EFC US Equity☆

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Executive Summary

We invest in a diverse array of real-estate-related and other financial assets, including residential and commercial mortgage loans, residential mortgage-backed securities, or "RMBS," commercial mortgage-backed securities, or "CMBS," consumer loans and asset-backed securities, or "ABS," including ABS backed by consumer loans, collateralized loan obligations, or "CLOs," non-mortgage- and mortgage-related derivatives, equity investments in loan origination companies, and other strategic investments. We are externally managed and advised by our Manager, an affiliate of Ellington. Ellington is a registered investment adviser with a 26-year history of investing in the Agency and credit markets.

We conduct all of our operations and business activities through the Operating Partnership. As of December 31, 2020, we have an ownership interest of approximately 98.7% in the Operating Partnership. The remaining ownership interest of approximately 1.3% in the Operating Partnership represents the interests in the Operating Partnership that are owned by an affiliate of our Manager, our directors, and certain current and former Ellington employees and their related parties, and is reflected in our financial statements as a non-controlling interest.

Our primary objective is to generate attractive, risk-adjusted total returns for our stockholders. We seek to attain this objective by utilizing an opportunistic strategy to make investments, without restriction as to ratings, structure, or position in the capital structure, that we believe compensate us appropriately for the risks associated with them rather than targeting a specific yield. Our evaluation of the potential risk-adjusted return of any potential investment typically involves weighing the potential returns of such investment under a variety of economic scenarios against the perceived likelihood of the various scenarios. Potential investments subject to greater risk (such as those with lower credit ratings and/or those with a lower position in the capital structure) will generally require a higher potential return to be attractive in comparison to investment alternatives with lower potential return and a lower degree of risk. However, at any particular point in time, depending on how we perceive the market's pricing of risk both generally and across sectors, we may favor higher-risk assets or we may favor lower-risk assets, or a combination of the two, in the interests of portfolio diversification or other considerations.

Through December 31, 2020, our credit portfolio, which includes all of our investments other than 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," has been the primary driver of our risk and return, and we expect that this will continue in the near- to medium-term. For more information on our targeted assets, see "—Our Targeted Asset Classes" below. We believe that Ellington's capabilities allow our Manager to identify attractive assets in these classes, value these assets, monitor and forecast the performance of these assets, and opportunistically hedge our risk with respect to these assets.

We continue to maintain a highly leveraged portfolio of Agency RMBS to take advantage of opportunities in that market sector, to help maintain our exclusion from registration as an investment company under the Investment Company Act, and to help maintain our qualification as a REIT. Unless we acquire very substantial amounts of whole mortgage loans or there are changes to the rules and regulations applicable to us under the Investment Company Act and/or to our qualification as a REIT, we expect that we will continue to maintain some amount of Agency RMBS.

The strategies that we employ are intended to capitalize on opportunities in the current market environment. Subject to maintaining our qualification as a REIT, we intend to adjust our strategies to changing market conditions by shifting our asset allocations across various asset classes as credit and liquidity trends evolve over time. We believe that this flexibility, combined with Ellington's experience, will help us generate more consistent returns on our capital throughout changing market cycles.

Subject to maintaining our qualification as a REIT, we opportunistically hedge our credit risk, interest rate risk, and foreign currency risk; however, at any point in time we may choose not to hedge all or a portion of these risks, and we will generally not hedge those risks that we believe are appropriate for us to take at such time, or that we believe would be impractical or prohibitively expensive to hedge.

We also use leverage in our credit strategy, albeit significantly less leverage than that used in our Agency RMBS strategy. Through December 31, 2020, we financed the vast majority of our Agency RMBS assets, and a portion of our credit assets, through repurchase agreements, which we sometimes refer to as "repos," which we account for as collateralized borrowings. We expect to continue to finance the vast majority of our Agency RMBS through the use of repos. In addition to financing assets through repos, we also enter into other secured borrowing transactions, which are accounted for as collateralized borrowings, to finance certain of our loan assets. We have also obtained, through the securitization markets, term financing for certain of our non-qualified mortgage, or "non-QM," loans, certain of our consumer loans, and certain of our leveraged corporate loans. Additionally, we have issued unsecured long-term debt.

As of December 31, 2020, outstanding borrowings under repos and Total other secured borrowings (which include Other secured borrowings and Other secured borrowings, at fair value, as presented on our Consolidated Balance Sheet) were $2.3

66

Table of Contents

billion, of which approximately 40%, or $921.9 million, relates to our Agency RMBS holdings. The remaining outstanding borrowings relate to our credit portfolio.

As of December 31, 2020, we also had $86.0 million outstanding of unsecured long-term debt, maturing in September of 2022, or the "Senior Notes." The Senior Notes bear interest at a rate of 5.50%, subject to adjustment based on changes, if any, in the ratings of the Senior Notes. The indenture governing the Senior Notes contains a number of covenants, including several financial covenants. The Senior Notes were issued in connection with an exchange of our previously issued unsecured long-term debt (the "Old Senior Notes") on February 13, 2019 (the "Note Exchange"), in connection with our intended election to be taxed as a REIT. At the time of the Note Exchange, the Senior Notes were rated A by Egan-Jones Rating Company1.

1A rating is not a recommendation to buy, sell or hold securities. Ratings may be subject to revision or withdrawal at any time by the assigning rating organization. Each rating should be evaluated independently of any other rating.

See Note 11 of the notes to our consolidated financial statements for further detail on the Senior Notes and the Note Exchange.

As of December 31, 2020, our book value per share of common stock, calculated using Total Stockholders' Equity less the aggregate liquidation preference of outstanding preferred stock, was $17.59. Our debt-to-equity ratio was 2.6:1 as of December 31, 2020. Our debt-to-equity ratio does not account for liabilities other than debt financings and does not include debt associated with securitization transactions accounted for as sales. Our recourse debt-to-equity ratio was 1.6:1 as of December 31, 2020.

On January 24, 2020, we completed a follow-on offering of 5,290,000 shares of our common stock, of which 690,000 shares were issued pursuant to the exercise of the underwriters' option. The issuance and sale of such common shares generated net proceeds, after underwriters' discount and offering costs, of $95.3 million.

During the year ended December 31, 2020 we repurchased 290,050 shares of our common stock at an average price per share of $10.54 and a total cost of $3.1 million. In addition to making discretionary repurchases, we from time to time use 10b5-1 plans to increase the number of trading days available to implement these repurchases.

We elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, or "the Code," commencing with our taxable year ended December 31, 2019. Provided that we maintain our qualification as a REIT, we generally will not be subject to U.S. federal, state, and local income tax on our REIT taxable income that is currently distributed to our stockholders. Any taxes paid by a domestic taxable REIT subsidiary, or "TRS," will reduce the cash available for distribution to our stockholders. REITs are subject to a number of organizational and operational requirements, including a requirement that they currently distribute at least 90% of their annual REIT taxable income excluding net capital gains.

On February 28, 2019, we filed a certificate of conversion with the Secretary of State of the State of Delaware (the "Secretary of State") to convert from a Delaware limited liability company to a Delaware corporation (the "Conversion") and change our name to Ellington Financial Inc. (the "Corporation"). The Conversion became effective on March 1, 2019, and upon effectiveness, each of our existing common shares representing limited liability company interests, no par value, converted into one issued and outstanding, fully paid and nonassessable share of common stock, $0.001 par value per share, of the Corporation.

Our Targeted Asset Classes

Our targeted asset classes currently include investments in the U.S. and Europe (as applicable) in the categories listed below. Subject to maintaining our qualification as a REIT, we expect to continue to invest in these targeted asset classes. Also, we expect to continue to hold certain of our targeted assets through one or more TRSs. As a result, a portion of the income from such assets will be subject to U.S. federal corporate income tax.

67

Table of Contents

Asset Class Principal Assets

Agency RMBS . Whole pool pass-through certificates;

. Partial pool pass-through certificates;

. Other CLO debt and equity tranches.

CMBS and Commercial Mortgage Loans . CMBS; and

. Commercial mortgage loans and other commercial real estate debt.

Consumer Loans and ABS . Consumer loans;

. ABS, including ABS backed by consumer loans; and

. Retained tranches from securitizations to which we have contributed assets.

. Other mortgage-related derivatives.

. RMBS backed by mortgages on single-family-rental properties;

. RMBS backed by first lien and second lien mortgages;

. Investment grade and non-investment grade securities;

. Senior and subordinated securities;

. IOs, POs, IIOs, and inverse floaters;

. Collateralized debt obligations, or "CDOs";

. RMBS backed by European residential mortgages, or "European RMBS"; and

. Retained tranches from securitizations in which we have participated.

. Non-QM loans; and

. Retained tranches from securitizations to which we have contributed assets.

Other . Real estate, including commercial and residential real property;

. Corporate debt and equity securities and corporate loans;

. Mortgage servicing rights, or "MSRs";

. Credit risk transfer securities, or "CRTs"; and

. Other non-mortgage-related derivatives.

68

Table of Contents

Agency RMBS

Our Agency RMBS assets consist primarily of whole pool (and to a lesser extent, partial pool) pass-through certificates, the principal and interest of which are guaranteed by a federally chartered corporation, such as the Federal National Mortgage Association, or "Fannie Mae," the Federal Home Loan Mortgage Corporation, or "Freddie Mac," or the Government National Mortgage Association, within the U.S. Department of Housing and Urban Development, or "Ginnie Mae," and which are backed by ARMs, Hybrid ARMs, or fixed-rate mortgages. In addition to investing in pass-through certificates which are backed by traditional mortgages, we have also invested in Agency RMBS backed by reverse mortgages. Reverse mortgages are mortgage loans for which neither principal nor interest is due until the borrower dies, the home is sold, or other trigger events occur. Mortgage pass-through certificates are securities representing undivided interests in pools of mortgage loans secured by real property where payments of both interest and principal, plus prepaid principal, on the securities are made monthly to holders of the security, in effect "passing through" monthly payments made by the individual borrowers on the mortgage loans that underlie the securities, net of fees paid to the issuer/guarantor and servicers of the securities. Whole pool pass-through certificates are mortgage pass-through certificates that represent the entire ownership of (as opposed to merely a partial undivided interest in) a pool of mortgage loans.

Our Agency RMBS assets are typically concentrated in specified pools. Specified pools are fixed-rate Agency pools consisting of mortgages with special characteristics, such as mortgages with low loan balances, mortgages backed by investor properties, mortgages originated through the government-sponsored "Making Homes Affordable" refinancing programs, and mortgages with various other characteristics. Our Agency strategy also includes RMBS that are backed by ARMs or Hybrid ARMs and reverse mortgages, and CMOs, including IOs, POs, and IIOs.

CLOs

CLOs are a form of asset-backed security collateralized by syndicated corporate loans. We have retained, and may retain in the future, tranches from CLO securitizations for which we have participated in the accumulation of the underlying assets, typically by providing capital to a vehicle accumulating assets for such CLO securitization. Such vehicles may enter into warehouse financing facilities in order to facilitate such accumulation. Securitizations can effectively provide us with long-term, locked-in financing on the related collateral pool, with an effective cost of funds well below the expected yield on the collateral pool. Our CLO holdings may include both debt and equity interests.

CMBS

We acquire CMBS, which are securities collateralized by mortgage loans on commercial properties. The majority of CMBS issued are fixed rate securities backed by fixed rate loans made to multiple borrowers on a variety of property types, though single-borrower CMBS and floating rate CMBS have also been issued.

The majority of CMBS utilize senior/subordinate structures, similar to those found in non-Agency RMBS. Subordination levels vary so as to provide for one or more AAA credit ratings on the most senior classes, with less senior securities rated investment grade and non-investment grade, including a first loss component which is typically unrated. This first loss component is commonly referred to as the "B-piece," which is the most subordinated (and therefore highest yielding and riskiest) tranche of a CMBS securitization. Much of our focus within the CMBS sector has been on B-pieces, but we also acquire other CMBS with more senior credit priority.

Commercial Mortgage Loans and Other Commercial Real Estate Debt

We acquire commercial mortgage loans, which are loans secured by liens on commercial properties, including hotel, industrial, multi-family, office and retail properties. Loans may be fixed or floating rate and will generally have maturities ranging from one to ten years. We typically acquire first lien loans but may also acquire subordinated loans. As of December 31, 2020, all of our commercial mortgage loans were first lien loans. Commercial real estate debt typically limits the borrower's right to freely prepay for a period of time through provisions such as prepayment fees, lockout, yield maintenance, or defeasance provisions. Some of the commercial mortgage loans that we acquire may be non-performing, underperforming, or otherwise distressed; these loans are typically acquired at a discount both to their unpaid principal balances and to the value of the underlying real estate.

We also participate in the origination of "bridge" loans, which have shorter terms and higher interest rates than more traditional commercial mortgage loans. Bridge loans are typically secured by properties in transition, where the borrower is in the process of either re-developing or stabilizing operations at the property. Properties securing these loans may include multi-family, retail, office, industrial, and other commercial property types.

Within both our loan acquisition and loan origination strategies, we generally focus on smaller balance loans and/or loan packages that are less-competitively-bid. These loans typically have balances that are less than $20 million, and are secured by

69

Table of Contents

real estate and, in some cases, a personal guarantee from the borrower.

Consumer Loans and ABS

We acquire U.S. consumer whole loans and ABS, including ABS backed by U.S. consumer loans. Our U.S. consumer loan portfolio primarily consists of unsecured loans, but also includes secured auto loans. We are currently purchasing newly originated consumer loans under flow agreements with originators, as well as seasoned consumer loans in the secondary market, and we continue to evaluate new opportunities.

TBAs and Other Mortgage-Related Derivatives

In addition to investing in specified pools of Agency RMBS, we utilize TBA transactions, whereby we agree 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 liquid and have quoted market prices and represent the most actively traded class of mortgage-backed securities, or "MBS." TBA trading is based on the assumption that mortgage pools that are eligible to be delivered at TBA settlement are fungible and thus the specific mortgage pools to be delivered do not need to be explicitly identified at the time a trade is initiated.

We generally engage in TBA transactions for purposes of managing certain risks associated with our investment strategies. Other than with respect to TBA transactions entered into by our TRSs, most of our TBA transactions are treated for tax purposes as hedging transactions used to hedge indebtedness incurred to acquire or carry real estate assets, or "qualifying liability hedges." The principal risks that we use TBAs to mitigate are interest rate and yield spread risks. For example, we may hedge the interest rate and/or yield spread risk inherent in our long Agency RMBS by taking short positions in TBAs that are similar in character. Alternatively, we may opportunistically engage in TBA transactions because we find them attractive in their own right, from a relative value perspective or otherwise. For accounting purposes, in accordance with generally accepted accounting principles in the United States of America, or "U.S. GAAP," we classify TBA transactions as derivatives.

We also take long and short positions in various other mortgage-related derivative instruments, including mortgage-related credit default swaps. A credit default swap is a credit derivative contract in which one party (the protection buyer) pays an ongoing periodic premium (and often an upfront payment as well) to another party (the protection seller) in return for compensation for default (or similar credit event) by a reference entity. In this case, the reference entity can be an individual MBS or an index of several MBS, such as an ABX, PrimeX, or CMBX index. Payments from the protection seller to the protection buyer typically occur if a credit event takes place. A credit event can be triggered by, among other things, the reference entity's failure to pay its principal obligations or a severe ratings downgrade of the reference entity.

Non-Agency RMBS

We acquire non-Agency RMBS backed by prime jumbo, Alt-A, non-QM, manufactured housing, subprime residential, and single-family-rental mortgage loans. Our non-Agency RMBS holdings can include investment-grade and non-investment grade classes, including non-rated classes.

Non-Agency RMBS are generally debt obligations issued by private originators of, or investors in, residential mortgage loans. Non-Agency RMBS generally are issued as CMOs and are backed by pools of whole mortgage loans or by mortgage pass-through certificates. Non-Agency RMBS generally are securitized in senior/subordinated structures, or in excess spread/over-collateralization structures. In senior/subordinated structures, the subordinated tranches generally absorb all losses on the underlying mortgage loans before any losses are borne by the senior tranches. In excess spread/over-collateralization structures, losses are first absorbed by any existing over-collateralization, then borne by subordinated tranches and excess spread, which represents the difference between the interest payments received on the mortgage loans backing the RMBS and the interest due on the RMBS debt tranches, and finally by senior tranches and any remaining excess spread.

We also have acquired, and may acquire in the future, European RMBS, including retained tranches from European RMBS securitizations in which we have participated.

Residential Mortgage Loans

Our residential mortgage loans include newly originated non-QM loans, residential transition loans, as well as legacy residential NPLs and RPLs. A non-QM loan is not necessarily high-risk, or subprime, but is instead a loan that does not conform to the complex Qualified Mortgage, or "QM," rules of the Consumer Financial Protection Bureau. For example, many non-QM loans are made to creditworthy borrowers who cannot provide traditional documentation for income, such as borrowers who are self-employed. There is also demand from certain creditworthy borrowers for loans above the QM 43% debt-to-income ratio limit that still meet all ability-to-repay standards. We hold an equity investment in a non-QM originator,

70

Table of Contents

and to date we have purchased the vast majority of our non-QM loans from this originator, although we could potentially purchase a greater share of non-QM loans from other sources in the future.

The residential transition loans that we originate or purchase include: (i) "fix and flip" loans, which are made to real estate investors for the purpose of acquiring residential homes, making value-add improvements to such homes, and reselling the newly rehabilitated homes for a potential profit, and (ii) loans made to real estate investors for a "business purpose," such as purchasing a rental investment property, financing or refinancing a fully rehabilitated home awaiting sale, or securing short-term financing pending qualification for longer-term lower-rate financing. Our residential transition loans are secured by non-owner occupied properties, and are typically structured as fixed-rate, interest-only loans with terms to maturity between 6 and 24 months. Our underwriting guidelines focus on both the "as is" and "as repaired" property values, borrower experience as a real estate investor, and asset verification.

We remain active in the market for residential NPLs and RPLs. The market for large residential NPL and RPL pools has remained highly concentrated, with the great majority having traded to only a handful of large players who typically securitize the residential NPLs and RPLs that they purchase. As a result, we have continued to focus our acquisitions on less-competitively-bid, and more attractively-priced mixed legacy pools sourced from motivated sellers.

Other Investment Assets

Our other investment assets include real estate, including residential and commercial real property, strategic debt and/or equity investments in loan originators, corporate debt and equity securities, corporate loans, which can include litigation finance loans, CRTs, and other non-mortgage-related derivatives. We do not typically purchase real property directly; rather, our real estate ownership usually results from foreclosure activity with respect to our acquired residential and commercial loans. We have made investments in loan originators and other related entities in the form of debt and/or equity and, to date, our investments have represented non-controlling interests. We have also entered into flow agreements with certain of the loan originators in which we have invested. We have not yet acquired mortgage servicing rights directly, but we may do so in the future.

Hedging Instruments

Interest Rate Hedging

We opportunistically hedge our interest rate risk by using various hedging strategies, subject to maintaining our qualification as a REIT. The interest rate hedging instruments that we use and may use in the future include, without limitation:

•TBAs;

•interest rate swaps (including floating-to-fixed, fixed-to-floating, floating-to-floating, or more complex swaps such as floating-to-inverse floating, callable or non-callable);

•CMOs;

•U.S. Treasury securities;

•swaptions, caps, floors, and other derivatives on interest rates;

•futures and forward contracts; and

•options on any of the foregoing.

Because fluctuations in short-term interest rates may expose us to fluctuations in the spread between the interest we earn on our investments and the interest we pay on our borrowings, we may seek to manage such exposure by entering into short positions in interest rate swaps. An interest rate swap is an agreement to exchange interest rate cash flows, calculated on a notional principal amount, at specified payment dates during the life of the agreement. Typically, one party pays a fixed interest rate and receives a floating interest rate and the other party pays a floating interest rate and receives a fixed interest rate. Each party's payment obligation is computed using a different interest rate. In an interest rate swap, the notional principal is generally not exchanged.

Credit Risk Hedging

We enter into credit-hedging positions in order to protect against adverse credit events with respect to our credit investments, subject to maintaining our qualification as a REIT. Our credit hedging portfolio can vary significantly from period to period, and can encompass a wide variety of financial instruments, including corporate debt or equity-related instruments, RMBS- or CMBS-related instruments, or instruments involving other markets. Our hedging instruments can include both "single-name" instruments (i.e., instruments referencing one underlying entity or security) and hedging instruments referencing indices.

71

Table of Contents

Currently, our credit hedges consist primarily of financial instruments tied to corporate credit, such as CDS on corporate bond indices, short positions in and CDS on corporate bonds; and positions involving exchange traded funds, or "ETFs," of corporate bonds. Our credit hedges also currently include CDS tied to individual MBS or an index of several MBS, such as CDS on CMBS indices, or "CMBX."

Foreign Currency Hedging

To the extent that we hold instruments denominated in currencies other than U.S. dollars, we may enter into transactions to offset the potential adverse effects of changes in currency exchange rates, subject to maintaining our qualification as a REIT. In particular, we may use currency forward contracts and other currency-related derivatives to mitigate this risk.

Trends and Recent Market Developments

Market Overview

•After lowering the target range for the federal funds rate three times in 2019, the U.S. Federal Reserve, or "Federal Reserve," elected to maintain its target range of 1.50%–1.75% at its January 2020 meeting, but noted concerns about the spread of the novel coronavirus disease ("COVID-19") in its minutes. As the first quarter of 2020 progressed and COVID-19 spread, economic activity declined as countries around the world implemented social-distancing restrictions; unemployment claims surged and GDP growth forecasts were revised downward as the market began to price in a global recession. In March, macroeconomic conditions worsened, and financial markets experienced extreme volatility and dislocations. In response, the Federal Reserve implemented two emergency interest rate cuts totaling 150 basis points, resumed its asset purchases at an unprecedented pace, added additional liquidity to repo markets, and formed several credit facilities to stabilize markets. The White House and U.S. Congress passed three rounds of stimulus packages, culminating in the $2 trillion CARES Act on March 27th, the largest emergency spending bill in history. In April, the Federal Reserve expanded many of its stimulus programs to provide up to $2.3 trillion in additional capital. Similarly, central banks and governments around the globe responded swiftly and aggressively with interest rate cuts, quantitative easing programs, and stimulus packages.

While these efforts were successful in stabilizing markets, the negative economic impact of COVID-19 persisted, and the Federal Reserve continued its accommodative monetary policy throughout the rest of 2020, including maintaining its target range of 0.00%–0.25% for the federal funds rate; purchasing significant amounts of U.S. Treasury securities, Agency RMBS, and other eligible collateral pursuant to the asset purchase programs it outlined earlier in the year; and extending or expanding several of its liquidity support programs. At its final meeting of 2020, in December, the Federal Reserve noted that "the COVID-19 pandemic is causing tremendous human and economic hardship across the United States and around the world. Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year." The Federal Reserve reiterated that it "is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals." The Federal Reserve also directed the Open Market Desk to increase its holdings of Treasury securities by $80 billion per month, and of Agency RMBS by $40 billion per month.

Finally, just prior to year end 2020, Congress and the administration approved an additional $900 billion of COVID-related stimulus and economic aid.

•Interest rates dropped dramatically during the first quarter of 2020, as the spread of COVID-19 prompted a flight to safety. Between February 12th and March 9th, the 10-year U.S. Treasury yield plummeted 109 basis points to a record low of 0.54%, before rebounding to 1.19% less than two weeks later, and then declining to 0.67% as of March 31st. U.S. Treasury yields fell across the yield curve over the course of the quarter, with yields on 3-month Treasury bills down 148 basis points, yields on the 2-year U.S. Treasury down 132 basis points, and yields on the 10-year U.S. Treasury down 125 basis points. On March 9th, the MOVE index, which measures U.S. interest rate volatility, reached its highest point since the 2008-2009 financial crisis.

During the second and third quarters, interest rate volatility subsided considerably and U.S. Treasury yields continued to hover near all-time lows. During this six-month period, the 10-year U.S. Treasury yield traded in a remarkably tight 39-basis-point rage, compared to a 134-basis-point range in the first quarter. At September 30th, the 10-year U.S. Treasury yield was 0.68%, virtually unchanged from March 31st and only 14 basis points above the record low reached in March. After reaching its highest point since the 2008–2009 financial crisis in March, the MOVE index had reverted to pre-COVID-19 levels by mid-April and continued to decline through the third quarter, hitting an all-time low at the end of September.

During the fourth quarter, long-term interest rates rose modestly and the U.S. Treasury yield curve steepened, with the 10-year U.S. Treasury yield increasing 23 basis points to finish the year at 0.91%, and the 2-year U.S. Treasury yield

72

Table of Contents

up just 1 basis point to 0.12%. The yield spread between the 2-year and 10-year U.S. Treasury increased to 79 basis points from 56 basis points at the end of the third quarter. The MOVE index increased modestly in October, before reverting to lower levels in November and December.

•Mortgage rates declined during each quarter of 2020, setting new all-time lows at several points during the year. Over the course of the year, the Freddie Mac survey 30-year mortgage declined 107 basis points to 2.67% at December 31, 2020. Refinancing applications surged with the declining mortgage rates. On March 6th, the Mortgage Bankers Association's Refinance Index, which measures refinancing application volumes, increased 79% to its highest level since April 2009. Although refinancing applications declined after March, they remained elevated throughout the year, at levels not seen since 2013. Overall Fannie Mae 30-year MBS prepayments increased steadily during the year, from a CPR of 17.0 in December 2019 to an 8-year high of 37.2 CPR in October 2020, before finishing the year at 35.6 CPR.

•In connection with the Federal Reserve actions, LIBOR rates, which drive many of our financing costs, declined sharply during the first half of 2020. Between December 31, 2019, and June 30, 2020, one-month LIBOR declined 160 basis points to 0.16%, and three-month LIBOR fell 161 basis points to 0.30%. LIBOR rates remained low during the second half of the year, with one-month LIBOR finishing the year at 0.14% and three-month LIBOR at 0.24%.

•U.S. real GDP declined at an annualized rate of 5.0% in the first quarter and then 31.4% in the second quarter, reflecting the negative impact of the COVID-19 pandemic and associated measures to contain it. The GDP growth rate bounced back in the third quarter, increasing at estimated annualized rates of 33.4%, before slowing in the fourth quarter to an estimated annualized rate of 4.1%.

•The sudden and significant decline in economic activity and implementation of social-distancing restrictions caused unemployment claims to rise significantly in 2020. U.S. employers reported a reduction of 701,000 jobs in March, and unemployment claims surged to 38.5 million in the second quarter. The unemployment rate spiked to 11.1% at June 30th, from 4.4% at March 31st. Unemployment claims totaled 14.1 million in the third quarter and 10.3 million in the fourth quarter, both down significantly from the second quarter but still well above historical averages. The unemployment rate dropped to 6.7% at December 31st, down from 7.8% at September 30th, 11.1% at June 30th and 14.8% at the April 30th peak. However, the U.S. lost 140,000 jobs in December, the first month of net job losses since the spring, which muddled the outlook going forward.

•With the economic slowdown and spike in unemployment, forbearance rates on residential mortgages rose during the first half of 2020. According to the Mortgage Bankers Association, the total forbearance rate increased most significantly during the month of April, from 2.7% as of March 29th to 7.5% as of April 26th, before rising further to 8.5% as of May 31st, plateauing during June, and then finishing the second quarter at 8.4%. Forbearance rates on residential mortgages declined steadily during the third and fourth quarters, driven by the economic recovery and an improving employment picture, even as many stimulus measures expired. According to the Mortgage Bankers Association, the total forbearance rate decreased from 8.4% at the end of June, to 6.9% at the end of September, and to 5.5% as of January 3, 2021.

•Yield spreads on most fixed income assets widened sharply in the first half of March. For Agency RMBS, the heightened levels of interest rate volatility, together with concerns of a liquidity crunch in the private sector, exacerbated fundamental concerns about a surge in prepayments from the decline in mortgage rates; while for credit assets, the negative macroeconomic developments raised concerns about a potential surge in future credit losses within many sectors. Across virtually all credit-sensitive fixed income asset classes, repo financing stresses and sharp declines in asset prices severely reduced liquidity, and prompted forced selling from many market participants experiencing liquidity problems, which further contributed to price declines and yield spread widening. This selling was particularly acute in structured credit assets, but even Agency RMBS, despite their creditworthiness, experienced significant yield spread widening in sympathy. As described above, central banks and governments around the globe responded swiftly and aggressively with interest rate cuts, quantitative easing programs, and stimulus packages; these actions succeeded in stabilizing markets for the balance of 2020.

•The Bloomberg Barclays US MBS Index ("BB MBS Index") generated a positive return for each quarter of 2020, finishing the year with a 3.87% return, but a slight negative excess return (on a duration-adjusted basis) of (0.17)% relative to the Bloomberg Barclays U.S. Treasury Index. Notably, during the extreme market volatility experienced in March, the intra-month negative excess return reached an extreme of (2.22)% as of March 19th, before actions by the Federal Reserve caused yield spreads on Agency RMBS to retighten. Additionally, after underperforming in the first quarter, pay-ups on Agency specified pools performed exceptionally well during the rest of 2020.

•For the first quarter, the Bloomberg Barclays US Corporate Bond Index ("BB IG Index") generated a loss of 3.63% and a negative excess return of (13.50)%, while the Bloomberg Barclays U.S. Corporate High Yield Bond Index ("BB HY Index") generated a loss of (12.68)% and a negative excess return of (17.03)%. Each index generated both positive returns and positive excess returns during each of the subsequent three quarters, however. For the full year, the BB IG

73

Table of Contents

Index generated a 9.89% return, and a positive excess return of 0.49%; while the BB HY Index generated a 7.11% return and positive excess return of 2.25%.

•During the first quarter, U.S. equities had their worst quarter since the 2008–2009 financial crisis, with the Dow Jones Industrial Average ("DJIA") declining 23%, the S&P down 20%, and the NASDAQ down 14%. Stock markets were highly volatile during the quarter, as the S&P 500 declined 34% between February 19th and March 23rd, and then increased 18% over the next three days. Because of rapid price declines that tripped market "circuit breakers," trading was halted temporarily on the major U.S. stock exchanges on four trading days during the quarter. The CBOE Volatility Index, which measures expected moves in the S&P 500 index, registered an all-time high of 82.69 on March 16th. London's FTSE 100 declined 25%, while the MSCI World global equity index declined 21%.

Despite the continuing negative economic impacts of COVID-19, U.S. equities rebounded dramatically in the second quarter, with the DJIA and S&P 500 indexes posting their biggest quarterly gains since 1998 and offsetting most of the losses suffered in March, amidst optimism over the reopening of the economy, possible additional stimulus measures, and advances on COVID-19 treatments and a possible vaccine. The DJIA rose 17.8% and the S&P 500 rose 20.0% quarter over quarter, while the tech-heavy NASDAQ composite index increased 30.6%. Equity volatility declined during the second quarter, but remained higher than pre-COVID-19 levels. The CBOE Volatility Index steadily declined for most of the second quarter, finishing at 30.43 at June 30th. Meanwhile, London's FTSE 100 index increased 8.8% quarter over quarter, while the MSCI World global equity index rebounded by 18.8% over the same period.

The strong performance of equities continued into the second half of the year, driven by record-low interest rates, expectations of additional stimulus, advances on a possible COVID-19 vaccine, as well as continued outperformance by the tech sector.

In July, the tech-heavy NASDAQ composite index closed at an all-time high, while in August, the S&P 500 reversed all of its losses for the year and reached a new all-time high as well. Performance waned in September amidst a tech selloff and dimming hopes for new stimulus, but U.S. equities still posted a strong third quarter. Quarter over quarter, the S&P 500 rose 8.5%, the DJIA 7.6%, and the NASDAQ 11%. The CBOE Volatility Index, which measures expected moves in the S&P 500 index, increased moderately in September but remained at levels well below those seen in March and April. Meanwhile, London's FTSE 100 index decreased 4.9% and the MSCI World global equity index rose 7.5%, over the same period.

In the second half of October, U.S. equities slumped and equity volatility increased in response to fading stimulus hopes and an accelerating number of COVID-19 cases. However, in November and December, stocks rallied following the U.S. presidential election and in response to advances in the development of COVID-19 vaccines as well as the passage of an additional stimulus package. During December, each of the S&P 500, DJIA, and NASDAQ indexes set fresh new highs; and for the full year, these indexes gained 16%, 7%, and 44%, respectively. After rising in October, the VIX volatility index declined steadily into year end.

74

Table of Contents

Portfolio Overview and Outlook

The following tables summarize the Company's investment portfolio as of December 31, 2020 and 2019.

Credit Portfolio(1)

Dollar Denominated:

Corporate debt and equity and corporate loans 12,606 0.6 % 20,987 1.0 %

Non-Dollar Denominated:

CMBS — — % 175 — %

Consumer loans and ABS backed by consumer loans 306 — % 549 — %

Corporate debt and equity 28 — % 30 — %

(1)This information does not include U.S. Treasury securities, interest rate swaps, TBA positions, or other hedge positions.

(2)Includes equity investments in securitization-related vehicles.

(3)REO is not considered a financial instrument and, as a result, is included at the lower of cost or fair value, as discussed in Note 2 of the notes to consolidated financial statements for the year ended December 31, 2020.

(4)Includes investments in unconsolidated entities holding small balance commercial mortgage loans and REO.

(5)Includes an investment in an unconsolidated entity holding European RMBS.

Agency RMBS Portfolio

Long Agency RMBS:

As the year began, we grew our credit and Agency portfolios as we deployed the proceeds from our common equity offering that closed in January. In March 2020, in light of the heightened levels of market volatility and systemic liquidity risk associated with the outbreak of the COVID-19 pandemic, we strategically reduced the size of our Agency portfolio significantly, in order to lower our leverage and enhance our liquidity position. By reducing our Agency portfolio in an orderly and measured way, we avoided forced asset sales. As a result of these sales, our total long Agency RMBS portfolio decreased by 48% to $1.016 billion as of March 31, 2020, from $1.937 billion as of December 31, 2019.

75

Table of Contents

During the market turbulence of March 2020, we also substantially suspended new investments in our credit strategies. Excluding non-retained tranches of our consolidated non-QM securitization trusts (in the amount of $540.3 million and $584.2 million, as of March 31, 2020 and December 31, 2019, respectively), our total long credit portfolio was essentially unchanged at $1.457 billion as of March 31, 2020, as compared to $1.444 billion as of December 31, 2019. In the credit portfolio, net new purchases during January and February were roughly offset by asset paydowns, asset payoffs, and net reductions in the valuation of the credit portfolio related to the market dislocations in March.

High levels of market distress continued into April, and during that month, we further reduced the size of our Agency portfolio, and only resumed very limited purchase and sale activity in our credit portfolio. Beginning in May and June, with the markets stabilized, we fully resumed our investment activity in our credit and Agency portfolios.

As the year progressed, we maintained the approximate sizes of both the Agency and credit portfolios, as we chose to keep our debt-to-equity ratios relatively low and liquidity high in light of the ongoing economic uncertainty. Our total long Agency RMBS portfolio decreased 5.6% to $959.4 million as of December 31, 2020, from $1.016 billion as of March 31, 2020. Excluding non-retained tranches of our consolidated non-QM securitization trusts, our total long credit portfolio declined slightly to $1.434 billion as of December 31, 2020, as compared to $1.457 billion as of March 31, 2020; new acquisitions of non-QM loans and purchases of non-Agency RMBS, most of which occurred at depressed prices after the market selloff in March and April, were roughly offset by two non-QM loan securitizations, net pay-offs in our small balance commercial mortgage portfolio, as well as a smaller consumer loan portfolio, driven by pay-offs and a securitization completed in the fourth quarter.

As of December 31, 2020, we had cash and cash equivalents of $111.6 million, along with unencumbered assets of approximately $442.5 million.

Credit Portfolio Performance Summary

In March 2020, the market turmoil associated with the COVID-19 pandemic caused significant volatility, price declines and yield spread widening across virtually all credit assets. As a result, we incurred considerable mark-to-market losses in the first quarter. We also received margin calls under our financing arrangements and under our derivative contracts that were higher than typical historical levels. In contrast, prices in many credit-sensitive fixed income sectors rebounded in the second quarter, generating significant net realized and unrealized gains on our credit assets, and our margin calls reverted to more typical levels. We satisfied all margin calls during both periods.

As the year progressed, prices on our credit assets began to recover, financing markets continued to normalize, and our credit portfolio generated excellent results, driven by strong net interest income and significant mark-to-market gains across the portfolio. During the final three quarters of the year, we had large gains on our non-QM loans, non-Agency RMBS, and CMBS, all markets where there had been substantial distressed selling during the first quarter, followed by a sharp rebound in prices and liquidity thereafter. In addition, our small balance commercial mortgage loan, consumer loan, and residential transition mortgage loan portfolios exhibited resilient credit performance throughout the year, generated strong returns on equity, and also returned capital quickly for redeployment. Finally, we benefited from excellent results from our strategic investments in loan originators.

Our credit hedges were profitable during the first quarter of 2020, as markets sold off, and then were a drag on returns during the balance of the year as credit prices recovered. Overall for the year, the credit hedges had only a minor impact on our results.

Economic Impacts of COVID-19

Although most of our assets have recovered meaningfully since the market selloff of the first quarter, we still anticipate eventual principal losses on certain of our credit assets as a result of the economic impacts of COVID-19. The effects of these anticipated principal losses are reflected in earnings through unrealized and realized gains (losses) on securities and loans on our Consolidated Statement of Operations, as we elect the fair value option on our securities and loans.

Furthermore, as has been widely reported, there has been a significant nationwide increase in loan delinquencies, forbearances, deferments, and modifications, and we saw the effects of this in some of our portfolios during the year. However, these effects moderated considerably during the second half of 2020.

•Non-QM Loan Portfolio—Since the onset of the COVID-19 pandemic, we have worked with the servicer of our non-QM loans to develop a process to document and verify hardship due to the COVID-19 pandemic. We use this information to determine the suitability for a borrower to be granted forbearance, typically for a term lasting three months. We have also worked with the servicer to develop a process to evaluate the possible loss mitigation options in the event that a borrower, at the end of the forbearance period, cannot fully repay the forborne payments. Such options may include various repayment plans, deferment plans, rate and/or term modifications, short sales, and principal reduction modifications.

76

Table of Contents

As of December 31, 2020, non-QM loans with an unpaid principal balance of $14.9 million, or 1.4% of our non-QM loan portfolio, were in forbearance; 13.4% of these loans in forbearance continued to make their regular payments and were current under the terms of their notes despite being in forbearance plans as of December 31, 2020.

•Small Balance Commercial Mortgage Loan Portfolio—In our small balance commercial mortgage loan portfolio, we have granted short-term interest deferments to certain borrowers, with such deferred interest capitalized and added to the outstanding principal balance of the loan. In certain other cases, we have granted loan modifications to permit the use of cash reserves to pay interest due on the loan. As of December 31, 2020, small balance commercial mortgage loans with an unpaid principal balance of $45.4 million, or 21.3%, of our small balance commercial mortgage loan portfolio that were current prior to March 2020, have entered into a deferment or modification agreement; all such loans were performing under the terms of such agreements as of December 31, 2020.

•Consumer Loan Portfolio—As of December 31, 2020, we have also seen a decrease in loan deferments in our consumer loan portfolio. As of December 31, 2020, consumer loans with a unpaid principal balance of $10.3 million of our consumer loan portfolio had entered into a deferment plan at some point since March 2020, 77% of which (based on unpaid principal balance) had been entered into prior to June 30, 2020. As of December 31, 2020, of the loans that had entered into a deferment plan, we had received payments on 86.1% of them, based on unpaid principal balance.

•Residential Transition Loan Portfolio—In our residential transition loan portfolio, we had no loans subject to forbearance, deferment, or modification plans as of December 31, 2020.

Supplemental Credit Portfolio Information

The table below details certain information regarding the Company's investments in commercial mortgage loans as of December 31, 2020:

Gross Unrealized Weighted Average

(1)Includes our allocable portion of small-balance commercial loans, based on our ownership percentage, held in variable interest entities. Our equity investments in such variable interest entities are included in Investments in unconsolidated entities, at fair value on the Consolidated Balance Sheet.

(2)Excludes commercial mortgage loans, in non-accrual status, with a fair value of $34.7 million.

(3)Expected average lives of loans are generally shorter than stated contractual maturities. Average lives are affected by scheduled periodic payments of principal and unscheduled prepayments of principal.

The table below summarizes our interests in commercial mortgage loans by property type of the underlying real estate collateral, as a percentage of total outstanding unpaid principal balance, as of December 31, 2020:

Property Type December 31, 2020

Multifamily 23.2 %

Mixed Use 13.4 %

(1)Includes our allocable portion of small-balance commercial loans, based on our ownership percentage, held in variable interest entities. Our equity investments in such variable interest entities are included in Investments in unconsolidated entities, at fair value on the Consolidated Balance Sheet.

77

Table of Contents

Agency RMBS Portfolio Performance Summary

In March 2020, a precipitous decline in interest rates and high levels of interest rate volatility generated net realized and unrealized losses on our interest rate hedges, and while our Agency RMBS did appreciate in price, they significantly underperformed our hedges, as yield spreads widened on Agency pools across the board. Furthermore, TBAs outperformed specified pools during the first quarter, depressing pay-ups on our specified pool portfolio. As a result, we experienced a significant net loss on our Agency strategy for the first quarter. Pay-ups are price premiums for specified pools relative to their TBA counterparts, and generally reflect, among other factors, the prepayment protection that specified pools provide.

During the second quarter, asset purchases by the Federal Reserve continued to be significant, and the liquidity stresses of the first quarter subsided. Our Agency strategy performed exceptionally well during the second quarter, driven by significantly higher pay-ups on our specified pools. Pay-ups on specified pools expanded as investors sought prepayment protection amidst record-low mortgage rates and increasing actual and projected prepayment rates. Our Agency strategy also benefited from the appreciation of our reverse mortgage pools, driven by strong investor demand and a recovery in yield spreads after the distress in March.

Our Agency strategy continued to perform well in the second half of 2020, driven by continued strong price performance from our specified pools and wide net interest margins. During most of 2020, mortgage rates declined and actual and expected prepayment rates rose, which benefited pay-ups on our prepayment-protected specified pools. Average pay-ups on our specified pools increased to 2.05% as of December 31, 2020, from 1.10%2 as of December 31, 2019.

2Conformed to current period calculation methodology.

As the year progressed, we also increased our holdings of long TBAs held for investment, which we concentrated in current coupon production. These investments performed well, driven by Federal Reserve purchasing activity. We continued to hedge interest rate risk in our Agency strategy, through the use of interest rate swaps, and short positions in TBAs, U.S. Treasury securities, and futures.

As of December 31, 2020 and 2019, the weighted average net pass-through rate on our fixed-rate specified pools was 3.7% and 4.0%, respectively. Portfolio turnover for our Agency strategy, as measured by sales and excluding paydowns, was approximately 125% for the year ended December 31, 2020.

We expect to continue to target specified pools that, taking into account their particular composition and based on our prepayment projections, should: (1) generate attractive yields relative to other Agency RMBS and U.S. Treasury securities, (2) have less prepayment sensitivity to government policy shocks, and/or (3) create opportunities for trading gains once the market recognizes their value, which for newer pools may come only after several months, when actual prepayment experience can be observed. We believe that our research team, proprietary prepayment models, and extensive databases remain essential tools in our implementation of this strategy.

The following table summarizes the prepayment rates for our portfolio of fixed-rate specified pools (excluding those backed by reverse mortgages) for the three-month periods ended December 31, 2020, September 30, 2020, June 30, 2020, March 31, 2020, and December 31, 2019.

Three-Month Period Ended

(1)Excludes Agency fixed-rate RMBS without any prepayment history.

78

Table of Contents

The following table provides details about the composition of our portfolio of fixed-rate specified pools (excluding those backed by reverse mortgages) as of December 31, 2020 and 2019:

(In thousands) (In thousands)

Fixed-rate Agency RMBS:

15-year fixed-rate mortgages:

20-year fixed-rate mortgages:

30-year fixed-rate mortgages:

(1)Conformed to current period methodology.

Our net Agency premium as a percentage of the fair value of our specified pool holdings is one metric that we use to measure the overall prepayment risk of our specified pool portfolio. Net Agency premium represents the total premium (excess of market value over outstanding principal balance) on our specified pool holdings less the total premium on related net short TBA positions. The lower our net Agency premium, the less we believe that our specified pool portfolio is exposed to market-wide increases in Agency RMBS prepayments. Our net Agency premium as a percentage of fair value of our specified pool holdings was approximately 4.8% and 2.6% as of December 31, 2020 and 2019, respectively. These figures take into account the net short TBA positions that we use to hedge our specified pool holdings, which had a notional value of $383.6 million and a fair value of $412.2 million as of December 31, 2020, as compared to a notional value of $1.093 billion and a fair value of $1.139 billion as of December 31, 2019. Excluding these TBA hedging positions, our Agency premium as a percentage of fair value was approximately 7.9% and 5.0% as of December 31, 2020 and 2019, respectively. Our Agency premium percentage and net Agency premium percentage may fluctuate from period to period based on a variety of factors, including market factors such as interest rates and mortgage rates, and, in the case of our net Agency premium percentage, based on the degree to which we hedge prepayment risk with short TBA positions. We believe that our focus on purchasing pools with specific prepayment characteristics provides a measure of protection against prepayments.

79

Table of Contents

Financing

The following table details our borrowings outstanding and debt-to-equity ratios as of December 31, 2020 and 2019:

As of

Recourse(1) Borrowings:

Debt-to-Equity Ratio Based on Total Recourse Borrowings(1) 1.6:1 2.6:1

Non-Recourse(2) Borrowings:

(1)As of December 31, 2020 and 2019, excludes borrowings at certain unconsolidated entities that are recourse to us. Including such borrowings, our debt-to-equity ratio based on total recourse borrowings was 1.6:1 and 2.7:1 as of December 31, 2020 and 2019, respectively.

(2)All of our non-recourse borrowings are secured by collateral. In the event of default under a non-recourse borrowing, the lender has a claim against the collateral but not any of the Operating Partnership's other assets. In the event of default under a recourse borrowing, the lender's claim is not limited to the collateral (if any).

(3)Relates to our non-QM loan securitizations, where we have elected the fair value option on the related debt.

Our debt-to-equity ratio including repos, Total other secured borrowings, and our Senior Notes, but excluding repos on U.S. Treasury securities, was 2.6:1 and 3.8:1 as of December 31, 2020 and 2019, respectively. Excluding repos on U.S. Treasury securities, our recourse debt-to-equity ratio decreased to 1.6:1 as of December 31, 2020, from 2.6:1 as of December 31, 2019. In March, in light of the heightened levels of market volatility and systemic liquidity risk associated with the outbreak of the COVID-19 pandemic, we strategically reduced the size of our Agency portfolio significantly, in order to lower our leverage and enhance our liquidity position. We chose to keep our leverage ratios relatively low and liquidity high during the rest of 2020, in light of the ongoing economic uncertainty.

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

Our financing costs include interest expense related to our repo borrowings, Total other secured borrowings, and Senior Notes. The interest rates on our repo borrowings and Other secured borrowings are generally based on, or correlated with, LIBOR. For the year ended December 31, 2020, our average cost of funds decreased significantly to 2.25%, compared to 3.18% for the year ended December 31, 2019. The year-over-year decline in our average cost of funds was due to the declines in short-term interest rates over the course of 2020.

Critical Accounting Estimates

We adopted ASC 946 upon commencement of operations in August 2007, and applied U.S. GAAP for investment companies. In connection with our internal restructuring and our intention to qualify as a REIT for the year ended December 31, 2019, we have determined that, effective January 1, 2019, we no longer qualified for investment company accounting in accordance with ASC 946-10-25, and prospectively discontinued its use. We elected the fair value option for, and therefore we will continue to measure at fair value, those of our assets and liabilities for which such election is permitted, as provided for under ASC 825, Financial Instruments ("ASC 825").

Our consolidated financial statements include the accounts of Ellington Financial Inc., its Operating Partnership, its subsidiaries, and variable interest entities, or "VIEs," for which the Company is deemed to be the primary beneficiary. All intercompany balances and transactions have been eliminated. Certain of our critical accounting policies require us to make

80

Table of Contents

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. We believe that all of the decisions and assessments upon which our consolidated financial statements are based were reasonable at the time made based upon information available to us at that time. We rely on the experience of our Manager and Ellington and analysis of historical and current market data in order to arrive at what we believe to be reasonable estimates. See Note 2 of the notes to our consolidated financial statements for a complete discussion of our significant accounting policies. We have identified our most critical accounting policies to be the following:

Valuation: For financial instruments that are traded in an "active market," the best measure of fair value is the quoted market price. However, many of our financial instruments are not traded in an active market. Therefore, management generally uses third-party valuations when available. If third-party valuations are not available, management uses other valuation techniques, such as the discounted cash flow methodology. Summary descriptions, for various categories of financial instruments, of the valuation methodologies management uses in determining fair value of our financial instruments are detailed in Note 2 of the notes to our consolidated financial statements. Management utilizes such methodologies to assign a good faith fair value (the estimated price that, in an orderly transaction at the valuation date, would be received to sell an asset, or paid to transfer a liability, as the case may be) to each such financial instrument.

See the notes to our consolidated financial statements for more information on valuation techniques used by management in the valuation of our assets and liabilities.

Purchases and Sales of Investments and Investment Income: Purchase and sales transactions are generally recorded on trade date. Realized and unrealized gains and losses are calculated based on identified cost. We generally amortize premiums and accrete discounts on our fixed-income investments using the effective interest method.

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

Income Taxes: We made an election to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2019. As a REIT, we generally are not subject to corporate-level federal and state income tax on net income we distribute to our stockholders within the prescribed timeframes. To qualify as a REIT, we must meet a number of organizational and operational requirements, including distributing at least 90% of our taxable income to our stockholders. Even if we qualify as a REIT, we may be subject to certain federal, state, local and foreign taxes on our income and property, and to federal income and excise taxes on our undistributed taxable income. If we fail to qualify as a REIT, and do not qualify for certain statutory relief provisions, we will be subject to U.S. federal, state, and local income taxes and may be precluded from qualifying as a REIT for the four taxable years following the year in which we fail to qualify as a REIT.

We elected to treat certain domestic and foreign subsidiaries as TRSs, and may in the future elect to treat other current or future subsidiaries as TRSs. In general, a TRS may hold assets and engage in activities that we cannot hold or engage in directly and generally may engage in any real estate or non-real estate-related business. A domestic TRS may, but is not required to, declare dividends to us; such dividends will be included in our taxable income/(loss) and may necessitate a distribution to our stockholders. Conversely, if we retain earnings at the level of a domestic TRS, such earnings will increase the book equity of the consolidated entity. A domestic TRS is subject to U.S. federal, state, and local corporate income taxes. We have elected and may elect in the future to treat certain of our foreign corporate subsidiaries as TRSs and, accordingly, taxable income generated by these TRSs may not be subject to U.S. federal, state, and local corporate income taxation, but generally will be included in our income on a current basis as Subpart F income, whether or not distributed. However, certain of our foreign subsidiaries may be subject to income taxes in the relevant foreign jurisdictions. Our financial results are generally not expected to reflect provisions for current or deferred income taxes, except for any activities conducted through one or more TRSs that are subject to corporate income taxation.

We follow the authoritative guidance on accounting for and disclosure of uncertainty on tax positions, which requires management to determine whether a tax position 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. We did not have any unrecognized tax benefits resulting from tax positions related to the current period or our open tax years. In the normal course of business, we may be subject to examination by federal, state, local, and foreign jurisdictions, where applicable, for the current period and our open tax years. We may take positions with respect to certain tax issues which depend on legal interpretation of facts or applicable tax regulations. Should the relevant tax regulators successfully challenge any such positions, we might be found to have a tax liability that has not been recorded in the accompanying consolidated financial statements. Also, management's conclusions regarding the authoritative guidance may be subject to review and adjustment at a later date based on changing tax laws, regulations, and interpretations

81

Table of Contents

thereof.

See the notes to our consolidated financial statements for additional details on income taxes.

Recent Accounting Pronouncements

Refer to the notes to our consolidated financial statements for a description of relevant recent accounting pronouncements.

Financial Condition

The following table summarizes the fair value our investment portfolio(1) as of December 31, 2020 and December 31, 2019.

Long:

Credit:

Dollar Denominated:

Consumer Loans and ABS backed by Consumer Loans(2) 112,077 238,193

Corporate Debt and Equity and Corporate Loans 12,606 20,987

Equity Investments in Loan Origination Entities 79,536 41,393

Non-Dollar Denominated:

Consumer Loans and ABS backed by Consumer Loans 306 549

Corporate Debt and Equity 28 30

Agency:

Short:

Credit:

Dollar Denominated:

Corporate Debt and Equity $ (218) $ (471)

Government Debt:

Dollar Denominated — (62,994)

(1)For more detailed information about the investments in our portfolio, please see the notes to consolidated financial statements.

(2)Includes equity investments in securitization-related vehicles.

(3)REO is not eligible to elect the fair value option as described in Note 2 of the notes to consolidated financial statements and, as a result, is included at the lower of cost or fair value.

(4)Includes investments in unconsolidated entities holding small balance commercial mortgage loans and REO.

(5)Includes an investment in an unconsolidated entity holding European RMBS.

82

Table of Contents

The following table summarizes our financial derivatives portfolio(1)(2) as of December 31, 2020.

Notional Net Fair Value

(In thousands) Long Short Net

Mortgage-Related Derivatives:

Total Net Mortgage-Related Derivatives 2,401

Corporate-Related Derivatives:

Total Net Corporate-Related Derivatives (4,204)

Interest Rate-Related Derivatives:

Total Interest Rate-Related Derivatives (6,992)

Other Derivatives:

Total Net Other Derivatives (279)

(1)For more detailed information about the financial derivatives in our portfolio, please refer to Note 8 of the notes to consolidated financial statements.

(2)In the table above, fair value of certain derivative transactions are shown on a net basis. The accompanying financial statements separate derivative transactions as either assets or liabilities. As of December 31, 2020, derivative assets and derivative liabilities were $15.5 million and $(24.6) million, respectively, for a net fair value of $(9.1) million, as reflected in "Net Total" above.

(3)Notional value represents the face amount of the underlying asset.

(4)Notional represents the maximum number of shares available to be purchased upon exercise.

(5)Notional value represents the total face amount of U.S. Treasury securities underlying all contracts held. As of December 31, 2020, a total of 19 long and 1,558 short U.S. Treasury futures contracts were held.

(6)Short notional value represents U.S. Dollars to be received by us at the maturity of the forward contract.

83

Table of Contents

The following table summarizes our financial derivatives portfolio(1)(2) as of December 31, 2019.

Notional Net Fair Value

(In thousands) Long Short Net

Mortgage-Related Derivatives:

Total Net Mortgage-Related Derivatives 4,062

Corporate-Related Derivatives:

Total Net Corporate-Related Derivatives (11,205)

Interest Rate-Related Derivatives:

Total Interest Rate-Related Derivatives (3,564)

Other Derivatives:

Total Net Other Derivatives (126)

(1)For more detailed information about the financial derivatives in our portfolio, please refer to Note 8 of the notes to consolidated financial statements for the year ended December 31, 2019.

(2)In the table above, fair value of certain derivative transactions are shown on a net basis. The accompanying financial statements separate derivative transactions as either assets or liabilities. As of December 31, 2019, derivative assets and derivative liabilities were $16.8 million and $(27.6) million, respectively, for a net fair value of $(10.8) million, as reflected in "Net Total" above.

(3)Notional value represents the face amount of the underlying asset.

(4)Notional value represents the total face amount of U.S. Treasury securities underlying all contracts held. As of December 31, 2019, a total of 160 short U.S. Treasury futures contracts were held.

(5)Every $1,000,000 in notional value represents one contract.

Short notional value represents U.S. Dollars to be received by us at the maturity of the forward contract

As of December 31, 2020, our Consolidated Balance Sheet reflected total assets of $3.4 billion and total liabilities of $2.5 billion. As of December 31, 2019, our Consolidated Balance Sheet reflected total assets of $4.3 billion and total liabilities of $3.5 billion. Our investments in securities, loans, and unconsolidated entities, financial derivatives, and real estate owned included in total assets were $3.1 billion and $4.0 billion as of December 31, 2020 and 2019, respectively. Our investments in securities sold short and financial derivatives included in total liabilities were $63.2 million and $101.0 million as of December 31, 2020 and 2019, respectively. As of December 31, 2020, investments in securities sold short consisted principally of short positions in sovereign bonds. As of December 31, 2019, investments in securities sold short consisted principally of short positions in sovereign bonds and U.S. Treasury securities. We primarily use short positions in sovereign bonds and U.S. Treasury securities to hedge the risk of rising interest rates and foreign currency risk.

Typically, we hold a net short position in TBAs. The amounts of net short TBAs, as well as of other hedging instruments, may fluctuate according to the size of our investment portfolio as well as according to how we view market dynamics as favoring the use of one hedging instrument or another. As of December 31, 2020 and 2019, we had a net short notional TBA position of $0.4 billion and $1.1 billion, respectively. The size of the net short notional TBA position declined primarily because we reduced our TBA short positions in connection with our strategic reduction of the size of our Agency specified pool portfolio in March, and because we increased the amount of long TBAs held for investment.

For a more detailed discussion of our investment portfolio, see "—Trends and Recent Market Developments—Portfolio Overview and Outlook" above.

We use mortgage-related credit derivatives primarily to hedge credit risk in certain credit strategies, although we also take net long positions in certain CDS on RMBS and CMBS indices. Our CDS on individual RMBS represent "single-name" positions whereby we have synthetically purchased credit protection on specific non-Agency RMBS bonds. As there is no longer an active market for CDS on individual RMBS, our portfolio in this sector continues to run off. We also use CDS on

84

Table of Contents

corporate bond indices, options thereon, and various other instruments as a means to hedge credit risk. As market conditions change, especially as the pricing of various credit hedging instruments changes in relation to our outlook on future credit performance, we continuously re-evaluate both the extent to which we hedge credit risk and the particular mix of instruments that we use to hedge credit risk.

We may hold long and/or short positions in corporate bonds or equities. Our long and short positions in corporate bonds or equities may serve as outright investments or portfolio hedges.

We use a variety of instruments to hedge interest rate risk in our portfolio, including non-derivative instruments such as U.S. Treasury securities and sovereign debt instruments, and derivative instruments such as interest rate swaps, TBAs, Eurodollar and U.S. Treasury futures, and options on the foregoing. The mix of instruments that we use to hedge interest rate risk may change materially from one period to the next.

We have also entered into foreign currency forward and futures contracts in order to hedge risks associated with foreign currency fluctuations.

We have entered into repos to finance many of our assets. We account for our repos as collateralized borrowings. As of December 31, 2020 indebtedness outstanding on our repos was approximately $1.5 billion. As of December 31, 2020, our assets financed with repos consisted of Agency RMBS of $947.0 million and credit assets of $884.2 million. As of December 31, 2020, outstanding indebtedness under repos was $921.9 million for Agency RMBS and $575.1 million for credit assets. As of December 31, 2019 indebtedness outstanding on our repos was approximately $2.4 billion. As of December 31, 2019, our assets financed with repos consisted of Agency RMBS of $1.9 billion and credit assets of $830.3 million. As of December 31, 2019, outstanding indebtedness under repos was $1.9 billion for Agency RMBS and $580.8 million for credit assets. Our repos bear interest at rates that have historically moved in close relationship to LIBOR.

In addition to our repos, as of December 31, 2020 we had Total other secured borrowings of $806.0 million, used to finance $906.4 million of non-QM loans, consumer loans and ABS backed by consumer loans, and small balance commercial loans. This compares to Total other secured borrowings of $744.7 million as of December 31, 2019, used to finance $843.4 million of non-QM loans and REO, and consumer loans and ABS backed by consumer loans. In addition to our secured borrowings, we had $86.0 million of Senior Notes outstanding as of both December 31, 2020 and 2019.

As of December 31, 2020 and 2019 our debt-to-equity ratio was 2.6:1 and 3.8:1, respectively. Excluding repos on U.S. Treasury securities, our recourse debt-to-equity ratio was 1.6:1 as of December 31, 2020 as compared to 2.6:1 as of December 31, 2019. See the discussion in "—Liquidity and Capital Resources" below for further information on our borrowings.

Equity

As of December 31, 2020, our equity increased by approximately $52.9 million to $921.6 million from $868.7 million as of December 31, 2019. The increase principally consisted of net income of $28.4 million, net proceeds from the issuance of common stock of $95.3 million, and contributions from our non-controlling interests of $8.3 million. These increases were partially offset by common and preferred dividends of $63.8 million, distributions to non-controlling interests of $13.0 million, and payments to repurchase shares of common stock of $3.1 million. Stockholders' equity, which excludes the non-controlling interests related to the minority interest in the Operating Partnership as well as the minority interests of our joint venture partners, was $885.2 million as of December 31, 2020.

85

Table of Contents

Results of Operations for the Years Ended December 31, 2020, 2019, and 2018

The following table summarizes our results of operations for the years ended December 31, 2020 and 2019:

Year Ended

(In thousands except per share amounts) December 31, 2020 December 31, 2019

Interest Income (Expense)

Other Income (Loss)

Realized and unrealized gains (losses) on real estate owned, net (634) 1,048

Expenses

Incentive fee to affiliate — 116

Earnings (losses) from investments in unconsolidated entities 37,933 10,209

Net income (loss) attributable to non-controlling interests 3,369 5,244

Net Income (Loss) Attributable to Common Stockholders $ 17,245 $ 56,467

Net Income (Loss) Per Common Share $ 0.39 $ 1.76

(1)See Note 13 of the notes to the consolidated financial statements for the year ended December 31, 2020, for further details on management fee rebates.

86

Table of Contents

The following table summarizes our results of operations for the year ended December 31, 2018:

(In thousands except per share amounts) Year Ended December 31, 2018

Investment Income:

Total investment income 135,041

Expenses:

Base management fee to affiliate (Net of fee rebates of $1,380) 7,573

Incentive fee to affiliate 715

Other investment related expenses 16,954

Other operating expenses 9,967

Net Investment Income 43,125

Net realized and change in net unrealized gain (loss) on investments (526)

Net foreign currency gain (loss) (2,940)

Net Increase (Decrease) in Equity Resulting from Operations 49,911

Core Earnings

In connection with our conversion to a REIT effective as of January 1, 2019 (the "REIT Conversion"), we began to include the calculation of Core Earnings starting with the three-month period ended March 31, 2019. Prior to the REIT Conversion, we did not calculate Core Earnings. We calculate Core Earnings as U.S. GAAP net income (loss) as adjusted for: (i) realized and unrealized gain (loss) on securities and loans, REO, financial derivatives (excluding periodic settlements on interest rate swaps), other secured borrowings, at fair value, and foreign currency transactions; (ii) incentive fee to affiliate; (iii) Catch-up Premium Amortization Adjustment (as defined below); (iv) non-cash equity compensation expense; (v) provision for income taxes; and (vi) certain other income or loss items that are of a non-recurring nature. For certain investments in unconsolidated entities, we include the relevant components of net operating income in Core Earnings. The Catch-up Premium Amortization Adjustment is a quarterly adjustment to premium amortization triggered by changes in actual and projected prepayments on our Agency RMBS (accompanied by a corresponding offsetting adjustment to realized and unrealized gains and losses). The adjustment is calculated as of the beginning of each quarter based on our then-current assumptions about cashflows and prepayments, and can vary significantly from quarter to quarter.

Core Earnings is a supplemental non-GAAP financial measure. We believe that the presentation of Core Earnings provides a consistent measure of operating performance by excluding the impact of gains and losses and other adjustments listed above from operating results. We believe that Core Earnings provides information useful to investors because it is a metric that we use to assess our performance and to evaluate the effective net yield provided by our portfolio. In addition, we believe that presenting Core Earnings enables our investors to measure, evaluate, and compare our operating performance to that of our peers. However, because Core Earnings is an incomplete measure of our financial results and differs from net income (loss) computed in accordance with U.S. GAAP, it should be considered as supplementary to, and not as a substitute for, net income (loss) computed in accordance with U.S. GAAP.

87

Table of Contents

The following table reconciles, for the years ended December 31, 2020 and 2019, Core Earnings to the line on the our Consolidated Statement of Operations entitled Net Income (Loss), which we believe is the most directly comparable U.S. GAAP measure.

Year Ended

(In thousands, except per share amounts) December 31, 2020 December 31, 2019

Net income (loss) before income tax expense (benefit) 39,754 64,735

Adjustments:

Realized (gains) losses on securities and loans, net 5,960 12,785

Realized (gains) losses on financial derivatives, net 31,521 30,912

Realized (gains) losses on real estate owned, net (15) (2,327)

Unrealized (gains) losses on securities and loans, net 25,783 (54,478)

Unrealized (gains) losses on financial derivatives, net (989) 5,338

Unrealized (gains) losses on real estate owned, net 649 1,279

Other realized and unrealized (gains) losses, net(1) 7,703 829

Incentive fee to affiliate — 116

Non-cash equity compensation expense 722 475

Core Earnings attributable to non-controlling interests 4,532 4,883

Core Earnings Attributable to Common Stockholders $ 70,901 $ 58,214

Core Earnings Attributable to Common Stockholders, per share $ 1.63 $ 1.82

(1)Includes realized and unrealized gains (losses) on foreign currency and unrealized gain (loss) on other secured borrowings, at fair value, included in Other, net, on the Consolidated Statement of Operations.

(2)For 2020, non-recurring expenses consisted of expensed deferred offering costs; for 2019, non-recurring expenses consisted primarily of professional fees related to the REIT Conversion.

(3)Adjustment represents, for certain investments in unconsolidated entities, the net realized and unrealized gains and losses of the underlying investments of such entities.

Results of Operations for the Years Ended December 31, 2020 and 2019

Net Income (Loss) Attributable to Common Stockholders

For the year ended December 31, 2020 we had net income (loss) attributable to common stockholders of $17.2 million compared to $56.5 million for the year ended December 31, 2019. The year-over-year decrease in our results of operations was primarily due to net realized and unrealized losses on securities and loans, partially offset by an increase in net interest income and earnings from investments in unconsolidated entities for the year ended December 31, 2020.

Interest Income

Interest income was $173.5 million for the year ended December 31, 2020, as compared to $159.9 million for the year ended December 31, 2019. Interest income for both periods included coupon payments received and accrued on our holdings, the net accretion and amortization of purchase discounts and premiums on those holdings, and interest on our cash balances, including those balances held by our counterparties as collateral.

88

Table of Contents

For the year ended December 31, 2020, interest income from our credit portfolio was $144.6 million, as compared to $120.3 million for the year ended December 31, 2019. This year-over-year increase was primarily due to the larger size of the credit portfolio for the year ended December 31, 2020, partially offset by lower average asset yields on this portfolio.

For the year ended December 31, 2020, interest income from our Agency RMBS was $28.0 million, as compared to $37.4 million for the year ended December 31, 2019. This year-over-year decrease was due to the smaller size of the Agency portfolio, as well as lower average asset yields, for the year ended December 31, 2020.

The following table details our interest income, average holdings of yield-bearing assets, and weighted average yield based on amortized cost for the years ended December 31, 2020 and 2019:

Credit(1) Agency(1) Total(1)

(1)Amounts exclude interest income on cash and cash equivalents (including when posted as margin) and long positions in U.S. Treasury securities. Also excludes long holdings of corporate securities that represent components of certain relative value trading strategies.

Some of the variability in our interest income and portfolio yields is due to the Catch-up Premium Amortization Adjustment. For the years ended December 31, 2020 and 2019, we had a negative Catch-up Premium Amortization Adjustment of approximately $(4.5) million and $(4.7) million, respectively, which decreased our interest income. Excluding the Catch-up Premium Amortization Adjustment, the weighted average yield of our Agency portfolio and our total portfolio was 2.90% and 5.78%, respectively, for the year ended December 31, 2020. Excluding the Catch-up Premium Amortization Adjustment, the weighted average yield of our Agency portfolio and our total portfolio was 3.16% and 5.91%, respectively, for the year ended December 31, 2019.

Interest Expense

Interest expense primarily includes interest on funds borrowed under repos and Total other secured borrowings, interest on our Senior Notes, coupon interest on securities sold short, the related net accretion and amortization of purchase discounts and premiums on those short holdings, and interest on our counterparties' cash collateral held by us. Our total interest expense decreased to $61.7 million for the year ended December 31, 2020, as compared to $78.5 million for the year ended December 31, 2019. Although average borrowings increased year over year, interest expense declined as a result of a significant decrease in borrowing rates on our both our Agency and credit assets.

The table below summarizes the components of interest expense for the years ended December 31, 2020 and 2019.

Year Ended

Repos and Total other secured borrowings $ 56,005 72,702

(1)Amount includes the related amortization of debt issuance costs. For the year ended December 31, 2020, amount includes interest expense on the Senior Notes. For the year ended December 31, 2019, amount includes interest expense on the Senior Notes and the Old Senior Notes.

(2)Amount includes the related net accretion and amortization of purchase discounts and premiums.

(3)Primarily includes interest expense on our counterparties' cash collateral held by us.

89

Table of Contents

The following table summarizes our aggregate secured borrowings, which, other than Other secured borrowings, at fair value, carry interest rates that are based on, or correlated with, LIBOR, including repos and Total other secured borrowings, for the years ended December 31, 2020 and 2019.

Year Ended

(In thousands)

Average One-Month LIBOR 0.52 % 2.22 %

Average Six-Month LIBOR 0.69 % 2.32 %

(1)Excludes U.S. Treasury Securities.

Among other instruments, we use interest rate swaps to hedge against the risk of rising interest rates. If we were to include as a component of our cost of funds the amortization of upfront payments and the actual and accrued periodic payments on our interest rate swaps used to hedge our assets, our total average cost of funds would increase to 2.35% for the year ended December 31, 2020 and decrease to 3.11% for the year ended December 31, 2019. Excluding the Catch-up Premium Amortization Adjustment, our net interest margin, defined as the yield on our portfolio of yield-bearing targeted assets less our cost of funds (including amortization of upfront payments and actual and accrued periodic payments on interest rate swaps as described above), was 3.43% and 2.80% for the years ended December 31, 2020 and 2019, respectively. These metrics do not include costs associated with other instruments that we use to hedge interest rate risk, such as TBAs and futures.

Base Management Fees

For the year ended December 31, 2020, the gross base management fee, which is based on total equity at the end of each quarter, was $12.6 million, and our Manager credited us with rebates on our base management fee of $1.1 million, resulting in a net base management fee of $11.5 million. For the year ended December 31, 2019, the gross base management fee was $10.0 million, and our Manager credited us with rebates on our base management fee of $2.0 million, resulting in a net base management fee of $8.0 million. For each period, the base management fee rebates related to those of our CLO investments for which Ellington or one of its affiliates earned CLO management fees. The year-over-year increase in the net base management fee was due to our larger capital base at the end of each quarter in 2020 as compared to each respective quarter end in 2019.

Incentive Fees

In addition to the base management fee, our Manager is also entitled to a quarterly incentive fee if our performance (as measured by adjusted net income, as defined in the management agreement) over the relevant rolling four quarter calculation period exceeds a defined return hurdle for the period. Incentive fee incurred for the year ended December 31, 2019 was $0.1 million; no incentive fee was incurred for the year ended December 31, 2020, since on a rolling four quarter basis, our income did not exceed the prescribed hurdle amount. Because our operating results can vary materially from one period to another, incentive fee expense can be highly variable.

Other Investment Related Expenses

Other investment related expenses consist of servicing fees on our mortgage and consumer loans, as well as various other expenses and fees directly related to our financial assets and certain financial liabilities carried at fair value. For the years ended December 31, 2020 and 2019 other investment related expenses were $18.1 million and $17.8 million, respectively. The increase in other investment related expenses was primarily due to year-over-year increases in debt issuance costs related to our non-QM loan securitizations and servicing expenses on our consumer loan portfolios, partially offset by a decrease in various other expenses related to our residential and commercial mortgage loan and REO portfolios.

Other Operating Expenses

Other operating expenses consist of professional fees, compensation expense related to our dedicated or partially dedicated personnel, and various other operating expenses necessary to run our business. Other operating expenses exclude

90

Table of Contents

management and incentive fees, interest expense, and other investment related expenses. Other operating expenses were $15.2 million for the year ended December 31, 2020 as compared to $12.9 million for the year ended December 31, 2019. The increase in other operating expenses for the year ended December 31, 2020 was primarily due to an increase in fund administration expenses, the recognition of Delaware corporate franchise tax, and compensation expense.

Other Income (Loss)

Other income (loss) consists of net realized and unrealized gains (losses) on securities and loans, financial derivatives, and real estate owned. Other, net, another component of Other income (loss), includes rental income and income related to loan originations, as well as realized gains (losses) on foreign currency transactions and unrealized gains (losses) on foreign currency remeasurement and Other Secured Borrowings, at fair value. For the year ended December 31, 2020, other income (loss) was $(65.2) million, consisting primarily of net realized and unrealized losses of $(31.7) million on our securities and loans and net realized and unrealized losses on our financial derivatives of $(30.5) million. Net realized and unrealized losses of $(31.7) million on our securities and loans primarily resulted from net realized and unrealized losses on CLOs, CMBS, and consumer loans and ABS backed by consumer loans, partially offset by net realized and unrealized gains on Agency RMBS and non-QM loans. These net realized and unrealized losses were primarily incurred during the first quarter of 2020, and were driven by to the market and economic disruptions caused by the COVID-19 pandemic. Net realized and unrealized losses of $(30.5) million on our financial derivatives were primarily related to net realized and unrealized losses on interest rate swaps, TBAs, futures, forwards, and total return swaps, as interest rates declined significantly during the year, partially offset by net realized and unrealized gains on CDS on asset-backed indices, CDS on corporate bond indices, and CDS on corporate bonds.

For the year ended December 31, 2019, other income was $11.8 million, consisting primarily of net realized and unrealized gains of $41.7 million on our securities and loans, gains included in Other, net of $5.4 million, and net realized and unrealized gains of $1.0 million on our real estate owned, partially offset by net realized and unrealized losses of $(36.3) million on our financial derivatives. Net realized and unrealized gains of $41.7 million on our securities and loans primarily resulted from net realized and unrealized gains on Agency RMBS, residential mortgage loans, and non-Agency RMBS and CMBS, partially offset by net realized and unrealized losses on CLOs, consumer loans, and corporate debt and equity. Net realized and unrealized losses of $(36.3) million on our financial derivatives was primarily related to net realized and unrealized losses on interest rate swaps, TBAs, futures, CDS on corporate bond indices, and CDS on asset-backed indices, partially offset by net realized and unrealized gains on forwards.

Income Tax Expense (Benefit)

Income tax expense was $11.4 million for the year ended December 31, 2020, as compared to $1.6 million for the year ended December 31, 2019. The increase in income tax expense for the year ended December 31, 2020 was primarily due to an increase in deferred tax liabilities related to unrealized gains on investments held in a domestic TRS.

Earnings (Losses) from Investments in Unconsolidated Entities

We have elected the fair value option for our equity investments in unconsolidated entities. Earnings (losses) from investments in unconsolidated entities was $37.9 million for the year ended December 31, 2020, as compared to $10.2 million for the year ended December 31, 2019. The increase in Earnings (losses) from investments in unconsolidated entities was primarily due to unrealized gains on our investments in loan originators.

Results of Operations for the Years Ended December 31, 2019 and 2018

Net Income (Loss) Attributable to Common Stockholders

For the year ended December 31, 2019 we had net income (loss) attributable to common stockholders of $56.5 million. We had interest income of $159.9 million, interest expense of $78.5 million, total other income (loss) of $11.8 million, earnings from investments in unconsolidated entities of $10.2 million, income tax expense of $1.6 million, total operating expenses of $38.7 million, net income attributable to non-controlling interests of $5.2 million, and dividends on preferred stock of $1.5 million.

Summary of Net Increase in Shareholders' Equity from Operations

For the year ended December 31, 2018 we had a net increase in shareholders' equity resulting from operations of $46.7 million. We had interest income of $131.0 million, other income of $4.0 million, net realized and unrealized gains of $6.8 million, and total expenses of $91.9 million, less net increase (decrease) in equity resulting from operations attributable to non-controlling interests of $3.2 million.

91

Table of Contents

Interest Income

Interest income was $159.9 million for the year ended December 31, 2019, as compared to $131.0 million for the year ended December 31, 2018. Interest income for both periods included coupon payments received and accrued on our holdings, the net accretion and amortization of purchase discounts and premiums on those holdings, and interest on our cash balances, including those balances held by our counterparties as collateral.

For the year ended December 31, 2019, interest income from our credit portfolio was $120.3 million, as compared to $91.6 million for the year ended December 31, 2018. This period-over-period increase was primarily due to the larger size of the credit portfolio for the year ended December 31, 2019, as well as higher average asset yields on this portfolio.

For the year ended December 31, 2019, interest income from our Agency RMBS was $37.4 million, as compared to $31.1 million for the year ended December 31, 2018. This year-over-year increase was primarily due to the larger size of the Agency portfolio for the year ended December 31, 2019, partially offset by lower average asset yields on this portfolio.

The following table details our interest income, average holdings of yield-bearing assets, and weighted average yield based on amortized cost for the years ended December 31, 2019 and 2018:

Credit(1) Agency(1) Total(1)

(1)Amounts exclude interest income on cash and cash equivalents (including when posted as margin) and long positions in U.S. Treasury securities. Also excludes long holdings of corporate securities that represent components of certain relative value trading strategies.

Some of the variability in our interest income and portfolio yields is due to the Catch-up Premium Amortization Adjustment. For the year ended December 31, 2019, we had a negative Catch-up Premium Amortization Adjustment of approximately $(4.7) million, which decreased our interest income. Excluding the Catch-up Premium Amortization Adjustment, the weighted average yield of our Agency portfolio and our total portfolio was 3.16% and 5.91%, respectively, for the year ended December 31, 2019. By comparison, for the year ended December 31, 2018 the Catch-up Premium Amortization Adjustment decreased interest income by approximately $(0.1) million, which slightly decreased our interest income. Excluding the Catch-up Premium Amortization Adjustment, the weighted average yield of our Agency portfolio and our total portfolio was 3.26% and 5.85%, respectively for the year ended December 31, 2018.

Interest Expense

Interest expense primarily includes interest on funds borrowed under repos and Total other secured borrowings, interest on our Senior Notes, coupon interest on securities sold short, the related net accretion and amortization of purchase discounts and premiums on those short holdings, and interest on our counterparties' cash collateral held by us. Our total interest expense increased to $78.5 million for the year ended December 31, 2019, as compared to $56.7 million for the year ended December 31, 2018. The year-over-year increase was primarily due to (i) an increase in our total borrowings, in connection with the growth of our portfolio, (ii) higher average rates on our repo and Other secured borrowings, and (iii) a higher proportion of our credit-related borrowings consisting of borrowings used to finance loan assets, which typically have higher borrowing costs than securities.

92

Table of Contents

The table below summarizes the components of interest expense for the years ended December 31, 2019 and 2018.

For the Year Ended

Repos and Total other secured borrowings $ 72,702 46,280

(1)Amount includes the related amortization of debt issuance costs. For the year ended December 31, 2019, amount includes interest expense on the Senior Notes and the Old Senior Notes. For the year ended December 31, 2018, amount includes interest expense on the Old Senior Notes.

(2)Amount includes the related net accretion and amortization of purchase discounts and premiums.

(3)Primarily includes interest expense on our counterparties' cash collateral held by us, and reverse repos with negative interest rates, which can occur when we borrow certain bonds that we have sold short.

The following table summarizes our aggregate secured borrowings, which, other than Other secured borrowings, at fair value, carry interest rates that are based on, or correlated with, LIBOR, including repos and Total other secured borrowings, for the years ended December 31, 2019 and 2018.

For the Year Ended

(In thousands)

Average One-Month LIBOR 2.22 % 2.02 %

Average Six-Month LIBOR 2.32 % 2.49 %

(1)Excludes U.S. Treasury Securities.

Among other instruments, we use interest rate swaps to hedge against the risk of rising interest rates. If we were to include as a component of our cost of funds the amortization of upfront payments and the actual and accrued periodic payments on our interest rate swaps used to hedge our assets, our total average cost of funds would decrease to 3.11% for the year ended December 31, 2019 and to 2.73% for the year ended December 31, 2018. Excluding the Catch-up Premium Amortization Adjustment, our net interest margin, defined as the yield on our portfolio of yield-bearing targeted assets less our cost of funds (including amortization of upfront payments and actual and accrued periodic payments on interest rate swaps as described above), was 2.80% and 3.12% for the years ended December 31, 2019 and 2018, respectively. These metrics do not include costs associated with other instruments that we use to hedge interest rate risk, such as TBAs and futures.

Base Management Fees

For the year ended December 31, 2019, the gross base management fee, which is based on total equity at the end of each quarter, was $10.0 million, and our Manager credited us with rebates on our base management fee of $2.0 million, resulting in a net base management fee of $8.0 million. For the year ended December 31, 2018, the gross base management fee was $9.0 million, and our Manager credited us with rebates on our base management fee of $1.4 million, resulting in a net base management fee of $7.6 million. For each period, the base management fee rebates related to those of our CLO investments for which Ellington or one of its affiliates earned CLO management fees. The year-over-year increase in the net base management fee was primarily due to our larger capital base in the second half of 2019 partially offset by the year-over-year increase in the fee rebate from our Manager.

Incentive Fees

In addition to the base management fee, our Manager is also entitled to a quarterly incentive fee if our performance (as measured by adjusted net income, as defined in the management agreement) over the relevant rolling four quarter calculation period exceeds a defined return hurdle for the period. Incentive fee incurred for the years ended December 31, 2019 and 2018

93

Table of Contents

was $0.1 million and $0.7 million, respectively. Because our operating results can vary materially from one period to another, incentive fee expense can be highly variable.

Other Investment Related Expenses

Other investment related expenses consist of servicing fees on our mortgage and consumer loans, as well as various other expenses and fees directly related to our financial assets and certain financial liabilities carried at fair value. For the years ended December 31, 2019 and 2018 other investment related expenses were $17.8 million and $17.0 million, respectively. The increase in other investment related expenses was primarily due to an increase in debt issuance costs related to Other secured borrowings, at fair value, given that we completed two non-QM securitizations during 2019 as compared to just one in 2018, and to a lesser extent, an increase in servicing expenses on our larger loan portfolios. These increases were partially offset by a decrease in dividend expense on common stock sold short.

Other Operating Expenses

Other operating expenses consist of professional fees, compensation expense related to our dedicated or partially dedicated personnel, and various other operating expenses necessary to run our business. Other operating expenses exclude management and incentive fees, interest expense, and other investment related expenses. Other operating expenses were $12.9 million for the year ended December 31, 2019 as compared to $10.0 million for the year ended December 31, 2018. The increase in other operating expenses for the year ended December 31, 2019 was primarily due to an increase in professional fees related to our REIT Conversion and an increase in compensation expense.

Other Income (Loss)

Other income (loss) consists of net realized and unrealized gains (losses) on securities and loans, financial derivatives, and real estate owned. Other, net, another component of Other income (loss), includes rental income and income related to loan origination, as well as realized gains (losses) on foreign currency transactions and unrealized gains (losses) on foreign currency remeasurement and Other Secured Borrowings, at fair value. For the year ended December 31, 2019, other income was $11.8 million, consisting primarily of net realized and unrealized gains of $41.7 million on our securities and loans, gains included in Other, net of $5.4 million, and net realized and unrealized gains of $1.0 million on our real estate owned, partially offset by net realized and unrealized losses of $(36.3) million on our financial derivatives. Net realized and unrealized gains of $41.7 million on our securities and loans primarily resulted from net realized and unrealized gains on Agency RMBS, residential mortgage loans, and non-Agency RMBS and CMBS, partially offset by net realized and unrealized losses on CLOs, consumer loans, and corporate debt and equity. Net realized and unrealized losses of $(36.3) million on our financial derivatives was primarily related to net realized and unrealized losses on interest rate swaps, TBAs, futures, CDS on corporate bond indices, and CDS on asset-backed indices, partially offset by net realized and unrealized gains on forwards.

Net Realized and Unrealized Gains (Losses) on Investments

During the year ended December 31, 2018, we had net realized and unrealized losses on investments of $(0.5) million. Included in these investments are short positions in TBAs, U.S. Treasury securities, and sovereign securities, used primarily to hedge interest rate and/or prepayment risk with respect to our other investment holdings.

Net realized and unrealized losses on investments of $(0.5) million for the year ended December 31, 2018 resulted principally from net realized and unrealized losses on Agency RMBS, U.S. CLOs, and European RMBS, partially offset by net realized and unrealized gains on TBAs, CMBS, listed and non-listed equity investments, and European non-performing loans.

Net Realized and Unrealized Gains and (Losses) on Financial Derivatives

During the year ended December 31, 2018, we had net realized and unrealized gains on our financial derivatives of $9.5 million. Our financial derivatives consisted of interest rate derivatives, used primarily to hedge interest rate risk, and of credit derivatives and total return swaps, both used primarily to hedge credit risk, but also for non-hedging purposes. Our derivatives also included foreign currency forwards and futures, used to hedge foreign currency risk. Our interest rate derivatives were primarily in the form of net short positions in interest rate swaps, Eurodollar futures, and U.S. Treasury Note futures.

Net realized and unrealized gains of $9.5 million on our financial derivatives for the year ended December 31, 2018 resulted primarily from net gains on our total return swaps, interest rate swaps, and CDS on corporate bond indices, partially offset by net realized and unrealized losses on credit default swaps on asset-backed indices. Net realized and unrealized gains on our foreign currency hedges more than offset the net foreign exchange transaction and translation losses. Translation and transaction net losses were incurred in connection with our non-dollar denominated European assets.

94

Table of Contents

Liquidity and Capital Resources

Liquidity refers to our ability to meet our cash needs, including repaying our borrowings, funding and maintaining positions in our targeted assets, making distributions in the form of dividends, and other general business needs. Our short-term (one year or less) and long-term liquidity requirements include acquisition costs for assets we acquire, payment of our base management fee and incentive fee, compliance with margin requirements under our repos, reverse repos, and financial derivative contracts, repayment of repo borrowings and other secured borrowings to the extent we are unable or unwilling to extend such borrowings, payment of our general operating expenses, payment of interest payments on our Senior Notes, and payment of our dividends. Our capital resources primarily include cash on hand, cash flow from our investments (including principal and interest payments received on our investments and proceeds from the sale of investments), borrowings under repos and other secured borrowings, and proceeds from equity and debt offerings. We expect that these sources of funds will be sufficient to meet our short-term and long-term liquidity needs.

The following summarizes our borrowings under repos by remaining maturity:

Repos involving underlying investments that were sold prior to December 31, 2020 for settlement following December 31, 2020, are shown using their original maturity dates even though such repos may be expected to be terminated early upon settlement of the sale of the underlying investment.

The amounts borrowed under our repo agreements are generally subject to the application of "haircuts." A haircut is the percentage discount that a repo lender applies to the market value of an asset serving as collateral for a repo borrowing, for the purpose of determining whether such repo borrowing is adequately collateralized. As of December 31, 2020, the weighted average contractual haircut applicable to the assets that serve as collateral for our outstanding repo borrowings (excluding repo borrowings related to U.S. Treasury securities) was 33.0% with respect to credit assets, 6.0% with respect to Agency RMBS assets, and 19.1% overall. As of December 31, 2019 these respective weighted average contractual haircuts were 29.3%, 5.0%, and 12.3%. The increase in the weighted average contractual haircuts for both our credit assets and our Agency RMBS was primarily due to volatile market conditions and market-wide liquidity stresses resulting from the COVID-19 pandemic. Although this increase in financing haircuts has not yet been shown to be temporary, market haircut levels as of the end of the fourth quarter were noticeably lower than those observed in early April 2020. Additionally, a portion of the increase in the weighted average contractual haircut on our overall portfolio is due to the lower share of our overall portfolio represented by Agency RMBS.

We expect to continue to borrow funds in the form of repos as well as other similar types of financings. The terms of our repo borrowings are predominantly governed by master repurchase agreements, which generally conform to the terms in the standard master repurchase agreement as published by the Securities Industry and Financial Markets Association as to repayment and margin requirements. In addition, each lender may require that we include supplemental terms and conditions to the standard master repurchase agreement. Typical supplemental terms and conditions include the addition of or changes to provisions relating to margin calls, net asset value requirements, cross default provisions, certain key person events, changes in corporate structure, and requirements that all controversies related to the repurchase agreement be litigated in a particular jurisdiction. These provisions may differ for each of our repo lenders.

As of December 31, 2020 and 2019, we had $1.5 billion and $2.4 billion, respectively, of borrowings outstanding under our repos. As of December 31, 2020, the remaining terms on our repos ranged from 4 days to 516 days, with a weighted average remaining term of 94 days. Our repo borrowings were with a total of 24 counterparties as of December 31, 2020. As of December 31, 2020, our repos had a weighted average borrowing rate of 1.20%. As of December 31, 2020, our repos had interest rates ranging from 0.20% to 5.00%. As of December 31, 2019, the remaining terms on our repos ranged from 2 days to

95

Table of Contents

882 days, with a weighted average remaining term of 91 days. Our repo borrowings were with a total of 28 counterparties as of December 31, 2019. As of December 31, 2019, our repos had a weighted average borrowing rate of 2.37%. As of December 31, 2019, our repos had interest rates ranging from 0.15% to 5.20%. Investments transferred as collateral under repos had an aggregate fair value of $1.8 billion and $2.8 billion as of December 31, 2020 and 2019, respectively.

The interest rates of our repos have historically moved in close relationship to short-term LIBOR rates, and in some cases are explicitly indexed to short-term LIBOR rates and reset accordingly. It is expected that amounts due upon maturity of our repos will be funded primarily through the roll/re-initiation of repos and, if we are unable or unwilling to roll/re-initiate our repos, through free cash and proceeds from the sale of securities.

During March and early April, the market turmoil associated with the COVID-19 pandemic caused significant volatility, price declines and yield spread widening across virtually all credit assets. As a result, we incurred considerable mark-to-market losses in the first quarter, which resulted in our receipt of margin calls under our financing arrangements and under our derivative contracts that were higher than typical historical levels. While we were able to roll our repos in an orderly manner, haircuts and borrowing rates were generally higher, and maturities generally shorter. In contrast, prices in many credit-sensitive fixed income sectors rebounded in the second quarter, generating significant net realized and unrealized gains on our credit assets, and our margin calls reverted to more typical levels. By the end of the second quarter, the market for standard repo financing of securities had largely returned to pre-March levels. We satisfied all margin calls during both periods.

Over the course of 2020, we made substantial progress extending and improving our sources of financing and leverage. Following the market volatility of the spring, we also obtained term financing for numerous loan assets that we had previously held unfinanced. In addition to adding new financing facilities and extending the terms of other financing facilities, we completed three loan securitizations during the year.

The following table details total outstanding borrowings, average outstanding borrowings, and the maximum outstanding borrowings at any month end for each quarter under repos for the past twelve quarters:

(In thousands)

(1)During this quarter, we continued to lower leverage and improve our liquidity given the uncertainty as a result of the COVID-19 pandemic.

(2)In March 2020, in response to significant volatility and heightened risks in the financial markets as a result of the spread of COVID-19, we significantly reduced our outstanding borrowings to lower leverage and increase our liquidity.

(3)At the end of 2019 we increased the size of both our Credit and Agency portfolios which we subsequently financed through repos.

In addition to our borrowings under repos, we have entered into various other types of transactions to finance certain of our investments, including non-QM loans and REO, and consumer loans and ABS backed by consumer loans; such transactions are accounted for as collateralized borrowings. As of December 31, 2020 and 2019, we had outstanding borrowings related to such transactions in the amount of $806.0 million and $744.7 million, respectively, which is reflected under the captions "Other secured borrowings" and "Other secured borrowings, at fair value" on the Consolidated Balance Sheet. As of December 31, 2020, the fair value of non-QM loans, consumer loans and ABS backed by consumer loans, and small balance commercial mortgage loans collateralizing our Total other secured borrowings was $906.4 million. As of December 31, 2019, the fair value of non-QM loans and REO and consumer loans and ABS backed by consumer loans collateralizing our Total other secured borrowings was $843.4 million. See Note 11 in the notes to our consolidated financial statements for the year ended December 31, 2020, for further information on our other secured borrowings.

96

Table of Contents

As of both December 31, 2020 and 2019, we had $86.0 million outstanding of Senior Notes, maturing in September 2022 and bearing interest at a rate of 5.50%, subject to adjustment based on changes, if any, in the ratings of the Senior Notes. These Senior Notes were issued on February 13, 2019 in connection with the Note Exchange. See Note 11 in the notes to our consolidated financial statements for the year ended December 31, 2020, for further detail on the Senior Notes.

As of December 31, 2020, we had an aggregate amount at risk under our repos with 24 counterparties of approximately $363.1 million, and as of December 31, 2019, we had an aggregate amount at risk under our repos with 28 counterparties of approximately $348.4 million. Amounts at risk represent the excess, if any, for each counterparty of the fair value of collateral held by such counterparty over the amounts outstanding under repos. If the amounts outstanding under repos with a particular counterparty are greater than the collateral held by the counterparty, there is no amount at risk for the particular counterparty. Amount at risk as of December 31, 2020 and 2019 does not include approximately $4.2 million and $5.1 million, respectively, of net accrued interest receivable, which is defined as accrued interest on securities held as collateral less interest payable on cash borrowed.

Our derivatives are predominantly subject to bilateral collateral arrangements or clearing in accordance with the Dodd-Frank Act. We may be required to deliver or receive cash or securities as collateral upon entering into derivative transactions. Changes in the relative value of derivative transactions may require us or the counterparty to post or receive additional collateral. Entering into derivative contracts involves market risk in excess of amounts recorded on our balance sheet. In the case of cleared derivatives, the clearinghouse becomes our counterparty and the future commission merchant acts as an intermediary between us and the clearinghouse with respect to all facets of the related transaction, including the posting and receipt of required collateral.

As of December 31, 2020, we had an aggregate amount at risk under our derivative contracts, excluding TBAs, with eight counterparties of approximately $11.2 million. We also had $7.2 million of initial margin for cleared over-the-counter, or "OTC," derivatives posted to central clearinghouses as of that date. As of December 31, 2019, we had an aggregate amount at risk under our derivatives contracts, excluding TBAs, with ten counterparties of approximately $26.4 million. We also had $14.2 million of initial margin for cleared OTC derivatives posted to central clearinghouses as of that date. Amounts at risk under our derivatives contracts represent the excess, if any, for each counterparty of the fair value of our derivative contracts plus our collateral held directly by the counterparty less the counterparty's collateral held by us. If a particular counterparty's collateral held by us is greater than the aggregate fair value of the financial derivatives plus our collateral held directly by the counterparty, there is no amount at risk for the particular counterparty.

We purchase and sell TBAs and Agency pass-through certificates on a when-issued or delayed delivery basis. The delayed delivery for these securities means that these transactions are more prone to market fluctuations between the trade date and the ultimate settlement date, and therefore are more vulnerable, especially in the absence of margining arrangements with respect to these transactions, to increasing amounts at risk with the applicable counterparties. As of December 31, 2020, in connection with our forward settling TBA and Agency pass-through certificates, we had an aggregate amount at risk with six counterparties of approximately $4.1 million. As of December 31, 2019, in connection with our forward settling TBA and Agency pass-through certificates, we had an aggregate amount at risk with nine counterparties of approximately $4.2 million. Amounts at risk in connection with our forward settling TBA and Agency pass-through certificates represent the excess, if any, for each counterparty of the net fair value of the forward settling transactions plus our collateral held directly by the counterparty less the counterparty's collateral held by us. If a particular counterparty's collateral held by us is greater than the aggregate fair value of the forward settling transactions plus our collateral held directly by the counterparty, there is no amount at risk for the particular counterparty.

We held cash and cash equivalents of approximately $111.6 million and $72.3 million as of December 31, 2020 and 2019, respectively.

On June 13, 2018, our Board of Directors approved the adoption of a share repurchase program under which we are authorized to repurchase up to 1.55 million shares of common stock. The program, which is open-ended in duration, allows us to make repurchases from time to time on the open market or in negotiated transactions, including under 10b5-1 plans. Repurchases are at our discretion, subject to applicable law, share availability, price and our financial performance, among other considerations. In addition to making discretionary repurchases, we from time to time use 10b5-1 plans to increase the number of trading days available to implement these repurchases.

During the year ended December 31, 2020, we repurchased 290,050 shares at an average price per share of $10.54 and a total cost of $3.1 million. From inception of the current repurchase plan through March 5, 2021, we repurchased 701,965 shares at an average price per share of $13.36 and a total cost of $9.4 million, and have authorization to repurchase an additional 848,035 common shares.

97

Table of Contents

On April 3, 2019, we commenced an "at-the-market" offering program, or "ATM program," by entering into equity distribution agreements with third party sales agents under which we are authorized to offer and sell shares of common stock from time to time with a maximum aggregate gross offering price of up to $150 million. Through January 21, 2020 we did not issue any shares of common stock under the ATM program. Effective January 21, 2020, we terminated the ATM program.

On January 24, 2020, we completed a follow-on offering of 5,290,000 shares of our common stock, of which 690,000 shares were issued pursuant to the exercise of the underwriters' option. The issuance and sale of such common shares generated net proceeds, after underwriters' discount and offering costs, of $95.3 million.

We may declare dividends based on, among other things, our earnings, our financial condition, the REIT qualification requirements of the Internal Revenue Code of 1986, as amended, our working capital needs and new opportunities. The declaration of dividends to our stockholders and the amount of such dividends are at the discretion of our Board of Directors.

The following table sets forth the dividend distributions authorized by the Board of Directors payable to common stockholders and holders of Convertible Non-controlling Interest Units (as defined in Note 2 of the notes to consolidated financial statements) for the periods indicated below:

Year Ended December 31, 2020

Declaration Date Dividend Per Share Dividend Amount Record Date Payment Date

(In thousands)

Year Ended December 31, 2019

Declaration Date Dividend Per Share Dividend Amount Record Date Payment Date

(In thousands)

On January 8, 2021, the Board of Directors approved a dividend in the amount of $0.10 per share of common stock payable on February 25, 2021 to stockholders of record as of January 29, 2021. On February 5, 2021, the Board of Directors approved a dividend in the amount of $0.10 per share of common stock payable on March 25, 2021 to stockholders of record as of February 26, 2021.

98

Table of Contents

The following table sets forth the dividend distributions authorized by the Board of Directors payable to holders of our Series A Preferred Stock:

Declaration Date Dividend Per Share Dividend Amount Record Date Payment Date

(In thousands)

On January 8, 2021, the Board of Directors approved a dividend in the amount of $0.421875 per share of Series A Preferred Stock payable on February 1, 2021 to stockholders of record as of January 19, 2021.

For the year ended December 31, 2020, our operating activities provided net cash in the amount of $119.5 million and our investing activities provided net cash in the amount of $507.3 million. Our repo activity used to finance many of our investments (including repayments of amounts borrowed under our repos) used net cash of $919.4 million. We received $485.8 million in proceeds from the issuance of Total other secured borrowings and we used $179.6 million for principal payments on Other secured borrowings. Thus our operating and investing activities, when combined with our repo financings and Other secured borrowings (net of repayments), provided net cash of $13.6 million for the year ended December 31, 2020. We received proceeds from the issuance of common stock, net of offering costs paid, of $95.3 million and contributions from non-controlling interests provided cash of $9.8 million. We used $65.0 million to pay dividends, $11.3 million for distributions to non-controlling interests (our joint venture partners), and $3.1 million to repurchase common stock. As a result there was an increase in our cash holdings of $39.3 million, from $72.5 million as of December 31, 2019 to $111.8 million as of December 31, 2020.

For the year ended December 31, 2019, our operating activities provided net cash in the amount of $79.2 million and our investing activities used net cash in the amount of $1.665 billion. Our repo activity used to finance many of our investments (including repayments of amounts borrowed under our repos) provided net cash of $1.171 billion. We received $348.3 million in proceeds from the issuance of Total other secured borrowings and we used $124.0 million for principal payments on Total other secured borrowings. Thus our operating and investing activities, when combined with our repo financings and Other secured borrowings (net of repayments), used net cash of $189.5 million for the year ended December 31, 2019. We received proceeds from the issuance of common and preferred stock, net of offering costs paid, of $267.4 million and contributions from non-controlling interests provided cash of $27.7 million. We used $54.3 million to pay dividends, $23.1 million for distributions to non-controlling interests (our joint venture partners), and $0.8 million to repurchase common stock. As a result there was an increase in our cash holdings of $27.4 million, from $45.1 million as of December 31, 2018 to $72.5 million as of December 31, 2019.

For the year ended December 31, 2018, our operating activities used net cash in the amount of $494.2 million, and our reverse repo activity used to finance many of our investments (including repayments of amounts borrowed under our reverse repo agreements) provided net cash of $409.7 million. We received $201.9 million in proceeds from the issuance of Total other secured borrowings, net of certain expenses related to these issuances, and we used $43.8 million for principal payments on Other secured borrowings. Thus our operating activities, when combined with our reverse repo financings, Total other secured borrowings (net of repayments and certain expenses related to the issuance of debt), provided net cash of $73.6 million for the year ended December 31, 2018. In addition, contributions from non-controlling interests provided cash of $21.5 million. We used $50.7 million to pay dividends, $23.9 million for distributions to non-controlling interests (our joint venture partners), and $23.1 million to repurchase common shares. As a result there was a decrease in our cash holdings of $2.6 million, from $47.7 million as of December 31, 2017 to $45.1 million as of December 31, 2018.

Based on our current portfolio, amount of free cash on hand, debt-to-equity ratio, and current and anticipated availability of credit, we believe that our capital resources will be sufficient to enable us to meet anticipated short-term and long-term liquidity requirements. However, the unexpected inability to finance our Agency RMBS portfolio would create a serious short-term strain on our liquidity and would require us to liquidate much of that portfolio, which in turn would require us to restructure our portfolio to maintain our exclusion from registration as an investment company under the Investment Company Act and to maintain our qualification as a REIT. Steep declines in the values of our credit assets financed using repos, or in the values of our derivative contracts, would result in margin calls that would significantly reduce our free cash position. Furthermore, a substantial increase in prepayment rates on our assets financed by repos could cause a temporary liquidity shortfall, because we are generally required to post margin on such assets in proportion to the amount of the announced principal paydowns before the actual receipt of the cash from such principal paydowns. If our cash resources are at any time insufficient to satisfy our liquidity requirements, we may have to sell assets or issue additional debt or equity securities.

99

Table of Contents

In March 2020, as a result of significant declines in asset prices and general price volatility, we received margin calls under our financing arrangements and under our derivative contracts that were higher than typical historical levels. During the second and third quarters, prices for most credit assets stabilized and market volatility subsided, and as a result, our margin calls reverted to more typical levels. We satisfied all margin calls during these periods.

Although we may from time to time enter into financing arrangements that limit our leverage, our investment guidelines do not limit the amount of leverage that we may use, and we believe that the appropriate leverage for the particular assets we hold depends on the credit quality and risk of those assets, as well as the general availability and terms of stable and reliable financing for those assets.

Contractual Obligations and Commitments

We are a party to a management agreement with our Manager. Pursuant to that agreement, our Manager is entitled to receive a base management fee, an incentive fee, reimbursement of certain expenses and, in certain circumstances, a termination fee. Such fees and expenses do not have fixed and determinable payments. For a description of the management agreement provisions, see Note 13 of the notes to our consolidated financial statements the year ended December 31, 2020.

The following table summarizes our contractual obligations at December 31, 2020:

(In thousands) Less than One Year 1-3 Years 3-5 Years More than Five Years Total

Payable for securities purchased and financial derivatives 4,754 — — — 4,754

(1)Includes accrued interest expense on repurchase agreements at December 31, 2020 of $1.5 million which is included in Interest payable on the Consolidated Balance Sheet.

The above table excludes repayment obligations related to our Total other secured borrowings. These repayment obligations have been excluded from the above table since the timing of their actual maturities is based on the timing of the repayments of the underlying consumer and mortgage loans that collateralize them rather than a stated contractual maturity. Consumer and mortgage loans are subject to prepayment by borrowers and such prepayments are inherently difficult to predict. In addition, other secured borrowings related to our non-QM loan securitizations are subject to our optional redemption rights as described in Note 10 of the notes to consolidated financial statements for the year ended December 31, 2020.

The following table details our projected payments under our obligations related to our Total other secured borrowings as of December 31, 2020.

(In thousands) Less than One Year 1-3 Years 3-5 Years More than Five Years Total

We enter into repos with third-party broker-dealers whereby we sell a security to such broker-dealer at an agreed-upon purchase price at the initiation of the repo and agree to repurchase such security at predetermined repurchase price and termination date, thus providing the broker-dealer with an implied interest rate on the funds initially transferred to us by the broker-dealer. We enter into reverse repos with third-party broker-dealers whereby we purchase a security under an agreement to resell at an agreed-upon price and date. In general, we most often enter into reverse repo transactions in order to effectively borrow securities that we can then deliver to counterparties to whom we have made short sales of the same securities. The implied interest rates on the repos and reverse repos we enter into are based upon competitive market rates at the time of initiation. Repos and reverse repos that are conducted with the same counterparty may be reported on a net basis if they meet the requirements of ASC 210-20, Balance Sheet, Offsetting. See "—Liquidity and Capital Resources" for a summary of our borrowings on repos. As of December 31, 2020 and 2019 there were no repos or reverse repos reported on a net basis on the Consolidated Balance Sheet.

100

Table of Contents

We have numerous contractual obligations and commitments related to our outstanding borrowings (see Note 11 of the notes to our consolidated financial statements for the year ended December 31, 2020) and related to our financial derivatives (see Note 8 of the notes to our consolidated financial statements for the year ended December 31, 2020).

See Note 21 of the notes to our consolidated financial statements as of December 31, 2020 for further detail on our other contractual obligations and commitments.

Off-Balance Sheet Arrangements

As of December 31, 2020, we did not have any material relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment to provide funding to any such entities that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or resources that would be material to an investor in our securities. As such, we are not materially exposed to any market, credit, liquidity, or financing risk that could arise if we had engaged in such relationships.

At December 31, 2020 we have not entered into any repurchase agreements for which delivery of the borrowed funds is not scheduled until after period end.

Inflation

Virtually all of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors influence our performance far more so than does inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. Our activities and balance sheet are measured with reference to historical cost and/or fair market value without considering inflation.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The primary components of our market risk at December 31, 2020 are related to credit risk, prepayment risk, and interest rate risk. We seek to actively manage these and other risks and to acquire and hold assets that we believe justify bearing those risks, and to maintain capital levels consistent with those risks.

Credit Risk

We are subject to credit risk in connection with many of our assets, especially non-Agency RMBS, CMBS, residential and commercial mortgage loans, corporate debt investments including CLOs and investments in securitization warehouses, and consumer loans.

Credit losses on real estate loans can occur for many reasons, including, but not limited to, poor origination practices, fraud, faulty appraisals, documentation errors, poor underwriting, legal errors, poor servicing practices, weak economic conditions, decline in the value of homes, businesses or commercial properties, special hazards, earthquakes and other natural events, such as the COVID-19 pandemic, or an outbreak of another highly infectious or contagious disease, over-leveraging of the borrower on a property, reduction in market rents and occupancies and poor property management services, changes in legal protections for lenders, reduction in personal income, job loss, and personal events such as divorce or health problems. Property values are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional, and local economic conditions (which may be adversely affected by industry slowdowns and other factors), local real estate conditions (such as an oversupply of housing), changes or continued weakness in specific industry segments, construction quality, age and design, demographic factors, and retroactive changes to building or similar codes.

The ability of borrowers to repay consumer loans may be adversely affected by numerous borrower-specific factors, including unemployment, divorce, major medical expenses or personal bankruptcy. General factors, including an economic downturn, high energy costs or acts of God or terrorism, pandemics such as the COVID-19 pandemic or another highly infectious or contagious disease, may also affect the financial stability of borrowers and impair their ability or willingness to repay their loans. Whenever any of our consumer loans defaults, we are at risk of loss to the extent of any deficiency between the liquidation value of the collateral, if any, securing the loan, and the principal and accrued interest of the loan. Many of our consumer loans are unsecured, or are secured by collateral (such as an automobile) that depreciates rapidly; as a result, these loans may be at greater risk of loss than residential real estate loans.

Our corporate investments, especially our lower-rated or unrated CLO investments, corporate equity, and our investments in loan originators, have significant risk of loss, and our efforts to protect these investments may involve substantial costs and may not be successful. The risk of loss with respect to these investments has been, and will likely continue to be, exacerbated

101

Table of Contents

by the COVID-19 pandemic. We also will be subject to significant uncertainty as to when and in what manner and for what value the corporate debt in which we directly or indirectly invest will eventually be satisfied (e.g., through liquidation of the obligor's assets, an exchange offer or plan of reorganization involving the debt securities or a payment of some amount in satisfaction of the obligation). In addition, these investments could involve loans to companies that are more likely to experience bankruptcy or similar financial distress, such as companies that are thinly capitalized, employ a high degree of financial leverage, are in highly competitive or risky businesses, are in a start-up phase, or are experiencing losses.

Similarly, we are exposed to the risk of potential credit losses on the other assets in our credit portfolio. For many of our investments, the two primary components of credit risk are default risk and severity risk.

Default Risk

Default risk is the risk that a borrower fails to make scheduled principal and interest payments on a mortgage loan or other debt obligation. We may attempt to mitigate our default risk by, among other things, opportunistically entering into credit default swaps and total return swaps. These instruments can reference various MBS indices, corporate bond indices, or corporate entities. We often rely on third-party servicers to mitigate our default risk, but such third-party servicers may have little or no economic incentive to mitigate loan default rates.

Severity Risk

Severity risk is the risk of loss upon a borrower default on a mortgage loan or other secured or unsecured debt obligation. Severity risk includes the risk of loss of value of the property or other asset, if any, securing the mortgage loan or debt obligation, as well as the risk of loss associated with taking over the property or other asset, if any, including foreclosure costs. We often rely on third-party servicers to mitigate our severity risk, but such third-party servicers may have little or no economic incentive to mitigate loan loss severities. In the case of mortgage loans, such mitigation efforts may include loan modification programs and prompt foreclosure and property liquidation following a default. Many of our consumer loans are unsecured, or are secured by collateral (such as an automobile) that depreciates rapidly; as a result, these loans may be at greater risk of loss than residential real estate loans. Pursuing any remaining deficiency following a default on a consumer loan is often difficult or impractical, especially when the borrower has a low credit score, making further substantial collection efforts unwarranted. In addition, repossessing personal property securing a consumer loan can present additional challenges, including locating and taking physical possession of the collateral. We rely on servicers who service these consumer loans, to, among other things, collect principal and interest payments on the loans and perform loss mitigation services, and these servicers may not perform in a manner that promotes our interests. In the case of corporate debt, if a company declares bankruptcy, the bankruptcy process has a number of significant inherent risks. Many events in a bankruptcy proceeding are the product of contested matters and adversarial proceedings and are beyond the control of the creditors. A bankruptcy filing by a company whose debt we have purchased may adversely and permanently affect such company. If the proceeding results in liquidation, the liquidation value of the company may have deteriorated significantly from what we believed to be the case at the time of our initial investment. The duration of a bankruptcy proceeding is also difficult to predict, and our return on investment can be adversely affected by delays until a plan of reorganization or liquidation ultimately becomes effective. A bankruptcy court may also re-characterize our debt investment as equity, and subordinate all or a portion of our claim to that of other creditors. This could occur even if our investment had initially been structured as senior debt.

Prepayment Risk

Prepayment risk is the risk of change, whether an increase or a decrease, in the rate at which principal is returned in respect of fixed-income assets in our portfolio, including both through voluntary prepayments and through liquidations due to defaults and foreclosures. Most significantly, our portfolio is exposed to the risk of changes in prepayment rates of mortgage loans, including the mortgage loans underlying our RMBS, and changes in prepayment rates of certain of our consumer loan holdings. This rate of prepayment is affected by a variety of factors, including the prevailing level of interest rates as well as economic, demographic, tax, social, legal, and other factors. Changes in prepayment rates will have varying effects on the different types of securities in our portfolio, and we attempt to take these effects into account in making asset management decisions. Additionally, increases in prepayment rates may cause us to experience losses on our interest only securities and inverse interest only securities, as those securities are extremely sensitive to prepayment rates. Prepayment rates, besides being subject to interest rates and borrower behavior, are also substantially affected by government policy and regulation. For example, the government sponsored HARP program, which was designed to encourage mortgage refinancings, was a steady contributor to Agency RMBS prepayment speeds from its inception in 2009 until its expiration at the end of 2018. Mortgage rates declined significantly during 2020, and remain very low by historical standards. As a result, prepayments continue to represent a meaningful risk, especially with respect to our Agency RMBS.

102

Table of Contents

Interest Rate Risk

Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors beyond our control. We are subject to interest rate risk in connection with most of our assets and liabilities. For some securities in our portfolio, the coupon interest rates on, and therefore also the values of, such securities are highly sensitive to interest rate movements, such as inverse floating rate RMBS, which benefit from falling interest rates. Our repurchase agreements generally carry interest rates that are determined by reference to LIBOR or similar short-term benchmark rates for those same periods. Whenever one of our fixed-rate repo borrowings matures, it will generally be replaced with a new fixed-rate repo borrowing based on market interest rates prevailing at such time. Subject to maintaining our qualification as a REIT and our exclusion from registration under the Investment Company Act, we opportunistically hedge our interest rate risk by entering into interest rate swaps, TBAs, U.S. Treasury securities, Eurodollar futures, U.S. Treasury futures, and other instruments. In general, such hedging instruments are used to mitigate the interest rate risk arising from the mismatch between the duration of our financed assets and the duration of the liabilities used to finance such assets. The majority of this mismatch currently relates to our Agency RMBS.

The following sensitivity analysis table shows the estimated impact on the value of our portfolio segregated by certain identified categories as of December 31, 2020, assuming a static portfolio and immediate and parallel shifts in interest rates from current levels as indicated below.

50 Basis Points 100 Basis Points 50 Basis Points 100 Basis Points

Mortgage-Related Derivatives — — % 1 — % — — % 1 — %

The preceding analysis does not show sensitivity to changes in interest rates for instruments for which we believe that the effect of a change in interest rates is not material to the value of the overall portfolio and/or cannot be accurately estimated. In particular, this analysis excludes certain of our holdings of corporate securities and derivatives on corporate securities, and reflects only sensitivity to U.S. interest rates.

Our analysis of interest rate risk is derived from Ellington's proprietary models as well as third-party information and analytics. Many assumptions have been made in connection with the calculations set forth in the table above and, as such, there can be no assurance that assumed events will occur or that other events will not occur that would affect the outcomes. For example, for each hypothetical immediate shift in interest rates, assumptions have been made as to the response of mortgage prepayment rates, the shape of the yield curve, and market volatilities of interest rates; each of the foregoing factors can significantly and adversely affect the fair value of our interest rate-sensitive instruments.