Understanding Adjusted Distributable Earnings and Financial Performance

The presentation of Adjusted Distributable Earnings (ADE) offers valuable insights to investors by highlighting both current and projected long-term financial performance. ADE excludes certain earnings components that are less predictive of long-term performance and dividend-paying ability. This measure is used to assess the effective net yield of the portfolio, accounting for financial leverage, and allows for comparison with peers. However, calculations of ADE may vary across companies, leading to potential discrepancies in comparability. ADE excludes most realized and unrealized gains and losses, which may affect cash available for distribution.

It is important to note that ADE is not a substitute for net income as per U.S. GAAP, but rather a supplementary measure. When setting dividends, the Board of Trustees considers multiple factors including earnings, liquidity, financial condition, distribution requirements, and financial covenants.

For the three-month periods ending September 30, 2024, and June 30, 2024, ADE was reconciled to Net Income (Loss), the most comparable U.S. GAAP measure.

Reconciliation of ADE to Net Income (Loss)

For the Period Ended September 30, 2024

• Net Income (Loss): $5,445
• Income Tax Expense (Benefit): $463
• Net Income (Loss) before Taxes: $5,908
• Adjustments:
  • Net Realized Gains/Losses on Securities: $1,377
  • Change in Net Unrealized Gains/Losses on Securities: $(16,057)
  • Net Realized Gains/Losses on Financial Derivatives: $(23,885)
  • Change in Net Unrealized Gains/Losses on Financial Derivatives: $35,274
  • Net Realized Gains on Interest Rate Swaps: $6,969
  • Change in Unrealized Gains on Interest Rate Swaps: $(2,278)
  • Strategic Transformation Costs and Other: $106
  • Catch-up Amortization Adjustment: $(173)
• Subtotal Adjustments: $1,333
• Adjusted Distributable Earnings: $7,241
• Weighted Average Shares Outstanding: 25,591,607
• ADE Per Share: $0.28

For the Period Ended June 30, 2024

• Net Income (Loss): $(815)
• Income Tax Expense (Benefit): $(75)
• Net Income (Loss) before Taxes: $(890)
• Adjustments:
  • Net Realized Gains/Losses on Securities: $7,985
  • Change in Net Unrealized Gains/Losses on Securities: $(1,180)
  • Net Realized Gains/Losses on Financial Derivatives: $(6,565)
  • Change in Net Unrealized Gains/Losses on Financial Derivatives: $2,367
  • Net Realized Gains on Interest Rate Swaps: $9,524
  • Change in Unrealized Gains on Interest Rate Swaps: $(4,211)
  • Strategic Transformation Costs and Other: $464
  • Catch-up Amortization Adjustment: $(221)
• Subtotal Adjustments: $8,163
• Adjusted Distributable Earnings: $7,273
• Weighted Average Shares Outstanding: 20,354,062
• ADE Per Share: $0.36

The company's net interest margin represents the weighted average asset yield minus the weighted average cost of borrowings, excluding the effect of the Catch-up Amortization Adjustment. The net mortgage assets-to-equity ratio is defined as the market value of mortgage-backed securities and net TBA position divided by total shareholders' equity, which as of September 30, 2024, was $473.5 million and $101.2 million respectively, with total equity at $191.6 million.