10q10k10q10k.net

What changed in Ellington Financial Inc.'s 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of Ellington Financial Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+901 added−672 removedSource: 10-K (2024-02-29) vs 10-K (2023-03-01)

Top changes in Ellington Financial Inc.'s 2023 10-K

901 paragraphs added · 672 removed · 570 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

47 edited+5 added−3 removed149 unchanged
Biggest changeManagement's Discussion and Analysis of Financial Condition and Results of Operations—Our Targeted Asset Classes." Subject to maintaining our qualification as a REIT, we expect to continue to invest in these targeted asset classes: 4 Table of Contents • residential mortgage loans, including (i) residential mortgage loans that are not deemed to be "qualified mortgage," or "QM," loans under the rules of the Consumer Financial Protection Bureau, or "non-QM loans," (ii) residential transition loans, and (iii) non-performing and re-performing residential mortgage loans, or "residential NPLs and RPLs"; • commercial mortgage loans, commercial mortgage-backed securities, or "CMBS," and other commercial real estate debt; • residential mortgage-backed securities, or "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"; • RMBS backed by U.S. residential mortgage loans for which the principal and interest payments are not guaranteed by a U.S. government agency or a U.S. government-sponsored entity, or "non-Agency RMBS," credit risk transfer securities, or "CRTs," and RMBS backed by European residential mortgage loans, or "European RMBS"; • retained tranches from non-Agency RMBS securitizations to which we have contributed assets, including non-QM loan securitizations; • consumer loans and asset-backed securities, or "ABS," including ABS backed by consumer loans, and retained tranches from securitizations to which we have contributed consumer loan assets; • residential reverse mortgage loans, including home equity conversion mortgage loans, or “HECMs,” which are insured by the Federal Housing Administration, or "FHA," and which are eligible for inclusion in HECM-backed MBS, or “HMBS,” which are guaranteed by the Government National Mortgage Association, or "GNMA," and “proprietary reverse mortgage loans,” which are not insured by FHA, as well as mortgage servicing rights, or “MSRs” related to reverse mortgage loans and held by our subsidiary Longbridge Financial, LLC (“Longbridge”); • collateralized loan obligations, or "CLOs," including retained tranches from CLO securitizations; • mortgage-related and non-mortgage-related derivatives; • strategic equity and/or debt investments in companies from which we purchase, or may in the future purchase, targeted assets, and other strategic investments in companies related to our business; and • other investments, including corporate debt and equity securities, corporate loans, and other financial assets.
Biggest changeManagement's Discussion and Analysis of Financial Condition 4 Table of Content s and Results of Operations—Our Targeted Asset Classes." Subject to maintaining our qualification as a REIT, we expect to continue to invest in these targeted asset classes: • residential mortgage loans, including (i) residential mortgage loans that are not deemed to be "qualified mortgage," or "QM," loans under the rules of the Consumer Financial Protection Bureau, or "non-QM loans," (ii) residential transition loans, and (iii) non-performing and re-performing residential mortgage loans, or "residential NPLs and RPLs"; • commercial mortgage loans, commercial mortgage-backed securities, or "CMBS," and other commercial real estate debt; • residential mortgage-backed securities, or "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"; • RMBS backed by U.S. residential mortgage loans for which the principal and interest payments are not guaranteed by a U.S. government agency or a U.S. government-sponsored entity, or "non-Agency RMBS," credit risk transfer securities, or "CRTs," and RMBS backed by European residential mortgage loans, or "European RMBS"; • retained tranches from non-Agency RMBS securitizations to which we have contributed assets, including non-QM loan securitizations; • residential reverse mortgage loans, including home equity conversion mortgage loans, or “HECMs,” which are insured by the Federal Housing Administration, or "FHA," and which are eligible for inclusion in HECM-backed MBS, or "HMBS," which are guaranteed by the Government National Mortgage Association, or "GNMA," and "proprietary reverse mortgage loans," which are not insured by FHA, as well as mortgage servicing rights, or "MSRs" related to reverse mortgage loans, or "Reverse MSRs," and held by our subsidiary Longbridge Financial, LLC ("Longbridge"); • MSR-related investments referencing MSRs related to forward mortgage loans, or "Forward MSR-related investments"; • consumer loans and asset-backed securities, or "ABS," including ABS backed by consumer loans, and retained tranches from securitizations to which we have contributed consumer loan assets; • collateralized loan obligations, or "CLOs," including retained tranches from CLO securitizations; • mortgage-related and non-mortgage-related derivatives; • strategic equity and/or debt investments in companies from which we purchase, or may in the future purchase, targeted assets, and other strategic investments in companies related to our business; and • other investments, including corporate debt and equity securities, corporate loans, and other financial assets.
These laws and regulations include, but are not limited to: • the Truth in Lending Act, or "TILA," which regulates mortgage loan origination activities, requires certain disclosures be made to mortgagors regarding terms of mortgage financing and regulates certain mortgage servicing activities; • the Fair Credit Reporting Act, which regulates the use and reporting of information related to the credit history of consumers; • the Equal Credit Opportunity Act, which prohibits discrimination on the basis of age, race and certain other characteristics in the extension of credit; • the Fair Housing Act, which prohibits discrimination in housing on the basis of race, sex, national origin, and certain other characteristics; • the Real Estate Settlement Procedures Act, or "RESPA," which governs certain mortgage loan origination activities and practices and the actions of servicers related to transfers, lender-placed insurance, loss mitigation, error resolution, and other customer communications; • the Homeowners Protection Act, the CARES Act, and similar state laws; • laws that require and govern communications with consumers or reporting of public data, such as the Gramm-Leach-Bliley Act, which requires initial and periodic communication with consumers on privacy matters and the maintenance of privacy regarding certain consumer data in our possession, and the Home Mortgage Disclosure Act / Regulation C, which requires reporting of certain public loan data; • state and federal restrictions on marketing activities conducted by telephone, mail, email, mobile device or the internet, including the Telemarketing Sales Rule, the Telephone Consumer Protection Act, state telemarketing laws, federal and state privacy laws; • the Controlling the Assault of Non-Solicited Pornography and Marketing and the Federal Trade Commission Act, together with their accompanying regulations and guidelines; 15 Table of Contents • federal and state laws requiring company, branch and individual licensing for the solicitation of or brokering of consumer loans, including the SAFE Act; • federal and state laws relating to identity theft; • the Fair Debt Collection Practices Act, which regulates the timing and content of communications on debt collections; • the California Consumer Privacy Act, which provides California consumers with additional privacy rights and increases the privacy and security obligations of entities handling certain personal information of such consumers; • the Servicemembers Civil Relief Act; • the anti-money laundering and counter-terrorist financing provisions of the Bank Secrecy Act, including the USA Patriot Act, which require non-bank lenders to monitor for, detect, and report suspicious activity to the U.S.
These laws and regulations include, but are not limited to: • the Truth in Lending Act, or "TILA," which regulates mortgage loan origination activities, requires certain disclosures be made to mortgagors regarding terms of mortgage financing and regulates certain mortgage servicing activities; • the Fair Credit Reporting Act, which regulates the use and reporting of information related to the credit history of consumers; • the Equal Credit Opportunity Act, which prohibits discrimination on the basis of age, race and certain other characteristics in the extension of credit; • the Fair Housing Act, which prohibits discrimination in housing on the basis of race, sex, national origin, and certain other characteristics; • the Real Estate Settlement Procedures Act, or "RESPA," which governs certain mortgage loan origination activities and practices and the actions of servicers related to transfers, lender-placed insurance, loss mitigation, error resolution, and other customer communications; 15 Table of Content s • the Homeowners Protection Act, the CARES Act, and similar state laws; • laws that require and govern communications with consumers or reporting of public data, such as the Gramm-Leach-Bliley Act, which requires initial and periodic communication with consumers on privacy matters and the maintenance of privacy regarding certain consumer data in our possession, and the Home Mortgage Disclosure Act / Regulation C, which requires reporting of certain public loan data; • state and federal restrictions on marketing activities conducted by telephone, mail, email, mobile device or the internet, including the Telemarketing Sales Rule, the Telephone Consumer Protection Act, state telemarketing laws, and federal and state privacy laws; • the Controlling the Assault of Non-Solicited Pornography and Marketing and the Federal Trade Commission Act, together with their accompanying regulations and guidelines; • federal and state laws requiring company, branch and individual licensing for the solicitation of or brokering of consumer loans, including the SAFE Act; • federal and state laws relating to identity theft; • the Fair Debt Collection Practices Act, which regulates the timing and content of communications on debt collections; • the California Consumer Privacy Act, which provides California consumers with additional privacy rights and increases the privacy and security obligations of entities handling certain personal information of such consumers; • the Servicemembers Civil Relief Act; • the anti-money laundering and counter-terrorist financing provisions of the Bank Secrecy Act, including the USA Patriot Act, which require non-bank lenders to monitor for, detect, and report suspicious activity to the U.S.
The $7.8 billion in assets under management include approximately $1.0 billion in Ellington-managed CLOs. For these purposes, the Ellington-managed CLO figure represents the aggregate outstanding balance of CLO notes and market value of CLO equity, excluding any notes and equity held by other Ellington-managed funds and accounts.
The $8.7 billion in assets under management include approximately $0.8 billion in Ellington-managed CLOs. For these purposes, the Ellington-managed CLO figure represents the aggregate outstanding balance of CLO notes and market value of CLO equity, excluding any notes and equity held by other Ellington-managed funds and accounts.
Such prior approval includes approval of the pricing methodology to be used, including with respect to assets for which there are no readily observable market prices. 12 Table of Contents • Investment in Other Ellington Accounts— pursuant to the management agreement, if we invest at issuance in the equity of any collateralized debt obligation, or "CDO," that is managed, structured, or originated by Ellington or one of its affiliates, or if we invest in any other investment fund or other investment for which Ellington or one of its affiliates receives management, origination, or structuring fees, then, unless agreed otherwise by a majority of our independent directors, the base management and incentive fees payable by us to our Manager will be reduced by (or our Manager will otherwise rebate to us) an amount equal to the applicable portion (as described in the management agreement) of any such management, origination or structuring fees. • Split Price Executions— pursuant to the management agreement, our Manager is authorized to combine purchase or sale orders on our behalf together with orders for other accounts managed by Ellington, our Manager or their affiliates and allocate the securities or other assets so purchased or sold, on an average price basis or other fair and consistent basis, among such accounts.
Such prior approval includes approval of the pricing methodology to be used, including with respect to assets for which there are no readily observable market prices. • Investment in Other Ellington Accounts— pursuant to the management agreement, if we invest at issuance in the equity of any collateralized debt obligation, or "CDO," that is managed, structured, or originated by Ellington or one of its affiliates, or if we invest in any other investment fund or other investment for which Ellington or one of its affiliates receives management, origination, or structuring fees, then, unless agreed otherwise by a majority of our independent directors, the base management and incentive fees payable by us to our Manager will be reduced by (or our Manager will otherwise rebate to us) an amount equal to the applicable portion (as described in the management agreement) of any such management, origination or structuring fees. • Split Price Executions— pursuant to the management agreement, our Manager is authorized to combine purchase or sale orders on our behalf together with orders for other accounts managed by Ellington, our Manager or their affiliates and allocate the securities or other assets so purchased or sold, on an average price basis or other fair and consistent basis, among such accounts.
In connection with our investments in loan originators, we may also enter into flow agreements that will allow us to purchase loans from those originators in accordance with the parameters set forth in the applicable flow agreement.
In connection with our investments in loan originators, we may enter into flow agreements that will allow us to purchase loans from those originators in accordance with the parameters set forth in the applicable flow agreement.
Treasury rate for such fiscal quarter, (ii) the sum of (A) the weighted average gross proceeds per share of all common share and operating partnership unit, or "OP Unit," issuances since our inception and up to the end of such fiscal quarter, with each issuance weighted by both the number of shares and OP Units issued in such issuance and the number of days that such issued shares and OP Units were outstanding during such fiscal quarter, using a first-in first-out basis of accounting (i.e., attributing any share and OP Unit repurchases to the earliest issuances first) and (B) the result obtained by dividing (I) retained earnings attributable to common shares and OP Units at the beginning of such fiscal quarter by (II) the average number of common shares and OP Units outstanding for each day during such fiscal quarter, and (iii) the sum of (x) the average number of common shares and long term incentive plan units, or "LTIP Units," outstanding for each day during such fiscal quarter and (y) the average number of OP Units, and limited liability company interests in the Operating Partnership which are designated as LTIP Units, or "OP LTIP Units," outstanding for each day during 10 Table of Contents such fiscal quarter.
Treasury rate for such fiscal quarter, (ii) the sum of (A) the weighted average gross proceeds per share of all common share and operating partnership unit, or "OP Unit," issuances since our inception and up to the end of such fiscal quarter, with each issuance weighted by both the number of shares and OP Units issued in such issuance and the number of days that such issued shares and OP Units were outstanding during such fiscal quarter, using a first-in first-out basis of accounting (i.e., attributing any share and OP Unit repurchases to the earliest issuances first) and (B) the result obtained by dividing (I) retained earnings attributable to common shares and OP Units at the beginning of such fiscal quarter by (II) the average number of common shares and OP Units outstanding for each day during such fiscal quarter, and (iii) the sum of (x) the average number of common shares and long term incentive plan units, or "LTIP Units," outstanding for each day during such fiscal quarter and (y) the average number of OP Units, and limited liability company interests in the Operating Partnership which are designated as LTIP Units, or "OP LTIP Units," outstanding for each day during such fiscal quarter.
Our repo arrangements are typically documented under the Securities Industry and Financial Markets Association's, or "SIFMA's," standard form master repurchase agreement with the ability for both parties to demand margin (i.e., to demand that the other party post additional collateral or repay a portion of the funds advanced) should the value of the underlying assets and posted collateral change.
Our repo arrangements on securities are documented under the Securities Industry and Financial Markets Association's, or "SIFMA's," standard form master repurchase agreement with the ability for both parties to demand margin (i.e., to demand that the other party post additional collateral or repay a portion of the funds advanced) should the value of the underlying assets and posted collateral change.
In addition, our Manager currently does not have any employees and instead relies on the employees of Ellington to perform its obligations to us. Ellington is an investment management firm and registered investment advisor with a 28-year history of investing in a broad spectrum of mortgage-backed securities, or "MBS," and related derivatives.
In addition, our Manager currently does not have any employees and instead relies on the employees of Ellington to perform its obligations to us. Ellington is an investment management firm and registered investment advisor with a 29-year history of investing in a broad spectrum of mortgage-backed securities, or "MBS," and related derivatives.
Term and Termination The management agreement has a current term that expires on December 31, 2023, and will automatically renew for a one year term on each anniversary date thereafter unless notice of non-renewal is delivered by either party to the other party at least 180 days prior to the expiration of the then current term.
Term and Termination The management agreement has a current term that expires on December 31, 2024, and will automatically renew for a one year term on each anniversary date thereafter unless notice of non-renewal is delivered by either party to the other party at least 180 days prior to the expiration of the then current term.
We may also terminate the management agreement without payment of the termination fee with 30 days prior written notice from our Board of Directors for cause, which is defined as: • our Manager's continued material breach of any provision of the management agreement following a period of 30 days after written notice of such breach; • our Manager's fraud, misappropriation of funds, or embezzlement against us; • our Manager's gross negligence in performance of its duties under the management agreement; • the occurrence of certain events with respect to the bankruptcy or insolvency of our Manager, including, but not limited to, an order for relief in an involuntary bankruptcy case or our Manager authorizing or filing a voluntary bankruptcy petition; • the dissolution of our Manager; and • certain changes of control of our Manager, including but not limited to the departure of Mr.
We may also terminate the management agreement without payment of the termination fee with 30 days prior written notice from our Board of Directors for cause, which is defined as: • our Manager's continued material breach of any provision of the management agreement following a period of 30 days after written notice of such breach; • our Manager's fraud, misappropriation of funds, or embezzlement against us; • our Manager's gross negligence in performance of its duties under the management agreement; • the occurrence of certain events with respect to the bankruptcy or insolvency of our Manager, including, but not limited to, an order for relief in an involuntary bankruptcy case or our Manager authorizing or filing a voluntary 11 Table of Content s bankruptcy petition; • the dissolution of our Manager; and • certain changes of control of our Manager, including but not limited to the departure of Mr.
Pursuant to our Manager's current policies and procedures, assets for which there are no readily observable market prices may be purchased or sold in cross transactions (i) at prices based upon third-party bids received through auction, (ii) at the average of the highest bid and lowest offer quoted by third-party dealers, or (iii) according to another pricing methodology approved by our Manager's Chief Compliance Officer. • Principal Transactions— defined as transactions between Ellington or our Manager (or any related party of Ellington or our Manager, which includes employees of Ellington and our Manager and their families), on the one hand, and us or one of our subsidiaries, on the other hand.
Pursuant to our Manager's current policies and procedures, assets for which there are no readily observable market prices may be purchased or sold in cross transactions (i) at prices based upon third-party bids received through auction, (ii) at the average of the highest bid and 12 Table of Content s lowest offer quoted by third-party dealers, or (iii) according to another pricing methodology approved by our Manager's Chief Compliance Officer. • Principal Transactions— defined as transactions between Ellington or our Manager (or any related party of Ellington or our Manager, which includes employees of Ellington and our Manager and their families), on the one hand, and us or one of our subsidiaries, on the other hand.
On August 31, 2011, the SEC published a concept release entitled "Companies Engaged in the Business of Acquiring 14 Table of Contents Mortgages and Mortgage Related Instruments" (Investment Company Act Rel. No. 29778). This release notes that the SEC is reviewing the Section 3(c)(5)(C) exclusion relied upon by companies similar to us that invest in mortgage loans and mortgage-backed securities.
On August 31, 2011, the SEC published a concept release entitled "Companies Engaged in the Business of Acquiring Mortgages and Mortgage Related Instruments" (Investment Company Act Rel. No. 29778). This release notes that the SEC is reviewing the Section 3(c)(5)(C) exclusion relied upon by companies similar to us that invest in mortgage loans and mortgage-backed securities.
Our Corporate Governance Guidelines and Code of Business Conduct and Ethics and the charters of the Audit, Compensation and Nominating and Corporate Governance Committees of our Board of Directors are also available at www.ellingtonfinancial.com and are 16 Table of Contents available in print to any stockholder upon request in writing to Ellington Financial Inc., c/o Investor Relations, 53 Forest Avenue, Old Greenwich, CT 06870.
Our Corporate Governance Guidelines and Code of Business Conduct and Ethics and the charters of the Audit, Compensation and Nominating and Corporate Governance Committees of our Board of Directors are also available at www.ellingtonfinancial.com and are available in print to any stockholder upon request in writing to Ellington Financial Inc., c/o Investor Relations, 53 Forest Avenue, Old Greenwich, CT 06870.
In addition, throughout Ellington's 28-year investing history, it has developed strong relationships with a wide range of dealers and other market participants that provide Ellington access to a broad range of trading opportunities and market information.
In addition, throughout Ellington's 29-year investing history, it has developed strong relationships with a wide range of dealers and other market participants that provide Ellington access to a broad range of trading opportunities and market information.
The information on our website is not, and shall not be deemed to be, a part of this report or incorporated into any other filing we make with the SEC. In addition, all of our reports filed with or furnished to the SEC can be obtained at the SEC's website at www.sec.gov . 17 Table of Contents
The information on our website is not, and shall not be deemed to be, a part of this report or incorporated into any other filing we make with the SEC. In addition, all of our reports filed with or furnished to the SEC can be obtained at the SEC's website at www.sec.gov . 17 Table of Content s
Regulations Longbridge is subject to extensive regulation by federal, state, and local authorities and a variety of statutes, rules, regulations, policies and procedures in numerous jurisdictions throughout the United States.
Regulations Applicable to the Longbridge Segment Longbridge is subject to extensive regulation by federal, state, and local authorities and a variety of statutes, rules, regulations, policies and procedures in numerous jurisdictions throughout the United States.
Management's Discussion and Analysis of Financial Condition and Results of Operations—Our Targeted Asset Classes." 5 Table of Contents Our Manager and Ellington We are externally managed and advised by our Manager, an affiliate of Ellington, pursuant to a management agreement. Our Manager was formed solely to serve as our manager and does not have any other clients.
Management's Discussion and Analysis of Financial Condition and Results of Operations—Our Targeted Asset Classes." Our Manager and Ellington We are externally managed and advised by our Manager, an affiliate of Ellington, pursuant to a management agreement. Our Manager was formed solely to serve as our manager and does not have any other clients.
We also have made, and may in the future make, investments in the debt and/or equity of other entities engaged in loan-related businesses, such as loan originators and mortgage-related entities. We made a non-controlling investment in Longbridge in September 2014, and in October 2022, we completed the purchase of a controlling stake in the company (the “Longbridge Transaction”).
We also have made, and may in the future make, investments in the debt and/or equity of other entities engaged in loan-related businesses, such as loan originators and mortgage-related entities. We made a non-controlling investment in Longbridge in September 2014, and in October 2022, we completed the purchase of a controlling stake in the company (the "Longbridge Transaction").
Human Capital Resources Other than with respect to our subsidiary Longbridge, we have no employees and all of our executive officers, and our dedicated or partially dedicated personnel, which include our Chief Financial Officer, Chief Accounting Officer, controller, accounting staff, in-house legal counsel, internal audit staff, and other personnel providing services to us are employees of Ellington or one or more of its affiliates.
Human Capital Resources Other than with respect to our subsidiary Longbridge, we have no employees and all of our executive officers, and our dedicated or partially dedicated personnel, which include our Chief Financial Officer, Chief Accounting Officer, controller, accounting staff, in-house legal counsel, internal audit staff, and other personnel providing services to us are employees of 16 Table of Content s Ellington or one or more of its affiliates.
Special Note Regarding Forward-Looking Statements When used in this Annual Report on Form 10-K, in future filings with the Securities and Exchange Commission, or the "SEC," or in press releases or other written or oral communications, statements which are not historical in nature, including those containing words such as "believe," "expect," "anticipate," "estimate," "project," "plan," "continue," "intend," "should," "would," "could," "goal," "objective," "will," "may," "seek," or similar expressions, are intended to identify "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, or the "Securities Act," and Section 21E of the Securities Exchange Act of 1934, as amended, or the "Exchange Act," and, as such, may involve known and unknown risks, uncertainties, and assumptions.
Special Note Regarding Forward-Looking Statements When used in this Annual Report on Form 10-K, in future filings with the Securities and Exchange Commission, or the "SEC," or in press releases or other written or oral communications, statements which are not historical in nature, including those containing words such as "believe," "expect," "anticipate," "estimate," "project," "plan," "continue," "intend," "should," "would," "could," "goal," "objective," "will," "may," "seek," or similar expressions or their negative forms or references to strategy, plans or intentions, are intended to identify "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, or the "Securities Act," and Section 21E of the Securities Exchange Act of 1934, as amended, or the "Exchange Act," and, as such, may involve known and unknown risks, uncertainties, and assumptions.
Therefore, our Operating Partnership's investments in its 3(c)(7) subsidiaries and its other investment securities cannot exceed 40% of the value of our Operating Partnership's total assets (excluding U.S. government securities and cash) on an unconsolidated basis.
Therefore, our Operating Partnership's investments in its 3(c)(7) subsidiaries and its other investment securities cannot exceed 40% of the value of our Operating Partnership's total assets (excluding U.S. government securities and cash) on an 14 Table of Content s unconsolidated basis.
In particular, from time to time we enter into short positions in interest rate swaps to offset the potential adverse effects that changes in interest rates would have on the value of certain of our assets and our financing costs.
For example, from time to time we enter into short positions in interest rate swaps to offset the potential adverse effects that changes in interest rates would have on the value of certain of our assets and our financing costs.
In addition, we believe that these relationships, along with our strategic equity investments in loan originators, enable us to compete more effectively for attractive asset acquisition opportunities. However, we may not be able to achieve our 13 Table of Contents business goals or expectations due to the competitive risks that we face.
In addition, we believe that these relationships, along with our strategic equity investments in loan originators, enable us to compete more effectively for attractive asset acquisition opportunities. However, we may not be able to achieve our business goals or expectations due to the competitive risks that we face.
The members of our management team include Michael Vranos, founder and Chief Executive Officer of Ellington, who serves as our Co-Chief Investment Officer; Laurence Penn, Vice Chairman and Chief Operating Officer of Ellington, who serves as our Chief Executive Officer and President and a member of our Board of Directors; Mark Tecotzky, Vice Chairman - Co-Head of Credit Strategies of Ellington, who serves as our Co-Chief Investment Officer; JR Herlihy, a Managing Director of Ellington, who serves as our Chief Financial Officer; Christopher Smernoff, who serves as our Chief Accounting Officer; Daniel Margolis, General Counsel of Ellington, who serves as our General Counsel; and Vincent Ambrico, who serves as our Controller.
The members of our management team include Michael Vranos, founder and Chief Executive Officer of Ellington, who serves as our Co-Chief Investment Officer; Laurence Penn, Vice Chairman and Chief Operating Officer of Ellington, who serves as our Chief Executive Officer and President and a member of our Board of Directors; Mark Tecotzky, Vice Chairman - Co-Head of Credit Strategies of Ellington, who serves as our Co-Chief Investment Officer; JR Herlihy, a Managing Director of Ellington, who serves as our Chief Financial Officer; Christopher Smernoff, who serves as our Chief Accounting Officer; Daniel Margolis, General Counsel of Ellington, who serves as our General Counsel; Vincent Ambrico, who serves as our Controller; and Alaael-Deen Shilleh, Associate General Counsel of Ellington, who serves as our Associate General Counsel and Secretary.
In addition to existing companies, other companies may be organized for similar purposes in the future, including companies focused on purchasing mortgage assets. A proliferation of such companies may increase the competition for equity capital and thereby adversely affect the market price of our common or preferred stock.
In addition to existing companies, other companies may be 13 Table of Content s organized for similar purposes in the future, including companies focused on purchasing mortgage assets. A proliferation of such companies may increase the competition for equity capital and thereby adversely affect the market price of our common or preferred stock.
Management's Discussion and Analysis of Financial Condition and Results of Operations—Our Targeted Asset Classes," our acquisition and management decisions depend on prevailing market conditions and our targeted asset classes may vary over time in response to market conditions. We may engage in a high degree of trading volume as we implement our strategy.
Management's Discussion and Analysis of Financial Condition and Results of Operations—Our Targeted Asset Classes," our 6 Table of Content s acquisition and management decisions depend on prevailing market conditions and our targeted asset classes may vary over time in response to market conditions. We may engage in a high degree of trading volume as we implement our strategy.
Our Manager is responsible for: • the selection, purchase, and sale of assets in our portfolio; • our financing and risk management activities; • providing us with advisory services; and • providing us with a management team, inclusive of a partially dedicated Chief Financial Officer and appropriate support personnel as necessary.
Our Manager is responsible for: • the selection, purchase, and sale of assets in our portfolio; 9 Table of Content s • our financing and risk management activities; • providing us with advisory services; and • providing us with a management team, inclusive of a partially dedicated Chief Financial Officer and appropriate support personnel as necessary.
In the event our Manager terminates the management agreement due to our default in the performance or observance of any material term, condition, or covenant in the management agreement, we will be 11 Table of Contents required to pay our Manager the termination fee.
In the event our Manager terminates the management agreement due to our default in the performance or observance of any material term, condition, or covenant in the management agreement, we will be required to pay our Manager the termination fee.
The process is managed by an investment and risk management committee, which includes, among others, the following three officers of our Manager: Mr. Vranos, Mr. Penn, and Mr. Tecotzky. These officers of our Manager also serve as our Co-Chief Investment Officer, Chief Executive Officer, and Co-Chief Investment Officer, respectively.
The process is managed by an investment and risk management committee, which includes, among others, the following three officers of our 7 Table of Content s Manager: Mr. Vranos, Mr. Penn, and Mr. Tecotzky. These officers of our Manager also serve as our Co-Chief Investment Officer, Chief Executive Officer, and Co-Chief Investment Officer, respectively.
Our asset acquisition process is also 7 Table of Contents informed by our objective to maintain our exclusion from registration as an investment company under the Investment Company Act, and to maintain our qualification as a REIT for U.S. federal income tax purposes.
Our asset acquisition process is also informed by our objective to maintain our exclusion from registration as an investment company under the Investment Company Act, and to maintain our qualification as a REIT for U.S. federal income tax purposes.
By rotating between and allocating among various sectors of the structured product markets and adjusting the extent to which it hedges, Ellington believes that it is able to capitalize on the disparities between these sectors as well as on overall trends in the marketplace, and therefore provide better and more consistent returns for its investors.
By rotating between and allocating among various sectors of the structured product markets and, subject to maintaining our qualification as a REIT, adjusting the extent to which it hedges, Ellington believes that it is able to capitalize on the disparities between these sectors as well as on overall trends in the marketplace, and therefore provide better and more consistent returns for its investors.
As of December 31, 2022, Ellington managed various funds, accounts, and other vehicles, comprising approximately $7.8 billion of assets under management (excluding our assets but including $2.5 billion of accounts that do not employ financial leverage), with strategies that are similar to, or that overlap with, our strategy.
As of December 31, 2023, Ellington managed various funds, accounts, and other vehicles, comprising approximately $8.7 billion of assets under management (excluding our assets but including $3.1 billion of accounts that do not employ financial leverage), with strategies that are similar to, or that overlap with, our strategy.
As of December 31, 2022, Ellington had over 170 employees and had assets under management of approximately $9.0 billion, of which approximately $6.5 billion consisted of our company and Ellington Residential Mortgage REIT, a REIT listed on the New York Stock Exchange, or the "NYSE," under the ticker "EARN," that focuses its investment strategy primarily on Agency RMBS, and various hedge funds and other alternative investment vehicles that employ financial leverage, and approximately $2.5 billion consisted of accounts that do not employ financial leverage.
As of December 31, 2023, Ellington had over 170 employees and had assets under management of approximately $10.3 billion, of which approximately $7.2 billion consisted of our company and Ellington Residential Mortgage REIT, a REIT listed on the New York Stock Exchange, or the "NYSE," under the ticker "EARN," that focuses its investment strategy primarily on Agency RMBS, and various hedge funds and other alternative investment vehicles that employ financial leverage, and approximately $3.1 billion consisted of accounts that do not employ financial leverage.
The following factors are examples of those that could cause actual results to vary from our forward-looking statements: changes in interest rates and the market value of our securities; market volatility; changes in the prepayment rates on the mortgage loans underlying the securities owned by us for which the principal and interest payments are guaranteed by a U.S. government agency or a U.S. government-sponsored entity; increased rates of default and/or decreased recovery rates on our assets; our ability to borrow to finance our assets and the available terms for such borrowings; changes in government regulations affecting our business; our ability to maintain our exclusion from registration under the Investment Company Act of 1940, as amended, or the "Investment Company Act"; our ability to maintain our qualification as a real estate investment trust, or "REIT"; and risks associated with investing in real estate assets, including changes in business conditions and the general economy such as changes to fiscal or monetary policy, heightened inflation, slower growth or recession, and currency fluctuations.
The following factors are examples of those that could cause actual results to vary from our forward-looking statements: changes in interest rates and the market value of our securities or our investments; market volatility; changes in the prepayment rates on the mortgage loans underlying the securities owned by us for which the principal and interest payments are guaranteed by a U.S. government agency or a U.S. government-sponsored entity; increased rates of default and/or decreased recovery rates on our assets; our ability to borrow to finance our assets and the available terms for such borrowings; changes in government regulations affecting our business; our ability to maintain our exclusion from registration under the Investment Company Act of 1940, as amended, or the "Investment Company Act"; our ability to achieve cost savings and efficiencies, operating efficiencies, synergies and other benefits, including the increased scale, and avoid potential business disruption from our completed merger with Arlington Asset Investment Corp.; our ability to maintain our qualification as a real estate investment trust, or "REIT"; and risks associated with investing in real estate assets, including changes in business conditions and the general economy such as changes to fiscal or monetary policy, heightened inflation, slower growth or recession, and currency fluctuations.
The $9.0 billion and $6.5 billion in assets under management include approximately $1.0 billion in Ellington-managed CLOs. For these purposes, the Ellington-managed CLO figure represents the aggregate outstanding balance of CLO notes and market value of CLO equity, excluding any notes and equity held by other Ellington-managed funds and accounts.
The $10.3 billion and $7.2 billion in assets under management include approximately $0.8 billion in Ellington-managed CLOs. For these purposes, the Ellington-managed CLO figure represents the aggregate outstanding balance of CLO notes and market value of CLO equity, excluding any notes and equity held by other Ellington-managed funds and accounts.
Under the management agreement, we pay our Manager a management fee quarterly in arrears, which includes a "base" component and an "incentive" component, and we reimburse certain expenses of our Manager. 9 Table of Contents The management agreement provides that 10% of each incentive fee payable to our Manager is to be paid in common shares, with the balance paid in cash; provided, however, that our Manager may, in its sole discretion, elect to receive a greater percentage of any incentive fee in the form of common shares by providing our Board of Directors with written notice of its election to receive a greater percentage of its incentive fee in common shares before the first day of the last calendar month in the quarter to which such incentive fee relates.
The management agreement provides that 10% of each incentive fee payable to our Manager is to be paid in common shares, with the balance paid in cash; provided, however, that our Manager may, in its sole discretion, elect to receive a greater percentage of any incentive fee in the form of common shares by providing our Board of Directors with written notice of its election to receive a greater percentage of its incentive fee in common shares before the first day of the last calendar month in the quarter to which such incentive fee relates.
As of 8 Table of Contents December 31, 2022, the majority of our recourse borrowings consisted of repurchase agreements, or "repos." Currently, the majority of our repos are collateralized by Agency RMBS, non-QM residential mortgage loans, and residential transition loans.
As of December 31, 2023, the majority of our recourse borrowings consisted of repurchase agreements, or "repos." Currently, the majority of our repos are collateralized by Agency RMBS and residential mortgage loans.
See "—Management Agreement" above. As of December 31, 2022, Longbridge had approximately 400 employees.
See "—Management Agreement" above. As of December 31, 2023, Longbridge had over 400 employees.
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.
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.
While the CFPB moratorium on new foreclosures sunsetted on January 1, 2022, some states continue to impose certain foreclosure moratoriums. In recent years, the general trend among federal, state and local legislative bodies and regulatory agencies, as well as state attorneys general, has been toward increasing laws, regulations, investigative proceedings and enforcement actions relating to residential mortgage lenders and servicers.
In recent years, the general trend among federal, state and local legislative bodies and regulatory agencies, as well as state attorneys general, has been toward increasing laws, regulations, investigative proceedings and enforcement actions relating to residential mortgage lenders and servicers.
Ellington's continued 6 Table of Contents emphasis on and development of proprietary credit, interest rate, and prepayment models, as well as other proprietary research and analytics, underscores the importance it places on a disciplined and analytical approach to fixed income investing.
Ellington's continued emphasis on and development of proprietary credit, interest rate, and prepayment models, as well as other proprietary research and analytics, underscores the importance it places on a disciplined and analytical approach to fixed income investing. In addition, Ellington's analytical and financial resources can help support the loan origination companies in which we have strategic investments.
In addition, Ellington’s analytical and financial resources can help support the loan origination companies in which we have strategic investments. For example, we can provide these companies with a reliable outlet for their production, help enhance their underwriting guidelines, help improve the terms and stability of their financing sources, and help boost their overall visibility in the marketplace.
For example, we can provide these companies with a reliable outlet for their production, help enhance their underwriting guidelines, help improve the terms and stability of their financing sources, and help boost their overall visibility in the marketplace. In these ways, we leverage Ellington's skills and resources to seek to meet our investment objectives.
For purposes of calculating the incentive fee, the "Hurdle Amount" means, with respect to any fiscal quarter, the product of (i) one-fourth of the greater of (A) 9% and (B) 3% plus the 10-year U.S.
GAAP, as well as non-cash charges after discussion between our Manager and our independent directors and approval by a majority of our independent directors in the case of non-cash charges. 10 Table of Content s For purposes of calculating the incentive fee, the "Hurdle Amount" means, with respect to any fiscal quarter, the product of (i) one-fourth of the greater of (A) 9% and (B) 3% plus the 10-year U.S.
We also opportunistically overlay our credit hedges with certain relative value long/short positions involving the same or similar instruments. Foreign Currency Hedging To the extent 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.
Foreign Currency Hedging To the extent 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.
We also opportunistically engage in relative value trading strategies, whereby we seek to identify and capitalize on short-term pricing disparities in various equity and/or fixed-income markets.
We also opportunistically engage in relative value trading strategies, whereby we seek to identify and capitalize on short-term pricing disparities in various equity and/or fixed-income markets. On December 14, 2023, we completed the merger between Arlington Asset Investment Corp., a Virginia corporation ("Arlington"), and our subsidiary EF Merger Sub Inc.
In these ways, we leverage Ellington's skills and resources to seek to meet our investment objectives. With respect to structured products including MBS, Ellington seeks investments across a wide range of sectors without any restriction as to ratings, structure, or position in the capital structure.
With respect to structured products including MBS, Ellington seeks investments across a wide range of sectors without any restriction as to ratings, structure, or position in the capital structure. Over time and through market cycles, opportunities will present themselves in varying sectors and in varying forms.
Finally, we have also raised equity capital to finance acquisitions of our targeted assets, including through public offerings of our common stock, our 6.750% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, $0.001 par value per share ("Series A Preferred Stock"), our 6.250% Series B Fixed-Rate Reset Cumulative Redeemable Preferred Stock, $0.001 par value per share (“Series B Preferred Stock”), and our 8.625% Series C Preferred Stock, $0.001 par value per share ("Series C Preferred Stock").
Finally, we have also raised equity capital to finance acquisitions of our targeted assets, including through public offerings of our common and preferred stock, and as a result of the Arlington Merger, where we issued additional shares of our common and preferred stock in exchange for Arlington common and preferred shares.
Removed
Over time and through market cycles, opportunities will present themselves in varying sectors and in varying forms.
Added
(the "Arlington Merger"), through which we increased our capital base 5 Table of Content s and added a portfolio of investments and borrowings that we believe were complementary to our existing investment portfolio and liability structure.
Removed
In particular, we may use currency forward contracts and other currency-related derivatives to mitigate this risk.
Added
Our hedging instruments can include both "single-name" instruments (i.e., instruments referencing one underlying entity or security) and hedging instruments referencing 8 Table of Content s indices. We also opportunistically overlay our credit hedges with certain relative value long/short positions involving the same or similar instruments.
Removed
GAAP, as well as non-cash charges after discussion between our Manager and our independent directors and approval by a majority of our independent directors in the case of non-cash charges.
Added
Our repo arrangements on loans are governed by master repurchase agreements that are negotiated and customized facilities; with customized terms governing such matters as termination/principal amortization, advance rates, calculation of market value, and the rules for margin demands or declines in advance rates.
Added
Under the management agreement, we pay our Manager a management fee quarterly in arrears, which includes a "base" component and an "incentive" component, and we reimburse certain expenses of our Manager.
Added
While the CFPB moratorium on new foreclosures had a sunset date of January 1, 2022, some states continue to impose certain foreclosure moratoriums.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

269 edited+182 added−47 removed535 unchanged
Biggest changeIn addition, our Board of Directors may authorize us to revoke or otherwise terminate our REIT election without the approval of our stockholders. • We operate in a highly competitive market. • We are highly dependent on Ellington's and Longbridge's information systems and those of third-party service providers and system failures could significantly disrupt our business, which may, in turn, materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders. • Because we are highly dependent on information systems when sharing information with third party service providers, systems failures, breaches or cyber-attacks could significantly disrupt our business, which could have a material adverse effect on our results of operations and cash flows. • Lack of diversification in the number of assets we acquire would increase our dependence on relatively few individual assets. • The lack of liquidity in our assets may materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders. • We could be subject to liability for potential violations of various federal, state and local laws and regulations, including predatory lending laws, which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders. • We may be exposed to environmental liabilities with respect to properties in which we have an interest. • Consumer loans are subject to delinquency and loss, which could have a negative impact on our financial results. • Increased regulatory attention and potential regulatory action on certain areas within the consumer credit or reverse mortgage businesses could have a negative impact on our reputation, or cause losses on our investments in consumer loans or our equity investment in loan originators. • Our investments in distressed debt and equity have significant risk of loss, and our efforts to protect these investments may involve large costs and may not be successful. • We have held and may continue to hold the debt securities, loans or equity of companies that are more likely to enter into bankruptcy proceedings or have other risks. • We may be subject to risks associated with syndicated loans. • We have made and may in the future make investments in companies that we do not control. • We have invested and may in the future invest in securities in the developing CRT sector that are subject to mortgage credit risk.
Biggest changeIn addition, our Board of Directors may authorize us to revoke or otherwise terminate our REIT election without the approval of our stockholders. • We operate in a highly competitive market. • We are highly dependent on Ellington's and Longbridge's information systems and those of third-party service providers, including mortgage servicers, and system failures could significantly disrupt our business, which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders. • Lack of diversification in the number of assets we acquire would increase our dependence on relatively few individual assets. • The lack of liquidity in our assets may materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders. • We may be exposed to environmental liabilities with respect to properties in which we have an interest. • We could be subject to liability for potential violations of various federal, state and local laws and regulations, including predatory lending laws, which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders. • Consumer loans are subject to delinquency and loss, which could have a negative impact on our financial results. • Increased regulatory attention and potential regulatory action on certain areas within the consumer credit or reverse mortgage businesses could have a negative impact on our reputation, or cause losses on our investments in consumer loans or our equity investment in loan originators. • Our investments in distressed debt and equity have significant risk of loss, and our efforts to protect these investments may involve large costs and may not be successful. • We have made and may in the future make investments in companies that we do not control. • We have invested and may in the future invest in securities in the developing CRT sector that are subject to mortgage credit risk.
Our Manager's entitlement to non-performance-based compensation might reduce its incentive to devote the time and effort of its professionals to seeking profitable opportunities for our portfolio, which could result in a lower performance of our portfolio and materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
Our Manager's entitlement to non-performance-based compensation might reduce its incentive to devote the time and effort of its professionals to seeking profitable opportunities for our portfolio, which could result in a lower performance of our portfolio and could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
Our Manager's failure to identify and acquire assets that meet our asset criteria or perform its responsibilities under the management agreement could materially adversely affect our business, financial condition and results of operations, our ability to maintain our qualification as a REIT, and our ability to pay dividends to our stockholders.
Our Manager's failure to identify and acquire assets that meet our asset criteria or perform its responsibilities under the management agreement could materially adversely affect our business, financial condition and results of operations, our ability to pay dividends to our stockholders, and our ability to maintain our qualification as a REIT.
Our compliance with the REIT income and asset tests and the accuracy of our tax reporting to stockholders also depend upon our ability to successfully manage the calculation and composition of our gross and net taxable income, our E&P and our assets on an ongoing basis. Even a technical or inadvertent mistake could jeopardize our REIT status.
Our compliance with the REIT asset and income tests and the accuracy of our tax reporting to stockholders also depend upon our ability to successfully manage the calculation and composition of our gross and net taxable income, our E&P and our assets on an ongoing basis. Even a technical or inadvertent mistake could jeopardize our REIT status.
Moreover, even if the "protective" election were to be effective, the Subsidiary REIT would be subject to regular corporate income tax, dividends we receive from the Subsidiary REIT would not qualify as good income for our 75% gross income test, and we cannot assure you that we would not fail to satisfy the requirement that not more than 20% of the value of our total assets may be represented by the securities of one or more TRSs.
Moreover, even if the "protective" election were to be effective, the Subsidiary REIT would be subject to regular corporate income tax, dividends we receive from the Subsidiary REIT would not qualify as good income for our REIT 75% gross income test, and we cannot assure you that we would not fail to satisfy the requirement that not more than 20% of the value of our total assets may be represented by the securities of one or more TRSs.
In addition, we must also ensure that each taxable year we satisfy the REIT 75% and 95% gross income tests, which require that, in general, 75% of our gross income come from certain real estate-related sources and 95% of our gross income consist of gross income that qualifies for the 75% gross income test or certain other passive income sources.
In addition, we must also ensure that each taxable year we satisfy the REIT 75% and 95% gross income tests, which require that, in general, 75% of our gross income come from certain real estate-related sources and 95% of our gross income consist of gross income that qualifies for the REIT 75% gross income test or certain other passive income sources.
Government, may materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders. • Mortgage loan modification programs and future legislative action may adversely affect the value of, and the returns on, our targeted assets. • The principal and interest payments on our non-Agency RMBS and any CRTs that we may purchase are not guaranteed by any entity, including any government entity or GSE, and therefore are subject to increased risks, including credit risk. • Less stringent underwriting guidelines and the resultant potential for delinquencies or defaults on certain mortgage loans could lead to losses on many of the non-Agency RMBS and European RMBS that we hold. • We rely on analytical models and other data to analyze potential asset acquisition and disposition opportunities and to manage our portfolio.
Government, could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders. • Mortgage loan modification programs and future legislative action may adversely affect the value of, and the returns on, our targeted assets. • The principal and interest payments on our non-Agency RMBS and CRTs are not guaranteed by any entity, including any government entity or GSE, and therefore are subject to increased risks, including credit risk. • Less stringent underwriting guidelines and the resultant potential for delinquencies or defaults on certain mortgage loans could lead to losses on many of the non-Agency RMBS and European RMBS that we hold. • We rely on analytical models and other data to analyze potential asset acquisition and disposition opportunities and to manage our portfolio.
While there is limited analogous authority, we treat any mark-to-market gains as qualifying income for purposes of the 75% gross income test to the extent that the gain is recognized with respect to a qualifying real estate asset, based on an opinion of Hunton Andrews Kurth LLP substantially to the effect that any such gains recognized with respect to assets that would produce qualifying income for purposes of the 75% and/or 95% gross income test, as applicable, if they were actually sold should be treated as qualifying income to the same extent for purposes of the 75% and/or 95% gross income test, as applicable, and any such gains should not be subject to the prohibited transaction tax.
While there is limited analogous authority, we treat any mark-to-market gains as qualifying income for purposes of the REIT 75% gross income test to the extent that the gain is recognized with respect to a qualifying real estate asset, based on an opinion of Hunton Andrews Kurth LLP substantially to the effect that any such gains recognized with respect to assets that would produce qualifying income for purposes of the REIT 75% and/or 95% gross income test, as applicable, if they were actually sold should be treated as qualifying income to the same extent for purposes of the REIT 75% and/or 95% gross income test, as applicable, and any such gains should not be subject to the prohibited transaction tax.
In connection with the forward-looking statements that appear in our periodic reports on Form 10-Q and Form 10-K, our Current Reports on Form 8-K, our press releases and our other written and oral communications, you should also carefully review the cautionary statements referred to in such reports and other communications referred to under "Special Note Regarding Forward-Looking Statements." Risks Related To Our Business Difficult conditions in the mortgage and residential real estate markets as well as general market concerns may adversely affect the value of the assets in which we invest.
In connection with the forward-looking statements that appear in our periodic reports on Form 10-Q and Form 10-K, our Current Reports on Form 8-K, our press releases and our other written and oral communications, you should also carefully review the cautionary statements referred to in such reports and other communications referred to under "Special Note Regarding Forward-Looking Statements." Risks Related To Our Business Difficult conditions in the mortgage and residential and commercial real estate markets as well as general market concerns may adversely affect the value of the assets in which we invest.
Risk Factors Summary of Risk Factors Risks Related To Our Business • Difficult conditions in the mortgage and residential real estate markets as well as general market concerns may adversely affect the value of the assets in which we invest. • The federal conservatorship of Fannie Mae and Freddie Mac and related efforts, along with any changes in laws and regulations affecting the relationship between Fannie Mae, Freddie Mac, and Ginnie Mae and the U.S.
Risk Factors Summary of Risk Factors Risks Related To Our Business • Difficult conditions in the mortgage and residential and commercial real estate markets as well as general market concerns may adversely affect the value of the assets in which we invest. • The federal conservatorship of Fannie Mae and Freddie Mac and related efforts, along with any changes in laws and regulations affecting the relationship between Fannie Mae, Freddie Mac, and Ginnie Mae and the U.S.
Generally, if we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and becoming subject to U.S. federal income tax and any applicable state and local taxes on all of our income.
Generally, if we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and becoming subject to U.S. federal income tax and any applicable state and local taxes on all of our taxable income.
If our Manager ceases to be our Manager, including upon non-renewal of our management agreement, or if one or more of our Manager's key personnel ceases to provide services to us, it could constitute an event of default or early termination event under many of our repo or derivative transaction agreements, upon which our counterparties would have the right to terminate their agreements with us.
If our Manager ceases to be our Manager, including upon non-renewal of our management agreement, or if one or more of our Manager's key personnel ceases to provide services to us, it could constitute an event of default or early termination event under many of our repo or derivative transaction agreements, upon which the relevant counterparties would have the right to terminate their agreements with us.
Our aggregate gross income from such transactions, along with other gross income that does not qualify for the 95% gross income test, cannot exceed 5% of our annual gross income. As a result, we might have to limit our use of advantageous hedging techniques, and we have implemented and may in the future implement certain hedges through a TRS.
Our aggregate gross income from such transactions, along with other gross income that does not qualify for the REIT 95% gross income test, cannot exceed 5% of our annual gross income. As a result, we might have to limit our use of advantageous hedging techniques, and we have implemented and may in the future implement certain hedges through a TRS.
Such modification or liquidation, if required, could adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders. Our use of derivatives may expose us to counterparty risk. We enter into interest rate swaps and other derivatives that have not been cleared by a CCP.
Such modification or liquidation, if required, could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders. Our use of derivatives may expose us to counterparty risk. We enter into interest rate swaps and other derivatives that have not been cleared by a CCP.
In the case of non-Agency RMBS, a significant number of loan modifications with respect to a given security, including those related to principal forgiveness and coupon reduction, could negatively impact the realized yields and cash flows on such security. Similarly, principal forgiveness and/or coupon reduction could negatively impact the performance of any residential mortgage loans we own.
In the case of non-Agency RMBS, a significant number of loan modifications with respect to a given security, including those related to principal forgiveness and coupon reduction, could negatively impact the realized yields and cash flows on such security. Similarly, principal forgiveness and/or coupon reduction could negatively impact the performance of any residential mortgage loans, RMBS or MSRs we own.
The occurrence of any of the foregoing or similar events may reduce our return from an affected property or asset and, consequently, materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders. We engage in short selling transactions, which may subject us to additional risks.
The occurrence of any of the foregoing or similar events could reduce our return from an affected property or asset and, consequently, could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders. We engage in short selling transactions, which may subject us to additional risks.
Generally, if we fail to comply with these requirements at the end of any calendar year, we will lose our REIT qualification and may be subject to U.S. federal income tax and any applicable state and local taxes on all of our income.
Generally, if we fail to comply with these requirements at the end of any calendar year, we will lose our REIT qualification and may be subject to U.S. federal income tax and any applicable state and local taxes on all of our taxable income.
Many of the investments that we made and activities we undertook prior to our REIT election have been contributed to or will be made in one of our TRSs; thus, we hold a significant portion of our assets through, and derive a significant portion of our taxable income and gains in, TRSs.
In addition, many of the investments that we made and activities we undertook prior to our REIT election have been contributed to or will be made in one of our TRSs; thus, we hold a significant portion of our assets through, and derive a significant portion of our taxable income and gains in, TRSs.
Our and our mortgage servicers' loss mitigation efforts may be unsuccessful in limiting delinquencies, defaults, and losses, or may not be cost effective, which may materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
Our and our mortgage servicers' loss mitigation efforts may be unsuccessful in limiting delinquencies, defaults, and losses, or may not be cost effective, which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
The programs may involve, among other things, the modification of mortgage loans to reduce the principal amount of the loans or the rate of interest payable on the loans, or to extend the payment terms of the loans. Loan modification and refinance programs may adversely affect the performance of Agency and non-Agency RMBS and residential mortgage loans.
The programs may involve, among other things, the modification of mortgage loans to reduce the principal amount of the loans or the rate of interest payable on the loans, or to extend the payment terms of the loans. Loan modification and refinance programs may adversely affect the performance of Agency and non-Agency RMBS, residential mortgage loans and MSRs.
If a borrower defaults on a second-lien mortgage loan or on its senior debt ( i.e., a first-lien loan, in the case of a residential mortgage loan), or in the event of a borrower bankruptcy, such loan will be satisfied only after all senior debt is paid in full.
If a borrower defaults on a second-lien or subordinated loan or on its senior debt ( i.e., a first-lien loan, in the case of a residential mortgage loan), or in the event of a borrower bankruptcy, such second-lien or subordinated loan will be satisfied only after all senior debt is paid in full.
Nevertheless, if the IRS were to assert successfully that such mortgage loans were secured by property other than real estate, that the interest apportionment regulation applied for purposes of our REIT testing, and that the position taken in Revenue Procedure 2014-51 should be applied to our portfolio, then depending upon the value of the real property securing our loans and their face amount, and the sources of our gross income generally, we might not be able to meet the REIT 75% gross income test, and possibly the asset tests applicable to REITs.
Nevertheless, if the IRS were to assert successfully that such mortgage loans were secured by property other than real estate, that the interest apportionment regulation applied for purposes of our REIT testing, and that the position taken in Revenue Procedure 2014-51 should be applied to our portfolio, then depending upon the value of the real property securing our loans and their face amount, and the sources of our gross income generally, we might not be able to meet the REIT 75% gross income test, and possibly the REIT asset tests.
In 2021 the SEC established an enforcement task force to look into ESG practices and disclosures by public companies and investment managers and has started to bring enforcement actions based on ESG disclosures not matching actual investment processes.
In addition, in 2021 the SEC established an enforcement task force to look into ESG practices and disclosures by public companies and investment managers and has started to bring enforcement actions based on ESG disclosures not matching actual investment processes.
For example, the Internal Revenue Code and the Treasury Regulations promulgated thereunder specifically provide that a non-U.S. corporation is not a U.S. trade or business and therefore is not subject to U.S. federal income tax if it restricts its activities in the United States to trading in stock and securities (or any activity closely related thereto) for its own account irrespective of whether such trading (or such other activity) is conducted by such a non-U.S. corporation or its employees through a resident broker, commission agent, custodian or other agent.
For example, the Code and the Treasury Regulations promulgated thereunder specifically provide that a non-U.S. corporation is not a U.S. trade or business and therefore is not subject to U.S. federal income tax if it restricts its activities in the United States to trading in stock and securities (or any activity closely related thereto) for its own account irrespective of whether such trading (or such other activity) is conducted by such a non-U.S. corporation or its employees through a resident broker, commission agent, custodian or other agent.
We have made and may in the future make investments in companies that we do not control. Some of our investments in loan originators and other operating entities include, or may include, debt instruments and/or equity securities of companies that we do not control.
We have made and may in the future make investments in companies that we do not control. Our investments in loan originators and other operating entities include, or may include, debt instruments and/or equity securities of companies that we do not control.
Our ability to satisfy the asset tests depends upon the characterization and fair market values of our assets, some of which are not precisely determinable, and for which we may not obtain independent appraisals.
Our ability to satisfy the REIT asset tests depends upon the characterization and fair market values of our assets, some of which are not precisely determinable, and for which we may not obtain independent appraisals.
In particular, the residential mortgage markets in the U.S. and Europe have experienced a variety of difficulties and challenging economic conditions in the past, including defaults, credit losses, and liquidity concerns.
In particular, the residential and commercial mortgage markets in the U.S. and Europe have experienced a variety of difficulties and challenging economic conditions in the past, including defaults, credit losses, and liquidity concerns.
To qualify for this deduction, the shareholder receiving such dividend must hold the dividend-paying REIT shares for at least 46 days (taking into account certain special holding period rules) of the 91-day period beginning 45 days before the shares become ex-dividend, and cannot be under an obligation to make related payments with respect to a position in substantially similar or related property.
To qualify for this deduction, the stockholder receiving such dividend must hold the dividend-paying REIT shares for at least 46 days (taking into account certain special holding period rules) of the 91-day period beginning 45 days before the shares become ex-dividend, and cannot be under an obligation to make related payments with respect to a position in substantially similar or related property.
Among other effects, low interest rates can increase prepayment rates (resulting from lower long-term interest rates, including mortgage rates), impact the shape of the yield curve, cause a narrowing of our net interest margin, and lower the yields that we are able to generate on our investments, all of which can adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
Among other effects, low interest rates can increase prepayment rates (resulting from lower long-term interest rates, including mortgage rates), impact the shape of the yield curve, cause a narrowing of our net interest margin, and lower the yields that we are able to generate on our investments, all of which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
There can be no assurance that our Manager will conduct any specific level of due diligence, or that, among other things, our Manager's due diligence processes will uncover all relevant facts or that any purchase will be successful, which could result in losses on these assets, which, in turn, could adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
There can be no assurance that our Manager will conduct any specific level of due diligence, or that, among other things, our Manager's due diligence processes will uncover all relevant facts or that any purchase will be successful, which could result in losses on these assets, which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
When we do choose to hedge, hedging may fail to protect or could materially adversely affect us because, among other things: • our Manager may fail to correctly assess the degree of correlation between the hedging instruments and the assets being hedged; • our Manager may fail to recalculate, re-adjust, and execute hedges in an efficient and timely manner; • the hedging transactions may actually result in poorer overall performance for us than if we had not engaged in the hedging transactions; • credit hedging can be expensive, particularly when the market is forecasting future credit deterioration and when markets are more illiquid; • interest rate hedging can be expensive, particularly during periods of volatile interest rates; • available hedges may not correspond directly with the risks for which protection is sought; • the durations of the hedges may not match the durations of the related assets or liabilities being hedged; • many hedges are structured as over-the-counter contracts with counterparties whose creditworthiness is not guaranteed, raising the possibility that the hedging counterparty may default on their payment obligations; • to the extent that the creditworthiness of a hedging counterparty deteriorates, it may be difficult or impossible to terminate or assign any hedging transactions with such counterparty; and • our hedging instruments are generally structured as derivative contracts and, as a result, are subject to additional risks such as those described above under "—Our access to financing sources, which may not be available on favorable terms, or at all, may be limited, and our lenders and derivative counterparties may require us to post additional collateral.
When we do choose to hedge, hedging may fail to protect or could materially adversely affect us because, among other things: • our Manager may fail to correctly assess the degree of correlation between the hedging instruments and the assets being hedged; • our Manager may fail to recalculate, re-adjust, and execute hedges in an efficient and timely manner; • the hedging transactions may actually result in poorer overall performance for us than if we had not engaged in the hedging transactions; • credit hedging can be expensive, particularly when the market is forecasting future credit deterioration and when markets are more illiquid; • interest rate hedging can be expensive, particularly during periods of volatile interest rates; • available hedges may not correspond directly with the risks for which protection is sought; • the durations of the hedges may not match the durations of the related assets or liabilities being hedged; • many hedges are structured as over-the-counter contracts with counterparties whose creditworthiness is not guaranteed, raising the possibility that the hedging counterparty may default on their payment obligations; • to the extent that the creditworthiness of a hedging counterparty deteriorates, it may be difficult or impossible to terminate or assign any hedging transactions with such counterparty; and • our hedging instruments are generally structured as derivative contracts and, as a result, are subject to additional risks such as those described under "—Our access to financing sources may not be available on favorable terms, may be limited or completely shut off, and our lenders and derivative counterparties could require us to post additional collateral.
If we fail to meet or satisfy any of these covenants, subject to certain cure provisions, as applicable, we would be in default under these agreements and our indebtedness could be declared due and payable. In addition, our lenders could terminate their commitments, require the posting of additional collateral and enforce their interests against existing collateral.
If we fail to meet or satisfy any of these covenants, subject to any applicable cure provisions, we would be in default under these agreements and our indebtedness could be declared due and payable. In addition, our lenders could terminate their commitments, require the posting of additional collateral and enforce their interests against existing collateral.
The management agreement has a current term that expires on December 31, 2023, and will be automatically renewed for successive one-year terms thereafter unless notice of non-renewal is delivered by either party to the other party at least 180 days prior to the expiration of the then current term.
The management agreement has a current term that expires on December 31, 2024, and will be automatically renewed for successive one-year terms thereafter unless notice of non-renewal is delivered by either party to the other party at least 180 days prior to the expiration of the then current term.
Treasury entered into Preferred Stock Purchase Agreements (“PSPAs”) with the FHFA and have taken various actions intended to provide Fannie Mae and Freddie Mac with additional liquidity in an effort to ensure their financial stability. Shortly after Fannie Mae and Freddie Mac were placed in federal conservatorship, the Secretary of the U.S.
Treasury entered into Preferred Stock Purchase Agreements ("PSPAs") with the FHFA and have taken various actions intended to provide Fannie Mae and Freddie Mac with additional liquidity in an effort to ensure their financial stability. Shortly after Fannie Mae and Freddie Mac were placed in federal conservatorship, the Secretary of the U.S.
See "—Future offerings of debt securities, which would rank senior to our common and preferred stock upon our liquidation, and future offerings of equity securities, which could dilute our existing stockholders and, in the case of preferred equity, may be senior to our common stock for the purposes of dividend and liquidating distributions, may adversely affect the market price of our common stock." The officers of our Manager and its affiliates devote as much time to us as our Manager deems appropriate; however, these officers may have conflicts in allocating their time and services among us and Ellington and its affiliates' accounts.
See "—General Risk Factors—Future offerings of debt securities, which would rank senior to our common and preferred stock upon our liquidation, and future offerings of equity securities, which could dilute our existing stockholders and, in the case of preferred equity, may be senior to our common stock for the purposes of dividend and liquidating distributions, may adversely affect the market price of our common stock." The officers of our Manager and its affiliates devote as much time to us as our Manager deems appropriate; however, these officers may have conflicts in allocating their time and services among us and Ellington and its affiliates' accounts.
The federal conservatorship of Fannie Mae and Freddie Mac and related efforts, along with any changes in laws and regulations affecting the relationship between Fannie Mae, Freddie Mac, and Ginnie Mae and the U.S. Government, may materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
The federal conservatorship of Fannie Mae and Freddie Mac and related efforts, along with any changes in laws and regulations affecting the relationship between Fannie Mae, Freddie Mac, and Ginnie Mae and the U.S. Government, could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
Ellington-Sponsored CLOs have at times also experienced negative credit events in their constituent loans, credit rating downgrades of constituent loans and issued debt tranches, and failures of certain deal metrics. As a result, the risks associated with our investments in Ellington-Sponsored CLOs may be greater than those associated with our investments in other CLOs.
Ellington-Sponsored CLOs have also experienced negative credit events in their constituent loans, credit rating downgrades of constituent loans and issued debt tranches, and failures of certain deal metrics. As a result, the risks associated with our investments in Ellington-Sponsored CLOs may be greater than those associated with our investments in other CLOs.
In general, Section 203 prevents an "interested stockholder" (as defined below) from engaging in a "business combination" (as defined in 61 Table of Contents the statute) with us for three years following the date that person becomes an interested stockholder unless one or more of the following occurs: • before that person became an interested stockholder, our board of directors approved the transaction in which the interested stockholder became an interested stockholder or approved the business combination; • upon completion of the transaction that resulted in the interested stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) stock held by directors who are also officers of our company and by employee stock plans that do not provide employees with the right to determine confidentially whether shares held under the plan will be tendered in a tender or exchange offer; and • following the transaction in which that person became an interested stockholder, the business combination is approved by our board of directors and authorized at a meeting of stockholders by the affirmative vote of the holders of at least two-thirds of our outstanding voting stock not owned by the interested stockholder.
In general, Section 203 prevents an "interested stockholder" (as defined below) from engaging in a "business combination" (as defined in the statute) with us for three years following the date that person becomes an interested stockholder unless one or more of the following occurs: 68 Table of Content s • before that person became an interested stockholder, our board of directors approved the transaction in which the interested stockholder became an interested stockholder or approved the business combination; • upon completion of the transaction that resulted in the interested stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) stock held by directors who are also officers of our company and by employee stock plans that do not provide employees with the right to determine confidentially whether shares held under the plan will be tendered in a tender or exchange offer; and • following the transaction in which that person became an interested stockholder, the business combination is approved by our board of directors and authorized at a meeting of stockholders by the affirmative vote of the holders of at least two-thirds of our outstanding voting stock not owned by the interested stockholder.
Many of the non-Agency RMBS in which we invest are collateralized by Alt-A and subprime mortgage loans, which are mortgage loans that were originated using less stringent underwriting guidelines than those used in underwriting prime mortgage loans (mortgage loans that generally conform to Fannie Mae or Freddie Mac underwriting guidelines).
Some of the non-Agency RMBS in which we invest are collateralized by Alt-A and subprime mortgage loans, which are mortgage loans that were originated using less stringent underwriting guidelines than those used in underwriting prime mortgage loans (mortgage loans that generally conform to Fannie Mae or Freddie Mac underwriting guidelines).
Our business is materially affected by conditions in the residential mortgage market, the residential real estate market, the financial markets, and the economy, including inflation, interest rates, energy costs, unemployment, geopolitical issues, concerns over the creditworthiness of governments worldwide and the stability of the global banking system.
Our business is materially affected by conditions in the residential and commercial mortgage markets, the residential and commercial real estate markets, the financial markets, and the economy, including inflation, interest rates, energy costs, unemployment, geopolitical issues, concerns over the creditworthiness of governments worldwide and the stability of the global banking system.
We acquire assets and other instruments that are not publicly traded, including privately placed RMBS, residential and commercial mortgage loans, CLOs, consumer loans, ABS backed by consumer and commercial assets, distressed corporate debt and equity, and other private investments, such as investments in loan originators.
We acquire assets and other instruments that are not publicly traded, including privately placed RMBS, residential and commercial mortgage loans, CLOs, consumer loans, ABS backed by consumer and commercial assets, distressed corporate debt and equity, MSR-related assets, and other private investments, such as investments in loan originators.
These provisions include: • allowing only our Board of Directors to fill newly created directorships resulting from any increase in the authorized number of directors and any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause, even if the remaining directors do not constitute a quorum; • requiring advance notice for our stockholders to nominate candidates for election to our Board of Directors or to propose business to be considered by our stockholders at a meeting of stockholders; • the ability of our Board of Directors to cause us to issue additional authorized but unissued shares of common stock or preferred stock without the approval of our stockholders; • the ability of the Board of Directors to amend, modify or repeal our bylaws without the approval of our stockholders; 50 Table of Contents • restrictions on the ability of stockholders to call a special meeting without a majority of all the votes entitled to be cast at such meeting; and • limitations on the ability of stockholders to act by written consent.
These provisions include: • allowing only our Board of Directors to fill newly created directorships resulting from any increase in the authorized number of directors and any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause, even if the remaining directors do not constitute a quorum; • requiring advance notice for our stockholders to nominate candidates for election to our Board of Directors or to propose business to be considered by our stockholders at a meeting of stockholders; • the ability of our Board of Directors to cause us to issue additional authorized but unissued shares of common stock or preferred stock without the approval of our stockholders; • the ability of the Board of Directors to amend, modify or repeal our bylaws without the approval of our stockholders; 56 Table of Content s • restrictions on the ability of stockholders to call a special meeting without a majority of all the votes entitled to be cast at such meeting; and • limitations on the ability of stockholders to act by written consent.
Under the terms of the management agreement, our Manager, Ellington, and their affiliates and each of their officers, directors, members, shareholders, managers, investment and risk management committee members, employees, agents, successors and assigns, will not be liable to us for acts or omissions performed in accordance with and pursuant to the management agreement, except because of acts or omissions constituting bad faith, willful misconduct, gross 48 Table of Contents negligence, or reckless disregard of their duties under the management agreement.
Under the terms of the management agreement, our Manager, Ellington, and their affiliates and each of their officers, directors, members, shareholders, managers, investment and risk management committee members, employees, agents, successors and assigns, will not be liable to us for acts or omissions performed in accordance with and pursuant to the management agreement, except because of acts or omissions constituting bad faith, willful misconduct, gross negligence, or reckless disregard of their duties under the management agreement.
Although the interest we earn on our ARMs and our RMBS backed by ARMs generally will adjust for changing interest rates, such interest rate adjustments may not occur as quickly as the interest rate adjustments to any related borrowings, and such interest rate adjustments will generally be subject to interest rate caps, which potentially could cause such loans and RMBS to acquire many of the characteristics of fixed rate assets during periods of rising or high interest rates.
Although the interest we earn on our ARMs, our RMBS backed by ARMs, and many of our CLO investments generally will adjust for changing interest rates, such interest rate adjustments may not occur as quickly as the interest rate adjustments to any related borrowings, and such interest rate adjustments will generally be subject to interest rate caps, which potentially could cause such assets to acquire many of the characteristics of fixed rate assets during periods of rising or high interest rates.
We rely on servicers who service these consumer loans, to, among other things, collect principal and interest payments on the loans and perform loss mitigation services, and these servicers may not perform in a manner that promotes our interests.
We rely on servicers who service these consumer loans, to, among other things, collect principal and interest payments on the loans and perform loss mitigation services, and these servicers may not perform adequately or in a manner that promotes our interests.
Our qualification as a REIT and exemption from U.S. federal income tax with respect to certain assets may be dependent on the accuracy of legal opinions or advice rendered or given or statements by the issuers of assets that we acquire, and the 59 Table of Contents inaccuracy of any such opinions, advice or statements may adversely affect our REIT qualification and result in significant corporate-level tax.
Our qualification as a REIT and exemption from U.S. federal income tax with respect to certain assets may be dependent on the accuracy of legal opinions or advice rendered or given or statements by the issuers of assets that we acquire, and the inaccuracy of any such opinions, advice or statements may adversely affect our REIT qualification and result in significant corporate-level tax.
In the event of defaults under mortgage loans backing any of our non-Agency RMBS, we will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the mortgage loan.
In the event of defaults under mortgage loans backing any of our non-Agency RMBS or CRTs, we will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the mortgage loan.
Longbridge relies on a subservicer to perform reverse mortgage servicing functions, which presents us with a number of risks. Longbridge has contracted with a subservicer (the “Subservicer”) to perform reverse mortgage servicing functions on its behalf. This subservicing relationship presents a number of risks to us. Longbridge currently relies on the Subservicer to subservice all of its reverse mortgage portfolio.
Longbridge relies on a subservicer to perform reverse mortgage servicing functions, which presents us with a number of risks. Longbridge has contracted with subservicer(s) (each, a “Subservicer”) to perform reverse mortgage servicing functions on its behalf. This subservicing relationship presents a number of risks to us. Longbridge currently relies on the Subservicer to subservice all of its reverse mortgage portfolio.
However, even if a domestic shareholder qualifies for this deduction, the effective rate for such REIT dividends still remains higher than the top marginal rate applicable to “qualified dividend income” received by U.S. individuals.
However, even if a domestic stockholder qualifies for this deduction, the effective rate for such REIT dividends still remains higher than the top marginal rate applicable to “qualified dividend income” received by U.S. individuals.
The above list is not exhaustive, and we face additional challenges and risks. Please carefully consider all of the information in this Report, including the matters set forth below in this Item 1A. 19 Table of Contents If any of the following risks occurs, our business, financial condition or results of operations could be materially and adversely affected.
The above list is not exhaustive, and we face additional challenges and risks. Please carefully consider all of the information in this Report, including the matters set forth below in this Item 1A. 19 Table of Content s If any of the following risks occurs, our business, financial condition or results of operations could be materially and adversely affected.
Similarly, if we were to move a financing from one counterparty to another that was subject to a larger haircut we would have to repay more cash to the original repurchase agreement counterparty than we would be able to borrow from the new repurchase agreement counterparty.
Similarly, if we were to move a financing from one counterparty to another that was subject to a larger haircut we would have to repay more cash to the original counterparty than we would be able to borrow from the new counterparty.
Our management agreement with our Manager requires us to indemnify our Manager and its affiliates against any and all claims and demands arising out of claims by third parties caused by acts or omissions of our Manager and its affiliates not constituting bad faith, willful misconduct, gross negligence, or reckless disregard of our Manager's duties under the management agreement. 51 Table of Contents In light of the liability limitations contained in our certificate of incorporation and our management agreement with our Manager, as well as our indemnification arrangements with our directors and officers and our Manager, our and our stockholders' rights to take action against our directors, officers, and Manager are limited, which could limit your recourse in the event actions are taken that are not in your best interests.
Our management agreement with our Manager requires us to indemnify our Manager and its affiliates against any and all claims and demands arising out of claims by third parties caused by acts or omissions of our Manager and its affiliates not constituting bad faith, willful misconduct, gross negligence, or reckless disregard of our Manager's duties under the management agreement. 57 Table of Content s In light of the liability limitations contained in our certificate of incorporation and our management agreement with our Manager, as well as our indemnification arrangements with our directors and officers and our Manager, our and our stockholders' rights to take action against our directors, officers, and Manager are limited, which could limit your recourse in the event actions are taken that are not in your best interests.
These assumptions might be especially difficult to project accurately during periods of economic disruption. The fair value of certain of our investments may fluctuate 23 Table of Contents over short periods of time, and our Manager’s determinations of fair value may differ materially from the values that would have been used if a ready market for these investments existed.
These assumptions might be especially difficult to project accurately during periods of economic disruption. The fair value of certain of our investments may fluctuate over short periods of time, and our Manager’s determinations of fair value may differ materially from the values that would have been used if a ready market for these investments existed.
The existing loan modification programs, together with future legislative or regulatory actions, including possible amendments to the bankruptcy laws, which result in the modification of outstanding residential mortgage loans and/or changes in the requirements necessary to qualify for refinancing mortgage loans with Fannie Mae, Freddie Mac, or Ginnie Mae, may adversely affect the value of, and the returns on, our assets, which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
The existing loan modification programs, together with future legislative or regulatory actions, including possible amendments to the bankruptcy laws, which result in the modification of outstanding residential mortgage loans and/or changes 21 Table of Content s in the requirements necessary to qualify for refinancing mortgage loans with Fannie Mae, Freddie Mac, or Ginnie Mae, may adversely affect the value of, and the returns on, our assets, which could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
In the early stages of the bankruptcy process, it is often difficult to estimate the extent of, or even to identify, any contingent claims that might be made. In addition, certain claims that have priority by law (for example, claims for taxes) may be substantial, eroding the value of any recovery by holders of other securities of the bankrupt entity.
In the early stages of the bankruptcy process, it is often difficult to estimate the extent of, or even to identify, any contingent claims that might be made. In addition, certain claims that have priority by law (e.g., for taxes) may be substantial, eroding the value of any recovery by holders of other securities of the bankrupt entity.
While we intend to analyze all relevant restrictions prior to investment, there is a risk that failure to comply with a federal, state or local law, rule or regulation could subject us to liability and jeopardize the enforceability of our investment. 41 Table of Contents We may be subject to risks associated with syndicated loans.
While we intend to analyze all relevant restrictions prior to investment, there is a risk that failure to comply with a federal, state or local law, rule or regulation could subject us to liability and jeopardize the enforceability of our investment. We may be subject to risks associated with syndicated loans.
Certain commercial banks, investment banks, insurance companies, loan origination companies and mortgage-related investment vehicles incurred extensive losses from exposure to the residential mortgage market as a result of these difficulties and conditions.
Certain commercial banks, investment banks, insurance companies, loan origination companies and mortgage-related investment vehicles incurred extensive losses from exposure to the residential and commercial mortgage markets as a result of these difficulties and conditions.
Any deterioration of the mortgage market and investor perception of the risks associated with residential mortgage loans, RMBS, other real estate-related securities, and various other assets that we acquire could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
Any deterioration of the mortgage market and investor perception of the risks associated with residential and commercial mortgage loans, MBS, other real estate-related securities, and various other assets that we acquire could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
Our portfolio includes non-Agency RMBS which are backed by residential mortgage loans that do not conform to the Fannie Mae or Freddie Mac underwriting guidelines, including subprime, manufactured housing, Alt-A, prime jumbo, non-QM, and single-family-rental mortgage loans.
Our portfolio includes non-Agency RMBS which are backed by residential mortgage loans that do not conform to the Fannie Mae or Freddie Mac underwriting guidelines, including subprime, manufactured housing, Alt-A, prime jumbo, non-QM, and single-family-rental mortgage loans, as well as CRTs.
Those investments will be subject to the risk that the company in which the investment is made may make business, financial or management decisions with which we do not agree or that the majority stakeholders or the management of such company may take risks or otherwise act in a manner that does not serve our interests.
Those investments are subject to the risk that the company in which the investment is made may make business, financial or management decisions with which we do not agree or that the majority stakeholders or the management of such company may take risks or otherwise act in a manner that does not serve our interests.
Even if we are successful in foreclosing on a loan, the liquidation proceeds upon sale of the underlying real estate may not be sufficient to recover our cost basis in the loan, resulting in a loss to us, and the borrower or junior lenders may continue to challenge whether the foreclosure process was commercially reasonable, which could result in additional costs and potential liability.
Even if we are successful in foreclosing on a loan, the liquidation proceeds upon sale of the underlying real estate may not be sufficient to recover our cost basis in the loan, resulting in a loss to us, and the borrower or junior lenders 31 Table of Content s may continue to challenge whether the foreclosure process was commercially reasonable, which could result in additional costs and potential liability.
Our lenders also have revised, and may continue to revise, their eligibility requirements for the types of assets that they are willing to finance or the terms of such financing arrangements, including increased haircuts and requiring additional cash collateral, based on, among other factors, the regulatory environment and their management of actual and perceived risk, particularly with respect to assignee liability.
Our lenders also have revised, and may continue to revise, their eligibility requirements for the types of assets that they are willing to finance or the terms of such financing arrangements, including increased haircuts and requiring additional cash collateral, based on, 33 Table of Content s among other factors, the regulatory environment and their management of actual and perceived risk, particularly with respect to assignee liability.
Furthermore, several of our repo agreements contain financial covenants of a similar nature, including requiring us to maintain a minimum level of liquidity, a minimum level of equity, and a maximum level of additional indebtedness. 32 Table of Contents The covenants in our financing arrangements may limit our flexibility to pursue certain investments or incur additional debt.
Furthermore, several of our repo agreements contain financial covenants of a similar nature, including requiring us to maintain a minimum level of liquidity, a minimum level of equity, and a maximum level of additional indebtedness. The covenants in our financing arrangements may limit our flexibility to pursue certain investments or incur additional debt.
High inflation may undermine the performance of our investments by reducing the value of such investments and/or the income received from such investments. In addition, actions that the Federal Reserve has taken, and could continue to take, to combat inflation could have an adverse impact on our financial results. 63 Table of Contents
High inflation may undermine the performance of our investments by reducing the value of such investments and/or the income received from such investments. In addition, actions that the Federal Reserve has taken, and could continue to take, to combat inflation could have an adverse impact on our financial results.
Our Manager relies on the analytical models (both proprietary and third-party models) of Ellington and information and data supplied by third parties. These models and data may be used to value assets or potential asset acquisitions and dispositions and also in connection with our asset management activities.
We rely on our Manager and our Manager relies on the analytical models (both proprietary and third-party models) of Ellington and information and data supplied by Ellington itself and by third parties. These models and data may be used to value assets or potential asset acquisitions and dispositions and also in connection with our asset management activities.
In addition, any breach of these systems could disrupt our normal business operations and expose us to reputational damage and lost business, revenues, and profits. 38 Table of Contents Lack of diversification in the number of assets we acquire would increase our dependence on relatively few individual assets.
In addition, any breach of these systems could disrupt our normal business operations and expose us to reputational damage and lost business, revenues, and profits. Lack of diversification in the number of assets we acquire would increase our dependence on relatively few individual assets.
Because our Manager earns base management fees that are based on the total amount of our equity capital, and earns 47 Table of Contents incentive fees that are based in part on the total net income that we are able to generate, our Manager may have an incentive to recommend that we issue additional debt or equity securities.
Because our Manager earns base management fees that are based on the total amount of our equity capital, and earns incentive fees that are based in part on the total net income that we are able to generate, our Manager may have an incentive to recommend that we issue additional debt or equity securities.
Periods of heightened inflation could adversely impact our financial results. Due to various economic and monetary policy factors, including low unemployment, pent-up consumer and corporate demand, supply-chain issues, geopolitical conflicts, and quantitative easing, inflation has been elevated in recent periods.
Periods of heightened inflation could adversely impact our financial results. Due to various economic and monetary policy factors, including low unemployment, high consumer and corporate demand, supply-chain issues, geopolitical conflicts, and quantitative easing, inflation has been elevated in recent periods.
Because such valuations are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, our Manager's determinations of fair value may differ from the values that would have been used if a ready market for these assets existed or from the prices at which trades occur.
Because such valuations are inherently uncertain, may fluctuate over short periods of time, especially during periods of elevated market volatility, and may be based on estimates, our Manager's determinations of fair value may differ from the values that would have been used if a ready market for these assets existed or from the prices at which trades occur.
Further, if it were established that we were an unregistered investment company, there would be a risk that we would be subject to monetary penalties and injunctive relief in an action brought by the SEC, that we would be unable to enforce contracts with third parties and that third parties could seek to obtain rescission of transactions undertaken during the period it was established that we were an unregistered investment company.
Further, if it were established that we were (or Arlington had been) an unregistered investment company, there would be a risk that we would be subject to monetary penalties and injunctive relief in an action brought by the SEC, that we would be unable to enforce contracts with third parties and that third parties could seek to obtain rescission of transactions undertaken during the period it was established that we were an unregistered investment company.
To the extent that we are exposed to foreign currency risk, changes in exchange rates of such foreign currencies to the U.S. dollar may adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
To the extent that we are exposed to foreign currency risk, changes in exchange rates of such foreign currencies to the U.S. dollar could materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
Bankruptcy 36 Table of Contents Code, the effect of which, among other things, would be to allow the lender to avoid the automatic stay provisions of the U.S. Bankruptcy Code and to foreclose on and/or liquidate the collateral pledged under such agreements without delay.
Bankruptcy Code, the effect of which, among other things, would be to allow the lender to avoid the automatic stay provisions of the U.S. Bankruptcy Code and to foreclose on and/or liquidate the collateral pledged under such agreements without delay.
In the event that we own a mezzanine loan or similar debt that does not meet the safe harbor, the IRS could challenge such loan's treatment as a real estate asset for purposes of the REIT asset and income tests and, if such a challenge were sustained, we could fail to maintain our qualification as a REIT.
In the event that we own a mezzanine loan or similar debt that does not meet the safe harbor, the 66 Table of Content s IRS could challenge such loan's treatment as a real estate asset for purposes of the REIT asset and income tests and, if such a challenge were sustained, we could fail to maintain our qualification as a REIT.
The inability to securitize certain segments of our portfolio, especially certain of our loan assets, could force us to resort to inferior methods of financing those assets, could force us to sell those loan assets at inopportune times, and could adversely impact our ability to grow our loan acquisition businesses.
The inability to securitize certain segments of our portfolio, especially certain of our loan assets, could force us to resort to what may be inferior methods of financing those assets, could force us to sell those loan assets at inopportune times, and could adversely impact our ability to grow our loan acquisition businesses.
Hence, the mark-to-market gains and losses could cause us to distribute more dividends to our stockholders in a particular period than would otherwise be desirable from a business perspective. 58 Table of Contents The interest apportionment rules may affect our ability to comply with the REIT asset and gross income tests.
Hence, the mark-to-market gains and losses could cause us to distribute more dividends to our stockholders in a particular period than would otherwise be desirable from a business perspective. The interest apportionment rules may affect our ability to comply with the REIT asset and gross income tests.
A significant change in these guidelines that decreases the fees Longbridge may charge or requires Longbridge to expend additional resources to provide mortgage services could decrease its revenues or increase its costs. Furthermore, one of Longbridge’s financing arrangements requires obtaining an "Acknowledgement Agreement" from Ginnie Mae by a specified date.
A significant change in these guidelines that decreases the fees Longbridge may charge or requires Longbridge to expend additional resources to provide mortgage services could decrease its revenues or increase its costs. Furthermore, one of Longbridge’s financing arrangements requires an "acknowledgement agreement" from Ginnie Mae.
There is no guarantee that the ultimate outcome of any case will be in line with a law firm's or expert's initial assessment of the validity and merit of a legal claim. Various laws restrict the ability to assign certain legal claims or to participate in a lawyer's contingent fee interest in a claim.
There is no guarantee that the ultimate outcome of any case will be in line with outside counsel's or expert's initial assessment of the validity and merit of a legal claim. Various laws restrict the ability to assign certain legal claims or to participate in a lawyer's contingent fee interest in a claim.
As part of these policies, accounts that are in a "start-up" or "ramp-up" phase may get allocations above their proportion of available capital, which could work to our disadvantage, particularly because there are no limitations surrounding Ellington's ability to create new accounts.
As part of these policies, accounts that are in a "start-up" or "ramp-up" phase may get allocations above their proportion of available capital, which could work to our 52 Table of Content s disadvantage, particularly because there are no limitations surrounding Ellington's ability to create new accounts.
Finally, mark-to-market gains and losses could cause volatility in the amount of our taxable income. For instance, the mark-to-market election could generate losses in one taxable year that we are unable to use to offset taxable income, followed by mark-to-market gains in a subsequent taxable year that force us to make additional distributions to our stockholders.
Finally, mark-to-market gains and losses could cause volatility in the amount of our taxable income. 65 Table of Content s For instance, the mark-to-market election could generate losses in one taxable year that we are unable to use to offset taxable income, followed by mark-to-market gains in a subsequent taxable year that force us to make additional distributions to our stockholders.
As a result, values for residential mortgage loans, RMBS, other real estate-related securities and various other asset classes in which we may invest have experienced, and may in the future experience, significant volatility.
As a result, values for residential and commercial mortgage loans, MBS, other real estate-related securities and various other asset classes in which we may invest have experienced, and may in the future experience, significant volatility.

… 418 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

1 edited+0 added−0 removed1 unchanged
Biggest changeAs part of our management agreement, our Manager is responsible for providing offices necessary for all operations, and accordingly, all lease responsibilities belong to our Manager.
Biggest changeAs part of our management agreement, our Manager is responsible for providing offices necessary for all operations, and accordingly, all lease responsibilities related to our office spaces in Old Greenwich, CT belong to our Manager. 73 Table of Content s

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed3 unchanged
Biggest changeFor a discussion of these and other related risks, see "Part I, Item 1A. Risk Factors—We, Ellington, or its affiliates may be subject to regulatory inquiries and proceedings, or other legal proceedings" of this Annual Report on Form 10-K for the year ended December 31, 2022.
Biggest changeFor a discussion of these and other related risks, see "Part I, Item 1A. Risk Factors—We, Ellington, or its affiliates may be subject to regulatory inquiries and proceedings, or other legal proceedings" of this Annual Report on Form 10-K.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

8 edited+7 added−0 removed9 unchanged
Biggest changeSuch grants were exempt from the registration requirements of the Securities Act based on the exemption provided in Section 4(a)(2) of the Securities Act.
Biggest changeSuch grants were exempt from the registration requirements of the Securities Act based on the exemption provided in Section 4(a)(2) of the Securities Act. Issuer Purchases of Equity Securities On March 21, 2023, our Board of Directors approved the adoption of a share repurchase program under which we are authorized to repurchase up to $50 million of common stock.
The following graph provides a comparison of the cumulative total return on our common shares to the cumulative total return on the Standard & Poor's 500 Composite Stock Price Index, or the "S&P 500," and the FTSE National Association of Real Estate Investment Trusts Mortgage REIT Index, or the "FTSE NAREIT MREIT." The comparison is for the period from December 31, 2017 to December 31, 2022, and assumes in each case, a $100 investment on December 31, 2017 and the reinvestment of dividends.
The following graph provides a comparison of the cumulative total return on our common shares to the cumulative total return on the Standard & Poor's 500 Composite Stock Price Index, or the "S&P 500," and the FTSE National Association of Real Estate Investment Trusts Mortgage REIT Index, or the "FTSE NAREIT MREIT." The comparison is for the period from December 31, 2018 to December 31, 2023, and assumes in each case, a $100 investment on December 31, 2018 and the reinvestment of dividends.
Issuer Purchases of Equity Securities None. 65 Table of Contents Performance This performance graph is furnished and shall not be deemed filed with the SEC or subject to Section 18 of the Exchange Act, nor shall it be deemed incorporated by reference in any of our filings under the Securities Act.
Performance This performance graph is furnished and shall not be deemed filed with the SEC or subject to Section 18 of the Exchange Act, nor shall it be deemed incorporated by reference in any of our filings under the Securities Act.
Holders of Our Common Stock Based upon a review of a securities position listing as of February 15, 2023, we had an aggregate of 141 holders of record and holders of our common stock who are nominees for an undetermined number of beneficial owners.
Holders of Our Common Stock Based upon a review of a securities position listing as of the close of business on February 15, 2024, we had an aggregate of 179 holders of record and holders of our common stock who are nominees for an undetermined number of beneficial owners.
Once vested, the OP LTIP Units may be converted at the election of the holder, or at any time at our election, into OP Units on a one-for-one basis.
OP LTIP Units may be converted, upon lapse of the applicable vesting restrictions, at the election of the holder, or at any time at our election, into OP Units on a one-for-one basis.
Unregistered Sales of Equity Securities Pursuant to our 2017 Plan, on December 15, 2022, we granted 32,776 OP LTIP Units to certain of our partially dedicated employees.
Unregistered Sales of Equity Securities Pursuant to our 2017 Plan, on December 14, 2023, we granted 39,673 OP LTIP Units to certain of our partially dedicated employees.
The OP LTIP Units are subject to forfeiture restrictions that will lapse with respect to 18,068 of the OP LTIP Units on December 15, 2023 and 14,708 of the OP LTIP Units on December 15, 2024.
The OP LTIP Units are subject to forfeiture restrictions that will lapse with respect to 22,135 of the OP LTIP Units on December 14, 2024 and 17,538 of the OP LTIP Units on December 14, 2025. On December 14, 2023, we granted 7,657 OP LTIP Units to Ronald I.
The actual cumulative total returns shown on the graph above are as follows: December 31, 2017 2018 2019 2020 2021 2022 Ellington Financial Inc. $ 100.00 $ 117.30 $ 155.34 $ 140.07 $ 176.96 $ 144.55 S&P 500 $ 100.00 $ 95.61 $ 126.79 $ 150.10 $ 193.15 $ 157.73 FTSE NAREIT MREIT $ 100.00 $ 97.38 $ 118.09 $ 96.10 $ 111.06 $ 81.79 The performance information above has been obtained from sources believed to be reliable, but neither its accuracy nor its completeness can be guaranteed.
The actual cumulative total returns shown on the graph above are as follows: December 31, 2018 2019 2020 2021 2022 2023 Ellington Financial Inc. $ 100.00 $ 132.43 $ 119.41 $ 150.86 $ 123.22 $ 145.59 S&P 500 $ 100.00 $ 132.61 $ 157.00 $ 202.02 $ 164.98 $ 208.30 FTSE NAREIT MREIT $ 100.00 $ 121.27 $ 98.69 $ 114.05 $ 84.00 $ 96.76 The performance information above has been obtained from sources believed to be reliable, but neither its accuracy nor its completeness can be guaranteed.
Added
Simon, Ph.D., 7,657 OP LTIP units to Edward Resendez, 7,657 OP LTIP units to Lisa Mumford, and 7,657 OP LTIP units to Stephen J. Dannhauser, as compensation for serving as directors; such OP LTIP Units are subject to forfeiture restrictions that will lapse on September 14, 2024.
Added
The common share repurchase program, which is open-ended in duration, allows us to make repurchases from time to time on the open market or in negotiated transactions, including under 10b5-1 plans. Repurchases are at our discretion, subject to applicable law, share availability, price and our financial performance, among other considerations.
Added
As of December 31, 2023, the Company had remaining authorization to repurchase up to $45.8 million of the Company's common stock under the common share repurchase program. We did not repurchase any shares of our common stock pursuant to the common share repurchase program during the three months ended December 31, 2023.
Added
On February 21, 2022, our Board of Directors approved the adoption of a share repurchase program under which we are authorized to repurchase up to $30.0 million of Series A Preferred Stock and Series B Preferred Stock.
Added
The preferred share repurchase program, which is open-ended in duration, allows us to make repurchases from time to time on the open market or in negotiated transactions, including under 10b5-1 plans. Repurchases are at our discretion, subject to applicable law, share availability, price and our financial performance, among other considerations.
Added
As of December 31, 2023, the Company had 75 Table of Content s remaining authorization to repurchase up to $30.0 million of the Company’s Series A Preferred Stock and Series B Preferred Stock under the preferred share repurchase program.
Added
We did not repurchase any shares of our Series A Preferred Stock and Series B Preferred Stock pursuant to the preferred share repurchase during the three months ended December 31, 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

229 edited+124 added−51 removed163 unchanged
Biggest changeAs of December 31, 2022, our book value per share of common stock, calculated using Total Stockholders' Equity less the aggregate liquidation preference of outstanding preferred stock, was $15.05. 87 Table of Contents Results of Operations The following tables summarizes our results of operations by strategy (as applicable) for the years ended December 31, 2022, 2021, and 2020: Year Ended December 31, 2022 (In thousands except per share amounts) Investment Portfolio Longbridge Corporate/ Other Total Interest Income (Expense) Interest income $ 277,141 $ 2,859 $ 2,218 $ 282,218 Interest expense (124,308) (4,628) (12,841) (141,777) Net interest income 152,833 (1,769) (10,623) 140,441 Other Income (Loss) (1) Realized and unrealized gains (losses) on securities and loans, net (582,611) 1,355 — (581,256) Realized and unrealized gains (losses) on financial derivatives, net 194,236 (106) (19,750) 174,380 Realized and unrealized gains (losses) on real estate owned, net 5 — — 5 Unrealized gains (losses) on other secured borrowings, at fair value, net 258,140 — — 258,140 Unrealized gains (losses) on senior notes, at fair value — — 18,165 18,165 Net change from reverse mortgage loans, at fair value — 199,189 — 199,189 Net change related to HMBS obligations, at fair value — (162,381) — (162,381) Bargain purchase gain 7,932 — — 7,932 Other, net 3,501 1,878 — 5,379 Total other income (loss) (118,797) 39,935 (1,585) (80,447) Expenses Base management fee to affiliate, net of fee rebates (2) — — 16,847 16,847 Incentive fee to affiliate — — — — Other investment related expenses 25,050 5,899 — 30,949 Other operating expenses 4,482 17,775 14,912 37,169 Total expenses 29,532 23,674 31,759 84,965 Net Income (Loss) before Income Tax Expense (Benefit) and Earnings (Losses) from Investments in Unconsolidated Entities 4,504 14,492 (43,967) (24,971) Income tax expense (benefit) — — (17,716) (17,716) Earnings (losses) from investments in unconsolidated entities (63,614) — — (63,614) Net Income (Loss) (59,110) 14,492 (26,251) (70,869) Net income (loss) attributable to non-controlling interests 212 32 (1,066) (822) Dividends on preferred stock — — 15,292 15,292 Net Income (Loss) Attributable to Common Stockholders $ (59,322) $ 14,460 $ (40,477) $ (85,339) Net Income (Loss) Per Common Share $ (1.43) (1) Conformed to current period presentation.
Biggest changeResults of Operations The following tables summarizes our results of operations by segment (as applicable) for the years ended December 31, 2023, 2022, and 2021: Year Ended December 31, 2023 (In thousands except per share amounts) Investment Portfolio Longbridge Corporate/ Other Total Interest Income (Expense) Interest income $ 344,575 $ 18,913 $ 6,684 $ 370,172 Interest expense (223,814) (25,822) (12,815) (262,451) Net interest income 120,761 (6,909) (6,131) 107,721 Other Income (Loss) Realized and unrealized gains (losses) on securities and loans, net 57,605 23,348 (3,650) 77,303 Realized and unrealized gains (losses) on financial derivatives, net 3,812 7,623 13,559 24,994 Realized and unrealized gains (losses) on real estate owned, net (3,052) — — (3,052) Unrealized gains (losses) on other secured borrowings, at fair value, net (51,554) — — (51,554) 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) Bargain purchase gain — — 28,175 28,175 Other, net 5,646 35,308 — 40,954 Total other income (loss) 12,457 118,512 38,230 169,199 Expenses Base management fee to affiliate, net of fee rebates (2) — — 20,419 20,419 Other investment related expenses 9,949 27,275 — 37,224 Other operating expenses 6,238 74,633 49,196 130,067 Total expenses 16,187 101,908 69,615 187,710 Net Income (Loss) before Income Tax Expense (Benefit) and Earnings (Losses) from Investments in Unconsolidated Entities 117,031 9,695 (37,516) 89,210 Income tax expense (benefit) — — 457 457 Earnings (losses) from investments in unconsolidated entities (855) — — (855) Net Income (Loss) 116,176 9,695 (37,973) 87,898 Net income (loss) attributable to non-controlling interests 3,125 (41) 730 3,814 Dividends on preferred stock — — 23,182 23,182 Net Income (Loss) Attributable to Common Stockholders $ 113,051 $ 9,736 $ (61,885) $ 60,902 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. 99 Table of Content s Year Ended December 31, 2022 (1) Year Ended December 31, 2021 (In thousands except per share amounts) Investment Portfolio Longbridge Corporate/Other Total Investment Portfolio Corporate/ Other Total Interest Income (Expense) Interest income $ 277,141 $ 2,859 $ 2,218 $ 282,218 $ 175,419 $ 86 $ 175,505 Interest expense (124,308) (4,628) (12,841) (141,777) (38,990) (5,040) (44,030) Net interest income 152,833 (1,769) (10,623) 140,441 136,429 (4,954) 131,475 Other Income (Loss) (1) Realized and unrealized gains (losses) on securities and loans, net (582,611) 1,355 — (581,256) (25,785) — (25,785) Realized and unrealized gains (losses) on financial derivatives, net 194,236 (106) (19,750) 174,380 23,688 (1,831) 21,857 Realized and unrealized gains (losses) on real estate owned, net 5 — — 5 452 — 452 Unrealized gains (losses) on other secured borrowings, at fair value, net 258,140 — — 258,140 15,844 — 15,844 Unrealized gains (losses) on Unsecured borrowings, at fair value — — 18,165 18,165 — — — Net change from reverse mortgage loans, at fair value — 199,189 — 199,189 — — — Net change related to HMBS obligations, at fair value — (162,381) — (162,381) — — — Bargain purchase gain 7,932 — — 7,932 — — — Other, net 3,501 1,878 — 5,379 7,194 — 7,194 Total other income (loss) (118,797) 39,935 (1,585) (80,447) 21,393 (1,831) 19,562 Expenses Base management fee to affiliate, net of fee rebates (2) — — 16,847 16,847 — 13,422 13,422 Incentive fee to affiliate — — — — — 15,658 15,658 Other investment related expenses 21,435 5,899 3,615 30,949 18,544 — 18,544 Other operating expenses 4,482 17,775 14,912 37,169 3,094 14,723 17,817 Total expenses 29,532 23,674 31,759 84,965 21,638 43,803 65,441 Net Income (Loss) before Income Tax Expense (Benefit) and Earnings (Losses) from Investments in Unconsolidated Entities 4,504 14,492 (43,967) (24,971) 136,184 (50,588) 85,596 Income tax expense (benefit) — — (17,716) (17,716) — 3,144 3,144 Earnings (losses) from investments in unconsolidated entities (63,614) — — (63,614) 58,104 — 58,104 Net Income (Loss) (59,110) 14,492 (26,251) (70,869) 194,288 (53,732) 140,556 Net income (loss) attributable to non-controlling interests 212 32 (1,066) (822) 5,294 1,799 7,093 Dividends on preferred stock — — 15,292 15,292 — 8,117 8,117 Net Income (Loss) Attributable to Common Stockholders $ (59,322) $ 14,460 $ (40,477) $ (85,339) $ 188,994 $ (63,648) $ 125,346 Net Income (Loss) Per Common Share $ (0.99) $ 0.24 $ (0.68) $ (1.43) $ 3.89 $ (1.31) $ 2.58 (1) Conformed to current period presentation.
In addition to our borrowings under repos, we have entered into various other types of transactions to finance certain of our investments, including non-QM loans and REO, commercial mortgage loans, consumer loans and ABS backed by consumer loans, reverse mortgage loans, and MSRs; such transactions are accounted for as secured borrowings.
In addition to our borrowings under repos, we have entered into various other types of transactions to finance certain of our investments, including non-QM loans and REO, commercial mortgage loans, consumer loans and ABS backed by consumer loans, reverse mortgage loans, and Reverse MSRs; such transactions are accounted for as secured borrowings.
On January 20, 2022, we commenced an "at-the-market" offering for our preferred stock, or the "Preferred ATM Program," by entering into equity distribution agreements with third party sales agents under which we are authorized to offer and sell up to $100.0 million of 6.750% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, $0.001 par value per share ("Series A Preferred Stock") and/or 6.250% Series B Fixed-Rate Reset Cumulative Redeemable Preferred Stock, $0.001 par value per share ("Series B Preferred Stock") from time to time.
On January 20, 2022, we commenced an "at-the-market" offering for our Series A Preferred Stock and Series B Preferred Stock, or the "Preferred ATM Program," by entering into equity distribution agreements with third party sales agents under which we are authorized to offer and sell up to $100.0 million of 6.750% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, $0.001 par value per share ("Series A Preferred Stock") and/or 6.250% Series B Fixed-Rate Reset Cumulative Redeemable Preferred Stock, $0.001 par value per share ("Series B Preferred Stock") from time to time.
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 Premium 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.
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.
Our repurchase agreements generally have maturities of up to 364 days and carry interest rates that are determined by reference to a benchmark rate such as LIBOR or the Secured Overnight Financing Rate, or "SOFR." As each then-existing fixed-rate 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.
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.
On February 21, 2022, our Board of Directors approved the adoption of a share repurchase program under which we are authorized to repurchase up to $30.0 million of shares of Series A Preferred Stock and Series B Preferred Stock, or the "Preferred Share Repurchase Program." The Preferred Share Repurchase Program, which is open-ended in duration, allows us to make repurchases from time to time on the open market or in negotiated transactions, including under 10b5-1 plans.
On February 21, 2022, our Board of Directors approved the adoption of a share repurchase program under which we are authorized to repurchase up to $30.0 million of Series A Preferred Stock and Series B Preferred Stock, or the "Preferred Share Repurchase Program." The Preferred Share Repurchase Program, which is open-ended in duration, allows us to make repurchases from time to time on the open market or in negotiated transactions, including under 10b5-1 plans.
(2) Includes unrealized (gains) losses on securities and loans, REO, MSRs, 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.
(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.
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.
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.
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 generally focus on smaller balance loans and/or loan packages that are less-competitively-bid.
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.
As such, we are not materially exposed to any market, credit, liquidity, or financing risk that could arise if we had engaged in such relationships. At December 31, 2022 we have not entered into any repurchase agreements for which delivery of the borrowed funds is not scheduled until after period end.
As such, we are not materially exposed to any market, credit, liquidity, or financing risk that could arise if we had engaged in such relationships. At December 31, 2023 we have not entered into any repurchase agreements for which delivery of the borrowed funds is not scheduled until after period end.
Incentive Fees In addition to the base management fee, our Manager is also entitled to a quarterly incentive fee if our performance (as measured by adjusted net income, as defined in the management agreement) over the relevant rolling four quarter calculation period (including any opening loss carryforward) exceeds a defined return hurdle for the period.
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.
Off-Balance Sheet Arrangements As of December 31, 2022, we did not have any material relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Off-Balance Sheet Arrangements As of December 31, 2023, we did not have any material relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
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 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.
The remaining ownership interest of approximately 1.0% in the Operating Partnership represents the interests in the Operating Partnership that are owned by an affiliate of our Manager, our current and certain former directors, and certain current and former Ellington employees and their related parties, and is reflected in our financial statements as a non-controlling interest.
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.
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 14 to our consolidated financial statements for additional details on income taxes.
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.
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 Senior Notes, and payment of our dividends.
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 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, 2022, all of our commercial mortgage loans were first-lien loans.
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.
In the case of interest rate swaps, most of our agreements are structured such that we receive payments based on a variable interest rate and make payments based on a fixed interest rate. The variable interest rate on which payments are received is generally calculated based on various reset mechanisms for a benchmark rate such as LIBOR or SOFR.
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.
Treasury securities 2.5:1 2.0:1 Debt-to-equity ratio based on total recourse borrowings excluding U.S.
Treasury securities 2.2:1 2.5:1 Debt-to-equity ratio based on total recourse borrowings excluding U.S.
Treasury securities and adjusted for unsettled purchases and sales, increased to 2.5:1 from 2.0:1, 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.
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.
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, 2022, September 30, 2022, June 30, 2022, March 31, 2022, and December 31, 2021.
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.
Financing—Overall We have various financing arrangements in place as of December 31, 2022, 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.
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.
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 71 Table of Contents specific mortgage pools to be delivered do not need to be explicitly identified at the time a trade is initiated.
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.
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 70 Table of Contents borrowers who are self-employed.
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.
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. 82 Table of Contents 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.
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.
For certain investments in unconsolidated entities, we include the relevant components of net operating income in Adjusted Distributable Earnings. The Catch-up Premium Amortization Adjustment is a quarterly adjustment to premium amortization triggered by changes in actual and projected prepayments on our Agency RMBS (accompanied by a corresponding offsetting adjustment to realized and unrealized gains and losses).
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).
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 senior notes, at fair value.
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.
We are externally managed and advised by our Manager, an affiliate of Ellington. Ellington is a registered investment adviser with a 28-year history of investing in the Agency and credit markets.
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.
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 Senior Notes and certain cash collateral held by us.
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.
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 senior notes, 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 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.
In making these determinations we use both qualitative and quantitative analyses involving a significant amount of judgment, taking into consideration factors such as which interests in the VIE create or absorb variability, the contractual terms related to such interests, other transactions or agreements with the entity, key decision makers and their impact on the VIE’s economic performance, and related party relationships.
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 94 Table of Content s interests, other transactions or agreements with the entity, key decision makers and their impact on the VIE’s economic performance, and related party relationships.
(2) Expected average lives of loans are generally shorter than stated contractual maturities. Average lives are affected by scheduled periodic payments of principal and unscheduled prepayments of principal. (3) Includes our allocable portion of small-balance commercial loans, based on our ownership percentage, held in variable interest entities.
(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.
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, 2021.
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.
Interest Expense Interest expense primarily includes interest on funds borrowed under repos and Total other secured borrowings, interest on our Senior Notes, coupon interest on securities sold short, the related net accretion and amortization of purchase discounts and premiums on those short holdings, and interest on our counterparties' cash collateral held by us.
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.
Interest Expense Interest expense primarily includes interest on funds borrowed under repos and Total other secured borrowings, interest on our Senior Notes, coupon interest on securities sold short, the related net accretion and amortization of purchase discounts and premiums on those short holdings, and interest on our counterparties' cash collateral held by us.
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.
As of December 31, 2022 and 2021, we had outstanding borrowings related to such transactions in the amount of $1.8 billion and $1.1 billion, respectively, which is reflected under the captions "Other secured borrowings" and "Other secured borrowings, at fair value" on the Consolidated Balance Sheet.
As of December 31, 2023 and 2022, we had outstanding borrowings related to such transactions in the amount of $1.7 billion and $1.8 billion, respectively, which is reflected under the captions "Other secured borrowings" and "Other secured borrowings, at fair value" on the Consolidated Balance Sheet.
This first loss component is commonly referred to as the "B-piece," which is the most subordinated (and therefore highest yielding and riskiest) tranche of a CMBS securitization. Much of our focus within the CMBS sector has been on B-pieces, but we also acquire other CMBS with more senior credit priority.
This first loss component is commonly referred to as the "B-piece," which is the most subordinated (and therefore highest yielding and 79 Table of Content s 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.
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. 69 Table of Contents We also acquire seasoned commercial mortgage bridge loans, as well as longer-term 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.
MSRs 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.
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.
Longbridge For the year ended December 31, 2022, interest income from Longbridge was $2.9 million, which primarily relates to proprietary reverse mortgage loans.
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.
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 Senior Notes of $(19.8) million, partially offset by unrealized gains on our Senior notes, at fair value of $18.2 million.
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.
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, 2022 all of our commercial mortgage loans were first lien mortgages, all of which have floating rates with a rate floor.
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.
Including such borrowings, our debt-to-equity ratio based on total recourse borrowings was 2.7:1 and 2.0:1 as of December 31, 2022 and 2021, respectively. (2) For unsettled purchases and sales, assumes associated borrowings are subject to haircuts of 5.3% and 5.1% as of December 31, 2022 and 2021, respectively. (3) All of our non-recourse borrowings are secured by collateral.
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.
(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.
(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.
(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, increased to 10.0:1 as of December 31, 2022 as compared to 2.8:1 as of December 31, 2021.
(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.
The increase in other investment related expenses was primarily due to debt issuance costs related to Senior notes, 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.
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.
We received proceeds from the issuance of Senior notes, at fair value of $206.4 million, net of debt issuance costs, proceeds from the issuance of common and preferred stock, net of underwriters' discounts and commissions, agent commissions, and offering costs paid, of $99.1 million, and contributions from non-controlling interests of $9.8 million.
We received proceeds from the issuance of Unsecured borrowings, at fair value of $206.4 million, net of debt issuance costs, proceeds from the issuance of common and preferred stock, net of underwriters' discounts and commissions, agent commissions, and offering costs paid, of $99.1 million, and contributions from non-controlling interests of $9.8 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. 93 Table of Contents 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.
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. 109 Table of Content s 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.
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 which we have participated.
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 80 Table of Content s which we have participated.
Treasury securities 10.1:1 2.7:1 Debt-to-equity ratio based on total recourse and non-recourse borrowings excluding U.S. Treasury securities, adjusted for unsettled purchases and sales (2) 10.0:1 2.8:1 (1) As of both December 31, 2022 and 2021, excludes borrowings at certain unconsolidated entities that are recourse to us.
Treasury securities 8.6:1 10.1:1 Debt-to-equity ratio based on total recourse and non-recourse borrowings excluding U.S. Treasury securities, adjusted for unsettled purchases and sales (2) 8.4:1 10.0:1 (1) As of both December 31, 2023 and 2022, excludes borrowings at certain unconsolidated entities that are recourse to us.
Year Ended (In thousands) December 31, 2022 December 31, 2021 Senior Notes 12,616 4,993 Other (1) 225 74 Total $ 12,841 $ 5,067 (1) Amount includes the related net accretion and amortization of purchase discounts and premiums.
Year Ended (In thousands) December 31, 2022 December 31, 2021 Unsecured borrowings 12,616 4,993 Other (1) 225 74 Total $ 12,841 $ 5,067 (1) Amount includes the related net accretion and amortization of purchase discounts and premiums.
In the case of cleared derivatives, the clearinghouse becomes our counterparty and the future commission merchant acts as an intermediary between us and the clearinghouse with respect to all facets of the related transaction, including the posting and receipt of required collateral.
In the case of cleared derivatives, the clearinghouse becomes our counterparty and the future commission merchant acts as an 114 Table of Content s intermediary between us and the clearinghouse with respect to all facets of the related transaction, including the posting and receipt of required collateral.
As of December 31, 2022, we had an aggregate amount at risk under our derivative contracts, excluding TBAs, with ten counterparties of approximately $43.3 million. We also had $44.9 million of initial margin for cleared over-the-counter, or "OTC," derivatives posted to central clearinghouses as of that date.
As of December 31, 2022, we had an aggregate amount at risk under our derivatives contracts, excluding TBAs, with ten counterparties of approximately $43.3 million. We also had $44.9 million of initial margin for cleared OTC derivatives posted to central clearinghouses as of that date.
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, collateralized loan obligations, or "CLOs," non-mortgage- and mortgage-related derivatives, equity investments in loan origination companies, and other strategic investments.
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.
Our equity investments in such variable interest entities are included in Investments in unconsolidated entities, at fair value on the Consolidated Balance Sheet. 76 Table of Contents 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, 2022: Property Location by U.S.
Our equity investments in such variable interest entities are included in Investments in unconsolidated entities, at fair value on the Consolidated Balance Sheet. 87 Table of Content s 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.
For the years ended December 31, 2022, 2021, and 2020 we recognized a Catch-Up Premium Amortization Adjustment of $4.1 million, $1.3 million, and $(4.5) million, respectively. The Catch-up Premium Amortization Adjustment is reflected as an increase (decrease) to Interest income on the Consolidated Statement of Operations.
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.
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. 91 Table of Contents 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.
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. 107 Table of Content s 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.
We used $123.1 million to pay dividends, $19.9 million for distributions to non-controlling interests (our joint venture partners), $86.0 million for repayment of senior notes, and $1.7 million to repurchase common stock.
We used $123.1 million to pay dividends, $19.9 million for distributions to non-controlling interests (our joint venture partners), $86.0 million for repayment of unsecured borrowings, and $1.7 million to repurchase common stock.
For the years ended December 31, 2022 and 2021, we had total interest expense of $(141.8) million and $(44.0) million, respectively. 90 Table of Contents 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.
For the years ended December 31, 2022 and 2021, we had total interest expense of $141.8 million and $44.0 million, respectively. 106 Table of Content s 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.
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 $1.196 billion as of December 31, 2022.
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.
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, we have issued unsecured long-term debt.
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.
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. 92 Table of Contents 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.
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. 108 Table of Content s 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.
(4) Notional value represents the total face amount of U.S. Treasury securities underlying all contracts held. As of December 31, 2021, a total of 19 long and 1,965 short U.S. Treasury futures contracts were held. (5) Short notional value represents U.S. Dollars to be received by us at the maturity of the forward contract.
(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.
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, 2022: Property Type (1) December 31, 2022 Multifamily 70.7 % Office 8.3 % Hotel 6.1 % Industrial 4.6 % Retail 3.8 % Commercial Mixed Use 2.9 % Mobile Home Community 2.8 % Self Storage 0.8 % 100.0 % (1) Includes our allocable portion of small-balance commercial loans, based on our ownership percentage, held in variable interest entities.
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: Property Type (1) 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 % 100.0 % (1) Includes our allocable portion of commercial mortgage loans, based on our ownership percentage, held in variable interest entities.
As of December 31, 2022 and 2021, we had a net short notional TBA position of $528.4 million and $640.2 million, respectively. For a more detailed discussion of our investment portfolio, see "— Trends and Recent Market Developments—Portfolio Overview and Outlook " above.
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.
(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.
(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.
In addition to our repos, as of December 31, 2022 we had Total other secured borrowings of $1.8 billion, used to finance $2.1 billion of non-QM loans, ABS backed by consumer loans, reverse mortgage loans, and MSRs.
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.
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.
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.
Recent Accounting Pronouncements Refer to Note 2 to our consolidated financial statements for a description of relevant recent accounting pronouncements, if any. 83 Table of Contents Financial Condition The following table summarizes the fair value of our consolidated portfolio of investments (1) as of December 31, 2022 and 2021.
Recent Accounting Pronouncements Refer to Note 2 to our consolidated financial statements for a description of relevant recent accounting pronouncements, if any. 95 Table of Content s Financial Condition The following table summarizes the fair value of our consolidated portfolio of investments (1) as of December 31, 2023 and 2022.
We believe that this flexibility, combined with Ellington's experience, will help us generate more consistent returns on our capital throughout changing market cycles.
We believe that this flexibility, combined with Ellington's 77 Table of Content s experience, will help us generate more consistent returns on our capital throughout changing market cycles.
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.
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.
Interest income for both periods included coupon payments received and accrued on our holdings, the net accretion and amortization of purchase discounts and premiums on those holdings, and interest on our cash balances, including those balances held by our counterparties as collateral.
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.
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.
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.
As of December 31, 2022, 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 $4.4 billion, of which approximately 21%, or $939.7 million, related to our Agency RMBS holdings. The remaining outstanding borrowings related to our credit portfolio and Longbridge.
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.
On June 13, 2018, our Board of Directors approved the adoption of a share repurchase program under which we are authorized to repurchase up to 1.55 million shares of common stock, or the "Common Share Repurchase Program." The Common Share Repurchase Program, which is open-ended in duration, allows us to make repurchases from time to time on the open market or in negotiated transactions, including under 10b5-1 plans.
On March 21, 2023, our Board of Directors approved the adoption of a share repurchase program under which we are authorized to repurchase up to $50 million of common stock, or the "2023 Common Share Repurchase Program." The 2023 Common Share Repurchase Program extends our ability to repurchase beyond the share repurchase program adopted in 2018 under which we were authorized to repurchase up to 1.55 million shares of common stock, or the "2018 Common Share Repurchase Program." The 2023 Common Share Repurchase Program, which is open-ended in duration, allows us to make repurchases from time to time on the open market or in negotiated transactions, including under 10b5-1 plans.
As of December 31, 2022 and 2021, we had $2.6 billion and $2.5 billion, respectively, of borrowings outstanding under our repos. 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.
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.
For the year ended December 31, 2022, the average cost of funds on our secured financings increased significantly to 4.43%, as compared to 1.29% for the year ended December 31, 2021. 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 Senior Notes.
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.
As of December 31, 2022, we had an ownership interest of approximately 99.0% in the Operating Partnership.
As of December 31, 2023, we had an ownership interest of approximately 99.3% in the Operating Partnership.
As of December 31, 2022, in connection with our forward settling TBA and Agency pass-through certificates, we had an aggregate amount at risk with nine counterparties of approximately $5.4 million. As of December 31, 2021, in connection with our forward settling TBA and Agency pass-through certificates, we had an aggregate amount at risk with ten counterparties of approximately $1.0 million.
As of December 31, 2023, in connection with our forward settling TBA and Agency pass-through certificates, we had an aggregate amount at risk with eight counterparties of approximately $12.9 million. As of December 31, 2022, in connection with our forward settling TBA and Agency pass-through certificates, we had an aggregate amount at risk with nine counterparties of approximately $5.4 million.
The following table reconciles, for the year ended December 31, 2022 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.
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.

… 324 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

15 edited+13 added−1 removed29 unchanged
Biggest changeFor example, for each hypothetical immediate shift in interest rates, assumptions have been made as to the response of mortgage prepayment rates, the shape of the yield curve, and market volatilities of interest rates; each of the foregoing factors can significantly and adversely affect the fair value of our interest rate-sensitive instruments. 107 Table of Contents The above analysis utilizes assumptions and estimates based on management's judgment and experience, and relies on financial models, which are inherently imperfect; in fact, different models can produce different results for the same securities.
Biggest changeFor example, for each hypothetical immediate shift in interest rates, assumptions have been made as to many important factors that can significantly and/or adversely affect the fair value of the instruments in our portfolio, including the response of mortgage prepayment rates, the shape of the yield curve, and market volatilities of interest rates.
Many of our consumer loans are unsecured, or are secured by collateral (such as an automobile) that depreciates rapidly; as a result, these loans may be at greater risk of loss than residential real estate loans.
Many of our consumer loans are unsecured, or are secured by collateral (such as an automobile) that depreciates rapidly; as a result, these loans may be at greater risk of loss than residential real estate loans.
For all of the foregoing reasons and others, the table above is for illustrative purposes only and actual changes in interest rates would likely cause changes in the actual fair value of our portfolio that would differ from those presented above, and such differences might be significant and adverse.
For all of the foregoing reasons and others, the table above is for illustrative purposes only and actual changes in interest rates would likely cause changes in the actual fair value of our portfolio that would differ from those presented above, and such differences might be significant and/or adverse.
The following sensitivity analysis table shows the estimated impact on the value of our portfolio segregated by certain identified categories as of December 31, 2022, assuming a static portfolio and immediate and parallel shifts in interest rates from current levels as indicated below.
The following sensitivity analysis table shows the estimated impact on the value of our portfolio segregated by certain identified categories as of December 31, 2023, assuming a static portfolio and immediate and parallel shifts in interest rates from current levels as indicated below.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk The primary components of our market risk at December 31, 2022 are related to credit risk, prepayment risk, and interest rate risk.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk The primary components of our market risk at December 31, 2023 are related to credit risk, prepayment risk, and interest rate risk.
This rate of prepayment is affected by a variety of factors, including the prevailing level of interest rates as well as 106 Table of Contents economic, demographic, tax, social, legal, and other factors.
This rate of prepayment is affected by a variety of factors, including the prevailing level of interest rates as well as economic, demographic, tax, social, legal, and other factors.
While the table above reflects the estimated impacts of immediate parallel interest rate increases and decreases on specific categories of instruments in our portfolio, we actively trade many of the instruments in our portfolio, and therefore our current or future portfolios may have risks that differ significantly from those of our December 31, 2022 portfolio estimated above.
While the table above reflects the estimated impacts of immediate parallel interest rate increases and decreases on specific categories of instruments in our portfolio, we actively trade many of the instruments in our portfolio, and therefore our current or future portfolios may have risks that differ significantly from those of our December 31, 2023 portfolio estimated 122 Table of Content s above.
For example, prepayment rates are generally lower in states with substantially higher mortgage recording taxes. Interest Rate Risk Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors beyond our control.
For example, prepayment rates are generally lower in states with substantially higher mortgage recording taxes. 121 Table of Content s Interest Rate Risk Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors beyond our control.
Our corporate investments, especially our lower-rated or unrated CLO investments, corporate equity, and our investments in loan originators, have significant risk of loss, and our efforts to protect these investments may involve substantial costs and may not be successful.
Our corporate investments, especially our lower-rated or unrated CLO investments, corporate equity, and our investments in loan originators, have significant risk of loss, and our efforts to protect these investments may involve substantial costs and 120 Table of Content s may not be successful.
Most significantly, our portfolio is exposed to the risk of changes in prepayment rates of mortgage loans, including the mortgage loans underlying our RMBS, and changes in prepayment rates of certain of our consumer loan holdings.
Most significantly, our portfolio is exposed to the risk of changes in prepayment rates of mortgage loans, including the mortgage loans underlying our RMBS, Reverse MSRs and Forward MSR-related investments; and changes in prepayment rates of certain of our consumer loan, residential mortgage loan, and CLO holdings.
Property values are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional, and local economic conditions (which may be adversely affected by industry slowdowns and other factors), local real estate conditions (such as an oversupply of housing), changes or continued weakness in specific industry segments, construction quality, age and design, demographic factors, and retroactive changes to building or similar codes. 105 Table of Contents The ability of borrowers to repay consumer loans may be adversely affected by numerous borrower-specific factors, including unemployment, divorce, major medical expenses or personal bankruptcy.
Property values are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional, and local economic conditions (which may be adversely affected by industry slowdowns and other factors), local real estate conditions (such as an oversupply of housing), changes or continued weakness in specific industry segments, construction quality, age and design, demographic factors, and retroactive changes to building or similar codes.
Moreover, the impact of changing interest rates on fair value can change significantly when interest rates change by a greater amount than the hypothetical shifts assumed above. Furthermore, our portfolio is subject to many risks other than interest rate risks, and these additional risks may or may not be correlated with changes in interest rates.
Moreover, the impact of changing interest rates on fair value can change significantly when interest rates change by a greater amount than the hypothetical shifts assumed above.
Treasury Securities, and Interest Rate Swaps, Options, and Futures (30,803) (2.52) % (62,896) (5.15) % 29,512 2.41 % 57,735 4.73 % Corporate Securities and Other (16) — % (34) — % 17 — % 35 — % Repurchase Agreements, Reverse Repurchase Agreements, and Senior Notes (4,108) (0.34) % (8,272) (0.69) % 4,049 0.33 % 8,039 0.66 % Total $ 6,422 0.53 % $ 10,492 0.86 % $ (8,776) (0.72) % $ (19,904) (1.63) % The preceding analysis does not show sensitivity to changes in interest rates for instruments for which we believe that the effect of a change in interest rates is not material to the value of the overall portfolio and/or cannot be accurately estimated.
Treasury Securities and Interest Rate Swaps, Options, and Futures (38,326) (2.50) % (77,800) (5.07) % 37,175 2.42 % 73,200 4.77 % Corporate Securities and Other 1,380 0.09 % 2,759 0.18 % (1,379) (0.09) % (2,759) (0.18) % Repurchase Agreements, Reverse Repurchase Agreements, and Unsecured Borrowings (3,408) (0.22) % (6,861) (0.45) % 3,362 0.22 % 6,679 0.43 % Total $ (1,780) (0.12) % $ (9,950) (0.65) % $ (4,610) (0.30) % $ (15,611) (1.02) % The preceding analysis does not show sensitivity to changes in interest rates for instruments for which we believe that the effect of a change in interest rates is not material to the value of the overall portfolio and/or cannot be accurately estimated.
(In thousands) Estimated Change for a Decrease in Interest Rates by Estimated Change for an Increase in Interest Rates by 50 Basis Points 100 Basis Points 50 Basis Points 100 Basis Points Category of Instruments Market Value % of Total Equity Market Value % of Total Equity Market Value % of Total Equity Market Value % of Total Equity Agency RMBS $ 24,312 1.99 % $ 47,535 3.89 % $ (25,401) (2.08) % $ (51,892) (4.25) % Long TBAs 4,827 0.40 % 9,224 0.76 % (5,257) (0.43) % (10,944) (0.90) % Short TBAs (17,829) (1.46) % (34,478) (2.82) % 19,008 1.56 % 39,196 3.21 % Non-Agency RMBS, CMBS, ABS, Loans, and MSRs 30,039 2.46 % 59,413 4.87 % (30,704) (2.51) % (62,073) (5.08) % U.S.
(In thousands) Estimated Change for a Decrease in Interest Rates by Estimated Change for an Increase in Interest Rates by 50 Basis Points 100 Basis Points 50 Basis Points 100 Basis Points Category of Instruments Market Value % of Total Equity Market Value % of Total Equity Market Value % of Total Equity Market Value % of Total Equity Agency RMBS $ 17,976 1.17 % $ 34,335 2.24 % $ (19,592) (1.28) % $ (40,801) (2.66) % Long TBAs 2,323 0.15 % 4,093 0.27 % (2,876) (0.19) % (6,305) (0.41) % Short TBAs (6,613) (0.43) % (13,002) (0.85) % 6,837 0.45 % 13,898 0.91 % Non-Agency RMBS, CMBS, ABS, Loans, and MSRs 24,888 1.62 % 46,526 3.03 % (28,137) (1.83) % (59,523) (3.88) % U.S.
See "Management's Discussion and Analysis of Financial Condition and Results of Operations — Special Note Regarding Forward-Looking Statements . " 108 Table of Contents
See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Special Note Regarding Forward-Looking Statements." Liquidity Risk To fund our assets we may use a variety of debt alternatives in addition to equity capital that present us with liquidity risks.
Removed
The risk of loss with respect to these investments has been, and will likely continue to be, exacerbated by the COVID-19 pandemic.
Added
The ability of borrowers to repay consumer loans may be adversely affected by numerous borrower-specific factors, including unemployment, divorce, major medical expenses or personal bankruptcy.
Added
Furthermore, the fair value of each of the instruments comprising our portfolio is impacted by many other factors, each of which may or may not be correlated, or may only be loosely correlated, with interest rates.
Added
Depending on the nature of the instrument, these additional factors may include credit spreads, yield spreads, option-adjusted spreads, real estate prices, collateral adequacy, borrower creditworthiness, inflation, unemployment, general macroeconomic conditions, and other factors.
Added
For each instrument, our analysis makes many simplifying assumptions as to the response of these additional factors to shifts in interest rates, including that many if not most such factors are unaffected by such shifts.
Added
The above analysis utilizes assumptions and estimates based on management's judgment and experience, and relies on financial models, which are inherently imperfect; in fact, different models can produce different results for the same instruments.
Added
Certain of our assets are long-term fixed-rate assets, and we believe that liquidity risk arises from these assets with shorter-term variable rate borrowings.
Added
We seek to manage these risks, including by maintaining a prudent level of leverage, implementing interest rate hedges, maintaining sources of long-term financing, monitoring our liquidity position on a daily basis, monitoring the ongoing financial stability and future business plans of our financing counterparties, and maintaining a reasonable cushion of cash and unpledged real estate securities and loans in our portfolio in order to meet future margin calls.
Added
We pledge assets, including mortgage loans or real estate securities, as collateral to secure most of our financing arrangements. However, should the value of our collateral or the value of our derivative instruments suddenly decrease, or margin requirements increase, we may be required to post additional collateral for certain of these arrangements, causing an adverse change in our liquidity position.
Added
Furthermore, there is no assurance that we will always be able to renew (or roll) our short-term funding liabilities at their scheduled maturities, which could materially harm our liquidity position and result in substantial losses.
Added
In addition, in some cases our counterparties have the option to increase our haircuts (margin requirements) on the assets we pledge against our funding liabilities, thereby reducing the amount that can be borrowed against an asset even if they agree to renew or roll our funding liabilities.
Added
Significantly higher haircuts would require us to post additional collateral and could reduce our ability to leverage our portfolio or may even force us to sell assets, especially if correlated with asset price declines or faster prepayment rates on our assets.
Added
Additionally, as a REIT, we are required to distribute a significant portion of our taxable income annually, which constrains our ability to accumulate operating cash flow and therefore may require us to utilize debt or equity capital to finance our business and, therefore, we are exposed to risks related to the equity capital markets, and our related ability to raise capital through the issuance of our common stock, preferred stock or other equity instruments.
Added
We seek to mitigate these risks by monitoring the equity capital markets to inform our decisions on the amount, timing, and terms of capital we raise. 123 Table of Content s

Other EFC 10-K year-over-year comparisons