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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 27-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, 2021, we have an ownership interest of approximately 99.0% in the Operating Partnership. The remaining ownership interest of approximately 1.0% in the Operating Partnership represents the interests in the Operating Partnership that are owned by an affiliate of our Manager, our current and certain former 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, 2021, 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, 2021, 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.

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As of December 31, 2021, 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 $3.6 billion, of which approximately 46%, or $1.6 billion, relates to our Agency RMBS holdings. The remaining outstanding borrowings relate to our credit portfolio.

As of December 31, 2021, 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 are currently rated "A" by Egan-Jones Rating Company1. See Note 11 of the notes to our consolidated financial statements for further detail on the Senior Notes.

As of December 31, 2021, our book value per share of common stock, calculated using Total Stockholders' Equity less the aggregate liquidation preference of outstanding preferred stock, was $18.39. Our debt-to-equity ratio was 2.7:1 as of December 31, 2021. 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 2.0:1 as of December 31, 2021. Adjusted for unsettled purchases and sales, our debt-to-equity ratio and recourse debt-to-equity ratio were 2.8:1 and 2.0:1, respectively, as of December 31, 2021.

On July 9, 2021, we completed a follow-on offering of 6,000,000 shares of our common stock. On July 29, 2021, we issued an additional 303,000 shares of common stock pursuant to the exercise of the underwriters' option. The issuance and sale of the 6,303,000 shares of common stock generated net proceeds, after underwriters' discounts and commissions and offering costs, of $113.1 million.

On August 6, 2021, we commenced an "at-the-market" offering for shares of our common stock, or the "Common ATM Program," by entering into equity distribution agreements with third party sales agents under which we are authorized to offer and sell up to 10.0 million shares of common stock from time to time. From the commencement of the Common ATM Program through December 31, 2021, we issued 1,549,900 shares of common stock under the Common ATM Program which provided $28.2 million of net proceeds after $0.4 million of agent commissions and offering costs.

On October 15, 2021, we completed a follow-on offering of 5,750,000 shares of our common stock, including 750,000 shares of common stock issued pursuant to the exercise of the underwriters' option. The issuance and sale of the 5,750,000 shares of common stock generated net proceeds, after underwriters' discounts and commissions and offering costs, of $103.5 million.

On December 13, 2021, we issued 4,800,000 shares of 6.250% Series B Fixed-Rate Reset Cumulative Redeemable Preferred Stock, $0.001 par value per share ("Series B Preferred Stock"), of which 400,000 shares were issued pursuant to the exercise of the underwriters' over-allotment option. The issuance and sale of the 4,800,000 shares of Series B Preferred Stock resulted in total net proceeds to us of approximately $115.9 million, after underwriters' discounts and offering costs. Our preferred stock is rated "A-" by Egan-Jones Rating Company1.

On January 20, 2022, we commenced an "at-the-market" offering for our preferred stock, or the "Preferred ATM Program," by entering into equity distribution agreements with third party sales agents under which we are authorized to offer and sell up to $100.0 million of Series A Preferred Stock and/or Series B Preferred Stock from time to time. From commencement of the Preferred ATM Program through February 25, 2022, we have issued 20,421 shares of Series B Preferred Stock, which provided $0.5 million of net proceeds after $11 thousand of commissions and offering costs.

On February 18, 2022, we entered into an agreement with Home Point Capital Inc. ("Home Point") to purchase Home Point's 49.6% ownership interest in Longbridge Financial, LLC ("Longbridge"), a reverse mortgage originator in which we also held a 49.6% ownership interest as of December 31, 2021. The consummation of this transaction is subject to regulatory approvals and customary closing conditions and is expected to close in the second quarter of 2022. Upon closing of the transaction, we will own substantially all of the equity interests in Longbridge, which will result in the consolidation of Longbridge's financial results in our financial statements following the closing.

1 A 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.

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The consolidation of Longbridge, into the financial statements of the Company will impact the Company's financial position, financial reporting, and operations. As of December 31, 2021, Longbridge had total assets of $6.7 billion and total liabilities of $6.6 billion. See Exhibit 99.1 to this Annual Report on Form 10-K for Longbridge's financial statements as of December 31, 2021 and 2020, and for the years ended December 31, 2021, 2020, and 2019. In addition to the effect on the Company's financial position and operations as a result of consolidation, management anticipates a number of changes to the Company's financial reporting including reporting more than one segment, new asset classes and products such as reverse mortgage loans and MSRs, inclusion of goodwill as a result of the acquisition, and general disclosures related to operating businesses.

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.

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 and certain state corporate income taxes, as applicable.

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.

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Asset Class Principal Assets

(continued)

Residential Mortgage Loans . Non-QM loans;

. Residential non-performing mortgage loans, or "NPLs";

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

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

. Strategic equity and/or debt investments in entities related to our business;

. 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.

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

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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, mixed-use, 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, 2021, 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. Property types securing these loans may include hotel, industrial, mixed-use, multi-family, office, and retail.

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 $30 million, and are secured by 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 consists of unsecured loans and 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, 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.

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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, 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.

Strategic Equity Investments in Loan Originators

We have made, and in the future may make additional, equity investments in loan originators and other related entities; historically, our investments have represented non-controlling interests, although we are not restricted from holding controlling interests in such entities. We have also acquired debt investments and/or warrants in certain of these loan originators. We have also entered into various other arrangements, such as entering into flow agreements or providing guarantees or financing lines, with certain of the loan originators in which we have invested.

On February 18, 2022, we entered into an agreement with Home Point to purchase Home Point's 49.6% ownership interest in Longbridge. The consummation of this transaction is subject to regulatory approvals and customary closing conditions and is expected to close in the second quarter of 2022. Upon closing of the transaction, we will own substantially all of the equity interests in Longbridge, which will result in the consolidation of Longbridge's financial results in our financial statements following the closing. See Exhibit 99.1 to this Annual Report on Form 10-K for Longbridge's financial statements as of December 31, 2021 and 2020, and for the years ended December 31, 2021, 2020, and 2019.

Other Investment Assets

Our other investment assets include real estate, including residential and commercial real property, strategic equity and/or debt investments in entities related to our business, corporate debt and equity securities, corporate loans, which can include

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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 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 certain of our investments and the interest we pay on certain of 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. We generally enter into these transactions to offset the potential adverse effects of rising interest rates on short-term repurchase agreements. Our repurchase agreements generally have maturities of up to 364 days and carry interest rates that are determined by reference to a benchmark rate such as LIBOR or the Secured Overnight Financing Rate, or "SOFR." As each then-existing fixed-rate repo borrowing matures, it will generally be replaced with a new fixed-rate repo borrowing based on market interest rates established at that future date.

In the case of interest rate swaps, most of our agreements are structured such that we receive payments based on a variable interest rate and make payments based on a fixed interest rate. The variable interest rate on which payments are received is generally calculated based on various reset mechanisms for a benchmark rate such as LIBOR or SOFR. To the extent that the benchmark rates used to calculate the payments we receive on our interest rate swaps continue to be highly correlated with our repo borrowing costs, our interest rate swap contracts should help to reduce the variability of our overall repo borrowing costs, thus reducing risk to the extent we hold fixed-rate assets that are financed with repo borrowings. While for the time being the majority of our interest rate swaps are LIBOR-based interest rate swap contracts, we have entered into interest rate swap contracts based on other benchmark rates, such as SOFR.

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.

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.

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Trends and Recent Market Developments

Market Overview

•In 2021, the U.S. Federal Reserve, or the "Federal Reserve," maintained the target range of 0.00%—0.25% throughout the year, and for the first ten months of the year, it directed the Open Market Desk to increase its holdings of U.S. Treasury securities by $80 billion per month, and of Agency RMBS by $40 billion per month. This activity reflected a continuation of the Federal Reserve's response in 2020 to the negative economic effects caused by the COVID-19 pandemic when the Federal Reserve lowered the target range for the federal funds rate to 0.00%—0.25% from 1.50%—1.75%, committed to purchase U.S. Treasury securities and Agency MBS without explicit limits on the amounts purchased, and also announced several funding and liquidity programs.

At the end of the first quarter of 2021, the U.S. Congress passed the American Rescue Plan Act of 2021, which provided for an additional $1.9 trillion of COVID-related stimulus and economic aid. Additionally, in July, the Federal Reserve announced the establishment of a standing repurchase agreement facility to support financing markets.

At its November 2021 meeting, citing “the substantial further progress the economy has made,” the Federal Reserve announced a tapering schedule for its asset purchases, beginning with a reduction of its monthly net asset purchases by $10 billion for U.S. Treasury securities and by $5 billion for Agency RMBS in November; by an additional $10 billion for U.S. Treasury securities and $5 billion for Agency RMBS in December; and with an increasing pace of tapering anticipated in subsequent months, until incremental monthly net purchases reach zero. The Federal Reserve also noted that it expected elevated inflation to be “transitory.”

At its final meeting of the year, in December, “in light of inflation developments and the further improvement in the labor market,” the Federal Reserve announced that it would further accelerate the tapering of its asset purchases. Beginning in January 2022, it would reduce the monthly pace of net asset purchases by an additional $20 billion per month for U.S. Treasury securities and $10 billion per month for Agency RMBS, with an increasing pace of tapering in subsequent months, until incremental monthly net purchases reach zero. In addition, given the persistently high rate of inflation, the Federal Reserve shifted to a more hawkish position on interest rates, signaling that multiple increases of the target range for the federal funds rate could be imminent, and also that it could begin to reduce the size of the Federal Reserve’s balance sheet soon (as opposed to tapering net purchases to zero, but still maintaining the size of its balance sheet).

In December 2021, US consumer prices increased by 7% year-over-year, which was the fastest pace in nearly four decades. In a congressional hearing in January 2022, the Chairman of the Federal Reserve, Jerome Powell, discussed his focus on inflation and stated, “If we have to raise interest rates more over time, we will. The economy no longer needs or wants the very highly accommodative policies we have had in place.”

•During the first quarter of 2021, long-term interest rates rose significantly and the U.S. Treasury yield curve steepened, with the 10-year U.S. Treasury yield increasing 83 basis points to finish the quarter at 1.74%, and the 2-year U.S. Treasury yield up just 4 basis points to 0.16%. The yield spread between the 2-year and 10-year U.S. Treasury increased to 158 basis points, which was its widest level since 2015. Interest rate volatility also increased in the quarter, with the MOVE Index, which measures U.S. interest rate volatility, reaching a 10-month high in February.

In the second quarter, long-term interest rates reversed course, with the 10-year U.S. Treasury yield falling 27 basis points to 1.47%, while the 2-year U.S. Treasury yield increased 9 basis points to 0.25%. The yield spread between the 2-year and 10-year U.S. Treasury decreased to 122 basis points at June 30th, but was still meaningfully higher than the 79 basis point spread at the start of the year. Interest rate volatility subsided for most of the quarter, before increasing modestly during the second half of June.

In the third quarter, interest rates declined in July, before reversing course and rising in August and September. For the quarter, the 10-year U.S. Treasury yield rose 2 basis points to 1.49%, while the 2-year U.S. Treasury yield increased 3 basis points to 0.28%, and the yield spread between the 2-year and 10-year U.S. Treasury was essentially unchanged. Interest rate volatility remained relatively elevated for much of the third quarter.

During the fourth quarter, short-term interest rates spiked, the yield curve flattened significantly, and interest rate volatility rose, as the market reacted to imminent Fed tapering, potential upcoming interest rate increases, and consistently strong inflation reports. The 2-year U.S. Treasury yield increased 46 basis points to 0.73%, its highest level since early March 2020, while the 10-year U.S. Treasury yield rose just 2 basis points to 1.51%. The spread between the 2-year and 10-year U.S. Treasury narrowed to 78 basis points, back to about where it started the year. Meanwhile, the MOVE Index reached its high for the year in November.

•After declining to all-time lows over the course of 2020, mortgage rates reversed course during the first quarter of 2021 as long-term interest rates rose. The Freddie Mac survey 30-year mortgage rate rose steadily throughout the quarter, increasing to 3.18% as of April 1st, as compared to 2.67% at year end. Although still elevated on an historical

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basis, refinancing applications declined during the quarter, with the Mortgage Bankers Association's Refinance Index decreasing 21.7% between January 1st and April 2nd of 2021. Still, overall Fannie Mae 30-year MBS prepayments remained well above pre-pandemic levels, declining slightly from a CPR of 35.1 in December 2020 to 30.8 in January 2021, before increasing to 31.8 in February 2021 and 35.4 in March 2021.

In the second quarter, however, mortgage rates declined as long-term interest rates fell. The Freddie Mac survey 30-year mortgage rate decreased to 2.98% as of June 30th, while refinancing applications continued to decline. The Mortgage Bankers Association's Refinance Index decreased another 9% between April 2nd and July 2nd. Overall Fannie Mae 30-year MBS prepayments declined from a CPR of 35.4 in March to 27.8 in April and 23.4 in May, before increasing moderately to 24.6 in June.

Mortgage rates also declined in July before reversing course and rising in August and September, in sympathy with long-term interest rates. For the third quarter, the Freddie Mac survey 30-year mortgage rate increased by 3 basis points to 3.01%. Refinancing applications rose modestly during the quarter, with the Mortgage Bankers Association's Refinance Index increasing by 9% between July 2nd and October 1st. Overall Fannie Mae 30-year MBS prepayments decreased from a CPR of 24.6 in June 2021 to 22.2 in July, before returning to 24.6 in August and declining slightly to 24.1 in September.

Mortgage rates continued to rise in the fourth quarter as the Freddie Mac survey 30-year mortgage rate increased another 10 basis points to finish the year at 3.11%. Refinancing applications declined during the fourth quarter, with the Mortgage Bankers Association’s Refinance Index falling 29% between September 3rd and December 31st. Overall Fannie Mae 30-year MBS prepayments continued to fall throughout the quarter, declining to 22.2 in October, 20.2 in November, and 18.7 in December.

•LIBOR rates declined modestly during the first nine months of 2021. Between December 31, 2020 and September 30, 2021, one-month LIBOR declined 6 basis points to 0.08%, and three-month LIBOR fell 11 basis points to 0.13%. In the fourth quarter, LIBOR ticked up slightly, with one-month LIBOR increasing 2 basis points to 0.10% and three-month LIBOR up by 8 basis points to 0.21%.

•U.S. real GDP increased at an annualized rate of 6.3% in the first quarter and 6.7% in the second quarter, before slowing to 2.3% in the third quarter, but accelerating again to an estimated annualized rate of 6.9% in the fourth quarter.

•Positive economic activity drove steady growth in U.S. employment in each quarter of 2021. The unemployment rate dropped from 6.7% at the end of 2020, to 6.0% on March 31st, 5.9% on June 30th, 4.8% on September 30th, and 3.9% at year end.

•Driven by the economic recovery and strong employment, forbearance rates on residential mortgages steadily declined throughout 2021. According to the Mortgage Bankers Association, the total forbearance rate decreased from 5.5% as of January 3rd, to 4.9% on March 28th, 3.9% on June 27th, 2.9% on September 26th, and 1.4% on December 31st.

•In the first quarter, the Bloomberg Barclays U.S. MBS Index (“BB MBS Index”) generated a negative return of (1.10%), driven by rising interest rates, but a positive excess return (on a duration-adjusted basis) of 0.15% relative to the Bloomberg Barclays U.S. Treasury Index. In the second quarter, long-term interest rates declined and the BB MBS Index generated a positive return of 0.33%, but a negative excess return of (0.60%). After generating a modest return and positive excess return in the third quarter, the BB MBS Index generated a negative return of (0.37%) and a negative excess return of (0.26%) in the fourth quarter, as volatility increased and short-term Treasury yields spiked. For the full year 2021, the BB MBS Index generated a negative return of (1.04%), and a negative excess return of (0.68%).

•In the first quarter, the Bloomberg Barclays U.S. Corporate Bond Index (“BB IG Index”) generated a negative return of (4.65%), but an excess return of 0.95%, and in the second quarter, a positive return of 3.38% and positive excess return of 1.09%. In the third quarter, the BB IG Index generated a breakeven return and had a negative excess return of (0.15%), and in the fourth quarter, it generated a positive return of 0.23% but a negative excess return of (0.28%). For the full year 2021, the BB IG Index generated a negative return of (1.04%), but an excess return of 1.61%. Meanwhile, the Bloomberg Barclays U.S. Corporate High Yield Bond Index (“BB HY Index”) generated positive returns and positive excess returns in each quarter of 2021. For the year, the BB HY Index generated a gain of 5.28% and an excess return of 6.63%.

•U.S. equities performed well in 2021, driven by the ongoing economic and employment recovery, continued monetary and fiscal policy support, the development and distribution of vaccines, and other positive factors, which outweighed negative factors including supply-chain challenges, uncertainty about the path of the virus, concerns about the quickening pace of inflation, rising interest rates, and the actual and anticipated removal of stimulus measures.

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For the year, the S&P 500 rose 26.9%, the Dow Jones Industrial Average increased 18.7%, and the NASDAQ rose 21.4%. Meanwhile, London's FTSE 100 index increased 14.3% and the MSCI World global equity index increased 20.1%.

The VIX volatility index remained relatively low during 2021, as compared to the months surrounding the onset of the pandemic in early 2020, although it did spike toward the end of the fourth quarter in response to the spread of a new COVID variant and a hawkish shift from the Federal Reserve.

Portfolio Overview and Outlook

The following tables summarize our investment portfolio as of December 31, 2021 and 2020.

Credit Portfolio(1)

Dollar Denominated:

Corporate Debt and Equity and Corporate Loans 20,128 0.7 % 12,606 0.6 %

Non-Dollar Denominated:

Consumer Loans and ABS backed by Consumer loans 213 — % 306 — %

Corporate Debt and Equity 13 — % 28 — %

(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)Includes a corporate loan to a loan origination entity in which we hold an equity investment.

(4)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.

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

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

Agency RMBS Portfolio

Long Agency RMBS:

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Our total long credit portfolio, excluding non-retained tranches of consolidated securitization trusts, grew by 44% during the year, to $2.065 billion as of December 31, 2021, from $1.434 billion as of December 31, 2020, as we deployed proceeds from our common and preferred equity offerings completed in the second half of the year. The majority of the growth occurred in the non-QM, residential transition, and small balance commercial mortgage loan strategies. In addition, our investments in loan origination entities increased, driven by the appreciation in the fair value of our existing investments and the addition of five new equity stakes over the course of the year. Our holdings of consumer loans and non-Agency RMBS also grew during the year. These increases were partially offset by three non-QM loan securitizations completed during the year, loan payoffs and resolutions, and opportunistic sales of CLOs and CMBS.

Our long Agency RMBS portfolio also increased significantly during the year, by 77% to $1.697 billion as of December 31, 2021, from $959.4 million as of December 31, 2020, as we ramped the Agency portfolio back up following a significant reduction in the prior year. During March and April of 2020, in light of the heightened levels of market volatility and systemic liquidity risk associated with the outbreak of the COVID-19 pandemic, we had strategically reduced the size of our Agency portfolio significantly, in order to lower our leverage, enhance our liquidity position, and avoid forced asset sales. Over the course of 2020, our total long Agency RMBS portfolio decreased by 50%, from $1.937 billion as of December 31, 2019.

As of December 31, 2021, we had cash and cash equivalents of $92.7 million, along with unencumbered assets of $808.1 million. These amounts compared to cash and cash equivalents of $111.6 million, and unencumbered assets of $442.5 million, as of December 31, 2020.

Credit Portfolio Performance Summary

Our credit portfolio performed well in 2021, driven by higher net interest income year over year, net realized and unrealized gains, and strong results from the loan originators in which we hold strategic equity investments.

The increase in net interest income was driven by the growth and strong credit performance of our proprietary loan portfolios, specifically non-QM loans, residential transition loans, small balance commercial mortgage loans, and consumer loans, as well as by lower financing costs. We also benefited from the results in our CMBS and CLO strategies, which drove our net realized and unrealized gains.

The appreciation in the fair value of our equity investments in loan originators was primarily driven by the sustained strong performance of LendSure Mortgage Corp., a non-QM originator, and of Longbridge. LendSure posted record profitability and origination volume in 2021, while Longbridge increased its market share and delivered strong earnings as well.

Supplemental Credit Portfolio Information

The table below details certain information regarding our investments in commercial mortgage loans as of December 31, 2021:

Gross Unrealized Weighted Average

(1)Excludes commercial mortgage loans in non-accrual status, with a fair value of $15.5 million.

(2)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.

(3)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.

(4)As of December 31, 2021 all of our commercial mortgage loans were first lien mortgages, of which 99.8% have floating rates with a rate floor.

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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, 2021:

Property Type December 31, 2021

Multifamily(1) 64.9 %

Hotel 9.5 %

Industrial(1) 9.4 %

Retail 3.6 %

Mixed Use 1.9 %

(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.

The table below summarizes our interests in commercial mortgage loans by geographic location of the underlying real estate collateral, as a percentage of total outstanding unpaid principal balance, as of December 31, 2021:

Property Location by U.S. State December 31, 2021

New York 7.6 %

Georgia(1) 6.7 %

Arizona 5.2 %

All other states <5%(1) 42.0 %

The table below summarizes our interests in residential mortgage loans by loan type and REO resulting from the foreclosure of residential mortgage loans as of December 31, 2021:

Loan Type Unpaid Principal Balance Fair Value

In thousands

Residential REO(1) 991

Total residential mortgage loans and residential REO(1) $ 2,017,219

(1)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.

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The following table provides additional details about our investments in unconsolidated entities as of December 31, 2021:

Investment in Unconsolidated Entity Description Fair Value

Loan Originators: Entity Type (In thousands)

Longbridge Financial, LLC Reverse Mortgage Loan Originator $ 74,488

LendSure Mortgage Corp. Residential Mortgage Loan Originator 45,511

Other Unconsolidated Entities: Underlying Product Type

Co-investments with Ellington affiliate(s) Commercial Mortgage Loans 37,278

Agency RMBS Portfolio Performance Summary

The return on our Agency RMBS portfolio was slightly less than breakeven for the year, in the face of a challenging Agency market marked by rising interest rates, widening yield spreads, and elevated interest rate volatility for much of the year.

During the first quarter of the year, long-term interest rates rose, the yield curve steepened, and interest rate volatility increased. As a result, most Agency RMBS prices declined, with lower-coupon RMBS performing the worst in the face of heightened extension risk. Next, in a reversal from the prior quarter, long-term interest rates declined and the yield curve flattened in the second quarter; most Agency RMBS underperformed U.S. Treasury securities and interest rate swaps, with higher-coupon Agency RMBS faring the worst. Moving to the third quarter, performance of Agency RMBS was again mixed, with incrementally higher mortgage rates leading to reduced expectations for prepayments, which boosted higher-coupon RMBS, while the anticipated withdrawal of Federal Reserve purchases negatively impacted lower-coupon RMBS. As a result, higher coupons outperformed lower coupons for the third quarter.

In the fourth quarter, short-term interest rates rose sharply, actual and implied volatility increased, and the yield curve flattened as the Federal Reserve signaled that interest rate increases could be imminent. The Federal Reserve also began the tapering of its asset purchases in November, and then accelerated the pace of that tapering starting in December. In response to these developments, most Agency RMBS underperformed U.S. Treasury securities during the fourth quarter, with higher-coupon specified pools and other shorter-duration RMBS particularly underperforming in light of the flattening of the yield curve.

Over the course of the year, most Agency RMBS prices declined, which led to net realized and unrealized losses on our Agency RMBS portfolio. Virtually all of these losses were offset, however, by net interest income and net gains on our interest rate hedges.

Pay-ups on our existing specified pool investments declined over the course of the year, while our new purchases during the year primarily consisted of pools with lower pay-ups. As a result, the average pay-ups on our specified pools decreased to 0.82% as of December 31, 2021, from 2.05% as of December 31, 2020. Pay-ups are price premiums for specified pools relative to their TBA counterparts.

During the year, we continued to hedge interest rate risk, primarily through the use of interest rate swaps, and short positions in TBAs, U.S. Treasury securities, and futures. The size of our short TBA position increased significantly in conjunction with the increased size of our Agency RMBS portfolio, year over year, as measured by 10-year equivalents. 10-year equivalents for a group of positions represent the amount of 10-year U.S. Treasury securities that would be expected to experience a similar change in market value under a standard parallel move in interest rates. In addition, we continued to maintain a long TBA portfolio concentrated in lower coupons.

As of December 31, 2021 and 2020, the weighted average net pass-through rate on our fixed-rate specified pools was 3.2% and 3.7%, respectively. Portfolio turnover for our Agency strategy, as measured by sales and excluding paydowns, was approximately 67% for the year ended December 31, 2021.

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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, 2021, September 30, 2021, June 30, 2021, March 31, 2021, and December 31, 2020.

Three-Month Period Ended

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

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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, 2021 and 2020:

(In thousands) (In thousands)

Fixed-rate Agency RMBS:

15-year fixed-rate mortgages:

20-year fixed-rate mortgages:

30-year fixed-rate mortgages:

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 1.8% and 4.8% as of December 31, 2021 and 2020, 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 $640.2 million and a fair value of $679.2 million as of December 31, 2021, as compared to a notional value of $383.6 million and a fair value of $412.2 million as of December 31, 2020. Excluding these TBA hedging positions, our Agency premium as a percentage of fair value was approximately 4.1% and 7.9% as of December 31, 2021 and 2020, 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

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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.

Financing

The following table details our borrowings outstanding and debt-to-equity ratios as of December 31, 2021 and 2020:

As of

Recourse(1) Borrowings:

Debt-to-Equity Ratio Based on Total Recourse Borrowings(1) 2.0:1 1.6:1

Non-Recourse(2) Borrowings:

Repurchase Agreements $ — $ 132,841

(1)As of December 31, 2021 and 2020, 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 2.0:1 and 1.6:1 as of December 31, 2021 and 2020, 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, increased slightly to 2.7:1 as of December 31, 2021 as compared to 2.6:1 as of December 31, 2020, as borrowings related to our larger portfolio increased roughly in proportion to our larger total equity. Over the same period, the proportion of recourse borrowings increased, causing our recourse debt-to-equity ratio to increase to 2.0:1 from 1.6:1. Our recourse debt-to-equity ratio, adjusted for unsettled purchases and sales, was also 2.0:1 and 1.6:1 as of December 31, 2021 and 2020, respectively.

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. For the year ended December 31, 2021, our average cost of funds decreased to 1.29%, as compared to 2.25% for the year ended December 31, 2020. The year-over-year decline in our average cost of funds was primarily due to lower financing rates on our both our Agency and credit borrowings.

Critical Accounting Estimates

Our consolidated financial statements include the accounts of Ellington Financial Inc., its Operating Partnership, its subsidiaries, and variable interest entities, or "VIEs," for which we are deemed to be the primary beneficiary. All intercompany balances and transactions have been eliminated.

The preparation of our consolidated financial statements in accordance with U.S. GAAP require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Our critical accounting estimates are those which require assumptions to be made about matters that are highly uncertain. Actual results could differ from those estimates and such differences could have a material impact on our financial condition and/or results of operations. We believe that all of the decisions and assessments upon which our consolidated financial statements are based were reasonable at the time made based upon information available to us at that time. We rely on the experience of our 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 estimates to be the following:

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Valuation: We have elected the fair value option for the vast majority of our assets and liabilities for which such election is permitted, as provided for under ASC 825, Financial Instruments ("ASC 825"). 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.

Because of the inherent uncertainty of valuation, the estimated fair value of our financial instruments may differ significantly from the values that would have been used had a ready market for the financial instruments existed, and the differences could be material to our consolidated financial statements.

The determination of estimated fair value of those of our financial instruments that are not traded in an active market requires the use of both macroeconomic and microeconomic assumptions and/or inputs, which are generally based on current market and economic conditions. Changes in market and/or economic conditions could have a significant adverse effect on the estimated fair value of our financial instruments. Changes to assumptions, including assumed market yields, may significantly impact the estimated fair value of our investments. Our valuations are sensitive to changes in interest rate; see the interest rate sensitivity analysis included in Item 7A. Quantitative and Qualitative Disclosures about Market Risk in this Annual Report on Form 10-K for further information.

VIEs: We evaluate each of our investments and other contractual arrangements to determine whether our interest constitutes a variable interest in a VIE, and if so whether we are the primary beneficiary of such VIE. In making these determinations we use both qualitative and quantitative analyses involving a significant amount of judgment, taking into consideration factors such as which interests in the VIE create or absorb variability, the contractual terms related to such interests, other transactions or agreements with the entity, key decision makers and their impact on the VIE’s economic performance, and related party relationships.

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. For certain of our securities, for purposes of estimating future expected cash flows, management uses assumptions including, but not limited to, assumptions for future prepayment rates, default rates, and loss severities (each of which may in turn incorporate various macroeconomic assumptions, such as future housing prices, GDP growth rates, and unemployment rates). In estimating future cash flows on certain of our loans, there are a number of assumptions that are subject to significant uncertainties and contingencies, including assumptions relating to prepayment rates, default rates, loan loss severities, and loan repurchases. These estimates require the use of a significant amount of judgment. Any resulting changes in effective yield are recognized prospectively based on the current amortized cost of the investment as adjusted for credit impairment, if any.

The effective yield on our debt securities that are deemed to be of high credit quality (including Agency RMBS, exclusive of interest only securities) can be significantly impacted by our estimate of future prepayments. Future prepayment rates are difficult to predict. We estimate prepayment rates over the remaining life of our securities using models that generally incorporate the forward yield curve, current mortgage rates, mortgage rates on the outstanding loans, age and size of the outstanding loans, and other factors. We compare estimated prepayments to actual prepayments on a quarterly basis, and effective yields are recalculated retroactive to the time of purchase. When differences arise between our previously calculated effective yields and our current calculated effective yields, a catch-up adjustment, or "Catch-up Premium Amortization Adjustment," is made to interest income to reflect the cumulative impact of the changes in effective yields. For the years ended December 31, 2021, 2020, and 2019, we recognized a Catch-up Premium Amortization Adjustment of $1.3 million, $(4.5) million, and (4.7) million reflected as an increase (decrease) to interest income on the Consolidated Statement of Operations.

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, and are generally are not subject to corporate-level federal and state income tax on net income we distribute to our stockholders within the prescribed timeframes. We have elected to treat certain domestic and

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foreign subsidiaries as TRSs. 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. Establishing a provision for income tax expense requires judgement and interpretation of the application of various federal, state, local, and foreign jurisdiction's tax laws. We may take positions with respect to certain tax issues which depend on legal interpretation of facts or applicable tax regulations. Should the relevant tax regulators successfully challenge any such positions, we might be found to have a tax liability that has not been recorded in the accompanying consolidated financial statements. Also, management's conclusions regarding the authoritative guidance may be subject to review and adjustment at a later date based on changing tax laws, regulations, and interpretations thereof. See Note 2 and Note 12 to our consolidated financial statements for additional details on income taxes.

Recent Accounting Pronouncements

Refer to Note 2 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, 2021 and 2020.

Long:

Credit:

Dollar Denominated:

Consumer Loans and ABS backed by Consumer Loans(2) 153,124 112,077

Corporate Debt and Equity and Corporate Loans 20,128 12,606

Debt and Equity Investments in Loan Origination Entities(4) 141,315 79,536

Non-Dollar Denominated:

Consumer Loans and ABS backed by Consumer Loans 213 306

Corporate Debt and Equity 13 28

Agency:

Floating-Rate Specified Pools 9,456 6,454

Short:

Credit:

Dollar Denominated:

Corporate Debt and Equity $ — $ (218)

Government Debt:

Dollar Denominated (92,190) —

(1)For more detailed information about the investments in our portfolio, please see the notes to the 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 the consolidated financial statements and, as a result, is included at the lower of cost or fair value.

(4)Includes a corporate loan to a loan origination entity in which we hold an equity investment.

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

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

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The following table summarizes our financial derivatives portfolio(1)(2) as of December 31, 2021.

Notional Net Fair Value

(In thousands) Long Short Net

Mortgage-Related Derivatives:

Total Net Mortgage-Related Derivatives 2,015

Corporate-Related Derivatives:

Total Net Corporate-Related Derivatives (829)

Interest Rate-Related Derivatives:

Total Interest Rate-Related Derivatives 5,618

Other Derivatives:

Total Net Other Derivatives (208)

(1)For more detailed information about the financial derivatives in our portfolio, please refer to Note 8 of the notes to the 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, 2021, derivative assets and derivative liabilities were $18.9 million and $(12.3) million, respectively, for a net fair value of $6.6 million, as reflected in "Net Total" above.

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

(4)Notional value represents the total face amount of U.S. Treasury securities underlying all contracts held. As of December 31, 2021, a total of 19 long and 1,965 short U.S. Treasury futures contracts were held.

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

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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

As of December 31, 2021, our Consolidated Balance Sheet reflected total assets of $5.2 billion and total liabilities of $3.9 billion. As of December 31, 2020, our Consolidated Balance Sheet reflected total assets of $3.4 billion and total liabilities of $2.5 billion. Our investments in securities, loans, and unconsolidated entities, financial derivatives, and real estate owned included in total assets were $4.7 billion and $3.1 billion as of December 31, 2021 and 2020, respectively. Our investments in securities sold short and financial derivatives included in total liabilities were $132.8 million and $63.2 million as of December 31, 2021 and 2020, respectively. As of December 31, 2021, investments in securities sold short consisted principally of short positions in U.S. Treasury securities and sovereign bonds. As of December 31, 2020, investments in securities sold short consisted principally of short positions in sovereign bonds. 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, 2021 and 2020, we had a net short notional TBA position of $640.2 million and $354.1 million, respectively. The size of the net short notional TBA position increased in conjunction with the increased size of our Agency RMBS portfolio. In addition, we increased the notional amount of long TBAs held for investment as of December 31, 2021 as compared to December 31, 2020.

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 corporate bond indices, options thereon, and various other instruments as a means to hedge credit risk. As market conditions

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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, 2021 indebtedness outstanding on our repos was approximately $2.5 billion. As of December 31, 2021, our assets financed with repos consisted of Agency RMBS of $1.663 billion and credit assets of $1.089 billion. As of December 31, 2021, outstanding indebtedness under repos was $1.640 billion for Agency RMBS and $829.9 million for credit assets. 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.

In addition to our repos, as of December 31, 2021 we had Total other secured borrowings of $1.1 billion, used to finance $1.2 billion of non-QM loans, consumer loans and ABS backed by consumer loans, and small balance commercial mortgage loans. This compares to Total other secured borrowings of $806.0 million as of December 31, 2020, used to finance $906.4 million of non-QM loans, consumer loans and ABS backed by consumer loans, and small balance commercial mortgage loans. In addition to our secured borrowings, we had $86.0 million of Senior Notes outstanding as of both December 31, 2021 and 2020.

As of December 31, 2021 and 2020 our debt-to-equity ratio was 2.7:1 and 2.6:1, respectively. Our recourse debt-to-equity ratio was 2.0:1 as of December 31, 2021 as compared to 1.6:1 as of December 31, 2020. See the discussion in "—Liquidity and Capital Resources" below for further information on our borrowings.

Equity

As of December 31, 2021, our equity increased by $402.0 million to $1.324 billion from $921.6 million as of December 31, 2020. The increase principally consisted of net income of $140.6 million, net proceeds from the issuance of shares of common stock of $244.8 million, after underwriters' discounts and commissions and offering costs, net proceeds from the issuance of shares of preferred stock of $115.9 million, net of underwriters' commissions and offering costs, and contributions from our non-controlling interests of $16.0 million. These increases were partially offset by common and preferred dividends of $90.3 million and distributions to non-controlling interests of $27.1 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 $1.291 billion as of December 31, 2021.

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Results of Operations for the Years Ended December 31, 2021, 2020 and 2019

The following table summarizes our results of operations for the years ended December 31, 2021, 2020, and 2019:

Year Ended December 31,

Interest Income (Expense)

Other Income (Loss)

Realized and unrealized gains (losses) on real estate owned, net 452 (634) 1,048

Expenses

Net income (loss) attributable to non-controlling interests 7,093 3,369 5,244

Net Income (Loss) Per Common Share $ 2.58 $ 0.39 $ 1.76

(1)See Note 13 of the notes to the consolidated financial statements for further details on management fee rebates.

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.

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The following table reconciles, for the years ended December 31, 2021, 2020, and 2019, Core Earnings to the line on our Consolidated Statement of Operations entitled Net Income (Loss), which we believe is the most directly comparable U.S. GAAP measure.

Year Ended December 31,

Adjustments:

Realized (gains) losses on securities and loans, net (5,017) 5,960 12,785

Realized (gains) losses on financial derivatives, net (11,502) 31,521 30,912

Realized (gains) losses on real estate owned, net (1,711) (15) (2,327)

Unrealized (gains) losses on securities and loans, net 30,802 25,783 (54,478)

Unrealized (gains) losses on financial derivatives, net (10,355) (989) 5,338

Unrealized (gains) losses on real estate owned, net 1,259 649 1,279

Other realized and unrealized (gains) losses, net(1) (14,628) 7,703 829

Non-cash equity compensation expense 971 722 475

Core Earnings attributable to non-controlling interests 6,621 4,532 4,883

Core Earnings Attributable to Common Stockholders $ 88,917 $ 70,901 $ 58,214

(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)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, 2021 and 2020

Net Income (Loss) Attributable to Common Stockholders

For the year ended December 31, 2021 we had net income (loss) attributable to common stockholders of $125.3 million compared to $17.2 million for the year ended December 31, 2020. The increase in in our results of operations was primarily due to a decrease in interest expense; net realized and unrealized gains on our financial derivatives and income from Other, net as compared to losses in the prior year; and an increase in earnings from investments in unconsolidated entities.

Interest Income

Interest income was $175.5 million for the year ended December 31, 2021, as compared to $173.5 million for the year ended December 31, 2020. 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, 2021, interest income from our credit portfolio was $140.2 million, as compared to $144.6 million for the year ended December 31, 2020. This year-over-year decrease was primarily due to lower average asset yields, partially offset by the larger size of the credit portfolio for the year ended December 31, 2021.

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For the year ended December 31, 2021, interest income from our Agency RMBS was $33.9 million, as compared to $28.0 million for the year ended December 31, 2020. This year-over-year increase was due to the larger size of the Agency portfolio, partially offset by lower average asset yields, for the year ended December 31, 2021.

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, 2021 and 2020:

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, 2021 we had a positive Catch-up Premium Amortization Adjustment of $1.3 million, which increased our interest income. In contrast, for the year ended December 31, 2020 we had a negative Catch-up Premium Amortization Adjustment of $(4.5) 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 2.19% and 4.59%, respectively, for the year ended December 31, 2021. 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.

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 $44.0 million for the year ended December 31, 2021, as compared to $61.7 million for the year ended December 31, 2020. The decline in interest expense was the result of a significant decrease in borrowing rates on both our Agency and credit assets.

The table below summarizes the components of interest expense for the years ended December 31, 2021 and 2020.

Year Ended December 31,

Repos and Total other secured borrowings $ 37,174 $ 56,005

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

(2)Primarily includes interest expense on our counterparties' cash collateral held by us and reverse repurchase agreements with negative interest rates.

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The following table summarizes our aggregate secured borrowings, including repos and Total other secured borrowings, for the years ended December 31, 2021 and 2020.

Year Ended

(In thousands)

Average One-Month LIBOR 0.10 % 0.52 %

Average Six-Month LIBOR 0.20 % 0.69 %

(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 1.44% and 2.35% for the years ended December 31, 2021 and 2020, respectively. 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 3.15% and 3.43% for the years ended December 31, 2021 and 2020, 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, 2021, the gross base management fee, which is based on total equity at the end of each quarter, was $16.0 million, and our Manager credited us with rebates on our base management fee of $2.6 million, resulting in a net base management fee of $13.4 million. For the year ended December 31, 2020, the gross base management fee 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 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 increase in the net base management fee period over period was due to a larger capital base at each quarter end in 2021, as compared to the respective quarter ends in 2020. Such increases were partially offset by the increase in the base management fee rebates.

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 (including any opening loss carryforward) exceeds a defined return hurdle for the period. For the year ended December 31, 2021, the incentive fee was $15.7 million. There was no incentive fee for the year ended December 31, 2020, since for each quarter during that period, our income did not exceed the prescribed hurdle amount on a rolling four quarter basis. 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, 2021 and 2020 other investment related expenses were $18.5 million and $18.1 million, respectively. The increase in other investment related expenses was primarily due to an increase in debt issuance costs related to our non-QM loan securitizations, as well as an increase in various other expenses related to our residential mortgage loan portfolio partially offset by a decrease in servicing expenses on our consumer loan portfolios.

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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 $17.8 million for the year ended December 31, 2021 as compared to $15.2 million for the year ended December 31, 2020. The increase in other operating expenses for the year ended December 31, 2021 was primarily due to an increase in compensation expense.

Other Income (Loss)

For the year ended December 31, 2021, other income (loss) was $19.6 million, consisting primarily of $21.9 million of net realized and unrealized gains on our financial derivatives and $23.0 million of Other, net, consisting primarily of unrealized gains on our Other secured borrowings, at fair value, partially offset by net realized and unrealized losses on our securities and loans of $(25.8) million. Net realized and unrealized gains of $21.9 million on our financial derivatives were primarily related to net realized and unrealized gains on interest rate swaps, short TBAs, futures, and forwards, which were driven by rising interest rates over the course of the year, partially offset by net realized and unrealized losses on CDS on corporate bonds and corporate bond indices, and total return swaps. Net realized and unrealized losses of $(25.8) million on our securities and loans primarily resulted from net realized and unrealized losses on our Agency securities, which were driven by declining Agency RMBS prices, as well as unrealized losses on non-QM loans, and net realized and unrealized losses on consumer loans and ABS backed by consumer loans. Such losses were partially offset by net realized and unrealized gains on CLOs and CMBS, as well as non-Agency RMBS, corporate loans, and equity securities.

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 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.

Income Tax Expense (Benefit)

Income tax expense (benefit) was $3.1 million for the year ended December 31, 2021, as compared to $11.4 million for the year ended December 31, 2020. The decrease in income tax expense was related to a decrease in net 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 $58.1 million for the year ended December 31, 2021, as compared to $37.9 million for the year ended December 31, 2020. The increase in earnings from investments in unconsolidated entities primarily relates to an increase in unrealized gains on investments in loan originators year over year, an increase in net realized and unrealized gains on our investments in entities holding commercial mortgage loans and REO, in which we co-invest with other Ellington affiliates, and an increase in net realized and unrealized gains on an equity investment in a securitization-related risk retention vehicle for the year ended December 31, 2021.

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

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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.

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)

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.

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The following table summarizes our aggregate secured borrowings, which, other than Other secured borrowings, at fair value, 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 %

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

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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 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.

Liquidity and Capital Resources

Liquidity refers to our ability to generate and obtain adequate amounts of cash to meet our requirements, including repaying our borrowings, funding and maintaining positions in our targeted assets, making distributions in the form of dividends, and other general business needs. Our short-term (the 12 months ending December 31, 2022) and long-term (beyond December 31, 2022) 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.

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The following summarizes our borrowings under repos by remaining maturity:

Repos involving underlying investments that were sold prior to period end for settlement following period end, are shown using their contractual 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, 2021, the weighted average contractual haircut applicable to the assets that serve as collateral for our outstanding repo borrowings was 22.4% with respect to credit assets, 5.4% with respect to Agency RMBS assets, and 12.1% overall. As of December 31, 2020 these respective weighted average contractual haircuts were 33.0%, 6.0%, and 19.1%. The decrease in the weighted average contractual haircut on our overall portfolio is primarily due to lower haircuts on repo borrowings related to our Credit portfolio assets at December 31, 2021 as compared to December 31, 2020.

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, 2021 and 2020, we had $2.5 billion and $1.5 billion, respectively, of borrowings outstanding under our repos. As of December 31, 2021, the remaining terms on our repos ranged from 3 days to 638 days, with a weighted average remaining term of 134 days. Our repo borrowings were with a total of 23 counterparties as of December 31, 2021. As of December 31, 2021, our repos had a weighted average borrowing rate of 0.82%. As of December 31, 2021, our repos had interest rates ranging from 0.10% to 3.75%. 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%. Investments transferred as collateral under repos had an aggregate fair value of $2.8 billion and $1.8 billion as of December 31, 2021 and 2020, respectively.

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.

We have continued to extend and improve our sources of financing and leverage in 2021. In addition to adding two new loan financing facilities and extending the terms of other financing facilities, we completed three non-QM loan securitizations during the year ended December 31, 2021.

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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, commercial mortgage loans, and consumer loans and ABS backed by consumer loans; such transactions are accounted for as collateralized borrowings. As of December 31, 2021 and 2020, we had outstanding borrowings related to such transactions in the amount of $1.081 billion and $806.0 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, 2021 and 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 $1.190 billion and $906.4 million, respectively. See Note 11 in the notes to our consolidated financial statements for further information on our other secured borrowings.

As of both December 31, 2021 and 2020, 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. The Company expects to refinance the Senior Notes on or prior to maturity. See Note 11 in the notes to our consolidated financial statements for further detail on the Senior Notes.

As of December 31, 2021, we had an aggregate amount at risk under our repos with 22 counterparties of approximately $353.2 million, and as of December 31, 2020, we had an aggregate amount at risk under our repos with 24 counterparties of approximately $363.1 million. Amounts at risk represent the excess, if any, for each counterparty of the fair value of collateral held by such counterparty over the amounts outstanding under 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, 2021 and 2020 does not include approximately $4.0 million and $4.2 million, respectively, of net accrued interest receivable, which is defined as accrued interest on securities held as collateral less interest payable on cash borrowed.

Our derivatives are predominantly subject to bilateral master trade agreements or clearing in accordance with the Dodd-Frank 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, 2021, we had an aggregate amount at risk under our derivative contracts, excluding TBAs, with eight counterparties of approximately $18.5 million. We also had $16.2 million of initial margin for cleared over-the-counter, or

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"OTC," derivatives posted to central clearinghouses as of that date. As of December 31, 2020, we had an aggregate amount at risk under our derivatives contracts, excluding TBAs, with eight counterparties of approximately $11.2 million. We also had $7.2 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, 2021, in connection with our forward settling TBA and Agency pass-through certificates, we had an aggregate amount at risk with ten counterparties of approximately $1.0 million. 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. 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 $92.7 million and $111.6 million as of December 31, 2021 and 2020, 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, or the "Common Share Repurchase Program." The Common Share Repurchase Program, which is open-ended in duration, allows us to make repurchases from time to time on the open market or in negotiated transactions, including 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. From inception of the Common Share Repurchase Program through February 25, 2022, 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. We did not purchase any shares under this program during the year ended December 31, 2021.

On February 21, 2021, our Board of Directors approved the adoption of a share repurchase program under which we are authorized to repurchase up to $30.0 million of preferred stock, or the "Preferred Share Repurchase Program." The Preferred Share Repurchase Program, which is open-ended in duration, allows us to make repurchases from time to time on the open market or in negotiated transactions, including under 10b5-1 plans. Repurchases are at our discretion, subject to applicable law, share availability, price and our financial performance, among other considerations. From inception of the Preferred Share Repurchase Program through February 25, 2022, we have not repurchased any shares of preferred stock.

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.

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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 consolidated financial statements) for the periods indicated below:

Year Ended December 31, 2021

Declaration Date Dividend Per Share Dividend Amount Record Date Payment Date

(In thousands)

Year Ended December 31, 2020

Declaration Date Dividend Per Share Dividend Amount Record Date Payment Date

(In thousands)

On January 7, 2022, the Board of Directors approved a dividend in the amount of $0.15 per share of common stock payable on February 25, 2022 to stockholders of record as of January 31, 2022. On February 7, 2022, the Board of Directors approved a dividend in the amount of $0.15 per share of common stock payable on March 25, 2022 to stockholders of record as of February 28, 2022.

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The following table sets forth the dividend distributions authorized by the Board of Directors during the years ended December 31, 2021 and 2020 and payable to holders of our preferred stock:

Declaration Date Dividend Per Share Dividend Amount Record Date Payment Date

(In thousands)

Series A Preferred Stock:

Series B Preferred Stock:

On August 6, 2021, we commenced the Common ATM Program by entering into equity distribution agreements with third party sales agents under which we are authorized to offer and sell up to 10.0 million shares of common stock from time to time. From commencement of the Common ATM Program through December 31, 2021, we issued 1,549,900 shares of common stock under the Common ATM Program, which provided $28.2 million of net proceeds after $0.4 million of agent commissions and offering costs. Through February 25, 2022, we have issued 1,549,900 shares of common stock under the ATM program.

On January 20, 2022, we commenced the Preferred ATM Program by entering into equity distribution agreements with third party sales agents under which we are authorized to offer and sell up to $100.0 million of Series A Preferred Stock and/or Series B Preferred Stock from time to time. From commencement of the Preferred ATM Program through February 25, 2022, we have issued 20,421 shares of Series B Preferred Stock, which provided $0.5 million of net proceeds after $11 thousand of commissions and offering costs; we have $99.5 million of preferred stock available to be issued remaining under the Preferred ATM program.

On February 18, 2022, we entered into an agreement with Home Point to purchase Home Point's 49.6% ownership interest in Longbridge. The consummation of this transaction, which is expected to be an all cash transaction, is subject to regulatory approvals and customary closing conditions and is expected to close in the second quarter of 2022. Upon closing of the transaction, we will own substantially all of the equity interests in Longbridge, which will result in the consolidation of Longbridge's financial results in our financial statements following the closing.

For the year ended December 31, 2021, our operating activities provided net cash in the amount of $51.3 million and our investing activities used net cash in the amount of $2.025 billion. Our repo activity used to finance many of our investments (including repayments of amounts borrowed under our repos) provided net cash of $971.4 million. We received $867.1 million in proceeds from the issuance of Total other secured borrowings and we used $146.4 million for principal payments on our Total other secured borrowings. Thus our operating and investing activities, when combined with our repo financings and Other

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secured borrowings (net of repayments), used net cash of $281.8 million for the year ended December 31, 2021. We received proceeds from the issuance of common and preferred stock, net of underwriters' discounts and commissions, agent commissions, and offering costs paid, of $360.9 million, and we received contributions from non-controlling interests of $14.7 million. We used $85.7 million to pay dividends and $27.1 million for distributions to non-controlling interests (our joint venture partners). As a result there was a decrease in our cash holdings of $19.0 million, from $111.8 million as of December 31, 2020 to $92.8 million as of December 31, 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.

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.

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 to our consolidated financial statements.

We have numerous contractual obligations and commitments related to our outstanding borrowings (see Note 11 of the notes to our consolidated financial statements) and related to our financial derivatives (see Note 8 of the notes to our consolidated financial statements).

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

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Off-Balance Sheet Arrangements

As of December 31, 2021, 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, 2021 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, 2021 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 occupancy rates 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 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.

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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.

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. Whenever one of our repo borrowings matures, it will generally be replaced with a new 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

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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, 2021, 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

Other Mortgage-Related Derivatives 2 — % 4 — % (1) — % (2) — %

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.

The above analysis utilizes assumptions and estimates based on management's judgment and experience, and relies on financial models, which are inherently imperfect; in fact, different models can produce different results for the same securities. While the table above reflects the estimated impacts of immediate parallel interest rate increases and decreases on specific categories of instruments in our portfolio, we actively trade many of the instruments in our portfolio, and therefore our current or future portfolios may have risks that differ significantly from those of our December 31, 2021 portfolio estimated above. Moreover, the impact of changing interest rates on fair value can change significantly when interest rates change by a greater amount than the hypothetical shifts assumed above. Furthermore, our portfolio is subject to many risks other than interest rate risks, and these additional risks may or may not be correlated with changes in interest rates. For all of the foregoing reasons and others, the table above is for illustrative purposes only and actual changes in interest rates would likely cause changes in the actual fair value of our portfolio that would differ from those presented above, and such differences might be significant and adverse. See "Business—Special Note Regarding Forward-Looking Statements."

100

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Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID NO. 238 ) 102

Consolidated Balance Sheet 104

Consolidated Statement of Operations 105

Consolidated Statement of Changes in Equity 106

Consolidated Statement of Cash Flows 108

Notes to Consolidated Financial Statements 111

101

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Report of Independent Registered Public Accounting Firm

To theBoard of Directors and Stockholders of Ellington Financial Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheet of Ellington Financial Inc.and its subsidiaries(the “Company”) as of December 31, 2021and 2020,and the related consolidated statements of operations, of changes in equity and of cash flows for each of the three years in the period ended December 21, 2021,including the related notes and the schedule of mortgage loans on real estate as of and for the year ended December 31, 2021 appearing under Item 15(a)(2) (collectively referred to as the “consolidatedfinancial statements”).We also have audited the Company's internal control over financial reporting as of December 31, 2021,based on criteria established in Internal Control - Integrated Framework(2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidatedfinancial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021and 2020, and the results of itsoperations and itscash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework(2013)issued by the COSO.

Basis for Opinions

EFC US Equity

EFC · 10-K · period ended 2021-12-31

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

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

EFC US Equity☆

EFC · 10-K · period ended 2021-12-31

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

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

EFC US Equity