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

Executive Summary

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. 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.

We conduct all of our operations and business activities through the Operating Partnership. As of December 31, 2023, we had an ownership interest of approximately 99.3% in the Operating Partnership. The remaining ownership interest of approximately 0.7% 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. We are externally managed and advised by our Manager, an affiliate of Ellington. Ellington is a registered investment adviser with a 29-year history of investing in the Agency and credit markets.

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

On October 3, 2022, we completed the acquisition of a controlling interest in Longbridge Financial, LLC ("Longbridge"), a reverse mortgage loan originator and servicer (the "Longbridge Transaction"). As a result of the Longbridge Transaction, we consolidate Longbridge's financial results. On December 14, 2023, we completed a merger between Arlington Asset Investment Corp., a Virginia corporation ("Arlington"), and our subsidiary EF Merger Sub Inc., a Virginia corporation (such transaction, the "Arlington Merger"). We have accounted for the Arlington Merger as a business combination in accordance with the provisions of ASC 805, Business Combinations, or "ASC 805." In applying the acquisition method of accounting, we are treated as the acquirer of Arlington for accounting purposes. See Note 25, Business Combinations of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional details of the Longbridge Transaction and the Arlington Merger.

On June 30, 2023, we, Great Ajax Corp. (“Great Ajax”), and EF Acquisition I LLC, our wholly-owned subsidiary (“Great Ajax merger sub”), entered into an Agreement and Plan of Merger (the “Great Ajax merger agreement”), pursuant to which it was agreed that, subject to the terms and conditions therein, Great Ajax would be merged with and into Great Ajax merger sub, with Great Ajax merger sub remaining as our wholly-owned subsidiary (the “Great Ajax merger”). On October 20, 2023, we and Great Ajax executed a termination agreement (the “termination agreement”) to terminate the Great Ajax merger; pursuant to the terms of the termination agreement, we paid Great Ajax a termination fee of $5 million and also purchased 1,666,666 newly issued shares of Great Ajax common stock, at a per share price of $6.60, for a total purchase price of $11 million.

In our investment portfolio, we invest in a diverse array of financial assets, including residential mortgage-backed securities, or "RMBS," including 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"; residential and commercial mortgage loans; commercial mortgage-backed securities, or "CMBS"; consumer loans and asset-backed securities, or "ABS," including ABS backed by consumer loans; investments referencing mortgage servicing rights on traditional forward mortgage loans, or "Forward MSR-related investments"; collateralized loan obligations, or "CLOs"; non-mortgage- and mortgage-related derivatives; equity investments in loan origination companies; and other strategic investments. We refer to the portion of our investment portfolio excluding Agency RMBS as our credit portfolio.

Longbridge originates and services reverse mortgage loans, including both home equity conversion mortgage loans ("HECM loans") which are insured by the Federal Housing Administration ("FHA"), as well as non-FHA-insured reverse mortgage loans, which we refer to as "proprietary reverse mortgage loans." HECM loans are generally eligible for securitization into HECM-backed MBS ("HMBS"), which are guaranteed by the Government National Mortgage Association ("GNMA").

The strategies that we employ are intended to capitalize on opportunities in the current market environment. Subject to maintaining our qualification as a REIT and our exclusion from registration as an investment company under the Investment Company Act, 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

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experience, will help us generate more consistent returns on our capital throughout changing market cycles. Additionally, subject to maintaining our qualification as a REIT, we opportunistically hedge our credit risk, interest rate risk, yield spread 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. For more information on our targeted assets, see "—Our Targeted Asset Classes" below.

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 backed by consumer loans;

. 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;

. RMBS backed by performing and non-performing 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";

. Retained tranches from securitizations in which we have participated; and

. Credit risk transfer securities, or "CRTs."

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Asset Class Principal Assets

(continued)

Residential Mortgage Loans . Non-QM loans;

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

. Reverse mortgage loans.

Other . Mortgage servicing rights, or "MSRs" and MSR-related investments;

. 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;

. Other non-mortgage-related derivatives; and

. Confirmation of originator fee certificates.

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 typically collateralized by syndicated corporate loans or commercial mortgage loans. Our CLO holdings may include both debt and equity interests. Some of our CLOs include retained tranches from CLO securitizations for which we participated in the accumulation of the underlying assets.

CMBS

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

The majority of CMBS utilize senior/subordinate structures, similar to those found in non-Agency RMBS. Subordination levels vary so as to provide for one or more AAA credit ratings on the most senior classes, with less senior securities rated investment grade and non-investment grade, including a first loss component which is typically unrated. This first loss component is commonly referred to as the "B-piece," which is the most subordinated (and therefore highest yielding and

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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 directly originate and participate in the origination of commercial mortgage "bridge" loans, which are loans secured by liens on commercial properties, and which have shorter terms and higher interest rates than more traditional commercial mortgage loans. Bridge loans are often secured by properties in transition, where the borrower is in the process of either re-developing or stabilizing operations at the property.

We also acquire seasoned commercial mortgage bridge loans, as well as longer-term commercial mortgage loans. Some of the seasoned 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.

Our commercial mortgage loans may be fixed or floating rate and will generally have maturities ranging from one to ten years. We typically originate and acquire first-lien loans but may also originate and acquire subordinated loans. As of December 31, 2023, 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.

Within both our loan origination and acquisition strategies, we often 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 certain originators, as well as seasoned consumer loans in the secondary market, and we continue to evaluate new opportunities.

MSRs and MSR-Related Investments

An MSR represents the right to service one or more mortgage loans in exchange for a specified revenue stream, typically a portion of the interest payments due on such mortgage loans together with certain other ancillary revenue. While the owner of an MSR is ultimately responsible for servicing the underlying loans in accordance with applicable regulations, the actual loan servicing functions are often subcontracted out to third-party licensed subservicers. The mortgages underlying MSRs can either be traditional "forward" mortgage loans ("Forward MSRs") or reverse mortgage loans ("Reverse MSRs").

The revenue stream associated with an MSR is often bifurcated into two components: a "base servicing fee," representing the actual or approximate cost of performing the loan servicing functions; and the remaining revenue, or "excess servicing spread." We have in the past acquired, and, may in the future acquire, excess servicing spread from mortgage loan servicers.

As a result of the Arlington Merger, the Company, through certain of its subsidiaries, is party to various agreements that enable the Company to participate in the economic returns of a portfolio of forward MSRs. The mortgage loans underlying such Forward MSR-related investments consist solely of residential mortgage loans guaranteed by Fannie Mae or Freddie Mac.

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. The loans backing our non-Agency RMBS can be performing or non-performing. 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, both Agency-issued and non-Agency-issued CRTs, which have credit risks similar to those of subordinated RMBS tranches, as well as non-QM RMBS, including retained tranches from non-QM RMBS securitizations in

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which we have participated.

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 equity investments in various non-QM originators, and to date we have purchased the majority of our non-QM loans from these originators, 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 are also 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.

Reverse Mortgage Loans and Reverse MSRs

Reverse mortgage loans are residential mortgage loans for which neither principal nor interest is due until the borrower dies, the home is sold, or other trigger events occur. Reverse mortgage loans can have either fixed interest rates or adjustable interest rates. In the case of most fixed-rate reverse mortgage loans, the borrower must draw the loan proceeds up front in one lump sum, while many adjustable-rate mortgage loans provide the borrower with a line of credit that can be drawn over time.

As a result of the Longbridge Transaction, we consolidate Longbridge, which acquires reverse mortgage loans both through its origination activities and through secondary market purchases. Historically, the majority of loans acquired by Longbridge have been home equity conversion mortgage loans, or "HECMs," which are insured by FHA and eligible for inclusion in GNMA-guaranteed HECM-backed MBS, or "HMBS." Longbridge is an approved issuer of HMBS, and it pools and securitizes the majority of its HECM loans into HMBS, which it then sells in the secondary market while retaining the servicing rights on the underlying HECM loans. In addition, Longbridge opportunistically acquires, in the secondary market, HECM loans that have been mandatorily repurchased from HMBS pools ("HECM Buyout Loans") by other HECM servicers upon the outstanding principal balance of such loans reaching or exceeding 98% of their respective maximum claim amount. Depending on their status, HECM Buyout Loans are either eligible to be assigned to HUD in connection with an FHA insurance claim ("assignable buyout loans," or "ABOs"), or ineligible to be assigned to HUD ("non-assignable buyout loans," or "NABOs").

Longbridge also originates and purchases proprietary reverse mortgage loans, which typically carry loan balances or credit lines that exceed FHA limits or have other characteristics that make them ineligible for FHA insurance.

The majority of Longbridge's existing MSRs relate to HECM loans that Longbridge pooled and securitized into HMBS and then sold into the secondary market with servicing rights retained. In accordance with U.S. GAAP, so long as Longbridge retains such mortgage servicing rights and the obligations relating thereto, such HECM loans do not meet the requirement for sale accounting in accordance with US GAAP and remain on Longbridge's balance sheet. The sold HMBS securities are accounted for as secured borrowings. In addition, Longbridge opportunistically acquires, in the secondary market or otherwise, MSRs associated with either proprietary reverse mortgage loans, HECMs or HECM buyout loans.

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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 generally 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.

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.

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 litigation finance loans, 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.

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

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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 the Secured Overnight Financing Rate, or "SOFR." As each then-existing fixed-rate repurchase agreement, or "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 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.

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.

Trends and Recent Market Developments

Market Overview

•After increasing the target range for the federal funds rate by a cumulative 4.25% in 2022, the U.S. Federal Reserve, or the "Federal Reserve," slowed the pace of its interest rate hikes in 2023. In 2023, at its January/February meeting, the Federal Reserve raised the target range by 25 basis points to 4.50%–4.75%, which was its smallest increase since March 2022.

In March 2023, in response to stress in the banking system, which included the failures of Silicon Valley Bank and Signature Bank, the Federal Deposit Insurance Corporation, or "FDIC," took steps to guarantee all deposits of those two failed banks, including deposits above the standard limit of $250,000. Meanwhile, concerns around the solvency of Credit Suisse Group AG prompted the Swiss Government to provide liquidity assistance and other financial support in conjunction with a merger of Credit Suisse Group AG into UBS Group AG. In addition, the Federal Reserve announced additional liquidity support through the creation of the Bank Term Funding Program, which provided loans with terms of up to one year to banks and other eligible depository institutions for qualified collateral, which included U.S. Treasury securities and Agency RMBS, at their par values. Other central banks around the world also announced plans to increase liquidity to financial institutions. Later in March 2023, at its monthly meeting, the Federal Reserve declared that the "U.S. banking system is sound and resilient" and increased the target range for the federal funds rate by an additional 25 basis points to 4.75%–5.00%.

Next, the Federal Reserve increased the target range by an additional 25 basis points in May 2023, paused in June, increased by an additional 25 basis points in July to a range of 5.25%–5.50%, and then maintained that range at each of its meetings from September through December, noting in December that "inflation has eased over the past year but remains elevated." In a dovish shift, the Summary of Economic Projections released by the Federal Reserve in December implied three interest rate cuts in 2024. However, minutes from the December 2023 meeting released in early January 2024 revealed that during the meeting Federal Reserve participants "reaffirmed that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down," seemingly lowering the likelihood of a cut during the first quarter of 2024.

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Throughout 2023, the Federal Reserve continued to reinvest only principal payments that exceeded monthly caps of $60 billion on U.S. Treasury securities and $35 billion on Agency RMBS.

•Interest rates were highly volatile during much of 2023, and many parts of the yield curve continued to be inverted. After falling in January, interest rates increased in February and early March, particularly short-term interest rates, as the yield on the 2-year U.S. Treasury surpassed 5% for the first time since June 2007. Then, in mid-March 2023, concerns about the stress in the banking system spurred a flight to safety, which drove interest rates down significantly. Overall, the yield on the 2-year U.S. Treasury decreased by 40 basis points to 4.03% in the first quarter, while the yield on the 10-year U.S. Treasury decreased by 41 basis points to 3.47%. Interest rate volatility spiked in mid-March 2023, with the MOVE Index surpassing its COVID-related highs and reaching its highest level since 2008.

After trading in a relatively tight range in April and early May of 2023, interest rates rose steadily in the latter half of the second quarter, and the inversion of the yield curve deepened. Overall, the yield on the 2-year U.S. Treasury increased by 87 basis points to 4.90%, quarter over quarter, while the yield on the 10-year U.S. Treasury increased by 37 basis points to 3.84%. Meanwhile, interest rate volatility, as measured by the MOVE Index, declined during the quarter, particularly in June 2023 following the resolution of the federal government's debt ceiling dispute.

In the third quarter of 2023, interest rates increased, particularly long-term interest rates, which caused the inversion of the yield curve to subside somewhat. The yield on the 2-year U.S. Treasury increased by 15 basis points quarter over quarter to 5.04%, while the yield on the 10-year U.S. Treasury increased by 73 basis points quarter over quarter to 4.57%. Toward the end of the quarter, the 2-year U.S. Treasury yield reached its highest level since July 2006, and the 10-year U.S. Treasury yield reached its highest level since October 2007. Meanwhile, interest rate volatility, as measured by the MOVE Index, remained elevated throughout the quarter.

In the fourth quarter, interest rates reversed course and began to decline, as the market anticipated the conclusion of the Federal Reserve's interest rate hiking cycle. For the quarter, the yield on the 2-year U.S. Treasury decreased by 79 basis points to 4.25%, while the 10-year U.S. Treasury yield decreased by 69 basis points to 3.88%. The MOVE Index increased modestly from the previous quarter.

For the full year 2023, the 2-year U.S. Treasury yield decreased by 18 basis points, while the 10-year yield increased by 1 basis point.

•SOFR rates rose sharply from the start of the year through July 31, 2023, with one-month term SOFR increasing by 96 basis points to 5.32% and three-month term SOFR rising by 78 basis points to 5.37%. Beginning in August 2023, SOFR rates were relatively stable with one-month term SOFR ending the year at 5.35% and three-month term SOFR ending the year at 5.33%. Many of our financing costs are based on SOFR.

•Mortgage rates moved in sympathy with long-term interest rates during 2023. The Freddie Mac survey 30-year mortgage rate declined from 6.41% at the start of the year to 5.95% in mid-January, and then steadily rose to 6.74% in early March, before declining to 6.24% by the end of the first quarter. From there, mortgage rates rose steadily for much of 2023, with the Freddie Mac 30-year mortgage rate peaking at 7.79% on October 26th, its highest level since October 2000.The survey rate then reversed course and fell sharply over the final two months of 2023, declining to 6.42% on December 28th, approximately where it started the year.

After reaching a 25-year low at the end of 2022, the Mortgage Bankers Association's Refinance Index increased by 53% in the first quarter of 2023, before declining through the end of November, driven by higher mortgage rates. The index temporarily rose in mid-December 2023 with lower mortgage rates, and declined again toward the end of December 2023. Overall, the index increased by 15% year over year but remained at historically depressed levels. Prepayment speeds also remained at historically low levels throughout 2023. The Fannie Mae 30-year MBS registered a CPR of 4.5 in December 2023, unchanged year over year, reaching a 2023 low of 3.7 in January and a 2023 high of 6.4 in June.

•Despite higher mortgage rates for much of 2023, the S&P CoreLogic Case-Schiller US National Home Price NSA Index increased by 5.5% during the year. The National Association of Realtors Housing Affordability Index declined by 7% during 2023, as higher mortgage rates and record home prices continued to stress housing affordability.

•U.S. real GDP increased at an annualized rate of 2.2% in the first quarter, 2.1% in the second quarter, 4.9% in the third quarter, and an estimated annualized rate of 3.2% in the fourth quarter. Meanwhile, the unemployment rate remained low throughout 2023, starting the year at 3.5% and registering 3.7% as of year end.

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•Inflation, while still elevated, declined during each of the first six months of 2023. The year-over-year percentage change in the Consumer Price Index for All Urban Consumers ("CPI-U"), not seasonally adjusted, declined from 6.4% in January 2023 to 3.0% in June 2023. Year-over-year inflation then increased again in the third quarter of 2023, registering 3.7% in September, before declining modestly in the fourth quarter, registering 3.4% in December.

•After a historically difficult year in 2022, MBS performance was mixed in 2023. Following strong absolute and relative performance in January 2023, MBS performance reversed course in mid-February and especially in March, as concerns in the banking sector caused volatility to surge. Overall for the first quarter of 2023, the Bloomberg Barclays U.S. MBS Index ("BB MBS Index") generated a positive return of 2.53% but a negative excess return (on a duration-adjusted basis) of (0.50%) relative to the Bloomberg Barclays U.S. Treasury Index. In the second quarter of 2023, the BB MBS Index generated a negative return of (0.66%) but a positive excess return of 0.79%, driven by strong outperformance in June. For the third quarter, the BB MBS Index posted a negative return of (4.13%) and a negative excess return of (0.88%) relative to the Bloomberg Barclays U.S. Treasury Index, driven by underperformance of the mortgage basis in September 2023. That underperformance continued into October, but over the final two months of the year, volatility declined and yield spreads tightened and overall for the fourth quarter of 2023, the BB MBS Index generated a positive return of 7.31% and an excess return of 1.26%. For the full year 2023, the BB MBS Index generated a positive return of 5.05% and an excess return of 0.68%.

•Similarly, after negative performance in 2022, the Bloomberg Barclays U.S. Corporate Bond Index ("BB IG Index") generated positive results on both an absolute and relative basis in 2023, driven by strong results in the fourth quarter of 2023. For the full year 2023, the BB IG Index generated a return of 8.52% on an absolute basis and an excess return of 4.55%. Meanwhile, the Bloomberg Barclays U.S. Corporate High Yield Bond Index ("BB HY Index") generated positive returns in each quarter of 2023 on both an absolute and relative basis. For the full year 2023, the BB HY Index generated a positive return of 13.45% and an excess return of 8.86%.

•U.S. equities were also volatile during 2023, but performed well overall for the year, with the Dow Jones Industrial Average increasing by 13.7%, the S&P 500 rising by 24.2%, and the NASDAQ up 43.4%. Meanwhile, London's FTSE 100 index increased by 3.8% for the year, and the MSCI World global equity index increased by 21.8%. The VIX volatility index spiked in mid-March 2023 in response to the stress in the banking system and again in late September and October, before falling through year end.

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Portfolio Overview and Outlook—Investment Portfolio

Investment Portfolio—Credit(1)

The following tables summarize the long investments in our credit portfolio as of December 31, 2023 and 2022.

($ in thousands) Fair Value % of Total Fair Value % of Total

Dollar Denominated:

Consumer Loans and ABS backed by Consumer Loans(2) 83,130 2.0 % 94,993 2.3 %

Other loans and ABS(5) 10,314 0.3 % — — %

Corporate Debt and Equity and Corporate Loans 29,720 0.7 % 18,084 0.4 %

Forward MSR-related investments 163,336 3.9 % — — %

Non-Dollar Denominated:

Corporate Debt and Equity 189 — % 206 — %

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

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

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

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

(5)Includes equity investment in an unconsolidated entity which purchases certain other loans for eventual securitization.

(6)Includes corporate loans to certain loan origination entities in which we hold an equity investment.

(7)Retained non-QM RMBS represents RMBS issued by non-consolidated Ellington-sponsored non-QM loan securitization trusts, and interests in entities holding such RMBS.

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

Our total long credit portfolio, excluding non-retained tranches of consolidated non-QM securitization trusts, increased by 8% to $2.74 billion as of December 31, 2023, from $2.54 billion as of December 31, 2022. The increase was driven primarily by a larger residential transition loan portfolio, where net purchases exceeded principal paydowns, the addition of Arlington's MSR-related portfolio, and net purchases of non-Agency RMBS. These increases were partially offset by smaller commercial mortgage loan and non-QM loan portfolios. For commercial mortgage loans, loan payoffs and paydowns exceeded new originations during the year. For non-QM, loan payoffs and paydowns, as well as loan sales and a non-consolidated securitization completed early in the year, exceeded new acquisitions.

Strong net interest income from our loan portfolios, along with net realized and unrealized gains on our non-QM loan and non-Agency RMBS portfolios, drove the positive performance in our credit strategy for the year. We also had net realized and unrealized gains on our interest rate hedges, driven by the significant increase in rates during the second and third quarters of the year. A portion of these gains were offset by net realized and unrealized losses on consumer loans, commercial mortgage loans, CMBS, residential transition loans, as well as on credit hedges and equity investments in unconsolidated loan originators. During the year, we saw an uptick in delinquencies on our residential and commercial mortgage loan portfolios, and while those portfolios continue to experience low levels of realized credit losses and strong overall credit performance, we are monitoring developments closely and diligently working out a handful of nonperforming commercial mortgage assets.

During the year, our asset yields increased, driven by turnover of assets that had been purchased in a lower-yield market environment, and we continued to benefit from positive carry on our interest rate swap hedges, where we overall receive a

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higher floating rate and pay a lower fixed rate. At the same time, borrowing costs on our credit investments increased, driven by higher short term interest rates, which slightly exceeded the increase in our asset yields. As a result, the net interest margin on our credit portfolio (which represents the weighted average asset yield less the weighted average secured financing cost of funds, as adjusted to include the effect of actual and accrued periodic payments on interest rate swaps used to hedge the assets) decreased slightly to 2.70% from 2.74% year over year.

Supplemental Credit Portfolio Information:

The following tables provide supplemental information to, and should be read in conjunction with, the notes to our financial statements. See Note 5—Investments in Loans, Note 7—Forward MSR-related Investments, and Note 8—Investments in Unconsolidated Entities to the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

The table below details certain information regarding our investments in commercial mortgage loans as of December 31, 2023:

Gross Unrealized Weighted Average

(1)Excludes commercial mortgage loans in non-accrual status, with a fair value of $33.3 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 commercial mortgage 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, 2023 all of our commercial mortgage loans were first-lien mortgages, the vast majority of which have floating rates with a rate floor.

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, 2023:

Multifamily 64.0 %

Hotel 8.0 %

Office 7.5 %

Retail 5.7 %

Healthcare 4.9 %

Industrial 4.3 %

Mobile Home Community 4.2 %

Self Storage 1.4 %

(1)Includes our allocable portion of commercial mortgage 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.

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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, 2023:

Property Location by U.S. State(1) December 31, 2023

Georgia 7.6 %

Michigan 6.4 %

Indiana 5.3 %

All other states <5% 28.8 %

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, 2023:

Loan Type Unpaid Principal Balance Fair Value

(In thousands)

Total residential mortgage loans and residential REO(1) $ 3,110,012

(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.

The table below details (in thousands) the underlying reference amounts and components of our Forward MSR-related investments as of December 31, 2023:

The table below provides additional details on the MSRs underlying our Forward MSR-related investments as of December 31, 2023:

Weighted Average

(In thousands)

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The following table provides additional details about our investments in unconsolidated entities as of December 31, 2023:

Investment in Unconsolidated Entity Description Fair Value

Loan Originators: Entity Type (In thousands)

LendSure Mortgage Corp. Residential Mortgage Loan Originator $ 23,837

Other Unconsolidated Entities: Underlying Product Type

Investment Portfolio—Agency RMBS

Long Agency RMBS:

Our total long Agency RMBS portfolio decreased by 12% year over year to $853.2 million, as principal repayments and net sales exceeded net gains, and as we rotated a portion of our investment capital to our credit portfolio.

The year began on a constructive note with interest rates and volatility declining and Agency MBS yield spreads tightening in January. However, markets reversed course in mid-February on renewed anxiety over inflation and what the Federal Reserve's response would be. Then in March, turmoil in the banking system put further pressure on Agency yield spreads. Overall, Agency RMBS underperformed U.S. Treasuries and interest rate swaps (which are the primary instruments we use to hedge our interest rate risk) in the first quarter with the most pronounced underperformance coming on low-coupon MBS, where our Agency RMBS was concentrated, due to concerns over future selling from distressed regional banks.

FDIC-directed sales of RMBS from failed regional banks commenced at the start of the second quarter, which pressured yield spreads but also drove strong RMBS demand into May, even as interest rate volatility remained elevated. Then in June, yield spreads tightened following the resolution of the debt ceiling dispute, and Agency RMBS outperformed hedging instruments for the quarter. In the third quarter, Agency RMBS faced the significant headwinds of elevated market volatility and rising long-term interest rates, resulting in wider yield spreads and Agency RMBS underperformance relative to hedging instruments.

In the fourth quarter, interest rates and volatility increased in October, which drove yield spreads wider in most fixed income sectors, including Agency RMBS. Markets then reversed course, however, with interest rates and volatility declining, and yield spreads tightening, through year end. Overall for the fourth quarter, Agency RMBS outperformed hedging instruments, with lower and intermediate coupon RMBS exhibiting the most pronounced outperformance.

Overall, we had positive net income in the Agency RMBS strategy for the year, primarily driven by net realized and unrealized gains on our Agency RMBS and interest rate hedges, which were partially offset by negative net interest income.

During the year, we continued to hedge interest rate risk through the use of interest rate swaps and short positions in TBAs, U.S. Treasury securities, and futures. We ended 2023 with a net short TBA position, both on a notional basis and as

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measured by 10-year equivalents. Ten-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 the Agency strategy, our cost of funds increased significantly year over year, driven by higher short-term interest rates, and despite positive carry on our interest rate swap hedges, where we overall receive a higher floating rate and pay a lower fixed rate. Our asset yields also increased, though by a lesser amount. As a result, the net interest margin on our Agency RMBS, excluding the Catch-up Amortization Adjustment, declined year over year to 1.03% from 1.43%. Average pay-ups on our specified pools decreased to 0.84% as of December 31, 2023, as compared to 0.96% as of December 31, 2022.

As of December 31, 2023, the weighted average net pass-through rate on our fixed-rate specified pools was 3.9% as compared to 3.4%, as of December 31, 2022. Portfolio turnover for our Agency strategy, as measured by sales and excluding paydowns, was 153.0% for the year ended December 31, 2023.

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, 2023, September 30, 2023, June 30, 2023, March 31, 2023, and December 31, 2022.

Three-Month Period Ended

Three-Month Constant Prepayment Rates(1) 5.7 7.0 6.2 4.8 7.7

(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, 2023 and 2022:

(In thousands) (In thousands)

Fixed-rate Agency RMBS:

15-year fixed-rate mortgages:

20-year fixed-rate mortgages:

30-year fixed-rate mortgages:

Portfolio Overview and Outlook—Longbridge

As discussed in Note 13 of the Notes to the Consolidated Financial Statements, when Longbridge pools HECM loans into HMBS, such transfers do not qualify as sales under U.S. GAAP, and as a result, such transactions are treated as secured borrowings on our Consolidated Balance Sheet. The HECM loans are included in Loans, at fair value, and the related liabilities are reflected as HMBS-related obligations, at fair value. After pooling the HECM loans into HMBS, Longbridge retains the mortgage servicing rights associated with such HMBS, which we refer to as the "HMBS MSR Equivalent." Additionally, Longbridge typically retains the MSRs associated with the proprietary reverse mortgage loans that it originates and has acquired MSRs on reverse mortgage loans in the secondary market ("Reverse MSRs"). We refer to the HMBS MSR Equivalent and Reverse MSRs collectively as our "Reverse MSR-related Net Assets."

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The following table summarizes loan-related assets(1) in the Longbridge segment as of December 31, 2023 and 2022:

(1)This information does not include financial derivatives or loan commitments.

(2)Includes HECM loans, REO, and claims or other receivables.

(3)As of December 31, 2023, includes $6.9 million of assignable HECM Buyout Loans, $10.2 million of non-assignable HECM Buyout Loans, and $4.9 million of other inactive HECM loans.

Our Longbridge portfolio generated positive results for the year, driven by net servicing income, net gains on interest rate hedges, and mark-to-market gains on proprietary reverse mortgage loans driven by tighter yield spreads. We also had a modest net gain on our Reverse MSR-related Net Assets, which consisted primarily of a mark-to-market gain on a Reverse MSR portfolio we acquired out of a bankruptcy proceeding on July 1st, partially offset by the mark-to-market loss on our existing HMBS MSR Equivalent. These gains more than offset a net loss in originations, which was driven by reduced gain-on-sale margins and lower origination volumes.

Longbridge's portfolio increased by 69% year over year to $552.4 million as of December 31, 2023, driven primarily by proprietary reverse mortgage loan originations. Meanwhile, the Reverse MSR-related Net Assets increased slightly, as the addition of a Reverse MSR portfolio acquired out of a bankruptcy proceeding was partially offset by mark-to-market losses on existing Reverse MSR-related Net Assets.

Supplemental Longbridge Information:

The following table summarizes origination volumes by channel for the three-month periods ended December 31, 2023 and 2022 and the year ended December 31, 2023:

Three-Month Period Ended Year Ended

(1)Excludes loans originated prior to the Longbridge Transaction and resulting consolidation.

(2)Represents initial borrowed amounts on reverse mortgage loans.

Corporate/Other

Our results for the year reflect the bargain purchase gain associated with the closing of the Arlington Merger, partially offset by merger-related transaction expenses, including certain compensation and severance costs that had been previously negotiated as part of the merger agreement. Although the bargain purchase gain, net of the related expenses, resulted in positive net income for the year, the common shares issued as consideration for the Arlington Merger were issued at a discount to our book value per share, and the transaction was dilutive to common shareholders overall by approximately 1.1%.

Our results for the year also reflect a significant gain, driven by higher interest rates, on the fixed payer interest rate swaps that we held in connection with the then-pending Great Ajax merger. This gain was partially offset by a net loss, also driven by higher interest rates, on the fixed receiver interest rate swaps that we use to hedge the fixed payments on both our unsecured long-term debt, or "Unsecured borrowings," and our preferred equity.

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Finally, our results include the additional costs associated with the mutual termination of the Great Ajax merger in October.

Financing—Overall

We have various financing arrangements in place as of December 31, 2023, including both secured and unsecured borrowings. We use repos, secured lines of credit, and various other secured borrowings to finance our portfolios, each of which we account for as collateralized borrowings. We have also obtained, through the securitization markets, term financing for certain of our non-qualified mortgage, or "non-QM," loans and certain of our consumer loans. Additionally, as an issuer of HMBS, we account for HMBS-related obligations as secured borrowings. Finally, as of December 31, 2023, we had $297.7 million of outstanding Unsecured borrowings including (i) senior notes of $210.0 million, maturing in April 2027 and bearing an interest rate of 5.875%; (ii) senior notes of $34.9 million, maturing in March 2025 and bearing an interest rate of 6.75%; and (iii) senior notes of $37.8 million, maturing in August 2026 and bearing an interest rate of 6.00% (collectively, the "Senior Notes") as well as $15.0 million of unregistered junior subordinated unsecured debt securities (the "Trust Preferred Debt"). The indentures governing the outstanding Senior Notes contain a number of covenants, including several financial covenants. See Note 14 of the Notes to the Consolidated Financial Statements for additional details on our Unsecured borrowings.

As of December 31, 2023, 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 $4.6 billion, of which approximately 23.6%, or $1.1 billion, related to our Agency RMBS holdings. The remaining outstanding borrowings related to our credit portfolio and Longbridge. Additionally, we had $8.4 billion of HMBS-related obligations.

The following table details our borrowings outstanding and debt-to-equity ratios as of December 31, 2023 and 2022:

As of

Recourse(1) borrowings:

Debt-to-equity ratio based on total recourse borrowings(1) 2.3:1 2.5:1

Non-Recourse(3) Borrowings:

(1)As of both December 31, 2023 and 2022, 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 2.4:1 and 2.7:1 as of December 31, 2023 and 2022, respectively.

(2)For unsettled purchases and sales, assumes associated borrowings are subject to haircuts of 5.1% and 5.3% as of December 31, 2023 and 2022, respectively.

(3)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).

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

Our debt-to-equity ratio based on total recourse and non-recourse borrowings excluding U.S. Treasury securities, adjusted for unsettled purchases and sales, decreased to 8.4:1 as of December 31, 2023 as compared to 10.0:1 as of December 31, 2022. This decline was primarily driven by a significant increase in shareholders' equity, including the impact of closing the Arlington Merger, partially offset by an increase in borrowings on our larger portfolio and an increase in Longbridge's non-recourse

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HMBS-related obligations. Our recourse debt-to-equity ratio, excluding U.S. Treasury securities and adjusted for unsettled purchases and sales, decreased to 2.0:1 from 2.5:1, year over year.

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 secured financing costs include interest expense related to our repo borrowings and Total other secured borrowings (which include Other secured borrowings and Other secured borrowings, at fair value, as presented on our Consolidated Balance Sheet but exclude HMBS-related obligations). For the year ended December 31, 2023, the average cost of funds on our secured financings increased to 5.45%, as compared to 4.43% for the year ended December 31, 2022. The year-over-year increase was primarily driven by higher short-term interest rates. Our unsecured financing costs consist of interest expense related to our Unsecured borrowings. For the years ended December 31, 2023 and 2022, the average borrowing rate on our unsecured financings was 5.98% and 5.88%, respectively. Our average cost of funds, including both secured and unsecured financings, increased to 5.48% from 4.49% over the same period.

Critical Accounting Estimates

Our consolidated financial statements include the accounts of Ellington Financial Inc., its Operating Partnership, its subsidiaries, including Longbridge, 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:

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

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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.

For securities, residential and commercial mortgage loans, consumer loans, and corporate loans, we generally amortize premiums and accrete discounts 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 Amortization Adjustment," is made to interest income to reflect the cumulative impact of the changes in effective yields. For the years ended December 31, 2023, 2022, and 2021, we recognized a Catch-Up Amortization Adjustment of $(0.1) million, $4.1 million, and 1.3 million respectively. The Catch-up Amortization Adjustment is 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 have elected to be taxed as a REIT for U.S. federal income tax purposes, 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 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 15 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, if any.

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Financial Condition

The following table summarizes the fair value of our consolidated portfolio of investments(1) as of December 31, 2023 and 2022.

Long:

Investment Portfolio:

Credit:

Dollar Denominated:

Consumer Loans and ABS backed by Consumer Loans(2) 83,130 94,993

Other loans and ABS(5) 10,314 —

Corporate Debt and Equity and Corporate Loans 29,720 18,084

Debt and Equity Investments in Loan Origination Entities(6) 38,528 42,581

Forward MSR-related Investments 163,336 —

Non-Dollar Denominated:

Corporate Debt and Equity 189 206

Agency:

Floating-Rate Specified Pools 5,130 6,254

Longbridge:

Short:

Investment Portfolio:

Government Debt:

(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 investments in unconsolidated entities holding commercial mortgage loans and REO.

(5)Includes equity investment in an unconsolidated entity which purchases certain other loans for eventual securitization.

(6)Includes corporate loans to certain loan origination entities in which we hold an equity investment.

(7)Retained non-QM RMBS represents RMBS issued by non-consolidated Ellington-sponsored non-QM loan securitization trusts, and interest in entities holding such RMBS.

(8)Includes an equity 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, 2023.

Notional Net Fair Value

(In thousands) Long Short Net

Mortgage-Related Derivatives:

Total Net Mortgage-Related Derivatives 3,294

Corporate-Related Derivatives:

Total Net Corporate-Related Derivatives (7,127)

Interest Rate-Related Derivatives:

Total Interest Rate-Related Derivatives 86,111

Other Derivatives:

Total Net Other Derivatives (58)

(1)For more detailed information about the financial derivatives in our portfolio, please refer to Note 10 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, 2023, derivative assets and derivative liabilities were $144.0 million and $(61.8) million, respectively, for a net fair value of $82.2 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, 2023, a total of 19 long and 2,882 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.

The following table summarizes our financial derivatives portfolio(1)(2) as of December 31, 2022.

Notional Net Fair Value

(In thousands) Long Short Net

Mortgage-Related Derivatives:

Total Net Mortgage-Related Derivatives 3,409

Corporate-Related Derivatives:

Total Net Corporate-Related Derivatives (552)

Interest Rate-Related Derivatives:

Total Interest Rate-Related Derivatives 75,386

Other Derivatives:

Total Net Other Derivatives 77

(1)For more detailed information about the financial derivatives in our portfolio, please refer to Note 10 of the notes to the consolidated financial statements.

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(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, 2022, derivative assets and derivative liabilities were $132.5 million and $(54.2) million, respectively, for a net fair value of $78.3 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, 2022, a total of 19 long and 2,922 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.

As of December 31, 2023, our Consolidated Balance Sheet reflected total assets of $15.3 billion and total liabilities of $13.8 billion. As of December 31, 2022, our Consolidated Balance Sheet reflected total assets of $14.1 billion and total liabilities of $12.9 billion. Our investments in securities, loans, MSRs, Forward MSR-related investments, unconsolidated entities, loan commitments, financial derivatives, and real estate owned included in total assets were $14.3 billion as of December 31, 2023. Our investments in securities, loans, MSRs, unconsolidated entities, loan commitments, financial derivatives, and real estate owned included in total assets were $13.4 billion as of December 31, 2022. Our investments in securities sold short and financial derivatives included in total liabilities were $216.1 million and $263.4 million as of December 31, 2023 and 2022, respectively. As of both December 31, 2023 and 2022, investments in securities sold short consisted principally of short positions in U.S. Treasury securities and sovereign bonds. We primarily use short positions in U.S. Treasury securities and sovereign bonds 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, 2023 and 2022, we had a net short notional TBA position of $57.9 million and $528.4 million, respectively.

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 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, 2023 indebtedness outstanding on our repos was approximately $3.0 billion. As of December 31, 2023, our assets financed with repos consisted of Agency RMBS of $1.2 billion, credit portfolio assets of $2.1 billion, reverse mortgage loans of $203.7 million, and U.S. Treasury securities of $154.6 million. As of December 31, 2023, outstanding indebtedness under repos was $1.1 billion for Agency RMBS, $1.6 billion for credit portfolio assets, $150.2 million of reverse mortgage loans, and $155.0 million for U.S. Treasury securities. As of December 31, 2022 indebtedness outstanding on our repos was approximately $2.6 billion. As of December 31, 2022, our assets financed with repos consisted of Agency RMBS of $976.5 million, credit portfolio assets of $2.2 billion, and U.S. Treasury securities of $69.0 million. As of December 31, 2022, outstanding indebtedness under repos was $939.7 million for Agency RMBS, $1.6 billion for credit portfolio assets, and $69.3 million for U.S. Treasury securities.

In addition to our repos, as of December 31, 2023 we had Total other secured borrowings of $1.7 billion, used to finance $1.9 billion of non-QM loans, ABS backed by consumer loans, reverse mortgage loans, and Reverse MSRs. This compares to Total other secured borrowings of $1.8 billion as of December 31, 2022, used to finance $2.1 billion of non-QM loans, ABS backed by consumer loans, reverse mortgage loans, and Reverse MSRs. Additionally, as of December 31, 2023, we had HMBS-related obligations of $8.4 billion collateralized by $8.5 billion of HMBS assets, and as of December 31, 2022, we had HMBS-related obligations of $7.8 billion collateralized by $7.9 billion of HMBS assets, which include HECM loans as well as

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REO and claims and other receivables. In addition to our secured borrowings, as of both December 31, 2023 and 2022, we had $297.7 million and $210.0 million of Unsecured borrowings outstanding, respectively.

As of December 31, 2023 and 2022, our debt-to-equity ratio was 8.7:1 and 10.2:1, respectively. Our recourse debt-to-equity ratio was 2.3:1 as of December 31, 2023 as compared to 2.5:1 as of December 31, 2022. See the discussion in "—Liquidity and Capital Resources" below for further information on our borrowings.

Equity

As of December 31, 2023, our equity increased by $314.7 million to $1.536 billion from $1.221 billion as of December 31, 2022. The increase principally consisted of net income of $87.9 million; net proceeds from the issuance of shares of preferred stock of $128.1 million, after commissions and offering costs, including preferred equity issued in connection with the Arlington Merger; net proceeds from the issuance of shares of common stock of $266.0 million, after commissions and offering costs, including common shares issued in connection with the Arlington Merger; and contributions from our non-controlling interests of $7.0 million. These increases were partially offset by common and preferred dividends of $148.0 million, repurchases of common stock of $12.4 million, and distributions to non-controlling interests of $15.2 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 $1.517 billion as of December 31, 2023. As of December 31, 2023, our book value per share of common stock, calculated using Total Stockholders' Equity less the aggregate liquidation preference of outstanding preferred stock, was $13.83.

Results of Operations

The following tables summarizes our results of operations by segment (as applicable) for the years ended December 31, 2023, 2022, and 2021:

Interest Income (Expense)

Other Income (Loss)

Unrealized gains (losses) on unsecured borrowings, at fair value — — 146 146

Net change from reverse mortgage loans, at fair value — 503,831 — 503,831

Net change related to HMBS obligations, at fair value — (451,598) — (451,598)

Expenses

Base management fee to affiliate, net of fee rebates(2) — — 20,419 20,419

Income tax expense (benefit) — — 457 457

Earnings (losses) from investments in unconsolidated entities (855) — — (855)

Net income (loss) attributable to non-controlling interests 3,125 (41) 730 3,814

Net Income (Loss) Per Common Share $ 1.65 $ 0.14 $ (0.90) $ 0.89

(1)See Note 16 of the notes to the consolidated financial statements for further details on management fee rebates.

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Interest Income (Expense)

Other Income (Loss)(1)

Net change from reverse mortgage loans, at fair value — 199,189 — 199,189 — — —

Bargain purchase gain 7,932 — — 7,932 — — —

Expenses

(1)Conformed to current period presentation.

Results of Operations for the Years Ended December 31, 2023 and 2022

Net Income (Loss) Attributable to Common Stockholders

For the year ended December 31, 2023 we had net income (loss) attributable to common stockholders of $60.9 million, compared to $(85.3) million for the year ended December 31, 2022. The reversal in our results of operations was primarily due to total other income in the current period, as compared to total other loss in the prior period, as well as a significant decrease in losses from investments in unconsolidated entities. This was partially offset by a significant increase in interest expense, as well as increases in various operating expenses, and dividends on preferred stock, for the year ended December 31, 2023.

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Interest Income

Interest income was $370.2 million for the year ended December 31, 2023, as compared to $282.2 million for the year ended December 31, 2022. Interest income includes coupon payments received and accrued on our holdings, the net accretion and amortization of purchase discounts and premiums on various holdings, and interest on our cash balances, including those balances held by our counterparties as collateral.

Investment Portfolio

Interest income from our investment portfolio segment for the year ended December 31, 2023 increased to $344.6 million, as compared to $277.1 million for the year ended December 31, 2022.

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, 2023 and 2022:

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.

For the year ended December 31, 2023, interest income from our credit portfolio was $293.0 million, as compared to $234.0 million for the year ended December 31, 2022. This year-over-year increase was due to the larger size of the credit portfolio as well as higher average asset yields for the year ended December 31, 2023.

For the year ended December 31, 2023, interest income from our Agency RMBS was $37.0 million, as compared to $39.6 million for the year ended December 31, 2022. This year-over-year decrease was due to the smaller size of the Agency portfolio partially offset by higher average asset yields for the year ended December 31, 2023.

Some of the variability in our interest income and portfolio yields is due to the Catch-up Amortization Adjustment. For the year ended December 31, 2023, we had a negative Catch-up Amortization Adjustment of $(0.1) million, which decreased our interest income. Comparatively, for the year ended December 31, 2022, we had a positive Catch-up Amortization Adjustment of $4.1 million, which increased our interest income. Excluding the Catch-up Amortization Adjustment, the weighted average yield of our Agency portfolio and our total portfolio was 3.68% and 6.35%, respectively, for the year ended December 31, 2023. Excluding the Catch-up Amortization Adjustment, the weighted average yield of our Agency portfolio and our total portfolio was 2.48% and 5.05%, respectively, for the year ended December 31, 2022.

In addition, we had $12.4 million of interest income related to long U.S. Treasury securities and repo on short U.S. Treasury securities for the year ended December 31, 2023, which we generally use to adjust our exposure to changes in interest rates.

Longbridge

For the years ended December 31, 2023 and 2022, interest income from the Longbridge segment was $18.9 million and $2.9 million, respectively. The increase was due to the recognition of interest income, primarily related to proprietary reverse mortgage loans, for the entirety of 2023 as compared to just one quarter in the prior year, as we only began to consolidate Longbridge in the fourth quarter of 2022; as well as to a larger average portfolio of reverse mortgage loans year over year.

Corporate/Other

For the years ended December 31, 2023 and 2022, interest income not allocated to either the investment portfolio segment or Longbridge segment was $6.7 million and $2.2 million, respectively. The increase year over year was due to an increase in interest income on cash margins posted by us.

Interest Expense

Interest expense primarily includes interest on funds borrowed under repos and Total other secured borrowings, interest on our unsecured borrowings, 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. For the years ended December 31, 2023 and 2022, we had total interest expense of $262.5 million and $141.8 million, respectively.

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Investment Portfolio

Total interest expense in our investment portfolio segment increased to $223.8 million for the year ended December 31, 2023, as compared to $124.3 million for the year ended December 31, 2022. The increase in interest expense was primarily the result of a significant increase in financing rates, together with larger average secured borrowings on our credit assets, and an increase in interest expense related to our securities sold short.

The table below summarizes the components of interest expense in our Investment Portfolio for the years ended December 31, 2023 and 2022.

Year Ended

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

The following table summarizes our aggregate secured borrowings, including repos and Total other secured borrowings, for the years ended December 31, 2023 and 2022.

Year Ended

(In thousands)

(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 actual and accrued periodic payments on our interest rate swaps used to hedge our assets, our total average cost of funds would decrease to 3.95% and 2.56% for the year ended December 31, 2023 and 2022, respectively. Excluding the Catch-up Amortization Adjustment, our net interest margin, defined as the average yield on our portfolio of yield-bearing targeted assets less the average cost of funds on our secured borrowings (including actual and accrued periodic payments on interest rate swaps as described above), was 2.40% and 2.49% for the year ended December 31, 2023 and 2022, respectively. These metrics do not include costs associated with any unsecured debt or costs associated with other instruments that we use to hedge interest rate risk, such as TBAs and futures.

Longbridge

Interest expense in the Longbridge segment primarily relates to Other secured borrowings and repurchase agreements. For the years ended December 31, 2023 and 2022, interest expense related to the Longbridge segment was $25.8 million and $4.6 million, respectively. The primary driver of the higher interest expense in the current period is due to recognition of interest expense for the entirety of 2023, as compared to just one quarter in the prior year, as we only began to consolidate Longbridge in the fourth quarter of 2022. For the year ended December 31, 2023, our average borrowings related to the Longbridge portfolio were $300.2 million, and our average cost of funds was 8.59%. This compares to average borrowings of $218.7 million and an average cost of funds of 8.47% for the year ended December 31, 2022.

Corporate/Other

Certain items of interest expense are not allocated to either the investment portfolio segment or Longbridge segment, such as interest expense on our Unsecured borrowings and certain cash collateral held by us. Total interest expense not allocated to either the investment portfolio or Longbridge segments was $12.8 million for each of the years ended December 31, 2023 and 2022, respectively.

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The table below summarizes the components of interest expense not included in either segment for the years ended December 31, 2023 and 2022.

Year Ended

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

Base Management Fees

Corporate/Other

For the year ended December 31, 2023, the gross base management fee, which is based on total equity at the end of each quarter, was $20.9 million, and our Manager credited us with rebates on our base management fee of $0.5 million, resulting in a net base management fee of $20.4 million. For the year ended December 31, 2022, the gross base management fee, which is based on total equity at the end of each quarter, was $18.5 million, and our Manager credited us with rebates on our base management fee of $1.6 million, resulting in a net base management fee of $16.8 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 the end of each of the second, third, and fourth quarters of 2023, as compared to 2022, as well as to a decrease in the base management fee rebates.

Incentive Fees

Corporate/Other

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. No incentive fee was incurred for either of the years ended December 31, 2023 and 2022, since for each quarter during these periods, 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, 2023 and 2022, other investment related expenses were $37.2 million and $30.9 million, respectively.

Investment Portfolio

For the years ended December 31, 2023 and 2022, Other investment related expenses in our investment portfolio segment were $9.9 million and $21.4 million, respectively. The decrease in other investment related expenses was primarily due to lower debt issuances costs related to Other secured borrowings, at fair value, which reflects lower non-QM securitization activity in 2023 as compared to 2022.

Longbridge

Other investment related expenses related to the Longbridge segment primarily consist of servicing expense related to reverse mortgage loans and various loan origination expenses. For the years ended December 31, 2023 and 2022, Other investment related expenses were $27.3 million and $5.9 million, respectively. The increase in Other investment related expenses related to the Longbridge segment was primarily due to incurring such expenses for the entirety of 2023 as compared to just one quarter in the prior year, as we only began to consolidate Longbridge in the fourth quarter of 2022.

Corporate/Other

For the year ended December 31, 2022, other investment related expenses not allocated to either the investment portfolio segment or Longbridge segment were $3.6 million, consisting of debt issuance costs related to our Unsecured borrowings, at fair value. For the year ended December 31, 2023, all other investment related expenses were allocated to our investment portfolio.

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Other Operating Expenses

Other operating expenses consist of professional fees, compensation and benefit expenses 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 $130.1 million for the year ended December 31, 2023 as compared to $37.2 million for the year ended December 31, 2022.

Investment Portfolio

Other operating expenses for our investment portfolio segment were $6.2 million and $4.5 million for the years ended December 31, 2023 and 2022, respectively. The increase in other operating expenses for the year ended December 31, 2023 was primarily due to an increase in compensation expense.

Longbridge

For the years ended December 31, 2023 and 2022, other operating expenses related to the Longbridge segment were $74.6 million and $17.8 million, respectively. These expenses primarily consist of compensation and benefits expense, and consist to a lesser extent of various overhead costs including rent expense, licensing fees, expenses related to office equipment, and amortization of intangible assets. The year-over-year increase was primarily due to incurring such expenses for the entirety of 2023 as compared to just one quarter in the prior year, as we only began to consolidate Longbridge in the fourth quarter of 2022.

Corporate/Other

For the years ended December 31, 2023 and 2022, other operating expenses not allocated to either the investment portfolio segment or the Longbridge segment were $49.2 million and $14.9 million, respectively. The increase in other operating expenses was primarily due to merger-related activities during the year, including $17.1 million of compensation/severance costs and $7.5 million of other expenses, primarily professional fees related to the Arlington Merger, and $7.4 million of costs related to the termination of the Great Ajax merger, including a $5.0 million termination fee.

Other Income (Loss)

Other income (loss) consists of net realized and unrealized gains (losses) on securities and residential mortgage, commercial mortgage, consumer, and corporate loans, financial derivatives, and real estate owned, unrealized gains (losses) on other secured borrowings, at fair value and Unsecured borrowings, at fair value, net change from reverse mortgage loans, at fair value, net change related to HMBS obligations, at fair value, and bargain purchase gain. Other, net, another component of Other income (loss), includes rental income and income related to loan originations, as well as loan commitments, MSRs and Forward MSR-related investments, realized gains (losses) on foreign currency transactions, and unrealized gains (losses) on foreign currency remeasurement.

Investment Portfolio

For the year ended December 31, 2023, other income (loss) was $12.5 million, consisting primarily of net realized and unrealized gains of $57.6 million on our securities and loans, net realized and unrealized gains of $3.8 million on our financial derivatives, and $5.6 million of Other, net. These gains were partially offset by net unrealized losses of $(51.6) million on our Other secured borrowings, at fair value. Net realized and unrealized gains of $57.6 million on our securities and loans were primarily on non-QM loans, Agency RMBS, and non-Agency RMBS. These gains were partially offset by net realized and unrealized losses on ABS backed by consumer loans, CMBS, U.S. Treasury securities and sovereign bonds, and equity securities. Net realized and unrealized gains of $3.8 million on our financial derivatives were primarily related to net realized and unrealized gains, driven by higher interest rates, on net short positions in TBAs and to a lesser extent interest rate swaps. Such gains were partially offset by net realized and unrealized losses on credit default swaps on corporate bond indices. We recognized net unrealized losses of $(51.6) million on our Other secured borrowings, at fair value for the year ended December 31, 2023, related to borrowings on our securitized non-QM loans. These securitized non-QM loans had net unrealized gains of $63.8 million, which are included in Unrealized gains (losses) on securities and loans, net. Other, net of $5.6 million, consisted primarily of various origination and loan income, rental income, and income and net realized and unrealized gains on Forward MSR-related investments.

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were partially offset by net realized and unrealized gains on short positions in U.S. Treasury securities and sovereign bonds. Net realized and unrealized gains of $194.2 million on our financial derivatives were primarily related to net realized and unrealized gains on interest rate swaps, short positions in TBAs, futures, and forwards, which were driven by rising interest rates, and in the case of short positions in TBAs, also by widening yield spreads. We recognized net unrealized gains of $258.1 million on our Other secured borrowings, at fair value for the year ended December 31, 2022, related to borrowings on our securitized non-QM loans. These securitized non-QM loans had net unrealized losses of $(291.7) million, which are included in Unrealized gains (losses) on securities and loans, net.

Longbridge

For the year ended December 31, 2023, other income (loss) from the Longbridge segment was $118.5 million, consisting primarily of gains from Net change from reverse mortgage loans, at fair value of $503.8 million, other income of $35.3 million, net unrealized gains of $23.3 million on securities and loans, and net realized and unrealized gains of $7.6 million on financial derivatives. These gains were partially offset by Net change related to HMBS obligations, at fair value of $(451.6) million. Gains from Net change from reverse mortgage loans at fair value of $503.8 million primarily consisted of interest income of HECM loans of $502.4 million, mark-to-market gain of HECM loans of $38.3 million, offset by a mark-to-market loss and runoff on the HMBS MSR Equivalent of $(36.9) million. The mark-to-market loss on the HMBS MSR Equivalent was due to our adoption of more conservative valuation assumptions in light of current market conditions. Other income of $35.3 million is primarily related to unrealized gains of $23.9 million on the Reverse MSRs acquired out of a bankruptcy proceeding in July 2023, $8.1 million of origination fees and $5.9 million of servicing fees. The unrealized gains of $23.3 million on securities and loans is primarily related to the mark-to-market gain on proprietary reverse loans driven by tighter yield spreads. Losses from Net change related to HMBS obligations, at fair value of $(451.6) million primarily relate to interest expenses of the HMBS obligation.

For the year ended December 31, 2022, other income (loss) from Longbridge was $39.9 million, consisting primarily of gains from Net change from reverse mortgage loans, at fair value of $199.2 million, which were partially offset by Net change related to HMBS obligations, at fair value of $(162.4) million.

Corporate/Other

For the year ended December 31, 2023, other income (loss) was $38.2 million, consisting primarily of net realized and unrealized gains on the fixed payer interest rate swaps associated with the then-pending Great Ajax merger and unrealized gains on our Unsecured borrowings, at fair value, partially offset by net realized and unrealized losses on the fixed receiver interest rate swaps that we use to hedge the fixed payments on both our Unsecured borrowings and our preferred equity. For the year ended December 31, 2022, other income (loss) was $(1.6) million consisting of net realized and unrealized losses on interest rate swaps used to hedge our Unsecured borrowings of $(19.8) million, partially offset by unrealized gains on our Unsecured borrowings of $18.2 million.

Income Tax Expense (Benefit)

Corporate/Other

Income tax expense (benefit) was $0.5 million for the year ended December 31, 2023, as compared to $(17.7) million for the year ended December 31, 2022. For the year ended December 31, 2022, our deferred tax liability decreased as a result of net realized and unrealized losses in a domestic TRS, resulting in a significant income tax benefit.

Earnings (Losses) from Investments in Unconsolidated Entities

Investment Portfolio

We have elected the fair value option for our equity investments in unconsolidated entities. Earnings (losses) from investments in unconsolidated entities was $(0.9) million for the year ended December 31, 2023, as compared to $(63.6) million for the year ended December 31, 2022. For the year ended December 31, 2023, Earnings (losses) from investments in unconsolidated entities of $(0.9) million, primarily consisted of unrealized losses on investments in loan originators of $(3.7) million, partially offset by unrealized gains of $1.3 million on investments in entities holding commercial mortgage loans and REO, in which we co-invest with other Ellington affiliates, and $1.9 million on investments in unconsolidated entities related to risk retention related vehicles related to non-QM securitizations. This compares to unrealized losses on investments in loan originators of $(67.1) million, partially offset by net realized and unrealized gains of $3.5 million in entities holding commercial mortgage loans and REO, for the year ended December 31, 2022.

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Results of Operations for the Years Ended December 31, 2022 and 2021

Net Income (Loss) Attributable to Common Stockholders

For the year ended December 31, 2022 we had net income (loss) attributable to common stockholders of $(85.3) million, compared to $125.3 million for the year ended December 31, 2021. The reversal in our results of operations was primarily due to realized and unrealized losses on our securities and loans, and losses from investments in unconsolidated entities, as compared to realized and unrealized gains on our securities and loans, and earnings from investments in unconsolidated entities in the prior period as well as an increase in preferred dividends and total expenses. Such decreases for the year ended December 31, 2022 were partially offset by an increase in net interest income, net realized and unrealized gains on financial derivatives, an increase in unrealized gains on other secured borrowings, at fair value, net change from reverse mortgage loans and HMBS-related obligations, at fair value, and unrealized gains on our Unsecured borrowings, at fair value.

Interest Income

Interest income was $282.2 million for the year ended December 31, 2022, as compared to $175.5 million for the year ended December 31, 2021. Interest income includes coupon payments received and accrued on our holdings, the net accretion and amortization of purchase discounts and premiums on various holdings, and interest on our cash balances, including those balances held by our counterparties as collateral.

Investment Portfolio

Interest income from our investment portfolio for the year ended December 31, 2022 increased to $277.1 million as compared to $175.4 million 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, 2022 and 2021:

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.

For the year ended December 31, 2022, interest income from our credit portfolio was $234.0 million, as compared to $140.2 million for the year ended December 31, 2021. This year-over-year increase was primarily due to the larger size of the credit portfolio partially offset by a decrease in average asset yields for the year ended December 31, 2022.

For the year ended December 31, 2022, interest income from our Agency RMBS was $39.6 million, as compared to $33.9 million for the year ended December 31, 2021. This year-over-year increase was due to higher average asset yields partially offset by the smaller size of the Agency portfolio, for the year ended December 31, 2022.

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, 2022 and 2021 we had a positive Catch-up Premium Amortization Adjustment of $4.1 million and $1.3 million, respectively, which increased our interest income. Excluding the Catch-up Premium Amortization Adjustment, the weighted average yield of our Agency portfolio and our total portfolio was 2.48% and 5.05%, respectively, for the year ended December 31, 2022. 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.

Longbridge

For the year ended December 31, 2022, interest income from Longbridge was $2.9 million, which was primarily related to proprietary reverse mortgage loans.

Interest Expense

Interest expense primarily includes interest on funds borrowed under repos and Total other secured borrowings, interest on our Unsecured borrowings, 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. For the years ended December 31, 2022 and 2021, we had total interest expense of $141.8 million and $44.0 million, respectively.

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Investment Portfolio

The total interest expense in our investment portfolio increased to $124.3 million for the year ended December 31, 2022, as compared to $39.0 million for the year ended December 31, 2021. The increase in interest expense was primarily the result of significant increases in financing rates, together with larger average secured borrowings on our credit assets, and an increase in interest expense related to our securities sold short.

The table below summarizes the components of interest expense in our Investment Portfolio for the years ended December 31, 2022 and 2021.

Year Ended

Repos and Total Other Secured Borrowings $ 120,894 $ 37,174

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

(2)Primarily includes interest expense on reverse repurchase agreements with negative interest rates.

The following table summarizes our aggregate secured borrowings, including repos and Total other secured borrowings, for the years ended December 31, 2022 and 2021.

Year Ended

(In thousands)

(1)Excludes U.S. Treasury securities.

Among other instruments, we use interest rate swaps to hedge against the risk of rising interest rates. If we were to include as a component of our cost of funds the amortization of upfront payments and the actual and accrued periodic payments on our interest rate swaps used to hedge our assets, our total average cost of funds would decrease to 2.50% and increase to 1.44% for the years ended December 31, 2022 and 2021, respectively. Excluding the Catch-up Premium Amortization Adjustment, our net interest margin, defined as the average yield on our portfolio of yield-bearing targeted assets less the average cost of funds on our secured borrowings (including amortization of upfront payments and actual and accrued periodic payments on interest rate swaps as described above), was 2.55% and 3.15% for the years ended December 31, 2022 and 2021, respectively. These metrics do not include costs associated with other instruments that we use to hedge interest rate risk, such as TBAs and futures.

Longbridge

For the year ended December 31, 2022, interest expense related to Longbridge was $4.6 million, primarily related to Other secured borrowings. Our average borrowings related to the Longbridge portfolio were $218.7 million, and our average cost of funds was 8.47%.

Corporate/Other

Certain items of interest expense are not allocated to either the investment portfolio or Longbridge, such as interest expense on our Unsecured borrowings and certain cash collateral held by us. Total interest expense not allocated to either the investment portfolio or Longbridge was $12.8 million and $5.1 million for the years ended December 31, 2022 and 2021, respectively.

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The table below summarizes the components of interest expense not included in either our investment portfolio or Longbridge for the years ended December 31, 2022 and 2021.

Year Ended

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

The increase in interest expense is primarily due to our issuance of $210.0 million of 5.875% Senior Notes at the end of the first quarter of 2022.

Base Management Fees

Corporate/Other

For the year ended December 31, 2022, the gross base management fee, which is based on total equity at the end of each quarter, was $18.5 million, and our Manager credited us with rebates on our base management fee of $1.6 million, resulting in a net base management fee of $16.8 million. 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 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 the end of the first and second quarters in 2022, as compared to the respective quarter ends in 2021, as well as a decrease in the base management fee rebates.

Incentive Fees

Corporate/Other

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. No incentive fee was incurred for the year ended December 31, 2022, since for each quarter during this period, our income did not exceed the prescribed hurdle amount on a rolling four quarter basis. For the year ended December 31, 2021, we incurred an incentive fee of $15.7 million. 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, 2022 and 2021 other investment related expenses were $30.9 million and $18.5 million, respectively.

Investment Portfolio

For the years ended December 31, 2022 and 2021 other investment related expenses in our investment portfolio were $25.1 million and $18.5 million, respectively. The increase in other investment related expenses was primarily due to debt issuance costs related to Unsecured borrowings, at fair value, that were issued during the year ended December 31, 2022, as well as an increase in debt issuance costs related to larger non-QM loan securitizations in the latter period.

Longbridge

For the year ended December 31, 2022, our other investment-related expenses related to Longbridge were $5.9 million, primarily consisting of servicing expense related to reverse mortgage loans and various loan origination expenses.

Other Operating Expenses

Other operating expenses consist of professional fees, compensation and benefit expenses 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 $37.2 million for the year ended December 31, 2022 as compared to $17.8 million for the year ended December 31, 2021.

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Investment Portfolio

Other operating expenses for our investment portfolio were $4.5 million and $3.1 million for the years ended December 31, 2022 and 2021, respectively. The increase in other operating expenses for the year ended December 31, 2022 was primarily due to an increase in compensation and benefits expense.

Longbridge

For the year ended December 31, 2022, other operating expenses related to Longbridge were $17.8 million primarily consisting of compensation and benefits expense, and consisting to a lesser extent of various overhead costs including rent expense, licensing fees, expenses related to office equipment, and amortization of intangible assets. Since the Longbridge Transaction closed in 2022, there were no Other operating expenses related to the Longbridge portfolio for the year ended December 31, 2021.

Other Income (Loss)

Other income (loss) consists of net realized and unrealized gains (losses) on securities and residential mortgage, commercial mortgage, consumer, and corporate loans, financial derivatives, and real estate owned, unrealized gains (losses) on Other secured borrowings, at fair value and Unsecured borrowings, at fair value, net change from reverse mortgage loans, at fair value, net change related to HMBS obligations, at fair value, and bargain purchase gain. 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.

Investment Portfolio

For the year ended December 31, 2022, other income (loss) was $(118.8) million, consisting primarily of net realized and unrealized losses on our securities and loans of $(582.6) million, partially offset by $194.2 million of net realized and unrealized gains on our financial derivatives, $258.1 million of net unrealized gains on our Other secured borrowings, at fair value, and a bargain purchase gain of $7.9 million related to the Longbridge Transaction. Rapidly rising interest rates and widening yield spreads drove net realized and unrealized losses of $(582.6) million on our securities and loans, primarily Agency RMBS, non-QM loans, non-Agency RMBS, and consumer loans and ABS backed by consumer loans. These losses were partially offset by net realized and unrealized gains on short positions in U.S. Treasury securities and sovereign bonds. Net realized and unrealized gains of $194.2 million on our financial derivatives were primarily related to net realized and unrealized gains on interest rate swaps, short positions in TBAs, futures, and forwards, which were driven by rising interest rates, and in the case of short positions in TBAs, also by widening yield spreads. We recognized net unrealized gains of $258.1 million on our Other secured borrowings, at fair value for the year ended December 31, 2022, related to borrowings on our securitized non-QM loans. These securitized non-QM loans had net unrealized losses of $(291.7) million, which are included in Unrealized gains (losses) on securities and loans, net.

For the year ended December 31, 2021, other income (loss) was $21.4 million, consisting primarily of $15.8 million of net unrealized gains on our Other secured borrowings, at fair value, $23.7 million of net realized and unrealized gains on our financial derivatives, and $7.2 million of Other, net, partially offset by net realized and unrealized losses on our securities and loans of $(25.8) million. Net realized and unrealized gains of $23.7 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.

Longbridge

Corporate/Other

For the year ended December 31, 2022, other income (loss) was $(1.6) million consisting of net realized and unrealized losses on interest rate swaps used to hedge our Unsecured borrowings of $(19.8) million, partially offset by unrealized gains on our Unsecured borrowings, at fair value of $18.2 million. For the year ended December 31, 2021, other income (loss) was $(1.8) million consisting of net realized and unrealized losses on interest rate swaps used to hedge our Senior notes, net.

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Income Tax Expense (Benefit)

Corporate/Other

Income tax expense (benefit) was $(17.7) million for the year ended December 31, 2022, as compared to $3.1 million for the year ended December 31, 2021. Income tax benefit for the year ended December 31, 2022 was related to net realized and unrealized losses on investments held in a domestic TRS. Income tax expense for the year ended December 31, 2021 was related to net realized and unrealized gains on investments held in a domestic TRS. As of December 31, 2022, we had a net deferred tax asset of approximately $12.3 million against which we took a full allowance.

Earnings (Losses) from Investments in Unconsolidated Entities

Investment Portfolio

We have elected the fair value option for our equity investments in unconsolidated entities. Earnings (losses) from investments in unconsolidated entities was $(63.6) million for the year ended December 31, 2022, as compared to $58.1 million for the year ended December 31, 2021. The reversal in earnings from investments in unconsolidated entities primarily relates to unrealized losses on investments in loan originators of $(67.1) million for the year ended December 31, 2022, partially offset by net realized and unrealized gains of $3.5 million on our investments in entities holding commercial mortgage loans and REO, in which we co-invest with other Ellington affiliates. Rapidly rising interest rates and widening yield spreads pressured gain-on-sale margins and origination volumes at our loan originators, which drove the mark-to-market losses on our investments in such loan originators. We also had a net loss on our investment in Longbridge, including a loss recognized in the third quarter based on the reduced purchase price on the Longbridge Transaction, which closed on October 3, 2022. For the year ended December 31, 2021, earnings from investments in unconsolidated entities primarily related to unrealized gains on loan originators and unrealized gains on an equity investment in a securitization-related risk retention vehicle.

Adjusted Distributable Earnings

We calculate Adjusted Distributable Earnings as U.S. GAAP net income (loss) as adjusted for: (i) realized and unrealized gain (loss) on securities and loans, REO, mortgage servicing rights, financial derivatives (excluding periodic settlements on interest rate swaps), any borrowings carried at fair value, and foreign currency transactions; (ii) incentive fee to affiliate; (iii) Catch-up Amortization Adjustment (as defined below); (iv) non-cash equity compensation expense; (v) provision for income taxes; (vi) certain non-capitalized transaction costs; and (vii) 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 Adjusted Distributable Earnings. The Catch-up Amortization Adjustment is a quarterly adjustment to premium amortization or discount accretion triggered by changes in actual and projected prepayments on our Agency RMBS (accompanied by a corresponding offsetting adjustment to realized and unrealized gains and losses). The adjustment is calculated as of the beginning of each quarter based on our then-current assumptions about cashflows and prepayments, and can vary significantly from quarter to quarter. Non-capitalized transaction costs include expenses, generally professional fees, incurred in connection with the acquisition of an investment or issuance of long-term debt. For the contribution to Adjusted Distributable Earnings from Longbridge, we adjust Longbridge's contribution to our net income in a similar manner, but we include in Adjusted Distributable Earnings certain realized and unrealized gains (losses) from Longbridge's origination business ("gain-on-sale income").

Adjusted Distributable Earnings is a supplemental non-GAAP financial measure. We believe that the presentation of Adjusted Distributable Earnings provides information useful to investors, because: (i) we believe that it is a useful indicator of both current and projected long-term financial performance, in that it excludes the impact of certain current-period earnings components that we believe are less useful in forecasting long-term performance and dividend-paying ability; (ii) we use it to evaluate the effective net yield provided by our investment portfolio, after the effects of financial leverage and by Longbridge, to reflect the earnings from its reverse mortgage origination and servicing operations; and (iii) we believe that presenting Adjusted Distributable Earnings assists investors in measuring and evaluating our operating performance, and comparing our operating performance to that of our residential mortgage REIT and mortgage originator peers. Please note, however, that: (I) our calculation of Adjusted Distributable Earnings may differ from the calculation of similarly titled non-GAAP financial measures by our peers, with the result that these non-GAAP financial measures might not be directly comparable; and (II) Adjusted Distributable Earnings excludes certain items that may impact the amount of cash that is actually available for distribution.

In addition, because Adjusted Distributable Earnings is an incomplete measure of our financial results and differs from net income (loss) computed in accordance with U.S. GAAP, it should be considered supplementary to, and not as a substitute for, net income (loss) computed in accordance with U.S. GAAP.

Furthermore, Adjusted Distributable Earnings is different from REIT taxable income. As a result, the determination of whether we have met the requirement to distribute at least 90% of our annual REIT taxable income (subject to certain

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adjustments) to our stockholders, in order to maintain our qualification as a REIT, is not based on whether we distributed 90% of our Adjusted Distributable Earnings.

In setting our dividends, our Board of Directors considers our earnings, liquidity, financial condition, REIT distribution requirements, and financial covenants, along with other factors that the Board of Directors may deem relevant from time to time.

The following tables reconcile, for the years ended December 31, 2023, 2022, and 2021 our Adjusted Distributable Earnings by strategy 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:

Adjustments:

(1)Includes realized (gains) losses on securities and loans, REO, financial derivatives (excluding periodic settlements on interest rate swaps and foreign currency transactions which are components of Other Income (Loss) on the Consolidated Statement of Operations.

(2)Includes unrealized (gains) losses on securities and loans, REO, financial derivatives (excluding periodic settlements on interest rate swaps), borrowings carried at fair value, and foreign currency transactions which are components of Other Income (Loss) on the Consolidated Statement of Operations.

(3)Represents net change in fair value of HMBS MSR Equivalent and mortgage servicing rights related to proprietary mortgage loans attributable to changes in market conditions and model assumptions. This adjustment also includes net (gains) losses on certain hedging instruments, which are components of realized and/or unrealized gains (losses) on financial derivatives, net on the Consolidated Statement of Operations.

(4)For the year ended December 31, 2023, includes $7.4 million related to the Great Ajax merger, which was terminated in October 2023, $1.7 million of non-capitalized transaction costs, $3.1 million of professional fees related to the acquisition and integration of Longbridge, $1.4 million of non-cash

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equity compensation expense, and $1.1 million of various other expenses. For the year ended December 31, 2022, includes $6.3 million of debt issuance costs related to Other secured borrowings, at fair value, $3.6 million of debt issuance costs related to Unsecured borrowings, at fair value, $4.7 million of non-capitalized transaction costs, $1.5 million of non-cash equity compensation expense, and $0.3 million of various other expenses.

(5)For the year ended December 31, 2023, represents the reversal of the bargain purchase gain of $28.2 million net of the reversal of expenses related to the Arlington Merger of $24.6 million. For the year ended December 31, 2022, represents the reversal of the bargain purchase gain related to the Longbridge Transaction.

(6)Includes net interest income and operating expenses for certain investments in unconsolidated entities.

Income tax expense (benefit) — 3,144 3,144

Adjustments:

Dividends on preferred stock — 8,117 8,117

(3)For the year ended December 31, 2021, includes $5.3 million of debt issuance costs related to Other secured borrowings, at fair value, $0.3 million of non-capitalized transaction costs, $1.0 million of non-cash equity compensation expense, and $0.6 million of various other expenses.

(4)Includes net interest income and operating expenses for certain investments in unconsolidated entities.

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 following period end) and long-term (beyond 12 months from period end) 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 unsecured borrowings, 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, 2023, the weighted average contractual haircut applicable to the assets that serve as collateral for our outstanding repo borrowings was 26.7% with respect to credit portfolio assets, 21.5% with respect to reverse mortgage loans, 5.1% with respect to Agency RMBS assets, and 18.3% overall. As of December 31, 2022, the weighted average contractual haircuts were 28.0% with respect to credit portfolio assets, 5.3% with respect to Agency RMBS assets, and 20.6% overall.

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, 2023 and 2022, we had $3.0 billion and $2.6 billion of borrowings outstanding under our repos, respectively. As of December 31, 2023, the remaining terms on our repos ranged from 2 days to 513 days, with a weighted average remaining term of 126 days. Our repo borrowings were with a total of 26 counterparties as of December 31, 2023. As of December 31, 2023, our repos had interest rates ranging from 4.81% to 8.68%, with a weighted average borrowing rate of 6.67%. As of December 31, 2022, the remaining terms on our repos ranged from 3 days to 263 days, with a weighted average remaining term of 78 days. Our repo borrowings were with a total of 26 counterparties as of December 31, 2022. As of December 31, 2022, our repos had interest rates ranging from 0.63% to 7.97%, with a weighted average borrowing rate of 5.50%. Investments transferred as collateral under repos had an aggregate fair value of $3.7 billion and $3.2 billion, as of December 31, 2023 and 2022, 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.

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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:

EFC US Equity

EFC · 10-K · period ended 2023-12-31

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

EFC US Equity☆

EFC · 10-K · period ended 2023-12-31

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

EFC US Equity