g., downward adjustments for odd lots), and management may challenge or reject a valuation when, based on its validation criteria, management determines that such valuation is unreasonable or erroneous. Furthermore, based on its validation criteria, management may determine that the average of the third-party valuations received for a given instrument does not result in what management believes to be the fair value of such instrument, and in such circumstances management may override this average with its own good faith valuation. The validation criteria may take into account output from management's own models, recent trading activity in the same or 97 similar instruments, and valuations received from third parties. The use of proprietary models requires the use of a significant amount of judgment and the application of various assumptions including, but not limited to, assumptions concerning future prepayment rates and default rates. Given their relatively high level of price transparency, Agency RMBS pass-throughs, and TBAs are typically designated as Level 2 assets. Non-Agency RMBS, CLOs, corporate debt, and Agency interest only and inverse interest only RMBS are generally classified as either Level 2 or Level 3 based on the analysis of available market data and/or third-party valuations. Furthermore, the methodology used by the third-party valuation providers is reviewed at least annually by management, so as to ascertain whether such providers are utilizing observable market data to determine the valuations that they provide. Interest rate swaps, swaptions, and foreign currency forwards are typically valued based on internal models that use observable market data, including applicable interest rates and foreign currency rates in effect as of the measurement date; the model-generated valuations are then typically compared to counterparty valuations for reasonableness; These financial derivatives are generally designated as Level 2 instruments. For financial derivatives with greater price transparency, such as CDS on corporate indices, market-standard pricing sources are used to obtain valuations; these financial derivatives are generally classified as Level 2. In valuing its derivatives, the Company also considers the creditworthiness of both the Company and its counterparties, along with collateral provisions contained in each derivative agreement. The Company's reverse repurchase agreements and repurchase agreements are carried at cost, which approximates fair value. Reverse repurchase agreements and repurchase agreements are classified as Level 2 assets and liabilities based on the adequacy of the collateral and their short term nature. The Company's valuation process, including the application of validation criteria, is directed by the Manager's Valuation Committee ("Valuation Committee") and overseen by the Company's audit committee. The Valuation Committee includes senior level executives from various departments within the Manager, and each quarter the Valuation Committee reviews and approves the valuations of the Company's investments. The valuation process also includes a monthly review by the Company's third party administrator. The goal of this review is to replicate various aspects of the Company's valuation process based on the Company's documented procedures. Because of the inherent uncertainty of valuation, the estimated fair value of the Company's 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 the consolidated financial statements. (C) Accounting for Securities: Purchases and sales of securities are recorded on trade date and realized and unrealized gains and losses are calculated based on identified cost. Investments in securities are recorded in accordance with ASC 320, Investments—Debt and Equity Securities ("ASC 320") or ASC 325-40, Beneficial Interests in Securitized Financial Assets ("ASC 325-40"). The Company generally classifies its securities as available-for-sale. The Company has chosen to elect the fair value option, or "FVO," pursuant to ASC 825, Financial Instruments ("ASC 825") for its investments in securities. Electing the FVO allows the Company to record changes in fair value in the Consolidated Statement of Operations, which, in management's view, more appropriately reflects the results of operations for a particular reporting period as all securities activities will be recorded in a similar manner. As such, securities are recorded at fair value on the Consolidated Balance Sheet and the period change in fair value is recorded in current period earnings on the Consolidated Statement of Operations as a component of Change in net unrealized gains (losses) on securities. Many of the Company's investments in securities, such as CLOs, are issued by entities that are deemed to be VIEs. For the majority of such investments, the Company has determined it is not the primary beneficiary of such VIEs and therefore has not consolidated such VIEs. The Company's maximum risk of loss in these unconsolidated VIEs is generally limited to the fair value of the Company's investment in the VIE. The Company evaluates the cost basis of its securities on at least a quarterly basis under ASC 326-30, Financial Instruments—Credit Losses: Available-for-Sale Debt Securities ("ASC 326-30"). When the fair value of a security is less than its amortized cost basis as of the balance sheet date, the security's cost basis is considered impaired. The Company must evaluate the decline in the fair value of the impaired security and determine whether such decline resulted from a credit loss or non-credit related factors. In its assessment of whether a credit loss exists, the Company compares the present value of estimated future cash flows of the impaired security with the amortized cost basis of such security. The estimated future cash flows reflect those that a "market participant" would use and typically include assumptions related to fluctuations in interest rates, prepayment speeds, default rates, collateral performance, and the timing and amount of projected credit losses, as well as 98 incorporating observations of current market developments and events. Cash flows are discounted at an interest rate equal to the current yield used to accrete interest income. If the present value of estimated future cash flows is less than the amortized cost basis of the security, an expected credit loss exists and is included in Unrealized gains (losses) on securities and loans, net, on the Consolidated Statement of Operations. If it is determined as of the financial reporting date that all or a portion of a security's cost basis is not collectible, then the Company will recognize a realized loss to the extent of the adjustment to the security's cost basis. This adjustment to the amortized cost basis of the security is reflected in Net realized gains (losses) on securities, on the Consolidated Statement of Operations. (D) Interest Income: Coupon interest income on fixed-income investments is accrued based on the outstanding principal balance or notional amount and the current coupon rate. The Company amortizes purchase premiums and accretes purchase discounts on its debt securities. For RMBS that are deemed to be of high credit quality at the time of purchase, premiums and discounts are generally amortized/accreted into interest income over the life of such securities using the effective interest method. For such RMBS whose cash flows vary depending on prepayments, an effective yield retroactive to the time of purchase is periodically recomputed based on actual prepayments and changes in projected prepayment activity, and a catch-up adjustment, or "Catch-up Amortization Adjustment," is made to amortization to reflect the cumulative impact of the change in effective yield. For debt securities (generally RMBS and CLOs) that are deemed not to be of high credit quality at the time of purchase, interest income is recognized based on the effective interest method. For purposes of estimating future expected cash flows, management uses assumptions including, but not limited to, assumptions for future prepayment rates, default rates, and loss severities (each of which may in turn incorporate various macro-economic assumptions, such as future housing prices). These assumptions are re-evaluated not less than quarterly. Changes in estimated future cash flows, as applied to the current amortized cost of the security, may result in a prospective change in the yield/interest income recognized on such securities. Certain of the Company's debt securities, at the date of acquisition, have experienced or are expected to experience more-than-insignificant deterioration in credit quality since origination. If at the date of acquisition for a particular asset the Company projects a significant difference between contractual cash flows and expected cash flows, it establishes an initial estimate for credit losses as an upward adjustment to the acquisition cost of the asset for the purpose of calculating interest income using the effective yield method. In estimating future cash flows on the Company's debt securities, there are a number of assumptions that are subject to significant uncertainties and contingencies; these estimates require the use of a significant amount of judgment. The Company's accretion of discounts and amortization of premiums on securities for U.S. federal and other tax purposes is likely to differ from the accounting treatment under U.S. GAAP of these items as described above. (E) Other Income: In connection with certain of the Company's CLO equity investments the Company receives distributions from fee letters associated to such CLO equity positions. Distributions from such fee letters are based upon a percentage of the collateral manager's fees. Income from fee letters is included in Other, net, on the Consolidated Statement of Operations. (F) Cash and Cash Equivalents: Cash and cash equivalents include cash and short term investments with original maturities of three months or less at the date of acquisition. Cash and cash equivalents typically include amounts held in interest bearing overnight accounts and amounts held in money market funds, and these balances generally exceed insured limits. The Company holds its cash at institutions that it believes to be highly creditworthy. (G) Due from brokers/Due to brokers: Due from brokers and Due to brokers accounts on the Consolidated Balance Sheet include collateral transferred to or received from counterparties, including clearinghouses, along with receivables and payables for open and/or closed derivative positions. (H) Financial Derivatives: The Company enters into various types of financial derivatives subject to its investment guidelines. The Company's financial derivatives are predominantly subject to bilateral master trade agreements or clearing in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The Company may be required to deliver or may receive cash or securities as collateral upon entering into derivative transactions. In addition, changes in the relative value of financial derivative transactions may require the Company or the counterparty to post or receive additional collateral. In the case of cleared financial derivatives, the clearinghouse becomes the Company's counterparty and a futures commission merchant acts as intermediary between the Company and the clearinghouse with respect to all facets of the related transaction, including the posting and receipt of required collateral. Collateral received by the Company is reflected on the Consolidated Balance Sheet as "Due to Brokers." Conversely, collateral posted by the Company is reflected as "Due from Brokers" on the Consolidated Balance Sheet. The types of financial derivatives that have been utilized by the Company to date include interest rate swaps, TBAs, swaptions, and futures. 99 Swaps: The Company enters into various types of swaps including interest rate swaps and credit default swaps. The primary risk associated with the Company's interest rate swap activity is interest rate risk. The primary risk associated with the Company's credit default swaps and total return swaps is credit risk. The Company is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Interest rate swaps are contractual agreements whereby one party pays a floating interest rate on a notional principal amount and receives a fixed-rate payment on the same notional principal, or vice versa, for a fixed period of time. A credit default swap is a contract under which one party agrees to compensate another party for the financial loss associated with the occurrence of a "credit event" in relation to a "reference amount" or notional value of a "reference asset" (usually a bond or an index or basket of bonds). The definition of a credit event may vary from contract to contract. A credit event may occur (i) when the reference asset (or underlying asset, in the case of a reference asset that is an index or basket) fails to make scheduled principal or interest payments to its holders, (ii) with respect to credit default swaps referencing asset-backed securities and indices, when the reference asset (or underlying asset, in the case of a reference asset that is an index or basket) is downgraded below a certain rating level, or (iii) with respect to credit default swaps referencing corporate entities and indices, upon an event of default of the obligor of the reference asset (or underlying obligor, in the case of a reference asset that is an index). Swaps change in value with movements in interest rates or total return of the reference securities. During the term of swap contracts, changes in value are recognized as unrealized gains or losses on the Consolidated Statement of Operations. When a contract is terminated, the Company realizes a gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Company's basis in the contract, if any. Periodic payments or receipts required by swap agreements are recorded as unrealized gains or losses when accrued and realized gains or losses when received or paid. Upfront payments paid and/or received by the Company to open swap contracts are recorded as an asset and/or liability on the Consolidated Balance Sheet and are recorded as a realized gain or loss on the termination date. TBA Securities: The Company transacts in the forward settling TBA market. A TBA position is a forward contract for the purchase ("long position") or sale ("short position") of Agency RMBS at a predetermined price, face amount, issuer, coupon, and maturity on an agreed-upon future delivery date. For each TBA contract and delivery month, a uniform settlement date for all market participants is determined by the Securities Industry and Financial Markets Association. The specific Agency RMBS to be delivered into the contract at the settlement date are not known at the time of the transaction. The Company typically does not take delivery of TBAs, but rather enters into offsetting transactions and settles the associated receivable and payable balances with its counterparties. The Company uses TBAs to mitigate interest rate risk, usually by taking short positions. The Company also invests in TBAs as a means of acquiring additional exposure to Agency RMBS, or for speculative purposes, including holding long positions. TBAs are accounted for by the Company as financial derivatives. The difference between the contract price and the fair value of the TBA position as of the reporting date is included in Change in net unrealized gains (losses) on financial derivatives in the Consolidated Statement of Operations. Upon settlement of the TBA contract, the realized gain (loss) on the TBA contract is equal to the net cash amount received (paid). Options : The Company enters into swaption contracts. It may purchase or write put, call, straddle, or other similar options contracts. The Company enters into options contracts primarily to help mitigate interest rate risk. When the Company purchases an options contract, the option asset is initially recorded at an amount equal to the premium paid, if any, and is subsequently marked-to-market. Premiums paid for purchasing options contracts that expire unexercised are recognized on the expiration date as realized losses. If an options contract is exercised, the premium paid is subtracted from the proceeds of the sale or added to the cost of the purchase to determine whether the Company has realized a gain or loss on the related investment transaction. When the Company writes an options contract, the option liability is initially recorded at an amount equal to the premium received, if any, and is subsequently marked-to-market. Premiums received for writing options contracts that expire unexercised are recognized on the expiration date as realized gains. If an options contract is exercised, the premium received is subtracted from the cost of the purchase or added to the proceeds of the sale to determine whether the Company has realized a gain or loss on the related investment transaction. When the Company enters into a closing transaction, the Company will realize a gain or loss depending upon whether the amount from the closing transaction is greater or less than the premiums paid or received. In general, the Company's options contracts contain forward-settling premiums. In this case, no money is exchanged upfront; instead, the agreed-upon premium is paid by the buyer upon expiration of the options contract, regardless of whether or not the options contract is exercised. Unrealized gains or (losses) resulting from the options contract being marked-to-market are included in Change in net unrealized gains (losses) on financial derivatives in the Consolidated Statement of Operations. Realized gains or (losses) are included in Net realized gains (losses) on financial derivatives on the Consolidated Statement of Operations. 100 Futures Contracts : The Company enters into futures contract, typically U.S. Treasury futures contracts. A futures contract is an exchange-traded agreement to buy or sell an asset for a set price on a future date. Initial margin deposits are made upon entering into futures contracts and can be either in the form of cash or securities. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by marking-to-market to reflect the current market value of the contract. Unrealized gains or (losses) are included in Change in net unrealized gains (losses) on financial derivatives in the Consolidated Statement of Operations. Variation margin payments are made or received periodically, depending upon whether unrealized losses or gains are incurred. When the contract is closed, the Company records a realized gain or loss equal to the difference between the proceeds of the closing transaction and the Company's basis in the contract. Realized gains or (losses) are included in Net realized gains (losses) on financial derivatives on the Consolidated Statement of Operations. Forward Currency Contracts : A forward currency contract is an agreement between two parties to purchase or sell a specific quantity of currency with the delivery and settlement at a specific future date and exchange rate. During the period the forward currency contract is open, changes in the value of the contract are recognized as unrealized gains or losses. When the contract is settled, the Company records a realized gain or loss equal to the difference between the proceeds of the closing transaction and the Company's basis in the contract. Financial derivative assets are included in Financial derivatives–assets, at fair value on the Consolidated Balance Sheet while financial derivative liabilities are included in Financial derivatives–liabilities, at fair value on the Consolidated Balance Sheet. The Company has chosen to elect the FVO for its financial derivatives. Electing the FVO allows the Company to record changes in fair value in the Consolidated Statement of Operations, which, in management's view, more appropriately reflects the results of operations for a particular reporting period as all securities activities will be recorded in a similar manner. Changes in unrealized gains and losses on financial derivatives are included in Change in net unrealized gains (losses) on financial derivatives, on the Consolidated Statement of Operations. Realized gains and losses on financial derivatives are included in Net realized gains (losses) on financial derivatives on the Consolidated Statement of Operations. (I) Repurchase Agreements: The Company enters into repurchase agreements with third-party broker-dealers, whereby it sells securities under agreements to repurchase at an agreed upon price and date. The Company accounts for repurchase agreements as collateralized borrowings, with the initial sale price representing the amount borrowed, and with the future repurchase price consisting of the amount borrowed plus interest, at the implied interest rate of the repurchase agreement, on the amount borrowed over the term of the repurchase agreement. The interest rate on a repurchase agreement is based on competitive market rates (or competitive market spreads, in the case of agreements with floating interest rates) at the time such agreement is entered into. When the Company enters into a repurchase agreement, the lender establishes and maintains an account containing cash and/or securities having a value not less than the repurchase price, including accrued interest, of the repurchase agreement. Repurchase agreements are carried at their contractual amounts, which approximate fair value due to their short-term nature. (J) Reverse Repurchase Agreements: The Company enters into reverse repurchase agreement transactions with third-party broker-dealers, whereby it purchases securities under agreements to resell at an agreed upon price and date. The interest rate on a reverse repurchase agreement is based on competitive market rates (or competitive market spreads, in the case of agreements with floating interest rates) at the time such agreement is entered into. Reverse repurchase agreements are carried at their contractual amounts, which approximate fair value due to their short-term nature. Repurchase and reverse repurchase agreements that are conducted with the same counterparty can be reported on a net basis if they meet the requirements of ASC 210-20, Balance Sheet Offsetting . There are currently no repurchase and reverse repurchase agreements reported on a net basis in the Company's consolidated financial statements. (K) Securities Sold Short: The Company may purchase or engage in short sales of U.S. Treasury securities to mitigate the potential impact of changes in interest rates on the performance of its portfolio. When the Company sells securities short, it typically satisfies its security delivery settlement obligation by borrowing or purchasing the security sold short from the same or a different counterparty. When borrowing a security sold short from a counterparty, the Company generally is required to deliver cash or securities to such counterparty as collateral for the Company's obligation to return the borrowed security. The Company has chosen to make the fair value election pursuant to ASC 825-10, Financial Instruments , for its securities sold short. Electing the FVO allows the Company to record changes in fair value in the Consolidated Statement of Operations, which, in management's view, more appropriately reflects the results of operations for a particular reporting period as all securities activities will be recorded in a similar manner. As such, securities sold short are recorded at fair value on the Consolidated Balance Sheet and the period change in fair value is recorded in current period earnings on the Consolidated Statement of Operations as a component of Change in net unrealized gains (losses) on securities. A realized gain or loss will be 101 recognized upon the termination of a short sale if the market price is less or greater than the original sale price. Such realized gain or loss is recorded on the Company's Consolidated Statement of Operations in Net realized gains (losses) on securities. (L) Offering Costs/Deferred Offering Costs/Underwriters' Discounts: Offering costs, underwriters' discounts and commissions and fees, are charged against shareholders' equity within Additional paid-in-capital. Offering costs typically include legal, accounting, and other fees associated with the cost of raising equity capital. (M) Share Based Compensation: The Company applies the provisions of ASC 718, Compensation—Stock Compensation ("ASC 718"), with regard to its equity incentive plans. ASC 718 covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. ASC 718 requires that compensation cost relating to share-based payment transactions be recognized in the financial statements. The cost is measured based on the fair value, at the grant date, of the equity or liability instruments issued and is amortized over the vesting period. Restricted shares issued to the Company's independent trustees and partially dedicated personnel are participating securities and receive dividends prior to vesting. Fair value for such awards is based on the closing stock price on the New York Stock Exchange at the grant date. The vesting period for restricted share awards is typically one to two years . Shares issued to the Company's independent trustees and partially dedicated personnel are subject to tax withholding upon vesting. The Company's independent trustees and partially dedicated personnel are permitted to forfeit a portion of their vested shares to pay such withholding tax. Forfeited shares decrease the total number of shares issued and outstanding and are immediately retired upon settlement. (N) Dividends: Dividends payable are recorded on the declaration date. (O) Expenses: Expenses are recognized as incurred on the Consolidated Statement of Operations. (P) Earnings Per Share: In accordance with the provisions of ASC 260, Earnings per Share , the Company calculates basic income (loss) per share by dividing net income (loss) for the period by the weighted average of the Company's common shares outstanding for that period. Diluted income (loss) per share takes into account the effect of dilutive instruments, such as share options and warrants, and uses the average share price for the period in determining the number of incremental shares that are to be added to the weighted average number of shares outstanding. (Q) Foreign Currency : The functional currency of the Company is U.S. dollars. Assets and liabilities denominated in foreign currencies are remeasured into U.S. dollars at current exchange rates at the following dates: (i) assets, liabilities, and unrealized gains/losses—at the valuation date; and (ii) income, expenses, and realized gains/losses—at the accrual/transaction date. For investments and financial derivatives denominated in a foreign currency, the Company isolates the portion of realized and change in unrealized gain (loss) resulting from changes in the foreign currency exchange rate from the fluctuations arising from changes in fair value (as measured in such foreign currency). Changes in realized and change in unrealized gain (loss) due to foreign currency are included in Other, net, on the Consolidated Statement of Operations. The Company's reporting currency is U.S. Dollars. If the Company has investments in unconsolidated entities that have a functional currency other than U.S. Dollars, the fair value is translated to U.S. dollars using the current exchange rate at the valuation date. The cumulative translation adjustment, if any, associated with the Company's investments in unconsolidated entities is recorded in accumulated other comprehensive income (loss), a component of consolidated shareholders' equity. (R) Share Repurchases: Common shares that are repurchased by the Company subsequent to issuance are immediately retired upon settlement and decrease the total number of shares issued and outstanding. The cost of such share repurchases is charged against Additional paid-in-capital on the Company's Consolidated Balance Sheet. (S) Income Taxes: The Company has revoked its previous election to be taxed as a REIT under Sections 856 through 860 of the Code and operates as a C-Corporation subject to U.S. federal, state, and local corporate income taxes beginning with the tax year beginning January 1, 2024. The Company's financial results reflect provisions for any current or deferred income taxes. The Company follows the authoritative guidance on accounting for and disclosure of uncertainty on tax positions, which requires management to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. For uncertain tax positions, the tax benefit to be recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company did not have any unrecognized tax benefits resulting from tax positions related to the current period, 2024, or its open tax years (2021, 2022, and 2023). In the normal course of business, the Company may be subject to examination by federal, state, local, and foreign jurisdictions, where applicable, for the current period and its open tax years. The Company may take positions with respect to certain tax issues which depend on legal interpretation of facts or applicable tax regulations. Should the relevant tax regulators successfully challenge any of such positions, the Company might be found to have a tax liability that has not been recorded in 102 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. The Company recognizes interest and penalties, if any, related to uncertain tax positions, as income tax expense included in Income tax expense (benefit) on the Consolidated Statement of Operations. See Note 11 for additional details on income taxes. (T) Segment Reporting: An operating segment is defined as a component of an entity that (i) engages in business activities from which revenues are recognized and expenses incurred, (ii) has discrete financial information available, and (iii) is evaluated on a regular basis by the Chief Operating Decision Maker (the "CODM") for decision-making purposes, including investment and operating decisions, including capital and resource allocation decisions; and communicates results, strategy, and other relevant information to the Board of Trustees and shareholders. The Company's CODM is, collectively, its Chief Executive Officer and President and its Co-Chief Investment Officers. The Company operates through a single operating and reporting segment with an objective to generate attractive current yields and risk-adjusted total returns for its shareholders by acquiring, investing in, and managing its targeted assets. The Company’s CODM assesses performance and makes investment and operating decisions based on net income reported on the Consolidated Statement of Operations, among other metrics. Significant expenses are separately disclosed on the Consolidated Statements of Operations. (U) Recent Accounting Pronouncements: In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses (" ASU 2024-03"). ASU 2024-03 requires public entities to provide tabular disclosure of certain expenses including employee compensation, on an interim and annual basis, in the notes to the financial statements. ASU 2024-03 is effective for annual periods beginning after December 15, 2026, and interim periods in fiscal years beginning after December 15, 2027, with early adoption permitted. ASU 2024-03 should be applied on either a prospective basis to financial statements issued for reporting periods after the effective date of ASU 2024-03 or retrospectively to any or all prior periods presented in the financial statements. ASU 2024-03 is not expected to have a material impact on the Company's consolidated financial statements. In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures ("ASU 2023-09") which requires disaggregated information about a reporting entities effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, with early adoption permitted. ASU 2023-09 will be applied on a prospective basis with the option to apply ASU 2023-09 retrospectively. The Company has applied ASU 2023-09 on a prospective basis, which did not have a material impact on the Company's consolidated financial statements. In November 2023, the FASB issued ASU 2023-07, Segment Reporting—Improvements to Reportable Segment Disclosures ("ASU 2023-07") which requires incremental disclosures related to an entity's reportable segments, including identifying significant segment expense categories and any multiple measures of segment profit or loss used by the CODM. Additionally, ASU 2023-07 provides further guidance on interim reporting, disclosures required by entities with a single reportable segment, and recasting of previously reported segment information. ASU 2023-07 became effective for fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning after December 15, 2024, with early adoption permitted. The Company has applied ASU 2023-07 on a retrospective basis, which did not have a material impact on the Company's consolidated financial statements. 3. Investment in Securities The Company's securities portfolio primarily consists of corporate CLOs and Agency RMBS, and may also include non-Agency RMBS, U.S. Treasury securities, and corporate debt and equity securities. The Company's corporate CLO portfolio primarily comprises mezzanine debt and equity tranches, which are typically collateralized by portfolios consisting primarily of below-investment-grade senior secured loans with a large number of discrete underlying borrowers across various industry sectors. The Company's Agency RMBS include mortgage pass-through certificates and CMOs representing interests in or obligations backed by pools of residential mortgage loans issued or guaranteed by a U.S. government agency or government-sponsored enterprise, or "GSE." The securities in the Company's non-Agency RMBS and CLO portfolios are not issued or guaranteed by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, or any agency of the U.S. Government and are therefore subject to greater credit risk. 103 The following tables present details of the Company's investments in securities as of March 31, 2025 and December 31, 2024 and 2023. March 31, 2025: Unamortized Premium (Discount) Gross Unrealized Weighted Average ($ in thousands) Current Principal Amortized Cost Gains Losses Fair Value Coupon (1)(2) Yield Life (Years) (3) CLO Notes $ 97,297 $ ( 7,490 ) $ 89,807 $ 397 $ ( 4,756 ) $ 85,448 11.09 % 16.95 % 3.65 CLO Equity n/a n/a 181,611 877 ( 18,079 ) 164,409 n/a 13.32 % 10.27 Corporate debt 1,814 ( 1,417 ) 397 37 — 434 — % — % 1.12 Corporate equity n/a n/a 76 — ( 20 ) 56 n/a n/a n/a RMBS: Agency: 30-year fixed-rate mortgages 519,109 ( 16,601 ) 502,508 5,027 ( 3,643 ) 503,892 4.90 % 5.34 % 6.71 Interest only securities (4) n/a n/a 2 — — 2 1.21 % 11.51 % 2.82 Total $ 618,220 $ ( 25,508 ) $ 774,401 $ 6,338 $ ( 26,498 ) $ 754,241 5.86 % 8.55 % 7.14 (1) Weighted average coupon represents the weighted average coupons of the securities, rather than, in the case of collateralized securities, the weighted average coupon rates on the underlying collateral. (2) Total weighted average coupon excludes CLO equity securities, corporate equity, and interest only RMBS. (3) Expected average lives of RMBS are generally shorter than stated contractual maturities. Average lives are affected by the contractual maturities of the underlying mortgages, scheduled periodic payments of principal, and unscheduled prepayments of principal. (4) Weighted average coupon is based on a notional principal amount of $ 28 thousand, for Agency interest only securities. December 31, 2024: Unamortized Premium (Discount) Gross Unrealized Weighted Average ($ in thousands) Current Principal Amortized Cost Gains Losses Fair Value Coupon (1)(2) Yield Life (Years) (3) Long: CLO Notes $ 83,322 $ ( 10,740 ) $ 72,582 $ 1,382 $ ( 1,972 ) $ 71,992 11.69 % 15.05 % 2.89 CLO Equity n/a n/a 105,262 795 ( 6,927 ) 99,130 n/a 12.12 % 9.86 Corporate debt 1,787 ( 1,389 ) 398 30 — 428 — % — % 1.32 Corporate equity n/a n/a 75 — ( 19 ) 56 n/a n/a n/a RMBS: Agency: 30-year fixed-rate mortgages 536,948 ( 17,320 ) 519,628 1,696 ( 9,017 ) 512,307 4.86 % 5.26 % 7.26 Interest only securities (4) n/a n/a 2 — — 2 1.20 % 11.27 % 2.76 Total Long 622,057 ( 29,449 ) 697,947 3,903 ( 17,935 ) 683,915 5.76 % 7.29 % 7.17 Short: U.S. Treasury securities ( 23,603 ) 641 ( 22,962 ) 384 — ( 22,578 ) 4.02 % 4.32 % 9.86 Total Short ( 23,603 ) 641 ( 22,962 ) 384 — ( 22,578 ) 4.02 % 4.32 % 9.86 Total $ 598,454 $ ( 28,808 ) $ 674,985 $ 4,287 $ ( 17,935 ) $ 661,337 5.70 % 6.50 % 7.26 (1) Weighted average coupon represents the weighted average coupons of the securities, rather than, in the case of collateralized securities, the weighted average coupon rates on the underlying collateral. (2) Total long and total weighted average coupon excludes CLO equity securities, corporate equity, and interest only RMBS. (3) Expected average lives of RMBS are generally shorter than stated contractual maturities. Average lives are affected by the contractual maturities of the underlying mortgages, scheduled periodic payments of principal, and unscheduled prepayments of principal. (4) Weighted average coupon is based on a notional principal amount of $ 29 thousand, for Agency interest only securities. 104 December 31, 2023: Unamortized Premium (Discount) Gross Unrealized Weighted Average ($ in thousands) Current Principal Amortized Cost Gains Losses Fair Value Coupon (1)(2) Yield Life (Years) (3) RMBS: Agency: 15-year fixed-rate mortgages $ 28,647 $ 118 $ 28,765 $ 32 $ ( 950 ) $ 27,847 3.46 % 3.20 % 2.90 20-year fixed-rate mortgages 8,524 509 9,033 4 ( 1,174 ) 7,863 3.30 % 2.21 % 5.68 30-year fixed-rate mortgages 697,510 ( 15,131 ) 682,379 8,180 ( 20,265 ) 670,294 4.26 % 4.42 % 6.51 Adjustable rate mortgages 7,127 933 8,060 — ( 941 ) 7,119 4.68 % 2.74 % 4.45 Reverse mortgages 14,406 2,183 16,589 — ( 1,715 ) 14,874 5.92 % 2.94 % 4.50 Interest only securities (4) n/a n/a 6,607 971 ( 163 ) 7,415 2.77 % 15.64 % 6.10 Non-Agency: Principal and interest securities 9,953 ( 1,764 ) 8,189 1,231 ( 11 ) 9,409 9.39 % 10.72 % 5.80 Interest only securities (4) n/a n/a 8,700 2,610 — 11,310 0.22 % 16.69 % 9.03 CLO Notes 16,876 ( 2,435 ) 14,441 123 ( 73 ) 14,491 12.16 % 15.26 % 5.66 CLO Equity n/a n/a 2,947 51 ( 72 ) 2,926 n/a 35.84 % 5.87 Total $ 783,043 $ ( 15,587 ) $ 785,710 $ 13,202 $ ( 25,364 ) $ 773,548 4.49 % 4.92 % 6.32 (1) Weighted average coupon represents the weighted average coupons of the securities, rather than, in the case of collateralized securities, the coupon rates on the underlying collateral. (2) Total weighted average coupon excludes CLO equity securities and interest only RMBS. (3) Expected average lives of RMBS are generally shorter than stated contractual maturities. Average lives are affected by the contractual maturities of the underlying mortgages, scheduled periodic payments of principal, and unscheduled prepayments of principal. (4) Weighted average coupon is based on a notional principal amount of $ 83.8 million and $ 1.05 billion, for Agency and non-Agency interest only securities, respectively. By Estimated Weighted Average Life As of March 31, 2025: ($ in thousands) CLOs and Other Securities (1) Agency RMBS Agency IOs Estimated Weighted Average Life (2) Fair Value Amortized Cost Weighted Average Coupon (3) Fair Value Amortized Cost Weighted Average Coupon (3) Fair Value Amortized Cost Weighted Average Coupon (3) Less than three years $ 45,414 $ 46,781 10.74 % $ 15,072 $ 14,480 6.50 % $ 2 $ 2 1.21 % Greater than three years and less than seven years 37,127 40,052 11.58 % 228,838 226,774 5.68 % — — — % Greater than seven years and less than eleven years 3,341 3,371 4.17 % 259,982 261,254 4.17 % — — — % Total $ 85,882 $ 90,204 10.89 % $ 503,892 $ 502,508 4.90 % $ 2 $ 2 1.21 % (1) CLOs excludes CLO Equity; Other Securities includes corporate debt. (2) Expected average lives of RMBS, Agency IOs, and CLOs are generally shorter than stated contractual maturities. (3) Weighted average coupon represents the weighted average coupons of the securities rather than the coupon rates on the underlying collateral. 105 As of December 31, 2024: ($ in thousands) CLOs and Other Securities (1) Agency RMBS Agency IOs Estimated Weighted Average Life (2) Fair Value Amortized Cost Weighted Average Coupon (3) Fair Value Amortized Cost Weighted Average Coupon (3) Fair Value Amortized Cost Weighted Average Coupon (3) Less than three years $ 49,095 $ 49,341 11.42 % $ 6,891 $ 6,831 6.50 % $ 2 $ 2 1.20 % Greater than three years and less than seven years 22,312 22,584 11.48 % 193,235 193,439 5.92 % — — — % Greater than seven years and less than eleven years 1,013 1,055 12.00 % 312,181 319,358 4.23 % — — — % Total $ 72,420 $ 72,980 11.45 % $ 512,307 $ 519,628 4.86 % $ 2 $ 2 1.20 % (1) CLOs excludes CLO Equity; Other Securities includes corporate debt. (2) Expected average lives of RMBS, Agency IOs, and CLOs are generally shorter than stated contractual maturities. (3) Weighted average coupon represents the weighted average coupons of the securities rather than the coupon rates on the underlying collateral. As of December 31, 2023: ($ in thousands) Agency RMBS Agency IOs Estimated Weighted Average Life (1) Fair Value Amortized Cost Weighted Average Coupon (2) Fair Value Amortized Cost Weighted Average Coupon (2) Less than three years $ 85,958 $ 85,990 5.67 % $ 1,774 $ 1,566 2.10 % Greater than three years and less than seven years 297,251 303,424 4.67 % 1,796 1,570 3.72 % Greater than seven years and less than eleven years 344,788 355,412 3.58 % 3,845 3,471 3.53 % Total $ 727,997 $ 744,826 4.25 % $ 7,415 $ 6,607 2.77 % (1) Expected average lives of RMBS and Agency IOs are generally shorter than stated contractual maturities. (2) Weighted average coupon represents the weighted average coupons of the securities rather than the coupon rates on the underlying collateral. ($ in thousands) Non-Agency RMBS Non-Agency IOs CLOs (3) Estimated Weighted Average Life (1) Fair Value Amortized Cost Weighted Average Coupon (2) Fair Value Amortized Cost Weighted Average Coupon (2) Fair Value Amortized Cost Weighted Average Coupon (2) Less than three years $ 1,764 $ 1,749 7.45 % $ — $ — — % $ — $ — — % Greater than three years and less than seven years 5,834 5,271 11.39 % — — — % 13,114 13,078 11.99 % Greater than seven years and less than eleven years 1,217 1,169 6.07 % 11,310 8,700 0.22 % 1,377 1,363 14.06 % Greater than eleven years 594 — 5.79 % — — — % — — — % Total $ 9,409 $ 8,189 9.39 % $ 11,310 $ 8,700 0.22 % $ 14,491 $ 14,441 12.16 % (1) Expected average lives of RMBS are generally shorter than stated contractual maturities. (2) Weighted average coupon represents the weighted average coupons of the securities rather than the coupon rates on the underlying collateral. (3) CLOs excludes CLO Equity. 106 The following tables reflect the components of net interest income (expense) by security type for the three-month periods ended March 31, 2025 and 2024 and the years ended December 31, 2024 and 2023: Three-Month Period Ended March 31, 2025 Three-Month Period Ended March 31, 2024 Net Coupon Interest Net Amortization Net Interest Income (Expense) Net Coupon Interest Net Amortization Net Interest Income (Expense) ($ in thousands) (Unaudited) CLOs $ 9,456 $ ( 974 ) $ 8,482 $ 1,288 $ ( 44 ) $ 1,244 Agency RMBS 6,172 157 6,329 8,457 ( 1,054 ) 7,403 Non-Agency RMBS — — — 897 ( 333 ) 564 Other securities (1) 286 ( 42 ) 244 ( 68 ) 30 ( 38 ) Total $ 15,914 $ ( 859 ) $ 15,055 $ 10,574 $ ( 1,401 ) $ 9,173 (1) Other securities includes corporate debt and U.S. Treasury securities. Year Ended December 31, 2024 Year Ended December 31, 2023 ($ in thousands) Net Coupon Interest Net Amortization Net Interest Income (Expense) Net Coupon Interest Net Amortization Net Interest Income (Expense) CLOs $ 18,670 $ ( 3,581 ) $ 15,089 $ 222 $ 109 $ 331 Agency RMBS 29,493 ( 446 ) 29,047 38,029 ( 1,843 ) 36,186 Non-Agency RMBS 2,242 ( 596 ) 1,646 2,883 ( 569 ) 2,314 Other securities (1) 584 41 625 ( 339 ) ( 29 ) ( 368 ) Total $ 50,989 $ ( 4,582 ) $ 46,407 $ 40,795 $ ( 2,332 ) $ 38,463 (1) Other securities includes corporate debt and U.S. Treasury securities. For the three-month periods ended March 31, 2025 and 2024, the Catch-up Amortization Adjustment was $( 0.2 ) million and $( 0.9 ) million, respectively. For the years ended December 31, 2024 and 2023, the Catch-up Amortization Adjustment was $( 0.5 ) million and $( 0.1 ) million, respectively. At March 31, 2025, the Company had gross unrealized losses on securities of $( 26.5 ) million, of which $( 13.0 ) million relates primarily to adverse changes in estimated future cash flows on CLOs. At December 31, 2024, the Company had gross unrealized losses on securities of $( 17.9 ) million, of which $( 2.0 ) million relates primarily to adverse changes in estimated future cash flows on CLOs. At December 31, 2023, the Company had gross unrealized losses on securities of $( 25.4 ) million, of which $( 0.2 ) million relates primarily to adverse changes in estimated future cash flows on CLOs and Agency IOs. The Company determined for certain securities that a portion of such securities' cost basis is not collectible; for the three-month period ended March 31, 2024 and the years ended December 31, 2024 and 2023, the Company recognized realized losses on such securities of $( 13 ) thousand, $( 13 ) thousand, and $( 0.5 ) million, respectively. No such losses were recognized for the three-month period ended March 31, 2025. Such realized losses are reflected in Net realized gains (losses) on securities, on the Consolidated Statement of Operations. 107 4. Valuation The following tables present the Company's financial instruments measured at fair value on: March 31, 2025: (In thousands) Description Level 1 Level 2 Level 3 Total Assets: Securities: CLOs $ — $ 116,434 $ 133,423 $ 249,857 Corporate debt — — 434 434 Corporate equity — — 56 56 Agency RMBS: 30-year fixed-rate mortgages — 503,892 — 503,892 Interest only securities — — 2 2 Total securities, at fair value — 620,326 133,915 754,241 Financial derivatives–assets, at fair value: TBAs — 138 — 138 Interest rate swaps — 181 — 181 Futures 157 — — 157 Credit default swaps — — — — Forwards — — — — Total financial derivatives–assets, at fair value 157 319 — 476 Total securities and financial derivatives–assets, at fair value 157 620,645 133,915 754,717 Liabilities: Financial derivatives–liabilities, at fair value: TBAs — ( 282 ) — ( 282 ) Interest rate swaps — ( 187 ) — ( 187 ) Futures — — — — Credit default swaps — ( 488 ) — ( 488 ) Total financial derivatives–liabilities, at fair value $ — $ ( 957 ) $ — $ ( 957 ) 108 December 31, 2024: (In thousands) Description Level 1 Level 2 Level 3 Total Assets: Securities: CLOs $ — $ 67,498 $ 103,624 $ 171,122 Corporate debt — — 428 428 Corporate equity — — 56 56 Agency RMBS: 30-year fixed-rate mortgages — 512,307 — 512,307 Interest only securities — — 2 2 Total securities, at fair value — 579,805 104,110 683,915 Financial derivatives–assets, at fair value: TBAs — 592 — 592 Interest rate swaps — 40,317 — 40,317 Futures 170 — — 170 Credit default swaps — 705 — 705 Forwards — 83 — 83 Total financial derivatives–assets, at fair value 170 41,697 — 41,867 Total securities and financial derivatives–assets, at fair value 170 621,502 104,110 725,782 Liabilities: Securities sold short: U.S. Treasury securities sold short, at fair value — ( 22,578 ) — ( 22,578 ) Financial derivatives–liabilities, at fair value: TBAs — ( 1,363 ) — ( 1,363 ) Interest rate swaps — ( 1,595 ) — ( 1,595 ) Futures ( 811 ) — — ( 811 ) Credit default swaps — ( 1,912 ) — ( 1,912 ) Total financial derivatives–liabilities, at fair value ( 811 ) ( 4,870 ) — ( 5,681 ) Total U.S. Treasury securities sold short and financial derivatives–liabilities, at fair value $ ( 811 ) $ ( 27,448 ) $ — $ ( 28,259 ) 109 December 31, 2023: (In thousands) Description Level 1 Level 2 Level 3 Total Assets: Securities: Agency RMBS: 15-year fixed-rate mortgages $ — $ 27,847 $ — $ 27,847 20-year fixed-rate mortgages — 7,863 — 7,863 30-year fixed-rate mortgages — 670,294 — 670,294 Adjustable rate mortgages — 7,119 — 7,119 Reverse mortgages — 14,874 — 14,874 Interest only securities — 4,253 3,162 7,415 Non-Agency RMBS — 10,443 10,276 20,719 CLOs — 11,816 5,601 17,417 Total securities, at fair value — 754,509 19,039 773,548 Financial derivatives–assets, at fair value: TBAs — 654 — 654 Interest rate swaps — 71,341 — 71,341 Futures 2,284 — — 2,284 Total financial derivatives–assets, at fair value 2,284 71,995 — 74,279 Total securities and financial derivatives–assets, at fair value 2,284 826,504 19,039 847,827 Liabilities: Financial derivatives–liabilities, at fair value: TBAs — ( 1,876 ) — ( 1,876 ) Interest rate swaps — ( 4,758 ) — ( 4,758 ) Futures ( 63 ) — — ( 63 ) Credit default swaps — ( 632 ) — ( 632 ) Total financial derivatives–liabilities, at fair value $ ( 63 ) $ ( 7,266 ) $ — $ ( 7,329 ) 110 The tables below include roll-forwards of the Company's financial instruments for the three-month periods ended March 31, 2025 and 2024 and the years ended December 31, 2024 and 2023 (including change in fair value), for financial instruments classified by the Company within Level 3 of the valuation hierarchy. Three-Month Period Ended March 31, 2025: (In thousands) CLOs Corporate Debt Corporate Equity Agency RMBS Beginning balance — December 31, 2024 $ 103,624 $ 428 $ 56 $ 2 Purchases 51,769 12 — — Proceeds from sales ( 17,517 ) ( 13 ) — — (Amortization)/accretion, net ( 1,464 ) — — — Net realized gains (losses) ( 201 ) — — — Change in net unrealized gains (losses) ( 8,988 ) 7 — — Transfers: Transfers into level 3 16,155 — — — Transfers out of level 3 ( 9,955 ) — — — Ending balance — March 31, 2025 $ 133,423 $ 434 $ 56 $ 2 All amounts of net realized and changes in net unrealized gains (losses) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gains (losses) for both Level 3 financial instruments held by the Company at March 31, 2025, as well as Level 3 financial instruments disposed of by the Company during the three-month period ended March 31, 2025. For Level 3 financial instruments held by the Company as of March 31, 2025, change in net unrealized gains (losses) of $( 9.5 ) million, $ 7 thousand, and $( 1 ) thousand for the three-month period ended March 31, 2025 relate to CLOs, corporate debt, and corporate equity, respectively. At March 31, 2025, the Company transferred $ 10.0 million of assets from Level 3 to Level 2 and $ 16.2 million of assets from Level 2 to Level 3. Transfers between hierarchy levels are based on the availability of sufficient observable inputs to meet Level 2 versus Level 3 criteria. The level designation of each financial instrument is reassessed at the end of each period, and is based on pricing information received from third party pricing sources. Three-Month Period Ended March 31, 2024 (unaudited) : (In thousands) CLOs Non-Agency RMBS Agency RMBS Beginning balance — December 31, 2023 $ 5,601 $ 10,276 $ 3,162 Purchases 16,952 — — Proceeds from sales — — ( 263 ) Principal repayments ( 1,620 ) ( 13 ) — (Amortization)/accretion, net ( 34 ) ( 258 ) ( 180 ) Net realized gains (losses) 34 42 20 Change in net unrealized gains (losses) ( 379 ) 491 179 Transfers: Transfers into level 3 6,456 1,811 1,002 Transfers out of level 3 ( 1,414 ) ( 6,521 ) — Ending balance — March 31, 2024 $ 25,596 $ 5,828 $ 3,920 All amounts of net realized and changes in net unrealized gains (losses) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gains (losses) for both Level 3 financial instruments held by the Company as of March 31, 2024, as well as Level 3 financial instruments disposed of by the Company during the three-month period ended March 31, 2024. For Level 3 financial instruments held by the Company as of March 31, 2024, change in net unrealized gains (losses) of $ 0.4 million, $ 0.1 million, and $ 0.2 million for the three-month period ended March 31, 2024 relate to CLOs, non-Agency RMBS, and Agency RMBS, respectively. At March 31, 2024, the Company transferred $ 7.9 million of assets from Level 3 to Level 2 and $ 9.3 million of assets from Level 2 to Level 3. Transfers between these hierarchy levels are based on the availability of sufficient observable inputs to meet Level 2 versus Level 3 criteria. The level designation of each financial instrument is reassessed at the end of each period, and is based on pricing information received from third party pricing sources. 111 Year Ended December 31, 2024: (In thousands) CLOs Corporate Debt Corporate Equity Agency RMBS Non-Agency RMBS Beginning balance as of December 31, 2023 $ 5,601 $ — $ — $ 3,162 $ 10,276 Purchases 179,444 400 75 — — Proceeds from sales ( 42,997 ) ( 5 ) — ( 3,010 ) ( 10,898 ) (Amortization)/accretion, net ( 3,045 ) — — ( 437 ) ( 428 ) Net realized gains (losses) 1,145 3 — 727 3,403 Change in net unrealized gains (losses) ( 6,767 ) 30 ( 19 ) ( 440 ) ( 2,353 ) Transfers: Transfers into level 3 14,566 — — — — Transfers out of level 3 ( 44,323 ) — — — — Ending balance as of December 31, 2024 $ 103,624 $ 428 $ 56 $ 2 $ — All amounts of net realized and changes in net unrealized gains (losses) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gains (losses) for both Level 3 financial instruments held by the Company at December 31, 2024, as well as Level 3 financial instruments disposed of by the Company during the year ended December 31, 2024. For Level 3 financial instruments held by the Company as of December 31, 2024, change in net unrealized gains (losses) of $( 6.0 ) million, $ 30 thousand, and $( 19 ) thousand for the year ended December 31, 2024 relate to CLOs, corporate debt, and corporate equity, respectively. At December 31, 2024, the Company transferred $ 44.3 million of assets from Level 3 to Level 2 and $ 14.6 million of assets from Level 2 to Level 3. Transfers between hierarchy levels are based on the availability of sufficient observable inputs to meet Level 2 versus Level 3 criteria. The level designation of each financial instrument is reassessed at the end of each period, and is based on pricing information received from third party pricing sources. Year Ended December 31, 2023: (In thousands) Non-Agency RMBS Agency RMBS CLOs Beginning balance as of December 31, 2022 $ 11,834 $ 4,085 $ — Purchases 4,141 — 5,465 Proceeds from sales ( 5,058 ) ( 1,484 ) — Principal repayments ( 226 ) ( 382 ) — (Amortization)/accretion, net ( 379 ) ( 653 ) 102 Net realized gains (losses) ( 228 ) ( 217 ) — Change in net unrealized gains (losses) 799 276 34 Transfers: Transfers into level 3 — 1,848 — Transfers out of level 3 ( 607 ) ( 311 ) — Ending balance as of December 31, 2023 $ 10,276 $ 3,162 $ 5,601 All amounts of net realized and changes in net unrealized gains (losses) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gains (losses) for both Level 3 financial instruments held by the Company as of December 31, 2023, as well as Level 3 financial instruments disposed of by the Company during the year ended December 31, 2023. For Level 3 financial instruments held by the Company as of December 31, 2023, change in net unrealized gains (losses) of $ 0.4 million, $ 0.6 million, and $ 34 thousand for the year ended December 31, 2023 relate to non-Agency RMBS, Agency RMBS, and CLOs, respectively. At December 31, 2023, the Company transferred $ 0.9 million of assets from Level 3 to Level 2 and $ 1.8 million of assets from Level 2 to Level 3. Transfers between these hierarchy levels are based on the availability of sufficient observable inputs to meet Level 2 versus Level 3 criteria. The level designation of each financial instrument is reassessed at the end of each period, and is based on pricing information received from third party pricing sources. 112 The following table identifies the significant unobservable inputs that affect the valuation of the Company's Level 3 financial instruments as of March 31, 2025: Range Description Fair Value Valuation Technique Significant Unobservable Input Min Max Weighted Average (1) (In thousands) CLOs $ 73,807 Market quotes Non-Binding Third-Party Valuation $ 5.00 $ 100.75 $ 61.98 59,616 Discounted Cash Flows 133,423 Yield (2) 3.5 % 76.2 % 16.3 % Agency RMBS–Interest Only Securities 2 Option Adjusted Spread ("OAS") LIBOR OAS (3) 1,007 1,007 1,007 Corporate equity 56 Discounted Cash Flows Yield 18.5 % 22.6 % 20.2 % Corporate debt 434 Discounted Cash Flows Yield 8.7 % 43.4 % 16.6 % (1) Averages are weighted based on the fair value of the related instrument. (2) Excludes $ 1.3 million of CLOs which have estimated yields greater than 100%. Including such positions our weighted average yield would be 18.1 %. (3) Shown in basis points. Third-party non-binding valuations are validated by comparing such valuations to internally generated prices based on the Company's models and, when available, to recent trading activity in the same or similar instruments. For those instruments valued using discounted cash flows, such estimates of future cash flows may incorporate projections of interest and principal payments, fee rebates, credit losses, and redemptions. For those assets valued using the LIBOR Option Adjusted Spread, or "OAS," valuation methodology, cash flows are projected using management's models over multiple interest rate scenarios, and these projected cash flows are then discounted using the LIBOR rates (which are calculated by using an assumed spread over projected Secured Overnight Financing Rates, or "SOFR" rates) implied by each interest rate scenario. The LIBOR OAS of an asset is then computed as the unique constant yield spread that, when added to all LIBOR rates in each interest rate scenario generated by the model, will equate (a) the expected present value of the projected asset cash flows over all model scenarios to (b) the actual current market price of the asset. LIBOR OAS is therefore model-dependent. Generally speaking, LIBOR OAS measures the additional yield spread over LIBOR that an asset provides at its current market price after taking into account any interest rate options embedded in the asset. Material changes in any of the inputs above in isolation could result in a significant change to reported fair value measurements. The following table summarizes the estimated fair value of all other financial instruments not included in the disclosures above as of March 31, 2025 and December 31, 2024 and 2023: March 31, 2025 December 31, 2024 December 31, 2023 (In thousands) Fair Value Carrying Value Fair Value Carrying Value Fair Value Carrying Value Assets: Cash and cash equivalents $ 17,375 $ 17,375 $ 31,840 $ 31,840 $ 38,533 $ 38,533 Due from brokers 4,308 4,308 21,517 21,517 3,245 3,245 Reverse repurchase agreements — — 23,000 23,000 — — Liabilities: Repurchase agreements 517,538 517,538 562,974 562,974 729,543 729,543 Due to brokers 914 914 30,671 30,671 54,476 54,476 Cash and cash equivalents includes cash held in interest bearing overnight accounts, for which fair value equals the carrying value, and cash held in money market accounts, which are liquid in nature and for which fair value equals the carrying value; such assets are considered Level 1 assets. Due from brokers and Due to brokers include collateral transferred to or received from counterparties, along with receivables and payables for open and/or closed derivative positions. These receivables and payables are short term in nature and any collateral transferred consists primarily of cash; fair value of these items approximates carrying value and such items are considered Level 1 assets and liabilities. The Company's repurchase and reverse repurchase agreements are carried at cost, which approximates fair value due to their short term nature. Repurchase agreements and reverse repurchase agreements are classified as Level 2 assets and liabilities based on the adequacy of the collateral and their short term nature. 113 5. Financial Derivatives The Company manages certain risks associated with its investments and borrowings, including interest rate, credit, liquidity, and foreign exchange rate risk primarily by managing the amount, sources, and duration of its investments and borrowings, and through the use of derivative financial instruments. The Company's derivative financial instruments are used to manage differences in the amount, timing, and duration of its known or expected cash receipts and its known or expected cash payments principally related to its investments and borrowings, as well as to mitigate changes in the fair value of its investments that are caused by changes in overall market conditions. The following table details the fair value of the Company's holdings of financial derivatives as of March 31, 2025 and December 31, 2024 and 2023: March 31, 2025 December 31, 2024 December 31, 2023 (In thousands) 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, net $ ( 481 ) $ 36,186 $ 66,950 Interest Rate Swaps The following tables provide information about the Company's fixed payer interest rate swaps as of March 31, 2025 and December 31, 2024 and 2023. March 31, 2025: Weighted Average Maturity Notional Amount Fair Value Pay Rate Receive Rate Remaining Years to Maturity (In thousands) 2040 $ 500 $ 181 0.90 % 4.33 % 15.57 Total $ 500 $ 181 0.90 % 4.33 % 15.57 114 December 31, 2024: Weighted Average Maturity Notional Amount Fair Value Pay Rate Receive Rate Remaining Years to Maturity (In thousands) 2026 $ 39,700 $ ( 17 ) 4.15 % 4.46 % 1.90 2027 38,045 1,296 2.97 4.49 2.70 2028 77,795 2,531 3.34 4.48 3.48 2029 79,000 6,774 2.40 4.49 4.23 2030 47,428 4,300 2.50 4.49 5.42 2031 123,515 17,830 1.81 4.48 6.48 2032 67,510 102 4.04 4.46 7.01 2033 119,310 ( 990 ) 3.90 4.49 8.51 2034 39,434 577 3.91 4.46 9.91 2035 10,000 38 4.03 4.46 10.01 2038 17,500 ( 71 ) 4.18 4.46 13.72 2040 500 188 0.90 4.33 15.81 2049 3,564 1,354 1.63 4.46 24.83 2050 780 434 0.64 4.46 25.54 2052 10,000 3,307 2.28 4.49 27.30 2054 4,000 71 3.84 4.49 30.00 Total $ 678,081 $ 37,724 3.13 % 4.48 % 6.74 December 31, 2023: Weighted Average Maturity Notional Amount Fair Value Pay Rate Receive Rate Remaining Years to Maturity (In thousands) 2024 $ 73,693 $ 2,161 2.27 % 5.38 % 0.33 2025 100,268 2,960 2.98 5.39 1.72 2027 40,545 1,164 3.01 5.38 3.71 2028 104,647 5,264 2.74 5.39 4.51 2029 65,987 5,528 2.17 5.38 5.25 2030 97,200 7,141 2.50 5.38 6.42 2031 123,515 16,138 1.81 5.38 7.48 2032 104,377 15,932 1.74 5.38 8.13 2033 76,900 ( 782 ) 3.69 5.38 9.25 2037 35,000 2,842 2.85 5.38 13.56 2038 39,500 ( 2,072 ) 4.01 5.39 14.66 2040 500 165 0.90 5.33 16.82 2041 10,961 3,395 1.33 5.39 17.60 2049 3,564 1,156 1.63 5.39 25.83 2050 780 394 0.64 5.39 26.54 2052 10,000 2,151 2.28 5.38 28.31 Total $ 887,437 $ 63,537 2.54 % 5.38 % 6.68 115 The following tables provide information about the Company's fixed receiver interest rate swaps as of March 31, 2025 and December 31, 2024 and 2023. March 31, 2025: Weighted Average Maturity Notional Amount Fair Value Pay Rate Receive Rate Remaining Years to Maturity (In thousands) 2040 $ 500 $ ( 187 ) 4.41 % 0.84 % 15.57 Total $ 500 $ ( 187 ) 4.41 % 0.84 % 15.57 December 31, 2024: Weighted Average Maturity Notional Amount Fair Value Pay Rate Receive Rate Remaining Years to Maturity (In thousands) 2033 $ 119,310 $ 1,192 4.49 % 3.90 % 8.51 2040 500 ( 194 ) 4.49 0.84 15.81 Total $ 119,810 $ 998 4.49 % 3.88 % 8.54 December 31, 2023: Weighted Average Maturity Notional Amount Fair Value Pay Rate Receive Rate Remaining Years to Maturity (In thousands) 2026 $ 61 $ — 5.38 % 4.06 % 2.45 2028 10,070 ( 19 ) 5.39 3.50 5.00 2029 20,000 19 5.38 3.55 5.01 2030 13,000 ( 330 ) 5.38 3.31 6.26 2031 25,700 31 5.38 3.49 7.01 2033 95,829 3,572 5.39 3.96 9.62 2034 23,000 ( 54 ) 5.38 3.44 10.01 2040 500 ( 173 ) 5.38 0.84 16.82 Total $ 188,160 $ 3,046 5.38 % 3.71 % 8.36 Futures The following tables provide information about the Company's futures as of March 31, 2025 and December 31, 2024 and 2023. March 31, 2025: Description Notional Amount Fair Value Remaining Months to Expiration ($ in thousands) Assets: Short Contracts: Euro FX Futures $ ( 19,125 ) $ 157 2.57 116 December 31, 2024: Description Notional Amount Fair Value Remaining Months to Expiration ($ in thousands) Assets: Short Contracts: U.S. Treasury Futures $ ( 5,400 ) $ 6 3.00 Euro FX Futures ( 10,250 ) 164 2.53 Liabilities: Long Contracts: U.S. Treasury Futures 134,400 ( 811 ) 2.87 Total, net $ 118,750 $ ( 641 ) 2.85 December 31, 2023: Description Notional Amount Fair Value Remaining Months to Expiration ($ in thousands) Assets: Long Contracts: U.S. Treasury Futures $ 84,600 $ 2,284 2.69 Liabilities: Short Contracts: U.S. Treasury Futures ( 5,400 ) ( 63 ) 2.93 Total, net $ 79,200 $ 2,221 2.70 TBAs The Company transacts in the forward settling TBA market. Pursuant to these TBA transactions, the Company agrees to purchase or sell, for future delivery, Agency RMBS with certain principal and interest terms and certain types of underlying collateral, but the particular Agency RMBS to be delivered is not identified until shortly before the TBA settlement date. TBAs are generally liquid, have quoted market prices, and represent the most actively traded class of MBS. The Company uses TBAs to mitigate interest rate risk, usually by taking short positions. The Company also invests in TBAs as a means of acquiring additional exposure to Agency RMBS, or for speculative purposes, including holding long positions. The Company does not generally take delivery of TBAs; rather, it settles the associated receivable and payable with its trading counterparties on a net basis. Transactions with the same counterparty for the same TBA that result in a reduction of the position are treated as extinguished. As of March 31, 2025 and December 31, 2024 and 2023, the Company had outstanding contracts to purchase ("long positions") and sell ("short positions") TBA securities as follows: March 31, 2025 December 31, 2024 TBA Securities Notional Amount (1) Cost Basis (2) Market Value (3) Net Carrying Value (4) Notional Amount (1) Cost Basis (2) Market Value (3) Net Carrying Value (4) (In thousands) Purchase contracts: Liabilities $ — $ — $ — $ — $ 61,190 $ 55,214 $ 53,851 $ ( 1,363 ) — — — — 61,190 55,214 53,851 ( 1,363 ) Sale contracts: Assets ( 54,800 ) ( 52,515 ) ( 52,377 ) 138 ( 69,156 ) ( 69,618 ) ( 69,026 ) 592 Liabilities ( 464,816 ) ( 450,282 ) ( 450,564 ) ( 282 ) — — — — ( 519,616 ) ( 502,797 ) ( 502,941 ) ( 144 ) ( 69,156 ) ( 69,618 ) ( 69,026 ) 592 Total TBA securities, net $ ( 519,616 ) $ ( 502,797 ) $ ( 502,941 ) $ ( 144 ) $ ( 7,966 ) $ ( 14,404 ) $ ( 15,175 ) $ ( 771 ) (1) Notional amount represents the principal balance of the underlying Agency RMBS. (2) Cost basis represents the forward price to be paid (received) for the underlying Agency RMBS. (3) Market value represents the current market value of the underlying Agency RMBS (on a forward delivery basis) as of period end. 117 (4) Net carrying value represents the difference between the market value of the TBA contract as of period end and the cost basis and is reported in Financial derivatives-assets at fair value and Financial derivatives-liabilities at fair value on the Consolidated Balance Sheet. December 31, 2023 TBA Securities Notional Amount (1) Cost Basis (2) Market Value (3) Net Carrying Value (4) (In thousands) Purchase contracts: Assets $ 79,722 $ 78,709 $ 79,363 $ 654 Liabilities 27,700 28,398 28,385 ( 13 ) 107,422 107,107 107,748 641 Sale contracts: Liabilities ( 78,285 ) ( 69,206 ) ( 71,069 ) ( 1,863 ) ( 78,285 ) ( 69,206 ) ( 71,069 ) ( 1,863 ) Total TBA securities, net $ 29,137 $ 37,901 $ 36,679 $ ( 1,222 ) (1) Notional amount represents the principal balance of the underlying Agency RMBS. (2) Cost basis represents the forward price to be paid (received) for the underlying Agency RMBS. (3) Market value represents the current market value of the underlying Agency RMBS (on a forward delivery basis) as of period end. (4) Net carrying value represents the difference between the market value of the TBA contract as of period end and the cost basis and is reported in Financial derivatives-assets at fair value and Financial derivatives-liabilities at fair value on the Consolidated Balance Sheet. Credit Default Swaps The following table provides information about the Company's credit default swaps as of March 31, 2025 and December 31, 2024 and 2023: As of March 31, 2025 December 31, 2024 December 31, 2023 Type (1) Notional Fair Value Weighted Average Remaining Term (Years) Notional Fair Value Weighted Average Remaining Term (Years) Notional Fair Value Weighted Average Remaining Term (Years) ($ in thousands) Asset: Long: Credit default swaps on corporate bond indices $ — $ — — $ 23,825 $ 705 4.47 $ — $ — — Liability: Short: Credit default swaps on corporate bond indices ( 9,104 ) ( 488 ) 5.22 ( 52,886 ) ( 1,912 ) 4.75 ( 25,943 ) ( 632 ) 4.98 $ ( 9,104 ) $ ( 488 ) 5.22 $ ( 29,061 ) $ ( 1,207 ) 4.66 $ ( 25,943 ) $ ( 632 ) 4.98 (1) Long notional represents contracts where the Company has written protection and short notional represents contracts where the Company has purchased protection. From time to time the Company enters into credit derivative contracts for which the Company sells credit protection ("written credit derivatives"). As of March 31, 2025 and December 31, 2024, all of the Company's open written credit derivatives were credit default swaps on corporate bond indices, for which the Company receives periodic payments at fixed rates from credit protection buyers, and is obligated to make payments to the credit protection buyer upon the occurrence of a "credit event" with respect to underlying reference assets. No written credit derivatives were held as of March 31, 2025 or December 31, 2023. As of December 31, 2024, the Company held written credit derivatives with a notional value of $ 23.8 million and a fair value of $ 0.7 million. Implied credit spreads may be used to determine the market value of such contracts and are reflective of the cost of buying/selling credit protection. Higher spreads would indicate a greater likelihood that a seller will be obligated to perform ( i.e. , make protection payments) under the contract. In situations where the credit quality of the underlying reference assets has deteriorated, the percentage of notional values that would be paid up front to enter into a new such contract ("points up front") is frequently used as an indication of credit risk. Credit protection sellers entering the 118 market in such situations would expect to be paid points up front corresponding to the approximate fair value of the contract. As of March 31, 2025, the implied credit spread on the Company's outstanding written credit derivative was 376 basis points, compared to a range of 45 to 289 basis points as of December 31, 2024. Total net up-front payments (paid) or received relating to written credit derivatives outstanding as of March 31, 2025 and December 31, 2024 was $ 0.5 million and $ 0.7 million, respectively. The table below details the average notional values of the Company's financial derivatives, using absolute value of month end notional values, for the three-month periods ended March 31, 2025 and 2024 and years ended December 31, 2024 and 2023: Derivative Type Three-Month Period Ended March 31, 2025 Three-Month Period Ended March 31, 2024 Year Ended December 31, 2024 Year Ended December 31, 2023 (In thousands) (Unaudited) Interest rate swaps $ 812,723 $ 1,090,580 $ 972,807 $ 861,689 TBAs 418,109 194,352 286,658 289,786 Futures 82,369 61,675 96,410 67,592 Credit default swaps 59,809 25,466 39,320 14,989 Forwards 5,274 — 1,803 — Warrants 4 — 1 — Gains and losses on the Company's financial derivatives for the three-month periods ended March 31, 2025 and 2024 and the years ended December 31, 2024 and 2023 are summarized in the tables below: Three-Month Period Ended March 31, 2025 Derivative Type Net Realized Gains (Losses) on Periodic Settlements of Interest Rate Swaps Net Realized Gains (Losses) on Financial Derivatives Other Than Periodic Settlements of Interest Rate Swaps Net Realized Gains (Losses) on Financial Derivatives Change in Net Unrealized Gains (Losses) on Accrued Periodic Settlements of Interest Rate Swaps Change in Net Unrealized Gains (Losses) on Financial Derivatives Other Than on Accrued Periodic Settlements of Interest Rate Swaps Change in Net Unrealized Gains (Losses) on Financial Derivatives (In thousands) Interest rate swaps $ 8,060 $ 20,268 $ 28,328 $ ( 6,340 ) $ ( 20,658 ) $ ( 26,998 ) TBAs ( 9,536 ) ( 9,536 ) 627 627 Futures ( 834 ) ( 834 ) 798 798 Credit default swaps ( 18 ) ( 18 ) 143 143 Forwards ( 346 ) ( 346 ) $ ( 84 ) $ ( 84 ) Total $ 8,060 $ 9,534 $ 17,594 $ ( 6,340 ) $ ( 19,174 ) $ ( 25,514 ) Three-Month Period Ended March 31, 2024 (unaudited) Derivative Type Net Realized Gains (Losses) on Periodic Settlements of Interest Rate Swaps Net Realized Gains (Losses) on Financial Derivatives Other Than Periodic Settlements of Interest Rate Swaps Net Realized Gains (Losses) on Financial Derivatives Change in Net Unrealized Gains (Losses) on Accrued Periodic Settlements of Interest Rate Swaps Change in Net Unrealized Gains (Losses) on Financial Derivatives Other Than on Accrued Periodic Settlements of Interest Rate Swaps Change in Net Unrealized Gains (Losses) on Financial Derivatives (In thousands) Interest rate swaps $ 5,812 $ ( 1,167 ) $ 4,645 $ ( 111 ) $ 11,111 $ 11,000 TBAs ( 707 ) ( 707 ) 1,148 1,148 Futures ( 174 ) ( 174 ) ( 2,018 ) ( 2,018 ) Credit default swaps ( 305 ) ( 305 ) 86 86 Total $ 5,812 $ ( 2,353 ) $ 3,459 $ ( 111 ) $ 10,327 $ 10,216 119 Year Ended December 31, 2024 Derivative Type Net Realized Gains (Losses) on Periodic Settlements of Interest Rate Swaps Net Realized Gains (Losses) on Financial Derivatives Other Than Periodic Settlements of Interest Rate Swaps Net Realized Gains (Losses) on Financial Derivatives Change in Net Unrealized Gains (Losses) on Accrued Periodic Settlements of Interest Rate Swaps Change in Net Unrealized Gains (Losses) on Financial Derivatives Other Than on Accrued Periodic Settlements of Interest Rate Swaps Change in Net Unrealized Gains (Losses) on Financial Derivatives (In thousands) Interest rate swaps $ 27,118 $ 15,387 $ 42,505 $ ( 8,013 ) $ ( 8,321 ) $ ( 16,334 ) TBAs ( 2,263 ) ( 2,263 ) 451 451 Futures ( 1,318 ) ( 1,318 ) ( 2,862 ) ( 2,862 ) Credit default swaps ( 773 ) ( 773 ) 83 83 Forwards 336 336 $ 83 $ 83 Total $ 27,118 $ 11,369 $ 38,487 $ ( 8,013 ) $ ( 10,566 ) $ ( 18,579 ) Year Ended December 31, 2023 Derivative Type Net Realized Gains (Losses) on Periodic Settlements of Interest Rate Swaps Net Realized Gains (Losses) on Financial Derivatives Other Than Periodic Settlements of Interest Rate Swaps Net Realized Gains (Losses) on Financial Derivatives Change in Net Unrealized Gains (Losses) on Accrued Periodic Settlements of Interest Rate Swaps Change in Net Unrealized Gains (Losses) on Financial Derivatives Other Than on Accrued Periodic Settlements of Interest Rate Swaps Change in Net Unrealized Gains (Losses) on Financial Derivatives (In thousands) Interest rate swaps $ 7,388 $ 12,176 $ 19,564 $ 13,690 $ ( 30,612 ) $ ( 16,922 ) TBAs 12,385 12,385 ( 4,126 ) ( 4,126 ) Futures ( 3,149 ) ( 3,149 ) 2,303 2,303 Credit default swaps ( 238 ) ( 238 ) ( 187 ) ( 187 ) Total $ 7,388 $ 21,174 $ 28,562 $ 13,690 $ ( 32,622 ) $ ( 18,932 ) 6. Borrowings under Repurchase Agreements The Company enters into repurchase agreements. A repurchase agreement involves the sale of an asset to a counterparty together with a simultaneous agreement to repurchase the transferred asset or similar asset from such counterparty at a future date. The Company accounts for its repurchase agreements as collateralized borrowings, with the transferred assets effectively serving as collateral for the related borrowing. The Company's repurchase agreements typically range in term from 30 to 364 days. The principal economic terms of each repurchase agreement—such as loan amount, interest rate, and maturity date—are typically negotiated on a transaction-by-transaction basis. Other terms and conditions, such as relating to events of default, are typically governed under the Company's master repurchase agreements. Absent an event of default, the Company maintains beneficial ownership of the transferred securities during the term of the repurchase agreement and receives the related principal and interest payments. Interest rates on these borrowings are generally fixed based on prevailing rates corresponding to the terms of the borrowings, and interest is paid at the termination of the repurchase agreement at which time the Company may enter into a new repurchase agreement at prevailing market rates with the same counterparty, repay that counterparty and possibly negotiate financing terms with a different counterparty, or choose to no longer finance the related asset. In response to a decline in the fair value of the transferred securities, whether as a result of changes in market conditions, security paydowns, or other factors, repurchase agreement counterparties will typically make a margin call, whereby the Company will be required to post additional securities and/or cash as collateral with the counterparty in order to re-establish the agreed-upon collateralization requirements. In the event of increases in fair value of the transferred securities, the Company generally can require the counterparty to post collateral with it in the form of cash or securities. The Company is generally permitted to sell or re-pledge any securities posted by the counterparty as collateral; however, upon termination of the repurchase agreement, or other circumstance in which the counterparty is no longer required to post such margin, the Company must return to the counterparty the same security that had been posted. The contractual amount (loan amount) of the Company's repurchase agreements approximates fair value, based on the short-term nature of the debt and the adequacy of the collateral. 120 At any given time, the Company seeks to have its outstanding borrowings under repurchase agreements with several different counterparties in order to reduce the exposure to any single counterparty. As of March 31, 2025 and December 31, 2024 and 2023, the Company had outstanding borrowings under repurchase agreements with 13 , 14 , and 19 counterparties, respectively. The following table details the Company's outstanding borrowings under repurchase agreements as of March 31, 2025 and December 31, 2024 and 2023: 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 Agency RMBS: (In thousands) (In thousands) (In thousands) 30 days or less $ 448,778 4.47 % 9 $ 499,701 4.71 % 15 $ 676,074 5.54 % 17 31-60 days — — — — — — 1,256 6.23 44 61-90 days — — — — — — 2,933 6.23 67 Total Agency RMBS 448,778 4.47 9 499,701 4.71 15 680,263 5.55 17 CLOs and Non-Agency RMBS: 30 days or less 37,790 5.45 9 38,913 5.70 17 6,782 6.89 15 31-60 days 30,970 4.84 45 24,360 5.57 43 4,875 6.80 46 61-90 days — — — — — — 6,801 6.58 67 Total CLOs and non-Agency RMBS 68,760 5.17 25 63,273 5.65 27 18,458 6.75 42 U.S. Treasury Securities 30 days or less — — — — — — 30,822 5.53 2 Total U.S. Treasury Securities — — — — — — 30,822 5.53 2 Total $ 517,538 4.56 % 11 $ 562,974 4.81 % 16 $ 729,543 5.58 % 17 Repurchase agreements involving underlying investments that the Company sold prior to period end, for settlement following period end, are shown using their contractual maturity dates even though such repurchase agreements may be expected to be terminated early upon settlement of the sale of the underlying investment. As of March 31, 2025 and December 31, 2024 and 2023, the fair value of securities transferred as collateral under outstanding borrowings under repurchase agreements was $ 567.0 million, $ 611.3 million, and $ 791.5 million, respectively. Collateral transferred under outstanding borrowings under repurchase agreements as of March 31, 2025 and December 31, 2024 and 2023, includes investments in the amount of $ 4.6 million, $ 10.5 million, and $ 51.0 million, respectively, that were sold prior to period end but for which such sale had not yet settled. In addition as of March 31, 2025 and December 31, 2024 and 2023, the Company posted to/(received from) repurchase agreement counterparties net cash collateral of $ 0.1 million, $ 4.2 million, $( 11.2 ) million, respectively, as a result of margin calls with various repurchase agreement counterparties. Additionally, as of December 31, 2024 and 2023, repurchase agreement counterparties posted/(received) RMBS of $( 3.1 ) million and $ 0.8 million, respectively, to/(from) the Company as a result of margin calls. Amount at risk represents the excess, if any, for each counterparty of the fair value of collateral held by such counterparty over the amounts outstanding under repurchase agreements. There was no counterparty for which the amount at risk was greater than 10 % of shareholders' equity as of either March 31, 2025 or December 31, 2024 and 2023. 121 7. Offsetting of Assets and Liabilities The Company records certain financial instruments at fair value as described in Note 2. In connection with its financial derivatives, repurchase agreements, and related trading agreements, the Company and its counterparties are required to pledge collateral. Cash or other collateral is exchanged as required with each of the Company's counterparties in connection with open derivative positions and repurchase agreements. The following tables present information about certain assets and liabilities representing financial instruments as of March 31, 2025 and December 31, 2024 and 2023. The Company has not previously entered into master netting agreements with any of its counterparties. Certain of the Company's repurchase and reverse repurchase agreements and financial derivative transactions are governed by underlying agreements that generally provide a right of net settlement, as well as a right of offset in the event of default or in the event of a bankruptcy of either party to the transaction. March 31, 2025: Description Amount of Assets (Liabilities) Presented in the Consolidated Balance Sheet (1) Financial Instruments Available for Offset Financial Instruments Transferred or Pledged as Collateral (2)(3) Cash Collateral (Received) Pledged (2)(3) Net Amount (In thousands) Assets: Financial derivatives–assets $ 476 $ ( 319 ) $ — $ — $ 157 Reverse repurchase agreements — — — — — Liabilities: Financial derivatives–liabilities ( 957 ) 319 — 638 — Repurchase agreements ( 517,538 ) — 517,388 150 — (1) In the Company's Consolidated Balance Sheet, all balances associated with repurchase and reverse repurchase agreements and financial derivatives are presented on a gross basis. (2) For the purpose of this presentation, for each row the total amount of financial instruments transferred or pledged and cash collateral (received) or pledged may not exceed the applicable gross amount of assets or (liabilities) as presented here. Therefore, the Company has reduced the amount of financial instruments transferred or pledged as collateral related to the Company's repurchase agreements and cash collateral pledged on the Company's financial derivative assets and liabilities. As of March 31, 2025, the fair value of financial instruments transferred or pledged as collateral on the Company's repurchase agreements, net of the fair value of any financial instruments received by the Company as the result of margin calls, were $ 567.0 million. As of March 31, 2025, total cash collateral (received) pledged on financial derivative assets and financial derivative liabilities excludes $ 2.0 million and $ 0.6 million, respectively, of net excess cash collateral. (3) When collateral is pledged to or pledged by a counterparty, it is often pledged or posted with respect to all positions with such counterparty, and in such cases such collateral cannot be specifically identified as relating to a particular asset or liability. As a result, in preparing the above table, the Company has made assumptions in allocating pledged or posted collateral among the various rows. December 31, 2024: Description Amount of Assets (Liabilities) Presented in the Consolidated Balance Sheet (1) Financial Instruments Available for Offset Financial Instruments Transferred or Pledged as Collateral (2)(3) Cash Collateral (Received) Pledged (2)(3) Net Amount (In thousands) Assets: Financial derivatives–assets $ 41,867 $ ( 2,561 ) $ — $ ( 29,768 ) $ 9,538 Reverse repurchase agreements 23,000 — ( 23,000 ) — — Liabilities: Financial derivatives–liabilities ( 5,681 ) 2,561 — 1,826 ( 1,294 ) Repurchase agreements ( 562,974 ) — 558,792 4,182 — (1) In the Company's Consolidated Balance Sheet, all balances associated with repurchase and reverse repurchase agreements and financial derivatives are presented on a gross basis. (2) For the purpose of this presentation, for each row the total amount of financial instruments transferred or pledged and cash collateral (received) or pledged may not exceed the applicable gross amount of assets or (liabilities) as presented here. Therefore, the Company has reduced the amount of financial instruments transferred or pledged as collateral related to the Company's repurchase agreements and cash collateral pledged on the Company's financial derivative assets and liabilities. As of December 31, 2024, the fair value of financial instruments transferred or pledged as collateral on the Company's repurchase agreements, net of the fair value of any financial instruments received by the Company as a result of margin calls, were $ 614.5 million. As of December 31, 2024, total cash collateral (received) pledged on financial derivative assets and financial derivative liabilities excludes $ 31 thousand and $ 2.6 million, respectively, of net excess cash collateral. (3) When collateral is pledged to or pledged by a counterparty, it is often pledged or posted with respect to all positions with such counterparty, and in such cases such collateral cannot be specifically identified as relating to a particular asset or liability. As a result, in preparing the above table, the Company has made assumptions in allocating pledged or posted collateral among the various rows. 122 December 31, 2023: Description Amount of Assets (Liabilities) Presented in the Consolidated Balance Sheet (1) Financial Instruments Available for Offset Financial Instruments Transferred or Pledged as Collateral (2)(3) Cash Collateral (Received) Pledged (2)(3) Net Amount (In thousands) Assets: Financial derivatives–assets $ 74,279 $ ( 6,851 ) $ — $ ( 42,344 ) $ 25,084 Liabilities: Financial derivatives–liabilities ( 7,329 ) 6,851 — 374 ( 104 ) Repurchase agreements ( 729,543 ) — 740,748 ( 11,205 ) — (1) In the Company's Consolidated Balance Sheet, all balances associated with repurchase and reverse repurchase agreements and financial derivatives are presented on a gross basis. (2) For the purpose of this presentation, for each row the total amount of financial instruments transferred or pledged and cash collateral (received) or pledged may not exceed the applicable gross amount of assets or (liabilities) as presented here. Therefore, the Company has reduced the amount of financial instruments transferred or pledged as collateral related to the Company's repurchase agreements and cash collateral pledged on the Company's financial derivative assets and liabilities. As of December 31, 2023, the fair value of financial instruments transferred or pledged as collateral on the Company's repurchase agreements, net of the fair value of any financial instruments received by the Company as a result of margin calls, were $ 790.6 million. As of December 31, 2023, total cash collateral (received) pledged on financial derivative assets and financial derivative liabilities excludes $ 1.4 million and $ 0.1 million, respectively, of net excess cash collateral. (3) When collateral is pledged to or pledged by a counterparty, it is often pledged or posted with respect to all positions with such counterparty, and in such cases such collateral cannot be specifically identified as relating to a particular asset or liability. As a result, in preparing the above table, the Company has made assumptions in allocating pledged or posted collateral among the various rows. 8. Earnings Per Share Basic earnings per share, or "EPS," is calculated by dividing net income (loss) for the period by the weighted average of the Company's common shares outstanding for the period. Diluted EPS takes into account the effect of outstanding dilutive instruments, such as share options and warrants, if any, and uses the average share price for the period in determining the number of incremental shares that are to be added to the weighted average number of shares outstanding. As of March 31, 2025 and December 31, 2024 and 2023, the Company did not have any dilutive instruments outstanding. The following table presents a reconciliation of the earnings/(losses) and shares used in calculating basic EPS for the three-month periods ended March 31, 2025 and 2024 and the years ended December 31, 2024 and 2023: Three-Month Period Ended Year Ended March 31, 2025 3/31/2024 December 31 2024 December 31 2023 (In thousands except for share amounts) (Unaudited) Numerator: Net income (loss) $ ( 7,870 ) $ 3,961 $ 6,586 $ 4,559 Denominator: Basic and diluted weighted average common shares outstanding 34,811,555 19,548,408 23,576,696 14,875,314 Basic and diluted earnings per share $ ( 0.23 ) $ 0.20 $ 0.28 $ 0.31 9. Related Party Transactions Management Agreement The Company was party to the Fifth Amended and Restated Management Agreement, (the "Previous Management Agreement"). On June 25, 2024, the Company Board of Trustees unanimously approved the Sixth Amended and Restated Management Agreement, (the "New Management Agreement") which replaced the Previous Management Agreement. The New Management Agreement became effective beginning July 1, 2024. The Company is externally managed and advised by the Manager. Pursuant to the terms of the Previous Management Agreement and the New Management Agreement (collectively the "Management Agreement"), the Manager provides the Company with its management team, including its officers, and appropriate support personnel. The Company does not have any employees. The Manager is responsible for the day-to-day operations of the Company. For periods prior to July 1, 2024, under the terms of the Previous Management Agreement, the Manager received an annual management fee in an amount equal to 1.50 % per annum of shareholders' equity (as defined in the Previous 123 Management Agreement) as of the end of each fiscal quarter (before deductions for any management fee with respect to such fiscal period). The management fee was payable quarterly in arrears. Under the terms of the New Management Agreement, for periods beginning after June 30, 2024, the Manager receives an annual management fee in an amount equal to 1.50 % per annum of the Company's Net Asset Value, calculated as the Company's total assets minus its total liabilities (the "Base Management Fee"). The Base Management Fee is payable quarterly in arrears. For the three-month periods ended March 31, 2025 and 2024, the total management fee incurred was $ 0.9 million and $ 0.5 million, respectively. For the years ended December 31, 2024 and 2023, the total management fee incurred was $ 2.5 million and $ 1.8 million, respectively. In addition to the Base Management Fee, pursuant to the New Management Agreement, the Company will pay the Manager a performance fee (the "Performance Fee"). The Performance Fee is calculated and payable quarterly in arrears based upon the Company's Pre-Performance Fee Net Investment Income, with respect to each fiscal quarter. Pre-Performance Fee Net Investment Income for any fiscal quarter means, interest income (including accretions of discounts, amortization of premiums, and payment-in-kind income), dividend income, and any other income (including any fee income) earned or accrued by the Company during such fiscal quarter, minus the Company’s operating expenses for such quarter (which, for this purpose, will not include any litigation-related expenses, any extraordinary expenses, or Performance Fee). Pre-Performance Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. For purposes of computing Pre-Performance Fee Net Investment Income, the calculation methodology will look through total return swaps as if the Company owned the referenced assets directly. As a result, Pre-Performance Fee Net Investment Income includes net interest (whether positive or negative) associated with a total return swap, which is the difference between (a) the interest income and transaction fees related to the reference assets and (b) all interest and other expenses paid by the Company to the total return swap counterparty. In the case of an interest rate swap, Pre-Performance Fee Net Investment Income includes the net payments and net accruals of periodic payments. The Performance Fee is subject to a hurdle rate of 2.00 % per quarter, or 8.00 % per annum (the "Hurdle Rate"), and is subject to a "catch-up" feature. Specifically: • If the Company’s Pre-Performance Fee Net Investment Income for a fiscal quarter does not exceed the result obtained by multiplying the Net Asset Value attributable to common equity at the end of the immediately preceding fiscal quarter by the Hurdle Rate (the "Hurdle Amount") for such quarter, then no Performance Fee is payable to the Manager with respect to such quarter; • If the Company’s Pre-Performance Fee Net Investment Income for a fiscal quarter exceeds the Hurdle Amount for such quarter but is less than or equal to 121.21 % of the Hurdle Amount, then 100 % of the portion of the Company’s Pre-Performance Fee Net Investment Income that exceeds the Hurdle Amount (the “Catch-Up”) is payable to the Manager as the Performance Fee with respect to such quarter. Therefore, once the Company’s Pre-Performance Fee Net Investment Income for such quarter exactly reaches 121.21 % of the Hurdle Amount, the Manager will have accrued a Performance Fee with respect to such quarter that is exactly equal to 17.5 % of the Pre-Performance Fee Net Investment Income (because 21.21 % of the Hurdle Amount (which is the Pre-Performance Fee Net Investment Income captured by the Manager during the Catch-Up phase) is equal to 17.5 % of 121.21 % of the Hurdle Amount (which is the entire Pre-Performance Fee Net Investment Income at the end of the Catch-Up phase)); and • If the Company’s Pre-Performance Fee Net Investment Income for a fiscal quarter exceeds 121.21 % of the Hurdle Amount for such quarter, then 17.5 % of the Company’s Pre-Performance Fee Net Investment Income is payable to the Manager as the Performance Fee with respect to such quarter. With respect to the Performance Fee, there will be no accumulation of the Hurdle Amount from quarter to quarter, no claw back of amounts previously paid if the Pre-Performance Fee Net Investment Income in any subsequent quarter is below the Hurdle Amount for such subsequent quarter, and no delay or adjustment of payment if the Pre-Performance Fee Net Investment Income in any prior quarter was below the Hurdle Amount for such prior quarter. The Manager has agreed to waive all of the Performance Fees payable under the New Management Agreement for all periods through March 31, 2025. For the three-month period ended March 31, 2025 and year ended December 31, 2024, the Company incurred a performance fee of $ 1.5 million and $ 2.4 million, respectively, which was fully waived by the Manager. The New Management Agreement has an initial term expiring on June 25, 2025, unless terminated earlier in accordance with its terms. Thereafter, the New Management Agreement will continue to renew automatically each year for an additional one-year period, unless the Company or the Manager exercise its respective termination rights. 124 Expense Reimbursement Under the terms of the Management Agreement, the Company is required to reimburse the Manager for operating expenses related to the Company that are incurred by the Manager, including expenses relating to legal, accounting, due diligence, other services, and all other costs and expenses. The Company's reimbursement obligation is not subject to any dollar limitation. Expenses will be reimbursed in cash within 60 days following delivery of the expense statement by the Manager; provided, however, that such reimbursement may be offset by the Manager against amounts due to the Company from the Manager. The Company will not reimburse the Manager for the salaries and other compensation of the Manager's personnel except that the Company will be responsible for expenses incurred by the Manager in employing certain dedicated or partially dedicated personnel as further described below. The Company reimburses the Manager for the allocable share of the compensation, including, without limitation, wages, salaries, and employee benefits paid or reimbursed, as approved by the Compensation Committee of the Board of Trustees, to certain dedicated or partially dedicated personnel who spend all or a portion of their time managing the Company's affairs, based upon the percentage of time devoted by such personnel to the Company's affairs. In their capacities as officers or personnel of the Manager or its affiliates, such personnel will devote such portion of their time to the Company's affairs as is necessary to enable the Company to operate its business. During the three-month periods ended March 31, 2025 and 2024 and the years ended December 31, 2024 and 2023, the Company reimbursed the Manager $ 0.5 million, $ 1.0 million, $ 4.7 million, and $ 2.7 million, respectively, for previously incurred operating and compensation expenses. As of March 31, 2025 and December 31, 2024 and 2023, the outstanding payable to the Manager for operating and compensation expenses was $ 0.6 million, $ 0.3 million, and $ 0.4 million, respectively, and is included in Accrued expenses on the Consolidated Balance Sheet. Termination Fee The Management Agreement requires the Company to pay a termination fee to the Manager in the event of (1) the Company's termination or non-renewal of the Management Agreement without cause or (2) the Manager's termination of the Management Agreement upon a default by the Company in the performance of any material term of the Management Agreement. Such termination fee will be equal to 5 % of Shareholders' Equity, as defined in the Management Agreement as of the month-end preceding the date of the notice of termination or non-renewal of the Management Agreement. The Company will not be required to pay any termination fee as a result of the CLO Strategic Transformation or the Conversion. Services Agreement The Manager and EMG are parties to a services agreement, pursuant to which EMG is required to provide the Manager sufficient personnel, services, and resources to enable the Manager to carry out its obligations and responsibilities under the Management Agreement. The Company is a named third-party beneficiary to the services agreement and, as a result, has, as a non-exclusive remedy, a direct right of action against EMG in the event of any breach by the Manager of any of its duties, obligations, or agreements under the Management Agreement that arise out of or result from any breach by EMG of its obligations under the services agreement. The services agreement will terminate upon the termination of the Management Agreement. Pursuant to the services agreement, the Manager makes certain payments to EMG in connection with the services provided. The Manager and EMG have overlapping ownership and are under common control. Transactions with Affiliates The Company may from time to time enter into a purchase or sales transaction of investments with an affiliate of EMG. Pursuant to the terms of the Management Agreement, EMG may enter into such transactions where it acts both on the behalf of the Company and on behalf of the other party to the transaction. Unless approved in advance by a majority of our independent trustees or pursuant to and in accordance with a policy that has been approved by a majority of our independent trustees, all such affiliated transactions must be effected at the then-prevailing market prices. Pursuant to our Manager's current policies and procedures, assets for which there are no readily observable market prices may be purchased or sold in cross transactions (i) at prices based upon third-party bids received through auction, (ii) at the average of the highest bid and lowest offer quoted by third-party dealers, or (iii) according to another pricing methodology approved by our Manager's Chief Compliance Officer. During the three-month period ended March 31, 2025, the Company entered into transactions with an affiliated entity whereby the Company purchased securities with a principal balance of $ 0.3 million at a cost of $ 0.1 million. During the three-month period ended March 31, 2024 and year ended December 31, 2024, the Company entered into transactions with an affiliated entity whereby the Company purchased securities with a principal balance of $ 10.2 million at a cost of $ 5.3 million. The price of each affiliated transaction was determined using the Manager's current policies and procedures based on bid prices received through auction. As of March 31, 2025 and December 31, 2024 the securities purchased from affiliates of EMG had 125 a principal balance of $ 10.4 million and $ 9.8 million, respectively, and fair value of $ 3.8 million and $ 4.0 million, respectively. During the three-month periods ended March 31, 2025 and 2024 and year ended December 31, 2024, the Company recognized net income on such securities of $ 0.1 million, $( 0.3 ) million, and $ 0.2 million, respectively. The Company did not purchase any securities from affiliated entities during the year ended December 31, 2023. 10. Capital Preferred Shares The Company has authorized 100,000,000 preferred shares, $ 0.01 par value per share. The Board of Trustees may authorize the issuance of additional shares. On December 9, 2024, the Company issued 1,000 Series A Preferred Shares, par value $ 0.01 per share, or the "Preferred Shares," with each Preferred Share having 25,000 votes. Any votes cast by the holder of the Preferred Shares are required to “mirror” the actual votes cast by the common shareholders. The Preferred Shares were sold to the Manager for an aggregate purchase price of $ 1 thousand. The Preferred Shares must vote together with the Company's outstanding common shares as a single class; they only have the right to vote on proposals related to the CLO Strategic Transformation; they are not entitled to receive dividends of any kind; and they must be automatically redeemed, at par, upon the earliest of: (i) if such redemption is authorized and directed by the Board in its sole discretion, automatically and effective on such time and date specified by the Board in its sole discretion, (ii) automatically upon the approval of the Conversion Proposals by the Company's shareholders at any meeting of shareholders, or (iii) immediately prior to the record date of the 2025 Annual Meeting. As of December 31, 2024, there were 1,000 preferred shares outstanding. Subsequent to the Special Meeting the Company repurchased all preferred shares outstanding for an aggregate purchase price of $ 1 thousand, and as of March 31, 2025 there were no preferred shares outstanding. Common Shares The Company has authorized 500,000,000 common shares, $ 0.01 par value per share. The Board of Trustees may authorize the issuance of additional shares. As of March 31, 2025 and December 31, 2024 and 2023, there were 37,559,195 , 29,651,553 , and 18,601,464 , common shares outstanding, respectively. Detailed below is a roll forward of the Company's common shares outstanding for the three-month periods ended March 31, 2025 and 2024 and the years ended December 31, 2024 and 2023: Three-Month Period Ended Year Ended March 31, 2025 March 31, 2024 (1) December 31, 2024 December 31, 2023 (Unaudited) Common Shares Outstanding (12/31/2024, 12/31/2023, 12/31/2023, and 12/31/2022, respectively) 29,651,553 18,601,464 18,601,464 13,377,840 Share Activity: Common shares issued 8,075,118 1,218,146 10,964,023 5,183,037 Restricted common shares issued — — 90,229 47,393 Common shares repurchased ( 167,476 ) — — — Forfeiture of common shares to satisfy tax withholding obligations — — ( 4,163 ) ( 6,806 ) Common Shares Outstanding (3/31/2025, 3/31/2024, 12/31/2024, 12/31/2023, respectively) 37,559,195 19,819,610 29,651,553 18,601,464 Unvested restricted shares outstanding (3/31/2025, 3/31/2024, 12/31/2024, 12/31/2023, respectively) 39,577 53,448 62,729 53,448 . 126 The below table provides details on the Company's restricted shares granted pursuant to share award agreements which are unvested at March 31, 2025: Grant Recipient Number of Restricted Shares Granted Grant Date Vesting Date (1) Partially dedicated employees: 7,236 December 14, 2023 December 14, 2025 17,350 December 20, 2024 December 12, 2025 14,991 December 20, 2024 December 12, 2026 (1) Date at which such restricted shares will vest and become non-forfeitable. On May 16, 2023, the Company's 2023 Equity Incentive Plan became effective and replaced the Company's 2013 Equity Incentive Plan. Awards previously granted under the 2013 Equity Incentive Plan remain outstanding and valid in accordance with their terms, but no new awards will be granted under the 2013 Equity Incentive Plan. As of March 31, 2025, there were 1,950,083 shares available for future issuance under the Company's 2023 Equity Incentive Plan. On June 13, 2018, the Company's Board of Trustees approved the adoption of a share repurchase program under which the Company is authorized to repurchase up to 1.2 million common shares (the "2018 Share Repurchase Program"). The 2018 Share Repurchase Program, which is open-ended in duration, allows the Company to make repurchases from time to time on the open market or in negotiated transactions, including through Rule 10b5-1 plans. Repurchases are at the Company's discretion, subject to applicable law, share availability, price and its financial performance, among other considerations. During the three-month period ended March 31, 2025, the Company repurchased 167,476 common shares at an average price per share of $ 5.84 and a total cost of $ 1.0 million; the Company did not repurchase any shares during the three-month period ended March 31, 2024 or the years ended December 31, 2024 and 2023. From inception of the 2018 Share Repurchase Program through March 31, 2025, the Company repurchased 641,668 of its common shares at an aggregate cost of $ 5.3 million, and an average price per share of $ 8.33 . On November 14, 2023, the Company implemented an "at the market" offering program, or the "2023 ATM program," by entering into equity distribution agreements with third party sales agents under which it was authorized to offer and sell up to $ 100.0 million of common shares from time to time. 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, the Company issued 8,075,118 common shares, which provided $ 52.1 million of net proceeds after $ 0.6 million of commissions and offering costs. During the year ended December 31, 2024, the Company issued 10,964,023 common shares, which provided $ 73.6 million of net proceeds after $ 1.1 million of commissions and offering costs. 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, the Company's remaining authorization under the ATM programs was $ 48.5 million. Distribution Policy The timing and frequency of distributions will be determined by the Board of Trustees based upon a variety of factors deemed relevant by the Company's trustees, including restrictions under applicable law and capital requirements of the Company. Distributions to shareholders generally will be taxable as ordinary income, although a portion of such distributions may be designated as long-term capital gain or qualified dividend income, or may constitute a return of capital. The Company will furnish annually to each shareholder a statement setting forth distributions paid or deemed paid during the preceding year and their U.S. federal income tax treatment. 11. Income Taxes The Company revoked its prior REIT election, effective for the tax year beginning January 1, 2024, and operates as a taxable C-Corporation, subject to applicable U.S. federal, state, and local income tax. Cash dividends declared by the Company that do not exceed its current or accumulated earnings and profits are considered ordinary income to shareholders for income tax purposes. Distributions in excess of the Company's current and accumulated earnings and profits are characterized as return of capital or are treated by shareholders as capital gains. 127 The following table details the estimated tax characteristics of the Company's dividends declared on its common stock for the three-month period ended March 31, 2025 and the years ended December 31, 2024 and 2023. Three-Month Period Ended March 31, 2025 Year Ended December 31, Tax Characteristic 2024 2023 Ordinary income — % 24.1 % 38.0 % Return of capital 100.0 % 75.9 % 62.0 % 100.0 % 100.0 % 100.0 % Certain foreign and domestic subsidiaries of the Company are taxed as corporations for U.S. federal, state, and local income tax purposes. To the extent that those entities incur, or are expected to incur, U.S. federal, state, or local income taxes, or foreign income taxes, such tax expense is recognized by the Company. The Company accounts for income taxes in accordance with ASC 740, Income Taxes , or "ASC 740" and has applied ASU 2023-09 on a prospective basis as discussed in Note 2. Deferred income taxes reflect the net tax effects of temporary differences that may exist between the carrying amounts of assets and liabilities under U.S. GAAP and the carrying amounts used for income tax purposes. For the three-month periods ended March 31, 2025 and 2024 and year ended December 31, 2024, the Company recorded an income tax expense (benefit) of $( 6 ) thousand, $ 0.3 million, and $ 0.5 million, respectively. No such expense was recorded for the year ended December 31, 2023, during which time the Company was operating as a REIT and generally not subject to income tax. The Company evaluates its deferred tax assets for recoverability using an approach which considers the relative impact of negative and positive evidence, including historical profitability and projections of future taxable income. As of March 31, 2025, there was an approximate increase of $ 2.2 million in the Company's deferred tax assets and the Company has recorded a valuation allowance of $ 13.3 million to fully reserve against its deferred tax assets. The following table summarizes the Company's (benefit) provision for income tax for the period January 1, 2025 to March 31, 2025 and the year ended December 31, 2024. The Company did not record any provision for income tax for the year ended December 31, 2023. (In thousands) Three-Month Period Ended March 31, 2025 Year Ended December 31, 2024 Current provision for income tax Federal $ — $ 238 State ( 6 ) 272 Total current provision for income tax, net ( 6 ) 510 Deferred (benefit) provision for income tax Federal — — State — — Total deferred (benefit) provision for income tax, net — — Total (benefit) provision for income tax $ ( 6 ) $ 510 128 The following table details the components of the Company's net deferred tax asset (liability) as of March 31, 2025 and December 31, 2024. (In thousands) March 31, 2025 December 31, 2024 Deferred tax asset Net operating loss available for carry-back and carry-forward (1) $ 13,333 $ 11,147 Net capital loss carry-forward — — Basis difference for investments — — Valuation allowance ( 13,333 ) ( 11,147 ) Deferred tax asset — — Deferred tax liability Basis difference for investments — — Valuation allowance — — Deferred tax liability — — Net deferred tax asset (liability), net of valuation allowance $ — $ — (1) Includes state net operating losses available for carry-back and carry-forward as of March 31, 2025 and December 31, 2024 of $ 3.3 million and $ 2.8 million, respectively. These deferred tax assets were fully offset by a valuation allowance. The Company had a pre-tax U.S. federal net operating loss carryforward ("NOL Carryforward") of approximately $ 47.6 million and $ 39.8 million as of March 31, 2025 and December 31, 2024, respectively; such NOL Carryforward has an unlimited carryforward period. The following table details the reconciliation between the Company's U.S. federal and state statutory income tax rate and the effective tax rate for the three-month period ended March 31, 2025. Three-Month Period Ended March 31, 2025 (In thousands) Federal statutory amount and rate $ ( 1,654 ) 21.00 % State statutory amount and rate, net of federal benefit CT ( 467 ) 5.93 % Other ( 32 ) 0.41 % Change in valuation allowance 2,147 ( 27.26 ) % Income tax expense (benefit) and Effective tax rate $ ( 6 ) 0.07 % The following table details the reconciliation between the Company's U.S. federal and state statutory income tax rate and the effective tax rate for the year ended December 31, 2024. Year Ended December 31, 2024 Federal statutory rate 21.00 % State statutory rate, net of federal benefit 6.34 % Change in valuation allowance ( 20.15 ) % Effective tax rate 7.19 % The Company did not pay any income tax or receive any income tax refunds for either federal or state jurisdictions during the three-month period ended March 31, 2025. Based on its analysis of any potential uncertain income tax positions, the Company concluded that it did not have any uncertain tax positions that meet the recognition or measurement criteria of ASC 740 as of March 31, 2025 or December 31, 2024 and 2023. Tax authorities in the relevant jurisdictions may select the Company's tax returns for audit and propose adjustments before the expiration of the statute of limitations. Tax returns filed for the Company's open tax years or any ongoing audits remain open to adjustment in the major tax jurisdictions. 129 12. Commitments and Contingencies From time to time, the Company may become involved in various claims and legal actions arising in the ordinary course of business. The Company provides current trustees and officers with a limited indemnification against liabilities arising in connection with the performance of their duties to the Company. In the normal course of business the Company may also enter into contracts that contain a variety of representations, warranties, and general indemnifications. The Company's maximum exposure under these arrangements, including future claims that may be made against the Company that have not yet occurred, is unknown. The Company has not incurred any costs to defend lawsuits or settle claims related to these indemnification agreements. The Company has no liabilities recorded for these agreements as of March 31, 2025 and December 31, 2024 and 2023 and management is not aware of any significant contingencies at March 31, 2025. 13. Subsequent Events Conversion After receiving shareholder approval of certain matters related to the Conversion at a special meeting of shareholders held on January 17, 2025, on April 1, 2025 (the "Conversion Date"), the Company filed a Notification of Registration pursuant to Section 8(a) of the 1940 Act, Form N-8A, and a Registration Statement on Form N-2 with the U.S. Securities and Exchange Commission, thereby completing the Conversion. The Company also changed its fiscal year to end on March 31 and it and the Manager entered into the Advisory Agreement (the "Advisory Agreement"). Shortly after the Conversion Date, the Company sold its remaining Agency RMBS, receiving sales proceeds of $500.9 million, and also liquidated its remaining TBA positions. Following the Conversion, the Company has applied to be taxed as a RIC under subchapter M of the Code. As a result of the Conversion, the 2023 Equity Incentive Plan, the ATM program, and the 2018 Share Repurchase Program, each as discussed in Note 10, are no longer operative. The Management Agreement was terminated and the investment advisory functions set forth therein have been replaced by those set forth in the Advisory Agreement. Pursuant to the Advisory Agreement, the Company will pay the Adviser a quarterly fee (the "Base Management Fee") equal to 1.50 % per annum of the Company's Net Asset Value (as defined below), prorated for partial quarterly periods based on the number of days in such partial period compared to a 90-day quarter, and calculated and payable quarterly in arrears. In addition to the Base Management Fee, pursuant to the Advisory Agreement, the Company will pay the Adviser a performance fee (the "Performance Fee"). The Performance Fee is calculated and payable quarterly in arrears based upon the Company's Pre-Performance Fee Net Investment Income (as defined below) with respect to each fiscal quarter, and is subject to a hurdle rate, expressed as a rate of return on the Company's common equity, equal to 2.00 % per quarter (i.e. 8.00 % per annum), and is subject to a "catch-up" feature. Specifically: • If the Company’s Pre-Performance Fee Net Investment Income for a fiscal quarter does not exceed the Hurdle Amount (as defined below) for such quarter, then no Performance Fee is payable to the Manager with respect to such quarter; • If the Company’s Pre-Performance Fee Net Investment Income for a fiscal quarter exceeds the Hurdle Amount for such quarter but is less than or equal to 121.21 % of the Hurdle Amount, then 100 % of the portion of the Company’s Pre-Performance Fee Net Investment Income that exceeds the Hurdle Amount (the "Catch-Up") is payable to the Manager as the Performance Fee with respect to such quarter. Therefore, once the Company’s Pre-Performance Fee Net Investment Income for such quarter exactly reaches 121.21 % of the Hurdle Amount, the Manager will have accrued a Performance Fee with respect to such quarter that is exactly equal to 17.5 % of the Pre-Performance Fee Net Investment Income (because 21.21 % of the Hurdle Amount (which is the Pre-Performance Fee Net Investment Income captured by the Manager during the Catch-Up phase) is equal to 17.5 % of 121.21 % of the Hurdle Amount (which is the entire Pre-Performance Fee Net Investment Income at the end of the Catch-Up phase)); and • If the Company’s Pre-Performance Fee Net Investment Income for a fiscal quarter exceeds 121.21 % of the Hurdle Amount for such quarter, then 17.5 % of the Company’s Pre-Performance Fee Net Investment Income is payable to the Manager as the Performance Fee with respect to such quarter. With respect to the Performance Fee, there will be no accumulation of the Hurdle Amount from quarter to quarter, no claw back of amounts previously paid if the Pre-Performance Fee Net Investment Income in any subsequent quarter is below the Hurdle Amount for such subsequent quarter, and no delay or adjustment of payment if the Pre-Performance Fee Net Investment Income in any prior quarter was below the Hurdle Amount for such prior quarter. 130 The Advisory Agreement has the following definitions: Hurdle Amount for any fiscal quarter means the result obtained by multiplying the Net Asset Value of Common Equity at the end of the immediately preceding fiscal quarter by the Hurdle Rate. The Hurdle Amount will be appropriately adjusted for any common share issuances or repurchases during the fiscal quarter. Hurdle Rate means 2.00 % per quarter, or 8.00 % per annum. The Hurdle Rate will be appropriately prorated for partial quarterly periods based on the number of days in such partial period compared to a 90-day quarter. Net Asset Value means the figure that is equal to the total assets of the Company minus its total liabilities. Net Asset Value of Common Equity means the portion of Net Asset Value attributable to common equity. Pre-Performance Fee Net Investment Income for any fiscal quarter means interest income (including accretions of discounts, amortization of premiums, and payment-in-kind income), dividend income, and any other income (including any fee income) earned or accrued by the Company during such fiscal quarter, minus the Company’s operating expenses for such quarter (which, for this purpose, will not include any litigation-related expenses, any extraordinary expenses, or Performance Fee). Pre-Performance Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. For purposes of computing Pre-Performance Fee Net Investment Income, the calculation methodology will look through total return swaps as if the Company owned the referenced assets directly. As a result, Pre-Performance Fee Net Investment Income includes net interest (whether positive or negative) associated with a total return swap, which is the difference between (a) the interest income and transaction fees related to the reference assets and (b) all interest and other expenses paid by the Company to the total return swap counterparty. In the case of an interest rate swap, Pre-Performance Fee Net Investment Income includes the net payments and net accruals of periodic payments. The Advisory Agreement has an initial term expiring on April 1, 2027, unless terminated earlier in accordance with its terms. Thereafter, the Advisory Agreement will continue in effect from year to year, so long as such continuance shall be approved at least annually by (a) the vote of the Company’s Board, or by the vote of a majority of the outstanding voting securities of the Company and (b) the vote of a majority of the Company’s trustees who are not parties to the Advisory Agreement or “interested persons” (as such term is defined in Section 2(a)(19) of the 1940 Act) of any such party, in accordance with the requirements of the 1940 Act. Administration Agreement In connection with the Conversion, on the Conversion Date, the Company and Ellington Credit Company Administration LLC (the "Administrator") entered into the Administration Agreement (the "Administration Agreement"). Pursuant to the Administration Agreement, the Administrator will furnish the Company with certain services, including office facilities, equipment and clerical, bookkeeping and record keeping services and the Administrator will also perform, or oversee the performance of, its required administrative services, which include, among other things, being responsible for the financial records which the Company is required to maintain and preparing reports for its shareholders. In addition, the Administrator will assist the Company in determining and publishing its Net Asset Value, oversee the preparation and filing of the Company's tax returns and print and disseminate reports to the Company's shareholders, as well as oversee the payment of the Company's expenses and the performance of administrative and professional services rendered to the Company by other parties. In exchange for the services rendered under the Administration Agreement, the Company will pay the Administrator an amount equal to the Company's allocable portion of the Administrator’s costs and expenses incurred in performing its obligations and providing personnel (including wages, salaries, bonuses and related payroll expenses) under the Administration Agreement, including rent, office supplies, the fees and expenses associated with performing compliance functions, as well as the Company’s allocable portion of the costs of compensation and related expenses of the Company’s Chief Financial Officer, Chief Operating Officer, and their respective support staff. The Administration Agreement has an initial term expiring on April 1, 2027, unless terminated earlier in accordance with its terms. Thereafter, the Administration Agreement will renew automatically for successive annual periods, provided that such continuance is specifically approved at least annually by (a) the vote of the Board or the vote of a majority of the outstanding voting securities of the Company and (b) the vote of a majority of the Company’s trustees who are not parties to this Agreement or “interested persons” (as such term is defined in Section 2(a)(19) of the 1940 Act) of any such party. 131 Dividend Reinvestment Plan In connection with the Conversion, on the Conversion Date the Company adopted the Dividend Reinvestment Plan (the "DRP"), to be administered by Equiniti Trust Company, LLC as plan agent (the "Plan Agent"), pursuant to an agreement adopted on the Conversion Date. Under the DRP, the Company’s cash dividends and/or distributions (collectively, “Dividends”), after deducting any applicable U.S. withholding taxes, will be automatically reinvested in additional shares of the same class to which the Dividends relate. Shareholders will automatically participate in the DRP unless they opt out by notifying the Plan Agent via telephone, in writing, or through the Plan Agent’s online portal. An opt-out election must be received by the Plan Agent before the record date of a given Dividend for such election to be effective for that Dividend. Shareholders holding shares through a nominee (e.g., a broker) must contact their nominee to make such elections. Shareholders who opt out will receive Dividends in cash. Under the DRP, whenever the Company pays a Dividend, the Plan Agent will reinvest such Dividends for participating Shareholders in newly issued shares of the Company at a price per share equal to 95% of the market price per share at the close of regular trading on the New York Stock Exchange (the "NYSE") on the Dividend payment date (or, if no sale is reported that day, the average of the last bid and ask prices reported by the NYSE). While the Company generally intends to issue new shares under the DRP, the Board reserves the right to authorize the purchase of shares in the open market in connection with the DRP. Dividends On April 3, 2025 , the Board of Trustees approved a monthly dividend in the amount of $ 0.08 per share paid on May 27, 2025 to shareholders of record as of April 30, 2025 . On May 7, 2025 , the Board of Trustees approved a monthly dividend in the amount of $ 0.08 per share paid on June 30, 2025 to shareholders of record as of May 30, 2025 . On June 9, 2025 , the Board of Trustees 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 . Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures None.