What changed in this filing

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Item 1. Financial Statements

2024-07-26 compared with 2024-04-26 · 412 added, 289 removed, 1168 unchanged (38% of the section changed)

5 unchanged sentences

$ 4,525,755 $ 3,894,012

Treasury securities, available-for-sale (includes pledged assets of $ 79,590 and $ 79,680 , respectively)

Treasury securities, available-for-sale (amortized cost of $ 98,092 and $ 148,803 ;

includes pledged assets of $ 78,430 and $ 79,680 , respectively)

98,099 148,820

22 unchanged sentences

20,000,000 shares authorized;

no shares issued and outstanding as of March 31, 2024 and December 31, 2023

no shares issued and outstanding as of June 30, 2024 and December 31, 2023

Common Stock, $ 0.01 par value;

100,000,000 shares authorized, 52,826,169 shares issued and outstanding as of March 31, 2024 and 51,636,074 shares issued and outstanding as of December 31, 2023

100,000,000 shares authorized, 64,824,374 shares issued and outstanding as of June 30, 2024 and 51,636,074 shares issued and outstanding as of December 31, 2023

Additional paid-in capital

2 unchanged sentences

( 365,636 ) ( 380,433 )

Accumulated other comprehensive (loss) income

Accumulated other comprehensive income

Total Stockholders' Equity

4 unchanged sentences

ORCHID ISLAND CAPITAL, INC.

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

For the Three Months Ended March 31, 2024 and 2023

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Six and Three Months Ended June 30, 2024 and 2023

($ in thousands, except per share data)

Three Months Ended March 31,

Six Months Ended June 30,

Three Months Ended June 30,

Interest income

$ 101,935 $ 77,923 $ 53,064 $ 39,911

Interest expense

( 105,122 ) ( 90,888 ) ( 53,761 ) ( 48,671 )

Net interest expense

Unrealized (losses) gains on mortgage-backed securities and U.S.

( 3,187 ) ( 12,965 ) ( 697 ) ( 8,760 )

Unrealized losses on mortgage-backed securities and U.S.

Treasury securities

Gains (losses) on derivative and other hedging instruments

Net portfolio income

( 87,865 ) ( 15,644 ) ( 25,970 ) ( 69,539 )

Gains on derivative and other hedging instruments

113,967 52,211 26,068 93,367

Net portfolio income (loss)

22,915 23,602 ( 599 ) 15,068

Management fees

4,418 5,346 2,257 2,704

Allocated overhead

1,330 1,215 732 639

Incentive compensation

201 788 290 318

Directors' fees and liability insurance

672 641 343 318

Audit, legal and other professional fees

796 899 320 448

Direct REIT operating expenses

348 338 178 173

Other administrative

353 596 260 219

Total expenses

Unrealized losses on U.S.

Treasury securities measured at fair value through other comprehensive net income

Comprehensive net income

Basic and diluted net income per share

8,118 9,823 4,380 4,819

Net income (loss)

$ 14,797 $ 13,779 $ ( 4,979 ) $ 10,249

Unrealized (losses) gains on U.S.

Treasury securities measured at fair value through other comprehensive net income (loss)

( 10 ) - 37 -

Comprehensive net income (loss)

$ 14,787 $ 13,779 $ ( 4,942 ) $ 10,249

Basic and diluted net income (loss) per share

$ 0.27 $ 0.35 $ ( 0.09 ) $ 0.25

Weighted Average Shares Outstanding

54,798,596 39,356,054 57,763,857 40,210,844

See Notes to Financial Statements

1 unchanged sentence

CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY

For the Three Months Ended March 31, 2024 and 2023

For the Six Months Ended June 30, 2024 and 2023

(in thousands)

15 unchanged sentences

52,826 $ 528 $ 841,790 $ ( 360,657 ) $ ( 30 ) $ 481,631

- - - ( 4,979 ) - ( 4,979 )

Unrealized gain on available-for-sale securities

- - - - 37 37

Cash dividends declared ($ 0.36 per share)

- - ( 21,690 ) - - ( 21,690 )

Stock based awards and amortization

8 - 235 - - 235

Issuance of common stock pursuant to public offerings, net

11,990 120 100,578 - - 100,698

Balances, June 30, 2024

64,824 $ 648 $ 920,913 $ ( 365,636 ) $ 7 $ 555,932

Balances, January 1, 2023

11 unchanged sentences

39,086 $ 391 $ 788,647 $ ( 337,677 ) $ - $ 451,361

- - - 10,249 - 10,249

Cash dividends declared ($ 0.48 per share)

- - ( 19,671 ) - - ( 19,671 )

Stock based awards and amortization

53 1 790 - - 791

Issuance of common stock pursuant to public offerings, net

4,758 47 47,308 - - 47,355

Balances, June 30, 2023

43,897 $ 439 $ 817,074 $ ( 327,428 ) $ - $ 490,085

See Notes to Financial Statements

1 unchanged sentence

CONDENSED STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31, 2024 and 2023

For the Six Months Ended June 30, 2024 and 2023

($ in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

$ 14,797 $ 13,779

Adjustments to reconcile net income to net cash provided by operating activities:

Stock based compensation

1 unchanged sentence

Treasury Bills

Unrealized losses (gains) on mortgage-backed securities and U.S.

Unrealized losses on mortgage-backed securities and U.S.

Treasury securities

Realized and unrealized (gains) losses on derivative instruments

87,865 15,644

Realized and unrealized gains on derivative instruments

( 41,972 ) ( 15,244 )

Changes in operating assets and liabilities:

Accrued interest receivable

( 4,037 ) ( 3,747 )

( 278 ) ( 339 )

Accrued interest payable

1 unchanged sentence

Due to affiliates

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

NET CASH PROVIDED BY OPERATING ACTIVITIES

64,300 13,336

CASH FLOWS FROM INVESTING ACTIVITIES:

From mortgage-backed securities investments:

( 1,113,948 ) ( 988,824 )

Sales and maturities

Principal repayments

172,607 138,391

Purchases of U.S.

Treasury securities, available-for-sale

( 196,025 ) -

Proceeds from maturity of U.S.

Treasury securities, available-for-sale

Net proceeds from (payments on) derivative instruments

Net payments on derivative instruments

( 4,090 ) ( 11,484 )

NET CASH USED IN INVESTING ACTIVITIES

( 719,723 ) ( 861,917 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from repurchase agreements

18,417,873 17,626,375

Principal payments on repurchase agreements

( 17,777,818 ) ( 16,803,103 )

Cash dividends

( 38,793 ) ( 37,307 )

Proceeds from issuance of common stock, net of issuance costs

113,807 79,012

Common stock repurchases, including shares withheld from employee stock awards for payment of taxes

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

( 2,924 ) ( 4,278 )

NET CASH PROVIDED BY FINANCING ACTIVITIES

712,145 860,699

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

56,722 12,118

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of the period

200,289 237,219

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of the period

$ 257,011 $ 249,337

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid during the period for:

$ 95,464 $ 88,817

See Notes to Financial Statements

1 unchanged sentence

NOTES TO CONDENSED FINANCIAL STATEMENTS

March 31, 2024

June 30, 2024

ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

7 unchanged sentences

The Company issued a total of 9,742,188 shares under the October 2021 Equity Distribution Agreement for aggregate gross proceeds of approximately $ 151.8 million, and net proceeds of approximately $ 149.3 million, after commissions and fees, prior to its termination in March 2023.

On March 7, 2023, Orchid entered into an equity distribution agreement (the “March 2023 Equity Distribution Agreement”) with three sales agents pursuant to which the Company may offer and sell, from time to time, up to an aggregate amount of $ 250,000,000 of shares of the Company’s common stock in transactions that are deemed to be “at the market” offerings and privately negotiated transactions.

Through March 31, 2024 , the Company issued a total of 14,680,114 shares under the March 2023 Equity Distribution Agreement for aggregate gross proceeds of approximately $ 143.2 million, and net proceeds of approximately $ 140.9 million, after commissions and fees.

On March 7, 2023, Orchid entered into an equity distribution agreement (the “March 2023 Equity Distribution Agreement”) with three sales agents pursuant to which the Company could offer and sell, from time to time, up to an aggregate amount of $ 250,000,000 of shares of the Company’s common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions.

The Company issued a total of 24,675,497 shares under the March 2023 Equity Distribution Agreement for aggregate gross proceeds of approximately $ 228.8 million and net proceeds of approximately $ 225.0 million, after commissions and fees, prior to its termination in June 2024.

On June 11, 2024, Orchid entered into an equity distribution agreement (the “June 2024 Equity Distribution Agreement”) with three sales agents pursuant to which the Company may offer and sell, from time to time, up to an aggregate amount of $ 250,000,000 of shares of the Company’s common stock in transactions that are deemed to be “at the market” offerings and privately negotiated transactions.

Through June 30, 2024 , t he Company issued a total of 1,995,000 shares under the June 2024 Equity Distribution Agreement for aggregate gross proceeds of approximately $ 16.9 million, and net proceeds of approximately $ 16.6 million, after commissions and fees.

Subsequent to June 30, 2024 , t he Company issued a total of 6,514,200 shares under the June 2024 Equity Distribution Agreement for aggregate gross proceeds of approximately $ 55.5 million , and net proceeds of approximately $ 54.6 million, after commissions and fees.

Basis of Presentation and Use of Estimates

2 unchanged sentences

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim period have been included.

Operating results for the three month period ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 .

Operating results for the six and three month periods ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 .

The balance sheet at December 31, 2023 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements.

3 unchanged sentences

The significant estimates affecting the accompanying financial statements are the fair values of RMBS and derivatives.

Management believes the estimates and assumptions underlying the financial statements are reasonable based on the information available as of March 31, 2024 .

Management believes the estimates and assumptions underlying the financial statements are reasonable based on the information available as of June 30, 2024 .

Variable Interest Entities ( “ VIEs ” )

9 unchanged sentences

(in thousands)

March 31, 2024

June 30, 2024

December 31, 2023

24 unchanged sentences

The Company has designated its U.S.

Treasury securities purchased after August 2023 as available-for-sale, and changes in fair value for reasons other than expected credit losses are recognized in other comprehensive income.

Treasury securities purchased after August 2023 as available-for-sale, and changes in fair value during the period for reasons other than expected credit losses are recognized in other comprehensive income (loss).

The Company records securities transactions on the trade date.

8 unchanged sentences

Premiums or discounts present at the date of purchase are not amortized.

Premium lost and discount accretion resulting from monthly principal repayments are reflected in unrealized gains (losses) on RMBS in the statements of comprehensive income.

Premium lost and discount accretion resulting from monthly principal repayments are reflected in unrealized gains (losses) on RMBS in the statements of comprehensive income (loss).

For IO securities, the income is accrued based on the carrying value and the effective yield.

3 unchanged sentences

Changes in fair value of investments for which the fair value option is elected are recorded in earnings and reported as unrealized gains or losses on mortgage-backed securities and U.S.

Treasury securities in the accompanying statements of comprehensive income.

Realized gains and losses on sales of investments for which the fair value option has been elected, using the specific identification method, are reported as a separate component of net portfolio income on the statements of comprehensive income.

Treasury securities in the accompanying statements of comprehensive income (loss).

Treasury Bills are zero -coupon bonds that are purchased at a discount to the par amount.

This discount is accreted into income over the life of the investment and reported in the statements of comprehensive income as interest income.

This discount is accreted into income over the life of the investment and reported in the statements of comprehensive income (loss) as interest income.

Changes in fair value of U.S.

9 unchanged sentences

The Company accounts for TBA securities as derivative instruments.

Gains and losses associated with TBA securities transactions are reported in gain (loss) on derivative instruments in the accompanying statements of comprehensive income.

Gains and losses associated with TBA securities transactions are reported in gain (loss) on derivative instruments in the accompanying statements of comprehensive income (loss).

Derivative and other hedging instruments are carried at fair value, and changes in fair value are recorded in income as gains or losses on derivative and other hedging instruments for each period.

37 unchanged sentences

Recent Accounting Pronouncements

In November 2023, the FASB issued Accounting Standards Update ("ASU:) 2023 - 07 "Segment Reporting (Topic 820 ):

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023 - 07 "Segment Reporting (Topic 820 ):

Improvements to Reportable Segment Disclosures .

1 unchanged sentence

The guidance in ASU 2023 - 07 is effective in annual periods beginning after December 15, 2023 and subsequent interim periods, with early adoption permitted.

The Company is currently evaluating the provisions of the amendments and the impact on its future financial statements.

The Company is currently evaluating the provisions of ASU 2023 - 07 and the impact on its future financial statements.

MORTGAGE-BACKED SECURITIES, AT FAIR VALUE

The following table presents the Company’s RMBS portfolio that are remeasured at fair value through earnings as of March 31, 2024 and December 31, 2023 :

The following table presents the Company’s RMBS portfolio that are remeasured at fair value through earnings as of June 30, 2024 and December 31, 2023 :

(in thousands)

March 31, 2024

June 30, 2024

December 31, 2023

13 unchanged sentences

The cost information in the table above represents the aggregate current par value, multiplied by the purchase price of each security in the portfolio.

The notional balance for the interest-only securities portfolio was $ 94.9 million and $ 98.6 million as of March 31, 2024 and December 31, 2023, respectively.

The notional balance for the inverse interest-only securities portfolio was $ 25.8 million and $ 26.8 million as of March 31, 2024 and December 31, 2023, respectively.

During the three months ended March 31, 2024 , the Company resecuritized RMBS with a fair value of $ 221.7 million, by transferring the RMBS into a larger RMBS that is backed by the transferred RMBS.

The notional balance for the interest-only securities portfolio was $ 92.0 million and $ 98.6 million as of June 30, 2024 and December 31, 2023, respectively.

The notional balance for the inverse interest-only securities portfolio was $ 25.0 million and $ 26.8 million as of June 30, 2024 and December 31, 2023, respectively.

During the six months ended June 30, 2024 , the Company resecuritized RMBS with a fair value of $ 221.7 million by transferring the RMBS into a larger RMBS that is backed by the transferred RMBS.

The Company retained the entire larger RMBS.

No gain or loss was recorded on this resecuritization.

There were no sales of RMBS during the three months ended March 31, 2023.

There were no sales of RMBS during the three months ended June 30, 2024, or the three and six months ended June 30, 2023.

TREASURY SECURITIES, AVAILABLE-FOR-SALE

As of March 31, 2024 and December 31, 2023 , the Company held U.S.

As of June 30, 2024 and December 31, 2023 , the Company held U.S.

Treasury securities with a fair value of approximately $ 98.1 million and $ 148.8 million, respectively, that were classified as available-for-sale.

Treasury securities are held primarily to satisfy collateral requirements of the Company's repurchase and derivative counterparties.

The amortized cost, gross unrealized holding gains and losses, and fair value of available-for-sale investments as of March 31, 2024 and December 31, 2023 are as follows:

The amortized cost, gross unrealized holding gains and losses, and fair value of available-for-sale investments as of June 30, 2024 and December 31, 2023 are as follows:

(in thousands)

March 31, 2024

June 30, 2024

Treasury Bill maturing 10/24/2024

$ 49,176 $ - $ ( 4 ) $ 49,172

Treasury Note maturing 5/31/2024

Treasury Bill maturing 11/29/2024

48,916 11 - 48,927

8 unchanged sentences

$ 148,803 $ 17 $ - $ 148,820

Since all of the Company's available-for-sale securities are backed by the full faith and credit of the U.S.

Because all of the Company's available-for-sale securities are backed by the full faith and credit of the U.S.

government, the Company has not recorded an allowance for credit losses.

3 unchanged sentences

If the fair value of the pledged securities declines, lenders will typically require the Company to post additional collateral or pay down borrowings to re-establish agreed upon collateral requirements, referred to as "margin calls." Similarly, if the fair value of the pledged securities increases, lenders may release collateral back to the Company.

As of March 31, 2024 , the Company had met all margin call requirements.

As of March 31, 2024 and December 31, 2023 , the Company’s repurchase agreements had remaining maturities as summarized below:

As of June 30, 2024 , the Company had met all margin call requirements.

As of June 30, 2024 and December 31, 2023 , the Company’s repurchase agreements had remaining maturities as summarized below:

($ in thousands)

March 31, 2024

June 30, 2024

Fair market value of securities pledged, including accrued interest receivable

11 unchanged sentences

- 5.55 % 5.54 % 5.46 % 5.55 %

In addition, cash pledged to counterparties for repurchase agreements was approximately $ 7.4 million as of March 31, 2024 .

In addition, cash pledged to counterparties for repurchase agreements was approximately $ 11.2 million as of June 30, 2024 .

There was no cash pledged to counterparties for repurchase agreements as of December 31, 2023.

If, during the term of a repurchase agreement, a lender files for bankruptcy, the Company might experience difficulty recovering its pledged assets, which could result in an unsecured claim against the lender for the difference between the amount loaned to the Company plus interest due to the counterparty and the fair value of the collateral pledged to such lender, including the accrued interest receivable and cash posted by the Company as collateral.

At March 31, 2024 , the Company had an aggregate amount at risk (the difference between the amount loaned to the Company, including interest payable and securities posted by the counterparty (if any), and the fair value of securities and cash pledged (if any), including accrued interest on such securities) with all counterparties of approximately $ 174.1 million.

The Company did not have an amount at risk with any individual counterparty that was greater than 10% of the Company’s equity at March 31, 2024 or December 31, 2023 .

At June 30, 2024 , the Company had an aggregate amount at risk (the difference between the amount loaned to the Company, including interest payable and securities posted by the counterparty (if any), and the fair value of securities and cash pledged (if any), including accrued interest on such securities) with all counterparties of approximately $ 187.4 million.

The Company did not have an amount at risk with any individual counterparty that was greater than 10% of the Company’s equity at June 30, 2024 or December 31, 2023 .

DERIVATIVE AND OTHER HEDGING INSTRUMENTS

The table below summarizes fair value information about the Company’s derivative and other hedging instruments assets and liabilities as of March 31, 2024 and December 31, 2023 .

The table below summarizes fair value information about the Company’s derivative and other hedging instruments assets and liabilities as of June 30, 2024 and December 31, 2023 .

(in thousands)

1 unchanged sentence

Balance Sheet Location

March 31, 2024

June 30, 2024

December 31, 2023

6 unchanged sentences

Derivative assets, at fair value

TBA securities

Derivative assets, at fair value

Total derivative assets, at fair value

11 unchanged sentences

Restricted cash

TBA securities

Other liabilities

Interest rate swaption contracts

4 unchanged sentences

A minimum balance, or “margin”, is required to be maintained in the account on a daily basis.

The tables below present information related to the Company’s T-Note and SOFR futures positions at March 31, 2024 and December 31, 2023 .

The tables below present information related to the Company’s T-Note and SOFR futures positions at June 30, 2024 and December 31, 2023 .

($ in thousands)

March 31, 2024

June 30, 2024

Expiration Year

Treasury Note Futures Contracts (Short Positions) (2)

June 2024 5-year T-Note futures (Jun 2024 - Jun 2029 Hedge Period)

$ 421,500 4.26 % 4.42 % $ ( 1,099 )

March 2024 10-year T-Note futures (Mar 2024 - Mar 2034 Hedge Period)

September 2024 5-year T-Note futures (Sep 2024 - Sep 2029 Hedge Period)

$ 421,500 4.42 % 4.52 % $ ( 2,025 )

38 unchanged sentences

Open equity represents the cumulative gains (losses) recorded on open futures positions from inception.

5 -Year T-Note futures contracts were valued at a price of $ 107.02 at March 31, 2024 and $ 108.77 at December 31, 2023 .

The contract values of the short positions were $ 451.1 million and $ 458.5 million at March 31, 2024 and December 31, 2023 , respectively.

10 -Year T-Note futures contracts were valued at a price of $ 110.80 at March 31, 2024 and $ 112.89 at December 31, 2023 .The contract values of the short positions were $ 354.6 million and $ 361.2 million at March 31, 2024 and December 31, 2023 , respectively.

5 -Year T-Note futures contracts were valued at a price of $ 106.58 at June 30, 2024 and $ 108.77 at December 31, 2023 .

The contract values of the short positions were $ 449.2 million and $ 458.5 million at June 30, 2024 and December 31, 2023 , respectively.

10 -Year T-Note futures contracts were valued at a price of $ 112.89 at December 31, 2023 .

The contract value of the short position was $ 361.2 million at December 31, 2023 .

Under its interest rate swap agreements, the Company typically pays a fixed rate and receives a floating rate ("payer swaps") based on an index, such as SOFR.

1 unchanged sentence

The Company is typically required to post margin on its interest rate swap agreements.

The table below presents information related to the Company’s interest rate swap positions at March 31, 2024 and December 31, 2023 .

The table below presents information related to the Company’s interest rate swap positions at June 30, 2024 and December 31, 2023 .

($ in thousands)

March 31, 2024

June 30, 2024

Expiration > 1 to ≤ 5 years

13 unchanged sentences

We also exchange daily settlements of "variation margin" based upon changes in fair value, as measured by the exchanges.

The table below presents information related to the Company’s option positions at March 31, 2024 and December 31, 2023 .

The table below presents information related to the Company’s dual digital option and payer swaption positions at June 30, 2024 and December 31, 2023 .

($ in thousands)

Underlying Swap

March 31, 2024

Payer Swaption (long position)

$ 1,619 $ 14 2.0 $ 800,000 5.40 % SOFR

June 30, 2024

Dual Digital Option (1)

8 unchanged sentences

Our interest rate swaption agreements are not subject to central clearing.

The difference between the premium paid and the fair value of the swaption is reported in gain (loss) on derivative and other hedging instruments in our statements of comprehensive income.

The difference between the premium paid and the fair value of the swaption is reported in gain (loss) on derivative and other hedging instruments in our statements of comprehensive income (loss).

If a swaption expires unexercised, the realized loss on the swaption would be equal to the premium paid.

4 unchanged sentences

If either condition is not met, we will lose our premium.

The following table summarizes the Company’s contracts to purchase and sell TBA securities as of March 31, 2024 and December 31, 2023 .

The following table summarizes the Company’s contracts to purchase and sell TBA securities as of June 30, 2024 and December 31, 2023 .

($ in thousands)

March 31, 2024

June 30, 2024

30-Year TBA securities:

1 unchanged sentence

$ ( 400,000 ) $ ( 340,281 ) $ ( 341,125 ) $ ( 844 )

$ ( 370,700 ) $ ( 327,421 ) $ ( 326,517 ) $ 904

December 31, 2023

9 unchanged sentences

Gain (Loss) From Derivative and Other Hedging Instruments, Net

The table below presents the effect of the Company’s derivative and other hedging instruments on the statements of comprehensive income for the three months ended March 31, 2024 and 2023 .

The table below presents the effect of the Company’s derivative and other hedging instruments on the statements of comprehensive income (loss) for the six and three months ended June 30, 2024 and 2023 .

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Three Months Ended June 30,

Interest rate futures contracts (short position)

3 unchanged sentences

Payer swaptions (short positions)

- 4,831 - ( 1,754 )

Payer swaptions (long positions)

1 unchanged sentence

Interest rate caps

- ( 908 ) - ( 263 )

Dual digital option

( 395 ) - ( 156 ) -

Interest rate floors (short positions)

- ( 1,216 ) - ( 1,216 )

Interest rate floors (long positions)

- 2,529 - 1,344

TBA securities (short positions)

2 unchanged sentences

105 ( 574 ) - ( 574 )

$ 113,967 $ 52,211 $ 26,068 $ 93,367

Credit Risk-Related Contingent Features

9 unchanged sentences

Assets Pledged to Counterparties

The table below summarizes the Company’s assets pledged as collateral under repurchase agreements and derivative agreements by type, including securities pledged related to securities sold but not yet settled, as of March 31, 2024 and December 31, 2023 .

(in thousands)

March 31, 2024

June 30, 2024

December 31, 2023

1 unchanged sentence

PT RMBS - fair value

$ 3,859,132 $ - $ 3,859,132 $ 3,868,624 $ - $ 3,868,624

Structured RMBS - fair value

16,573 - 16,573 16,930 - 16,930

Treasury securities

- 79,590 79,590 - 79,680 79,680

Accrued interest on pledged securities

15,262 336 15,598 14,922 - 14,922

Restricted cash

7,418 5,829 13,247 - 28,396 28,396

$ 3,898,385 $ 85,755 $ 3,984,140 $ 3,900,476 $ 108,076 $ 4,008,552

Assets Pledged from Counterparties

The table below summarizes assets pledged to the Company from counterparties under repurchase agreements and derivative agreements as of March 31, 2024 and December 31, 2023 .

The table below summarizes assets pledged to the Company from counterparties under repurchase agreements and derivative agreements as of June 30, 2024 and December 31, 2023 .

(in thousands)

March 31, 2024

June 30, 2024

December 31, 2023

Assets Pledged to Orchid

$ 6,475 $ 240 $ 6,715 $ 42,179 $ - $ 42,179

Treasury securities - fair value

1,418 - 1,418 10,429 - 10,429

$ 7,893 $ 240 $ 8,133 $ 52,608 $ - $ 52,608

Cash received as margin is recognized as cash and cash equivalents with a corresponding amount recognized as an increase in repurchase agreements or other liabilities in the balance sheets.

4 unchanged sentences

As a result, derivative assets and liabilities associated with centrally cleared derivatives for which the CME or LCH serves as the central clearing party are presented as if these derivatives had been settled as of the reporting date.

The following table presents information regarding those assets and liabilities subject to such arrangements as if the Company had presented them on a net basis as of March 31, 2024 and December 31, 2023 .

The following table presents information regarding those assets and liabilities subject to such arrangements as if the Company had presented them on a net basis as of June 30, 2024 and December 31, 2023 .

(in thousands)

1 unchanged sentence

Gross Amount Not

Gross Gross of Assets Offset in the Balance Sheet

Amount Amount Presented Financial

Offset in the Balance Sheet

Offset in the

March 31, 2024

June 30, 2024

Interest rate swaps

$ 11,252 $ - $ 11,252 $ - $ - $ 11,252

Interest rate swaptions

14 - 14 - - 14

Dual digital option

261 - 261 - - 261

TBA securities

984 - 984 - ( 240 ) 744

$ 12,511 $ - $ 12,511 $ - $ ( 240 ) $ 12,271

December 31, 2023

Interest rate swaps

$ 6,348 $ - $ 6,348 $ - $ - $ 6,348

Interest rate swaptions

72 - 72 - - 72

$ 6,420 $ - $ 6,420 $ - $ - $ 6,420

(in thousands)

1 unchanged sentence

Gross Amount Not

Gross Gross of Liabilities Offset in the Balance Sheet

of Offset in the in the Instruments

of Liabilities

Offset in the Balance Sheet

Offset in the

as Collateral

March 31, 2024

June 30, 2024

Repurchase Agreements

$ 3,711,498 $ - $ 3,711,498 $ ( 3,704,080 ) $ ( 7,418 ) $ -

TBA securities

80 - 80 - ( 65 ) 15

$ 3,711,578 $ - $ 3,711,578 $ ( 3,704,080 ) $ ( 7,483 ) $ 15

December 31, 2023

Repurchase Agreements

$ 3,705,649 $ - $ 3,705,649 $ ( 3,705,649 ) $ - $ -

TBA securities

12,694 - 12,694 - ( 12,694 ) -

$ 3,718,343 $ - $ 3,718,343 $ ( 3,705,649 ) $ ( 12,694 ) $ -

The amounts disclosed for collateral received by or posted to the same counterparty up to and not exceeding the net amount of the asset or liability presented in the balance sheets.

3 unchanged sentences

Common Stock Issuances

During the three months ended March 31, 2024 and the year ended December 31, 2023 , the Company completed the following public offerings of shares of its common stock.

During the six months ended June 30, 2024 and the year ended December 31, 2023 , the Company completed the following public offerings of shares of its common stock.

($ in thousands, except per share amounts)

4 unchanged sentences

$ 8.80 1,490,075 $ 13,109

At the Market Offering Program (3)

Second Quarter

8.40 11,990,383 100,698

13,480,458 $ 113,807

At the Market Offering Program (3)

24 unchanged sentences

The stock repurchase program has no termination date.

From the inception of the stock repurchase program through March 31, 2024 , the Company repurchased a total of 5,081,134 shares at an aggregate cost of approximately $ 77.0 million , including commissions and fees, for a weighted average price of $ 15.16 per share.

During the three months ended March 31, 2024 , the Company repurchased a total of 332,773 shares at an aggregate cost of approximately $ 2.8 million , including commissions and fees, for a weighted average price of $ 8.35 per share.

From the inception of the stock repurchase program through June 30, 2024 , the Company repurchased a total of 5,081,134 shares at an aggregate cost of approximately $ 77.0 million , including commissions and fees, for a weighted average price of $ 15.16 per share.

During the six months ended June 30, 2024 , the Company repurchased a total of 332,773 shares at an aggregate cost of approximately $ 2.8 million , including commissions and fees, for a weighted average price of $ 8.35 per share.

During the year ended December 31, 2023, the Company repurchased a total of 1,072,789 shares at an aggregate cost of approximately $ 9.4 million, including commissions and fees, for a weighted average price of $ 8.79 per share.

The remaining authorization under the stock repurchase program as of April 25, 2024 was 3,895,829 shares.

The remaining authorization under the stock repurchase program as of July 25, 2024 was 3,895,829 shares.

Cash Dividends

6 unchanged sentences

$ 67.290 $ 657,598

On April 10, 2024 , the Company declared a dividend of $ 0.12 per share to be paid on May 30, 2024 .

The effect of this dividend is included in the table above but is not reflected in the Company’s financial statements as of March 31, 2024 .

On July 10, 2024 , the Company declared a dividend of $ 0.12 per share to be paid on August 29, 2024 .

The effect of this dividend is included in the table above but is not reflected in the Company’s financial statements as of June 30, 2024 .

STOCK INCENTIVE PLAN

13 unchanged sentences

PUs are subject to forfeiture should the participant no longer serve as an executive officer or employee of the Company or the Manager.

Compensation expense for the PUs, included in incentive compensation on the statements of comprehensive income, is recognized over the remaining vesting period once it becomes probable that the performance conditions will be achieved.

The following table presents information related to PUs outstanding during the three months ended March 31, 2024 and 2023 .

Compensation expense for the PUs, included in incentive compensation on the statements of comprehensive income (loss), is recognized over the remaining vesting period once it becomes probable that the performance conditions will be achieved.

The following table presents information related to PUs outstanding during the six months ended June 30, 2024 and 2023 .

($ in thousands, except per share data)

Three Months Ended March 31,

Six Months Ended June 30,

Unvested, beginning of period (1)

8 unchanged sentences

Intrinsic value, end of period

$ 814 $ 1,084

Weighted-average remaining vesting term (in years)

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The Company has issued, and may in the future issue additional, immediately vested common stock under the Incentive Plans to certain executive officers and employees of its Manager.

The following table presents information related to fully vested common stock issued during the three months ended March 31, 2024 and 2023 .

All of the fully vested shares of common stock issued during the three months ended March 31, 2024, and the related compensation expense, were granted with respect to service performed during the fiscal year ended December 31, 2023.

The following table presents information related to fully vested common stock issued during the six months ended June 30, 2024 and 2023 .

All of the fully vested shares of common stock issued during the six months ended June 30, 2024 and 2023, and the related compensation expense, were granted with respect to service performed during the fiscal year ended December 31, 2023 and 2022, respectively.

($ in thousands, except per share data)

Three Months Ended March 31,

Six Months Ended June 30,

Fully vested shares granted

36,773 76,696

Weighted average grant date price per share

$ 8.62 $ 10.82

Compensation expense related to fully vested shares of common stock awards

4 unchanged sentences

The DSUs are immediately vested and are settled at a future date based on the election of the individual participant.

Compensation expense for the DSUs is included in directors’ fees and liability insurance in the statements of comprehensive income.

Compensation expense for the DSUs is included in directors’ fees and liability insurance in the statements of comprehensive income (loss).

The DSUs contain dividend equivalent rights, which entitle the participant to receive distributions declared by the Company on common stock.

1 unchanged sentence

The DSUs do not include the right to vote the underlying shares of common stock.

The following table presents information related to the DSUs outstanding during the three months ended March 31, 2024 and 2023 .

The following table presents information related to the DSUs outstanding during the six months ended June 30, 2024 and 2023 .

($ in thousands, except per share data)

Three Months Ended March 31,

Six Months Ended June 30,

Outstanding, beginning of period

6 unchanged sentences

Intrinsic value, end of period

$ 1,028 $ 755

COMMITMENTS AND CONTINGENCIES

From time to time, the Company may become involved in various claims and legal actions arising in the ordinary course of business.

Management is not aware of any reported or unreported contingencies at March 31, 2024 .

Management is not aware of any reported or unreported contingencies at June 30, 2024 .

The Company will generally not be subject to U.S.

4 unchanged sentences

EARNINGS PER SHARE (EPS)

The Company had dividend eligible PUs and DSUs that were outstanding during the three months ended March 31, 2024 and 2023 .

The Company had dividend eligible PUs and DSUs that were outstanding during the six and three months ended June 30, 2024 and 2023 .

The basic and diluted per share computations include these unvested PUs and DSUs if there is income available to common stock, as they have dividend participation rights.

1 unchanged sentence

Because there is no such obligation, the unvested PUs and DSUs are not included in the basic and diluted EPS computations when no income is available to common stock even though they are considered participating securities.

The table below reconciles the numerator and denominator of EPS for the three months ended March 31, 2024 and 2023 .

The table below reconciles the numerator and denominator of EPS for the six and three months ended June 30, 2024 and 2023 .

(in thousands, except per share information)

Three Months Ended March 31,

Six Months Ended June 30,

Three Months Ended June 30,

Basic and diluted EPS per common share:

Numerator for basic and diluted EPS per share of common stock:

Net income - Basic and diluted

Net income (loss) - Basic and diluted

$ 14,797 $ 13,779 $ ( 4,979 ) $ 10,249

3 unchanged sentences

Unvested dividend eligible share based compensation outstanding at the balance sheet date

221 178 - 178

Effect of weighting

2 unchanged sentences

54,799 39,356 57,764 40,211

Net income per common share:

Net income (loss) per common share:

Basic and diluted

28 unchanged sentences

RMBS (based on the fair value option), U.S.

Treasury securities, derivatives and TBA securities were recorded at fair value on a recurring basis during the three months ended March 31, 2024 and 2023 .

Treasury securities, derivatives and TBA securities were recorded at fair value on a recurring basis during the six and three months ended June 30, 2024 and 2023 .

When determining fair value measurements, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset.

1 unchanged sentence

When identical assets are not traded in active markets, the Company looks to market observable data for similar assets.

The estimated fair value of cash and cash equivalents, restricted cash, accrued interest receivable, receivable for securities sold, other assets, due to affiliates, repurchase agreements, payable for unsettled securities purchased, accrued interest payable and other liabilities generally approximates their carrying values due to the short-term nature of these financial instruments as of March 31, 2024 and December 31, 2023 .

The Company estimates the fair value of the cash and cash equivalents using Level 1 inputs, and the accrued interest receivable, receivable for securities sold, other assets, due to affiliates, repurchase agreements, payable for unsettled securities purchased, accrued interest payable and other liabilities using Level 2 inputs.

The following table presents financial assets (liabilities) measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023 .

The following table presents financial assets (liabilities) measured at fair value on a recurring basis as of June 30, 2024 and December 31, 2023 .

Derivative contracts are reported as a net position by contract type, and not based on master netting arrangements.

1 unchanged sentence

Quoted Prices

March 31, 2024

June 30, 2024

Mortgage-backed securities

$ - $ 3,881,078 $ -

Treasury securities

Interest rate swaps

Interest rate swaptions

Dual digital option

2 unchanged sentences

Mortgage-backed securities

$ - $ 3,894,012 $ -

Treasury securities

2 unchanged sentences

TBA securities

- ( 12,694 ) -

During the three months ended March 31, 2024 and 2023 , there were no transfers of financial assets or liabilities between levels 1, 2 or 3.

During the six and three months ended June 30, 2024 and 2023 , there were no transfers of financial assets or liabilities between levels 1, 2 or 3.

RELATED PARTY TRANSACTIONS

14 unchanged sentences

Should the Company terminate the management agreement without cause, it will pay the Manager a termination fee equal to three times the average annual management fee, as defined in the management agreement, before or on the last day of the term of the agreement.

Total expenses recorded for the management fee, allocated overhead and repurchase agreement trading, clearing and administrative services were approximately $ 2.9 million and $ 3.4 million for the three months ended March 31, 2024 and 2023 , respectively.

At March 31, 2024 and December 31, 2023 , the net amount due to affiliates was approximately $ 1.0 million and $ 1.0 million, respectively.

Total expenses recorded for the management fee, allocated overhead and repurchase agreement trading, clearing and administrative services were approximately $ 6.1 million and $ 3.2 million for the six and three months ended June 30, 2024 , respectively, and $ 6.9 million and $ 3.5 million for the six and three months ended June 30, 2023 , respectively.

At June 30, 2024 and December 31, 2023 , the net amount due to affiliates was approximately $ 1.1 million and $ 1.0 million, respectively.

Other Relationships with Bimini

1 unchanged sentence

Haas, IV, the Company’s Chief Financial Officer, Chief Investment Officer, Secretary and a member of the Board of Directors, also serves as the Chief Financial Officer, Chief Investment Officer and Treasurer of Bimini and owns shares of common stock of Bimini.

In addition, as of March 31, 2024 , Bimini owned 569,071 shares, or 1.1 %, of the Company’s common stock.

In addition, as of June 30, 2024 , Bimini owned 569,071 shares, or 0.9 %, of the Company’s common stock.

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

24 unchanged sentences

We issued a total of 9,742,188 shares under the October 2021 Equity Distribution Agreement for aggregate gross proceeds of approximately $151.8 million, and net proceeds of approximately $149.3 million, after commissions and fees, prior to its termination in March 2023.

On March 7, 2023, we entered into an equity distribution agreement (the “March 2023 Equity Distribution Agreement”) with three sales agents pursuant to which we may offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that are deemed to be “at the market” offerings and privately negotiated transactions.

March 31, 2024

, we issued a total of 14,680,114 shares under the March 2023 Equity Distribution Agreement for aggregate gross proceeds of approximately $143.2 million, and net proceeds of approximately $140.9 million, after commissions and fees.

On March 7, 2023, we entered into an equity distribution agreement (the “March 2023 Equity Distribution Agreement”) with three sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions.

We issued a total of 24,675,497 shares under the March 2023 Equity Distribution Agreement for aggregate gross proceeds of approximately $228.8 million and net proceeds of approximately $225.0 million, after commissions and fees, prior to its termination in June 2024.

On June 11, 2024, we entered into an equity distribution agreement (the “June 2024 Equity Distribution Agreement”) with three sales agents pursuant to which we may offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that are deemed to be “at the market” offerings and privately negotiated transactions.

Through June 30, 2024, we issued a total of 1,995,000 shares under the June 2024 Equity Distribution Agreement for aggregate gross proceeds of approximately $16.9 million, and net proceeds of approximately $16.6 million, after commissions and fees.

Subsequent to June 30, 2024, we issued a total of 6,514,200 shares under the June 2024 Equity Distribution Agreement for aggregate gross proceeds of approximately $55.5 million, and net proceeds of approximately $54.6 million, after commissions and fees.

Stock Repurchase Agreement

7 unchanged sentences

This stock repurchase program has no termination date.

During the three months ended March 31, 2024 , the Company repurchased a total of 332,773 shares of its common stock at an aggregate cost of approximately $ 2.8 million , including commissions and fees, for a weighted average price of $ 8.35 per share.

During the six months ended June 30, 2024 , the Company repurchased a total of 332,773 shares of its common stock at an aggregate cost of approximately $ 2.8 million , including commissions and fees, for a weighted average price of $ 8.35 per share.

Factors that Affect our Results of Operations and Financial Condition

18 unchanged sentences

Results of Operations

Described below are the Company’s results of operations for the three months ended March 31, 2024, as compared to the Company’s results of operations for the three months ended March 31, 2023.

Net Income Summary

Net income for the three months ended March 31, 2024 was $19.8 million or $0.38 per share.

Net income for the three months ended March 31, 2023 was $3.5 million, or $0.09 per share.

The components of net income for the three months ended March 31, 2024 and 2023 , along with the changes in those components are presented in the table below:

Described below are the Company’s results of operations for the six and three months ended June 30, 2024, as compared to the Company’s results of operations for the six and three months ended June 30, 2023.

Net Income (Loss) Summary

Net income for the six months ended June 30, 2024 was $14.8 million, or $0.27 per share.

Net income for the six months ended June 30, 2023 was $13.8 million, or $0.35 per share.

Net loss for the three months ended June 30, 2024 was $5.0 million, or $0.09 per share.

Net income for the three months ended June 30, 2023 was $10.2 million, or $0.25 per share.

The components of net income (loss) for the six and three months ended June 30, 2024 and 2023 , along with the changes in those components are presented in the table below:

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Three Months Ended June 30,

Interest income

2 unchanged sentences

Gains on RMBS and derivative contracts

Net portfolio income

Net portfolio income (loss)

Net income (loss)

GAAP and Non-GAAP Reconciliations

2 unchanged sentences

We have elected to account for our Agency RMBS under the fair value option.

Securities held under the fair value option are recorded at estimated fair value, with changes in the fair value recorded as unrealized gains or losses through the statements of comprehensive income.

Securities held under the fair value option are recorded at estimated fair value, with changes in the fair value recorded as unrealized gains or losses through the statements of comprehensive income (loss).

In addition, we have not designated our derivative financial instruments used for hedging purposes as hedges for accounting purposes, but rather hold them for economic hedging purposes.

Changes in fair value of these instruments are presented in a separate line item in the Company’s statements of comprehensive income and are not included in interest expense.

Changes in fair value of these instruments are presented in a separate line item in the Company’s statements of comprehensive income (loss) and are not included in interest expense.

As such, for financial reporting purposes, interest expense and cost of funds are not impacted by the fluctuation in value of the derivative instruments.

6 unchanged sentences

The table below presents a reconciliation of our net income (loss) determined in accordance with GAAP and net earnings excluding realized and unrealized gains and losses.

Described below are the Company’s results of operations for the three months ended March 31, 2024 and for each quarter in 2023.

Described below are the Company’s results of operations for the six months ended June 30, 2024 and 2023, and for each quarter in 2024 to date and 2023.

Net Earnings Excluding Realized and Unrealized Gains and Losses

1 unchanged sentence

Three Months Ended

June 30, 2024

March 31, 2024

3 unchanged sentences

March 31, 2023

Six Months Ended

June 30, 2024

June 30, 2023

Includes realized and unrealized gains (losses) on RMBS and derivative financial instruments, including net interest income or expense on interest rate swaps.

3 unchanged sentences

We have not elected to designate our derivative holdings for hedge accounting treatment.

Changes in fair value of these instruments are presented in a separate line item in our statements of comprehensive income and not included in interest expense.

Changes in fair value of these instruments are presented in a separate line item in our statements of comprehensive income (loss) and not included in interest expense.

As such, for financial reporting purposes, interest expense and cost of funds are not impacted by the fluctuation in value of the derivative instruments.

For the purpose of computing economic net interest income and ratios relating to cost of funds measures, GAAP interest expense has been adjusted to reflect the realized and unrealized gains or losses on certain derivative instruments the Company uses, specifically Eurodollar, Fed Funds, SOFR and U.S.

Treasury futures, dual digital options, interest rate floors and caps, and interest rate swaps and swaptions, that pertain to each period presented.

15 unchanged sentences

The non-GAAP measures help management to evaluate its financial position and performance without the effects of certain transactions and GAAP adjustments that are not necessarily indicative of our current investment portfolio or operations.

The unrealized gains or losses on derivative instruments presented in our statements of comprehensive income are not necessarily representative of the total interest rate expense that we will ultimately realize.

The unrealized gains or losses on derivative instruments presented in our statements of comprehensive income (loss) are not necessarily representative of the total interest rate expense that we will ultimately realize.

This is because as interest rates move up or down in the future, the gains or losses we ultimately realize, and which will affect our total interest rate expense in future periods, may differ from the unrealized gains or losses recognized as of the reporting date.

3 unchanged sentences

Therefore, the economic value of our investment strategy should not be viewed in isolation and is not a substitute for interest expense and net interest income computed in accordance with GAAP.

The tables below present a reconciliation of the adjustments to interest expense shown for each period relative to our derivative instruments, and the income statement line item, gains (losses) on derivative instruments, calculated in accordance with GAAP for the three months ended March 31, 2024, and for each quarter of 2023.

The tables below present a reconciliation of the adjustments to interest expense shown for each period relative to our derivative instruments, and the income statement line item, gains (losses) on derivative instruments, calculated in accordance with GAAP for the six months ended June 30, 2024 and 2023, and for each quarter of 2024 to date and 2023.

Gains (Losses) on Derivative Instruments

5 unchanged sentences

Three Months Ended

June 30, 2024

March 31, 2024

3 unchanged sentences

March 31, 2023

Six Months Ended

June 30, 2024

June 30, 2023

Economic Interest Expense and Economic Net Interest Income

3 unchanged sentences

Three Months Ended

June 30, 2024

March 31, 2024

3 unchanged sentences

March 31, 2023

Six Months Ended

June 30, 2024

June 30, 2023

Reflects the effect of derivative instrument hedges for only the period presented.

2 unchanged sentences

Net Interest Income (Expense)

During the three months ended March 31, 2024 , we incurred net interest expense of $2.5 million consisting of $48.9 million of interest income from RMBS assets offset by $51.4 million of interest expense on borrowings.

For the comparable period ended March 31, 2023 , we generated $4.2 million of net interest expense, consisting of $38.0 million of interest income from RMBS assets offset by $42.2 million of interest expense on borrowings.

The $10.9 million increase in interest income was due to a 100 basis point ("bps") increase in the yield on average RMBS, combined with a $117.6 million increase in average RMBS .

During the six months ended June 30, 2024 , we incurred net interest expense of $3.2 million consisting of $101.9 million of interest income from RMBS assets offset by $105.1 million of interest expense on borrowings.

For the comparable period ended June 30, 2023 , we incurred $13.0 million of net interest expense, consisting of $77.9 million of interest income from RMBS assets offset by $90.9 million of interest expense on borrowings.

The $24.0 million increase in interest income was due to a 112 basis point ("bps") increase i n the yield on average RMBS, combined with a $67.1 million increase in average RMBS .

The $14.2 million increase in interest expense was due to a 62 bps increase in the average cost of funds, combined with an $88.8 million increase in average outstanding borrowings.

During the three months ended June 30, 2024 , we incurred net interest expense of $0.7 million consisting of $53.1 million of interest income from RMBS assets offset by $53.8 million of interest expense on borrowings.

For the comparable period ended June 30, 2023 , we incurred $8.8 million of net interest expense, consisting of $39.9 million of interest income from RMBS assets offset by $48.7 million of interest expense on borrowings.

The $13.2 million increase in interest income was due to a 124 bps increase in the yield on average RMBS, combined with a $16.5 million increase in average RMBS .

The $5.1 million increase in interest expense was due to a 46 bps increase in the average cost of funds, combined with a $43.0 million increase in average outstanding borrowings.

On an economic basis, our interest expense on borrowings for the three months ended March 31, 2024 and 2023 was $23.8 million and $23.0 million , respectively, resulting in $25.1 million and $15.0 million of economic net interest income, respectively.

The tables below provide information on our portfolio average balances, interest income, yield on assets, average borrowings, interest expense, cost of funds, net interest income and net interest spread for the three months ended March 31, 2024, and each quarter of 2023 on both a GAAP and economic basis.

On an economic basis, our interest expense on borrowings for the six months ended June 30, 2024 and 2023 was $48.1 million and $48.2 million , respectively, resulting in $53.9 million and $29.7 million of economic net interest income, respectively.

On an economic basis, our interest expense on borrowings for the three months ended June 30, 2024 and 2023 was $24.3 million and $25.2 million , respectively, resulting in $28.8 million and $14.7 million of economic net interest income, respectively.

The tables below provide information on our portfolio average balances, interest income, yield on assets, average borrowings, interest expense, cost of funds, net interest income and net interest spread for the six months ended June 30, 2024 and 2023, and each quarter of 2024 to date and 2023 on both a GAAP and economic basis.

($ in thousands)

3 unchanged sentences

Three Months Ended

June 30, 2024

March 31, 2024

3 unchanged sentences

March 31, 2023

Six Months Ended

June 30, 2024

June 30, 2023

($ in thousands)

2 unchanged sentences

Three Months Ended

June 30, 2024

March 31, 2024

3 unchanged sentences

March 31, 2023

Portfolio yields and costs of borrowings presented in the tables above and the tables on page 29 a re calculated based on the average balances of the underlying investment portfolio/borrowings balances and are annualized for the periods presented.

Six Months Ended

June 30, 2024

June 30, 2023

Portfolio yields and costs of borrowings presented in the tables above, below and the tables on page 30 a re calculated based on the average balances of the underlying investment portfolio/borrowings balances and are annualized for the periods presented.

Average balances for quarterly periods are calculated using two data points, the beginning and ending balances.

3 unchanged sentences

Average Asset Yield

The table below presents the average portfolio size, income and yields of our respective sub-portfolios, consisting of structured RMBS and PT RMBS, for the three months ended March 31, 2024, and for each quarter of 2023.

The table below presents the average portfolio size, income and yields of our respective sub-portfolios, consisting of structured RMBS and PT RMBS, for the six months ended June 30, 2024 and 2023, and for each quarter of 2024 to date and 2023.

($ in thousands)

3 unchanged sentences

Three Months Ended

June 30, 2024

March 31, 2024

3 unchanged sentences

March 31, 2023

Six Months Ended

June 30, 2024

June 30, 2023

Interest Expense and the Cost of Funds

We had average outstanding borrowings of $3.7 billion and $3.6 billion and total interest expense of $51.4 million and $42.2 million for the three months ended March 31, 2024 and 2023, respectively.

Our average cost of funds was 5.54% for the three months ended March 31, 2024, compared to 4.72% for the comparable period in 2023.

The $9.2 million increase in interest expense was due to the 82 bps increase in the average cost of funds, combined with a $134.6 million increase in average outstanding borrowings during the three months ended March 31, 2024, as compared to the comparable period in 2023.

Our economic interest expense was $23.8 million and $23.0 million for the three months ended March 31, 2024 and 2023, respectively.

There was a 1 bps decrease in the average economic cost of funds to 2.56% for the three months ended March 31, 2024, from 2.57% for the three months ended March 31, 2023.

We had average outstanding borrowings of $3.9 billion and $3.8 billion and total interest expense of $105.1 million and $90.9 million for the six months ended June 30, 2024 and 2023, respectively.

Our average cost of funds was 5.43% for the six months ended June 30, 2024, compared to 4.81% for the comparable period in 2023.

The $14.2 million increase in interest expense was due to the 62 bps increase in the average cost of funds, combined with a $88.8 million increase in average outstanding borrowings during the six months ended June 30, 2024, as compared to the comparable period in 2023.

We had average outstanding borrowings of $4.0 billion and $4.0 billion and total interest expense of $53.8 million and $48.7 million for the three months ended June 30, 2024 and 2023, respectively.

Our average cost of funds was 5.34% for the three months ended June 30, 2024, compared to 4.88% for the comparable period in 2023.

The $5.1 million increase in interest expense was due to the 46 bps increase in the average cost of funds, combined with a $43.0 million increase in average outstanding borrowings during the three months ended June 30, 2024, as compared to the comparable period in 2023.

Our economic interest expense was $48.1 million and $48.2 million for the six months ended June 30, 2024 and 2023, respectively.

There was a 6 bps decrease in the average economic cost of funds to 2.49% for the six months ended June 30, 2024, from 2.55% for the six months ended June 30, 2023.

Our economic interest expense was $24.3 million and $25.2 million for the three months ended June 30, 2024 and 2023, respectively.

There was a 12 bps decrease in the average economic cost of funds to 2.41% for the three months ended June 30, 2024, from 2.53% for the three months ended June 30, 2023.

Since all of our repurchase agreements are short-term, changes in market rates directly affect our interest expense.

Our average cost of funds calculated on a GAAP basis was 22 bps above the one-month average SOFR and 15 bps above the six-month average SOFR for the quarter ended March 31, 2024.

Our average economic cost of funds was 276 bps below the average one-month SOFR and 283 bps below the average six-month SOFR for the quarter ended March 31, 2024.

The average term to maturity of the outstanding repurchase agreements was 21 days at March 31, 2024 and 26 days at December 31, 2023.

The tables below present the average balance of borrowings outstanding, interest expense and average cost of funds, and average one-month and six-month SOFR rates for the three months ended March 31, 2024, and for each quarter in 2023, on both a GAAP and economic basis.

Our average cost of funds calculated on a GAAP basis was equal to the one-month average SOFR and 5 bps below the six-month average SOFR for the quarter ended June 30, 2024.

Our average economic cost of funds was 293 bps below the average one-month SOFR and 298 bps below the average six-month SOFR for the quarter ended June 30, 2024.

The average term to maturity of the outstanding repurchase agreements was 29 days at June 30, 2024 and 26 days at December 31, 2023.

The tables below present the average balance of borrowings outstanding, interest expense and average cost of funds, and average one-month and six-month SOFR rates for the six months ended June 30, 2024 and 2023, and for each quarter in 2024 to date and 2023, on both a GAAP and economic basis.

($ in thousands)

2 unchanged sentences

Three Months Ended

June 30, 2024

March 31, 2024

3 unchanged sentences

March 31, 2023

Six Months Ended

June 30, 2024

June 30, 2023

Average GAAP Cost of Funds

3 unchanged sentences

Three Months Ended

June 30, 2024

March 31, 2024

3 unchanged sentences

March 31, 2023

Six Months Ended

June 30, 2024

Gains or Losses

The table below presents our gains or losses for the three months ended March 31, 2024 and 2023.

The table below presents our gains or losses for the six and three months ended June 30, 2024 and 2023.

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Three Months Ended June 30,

Realized losses on sales of RMBS

Unrealized (losses) gains on RMBS and U.S.

Unrealized losses on RMBS and U.S.

Treasury securities

Total (losses) gains on RMBS and U.S.

Total losses on RMBS and U.S.

Treasury securities

Gains (losses) on T-Note futures

Gains (losses) on interest rate swaps

Gains on T-Note futures

Gains on interest rate swaps

Gains on payer swaptions (short positions)

2 unchanged sentences

Losses on dual digital option

Losses on interest rate floors (short positions)

Gains on interest rate floors (long positions)

Gains (losses) on TBA securities (short positions)

Gains on TBA securities (long positions)

Total gains (losses) from derivative instruments

Gains on TBA securities (short positions)

Gains (losses) on TBA securities (long positions)

Total gains from derivative instruments

We invest in RMBS with the intent to earn net income from the realized yield on those assets over their related funding and hedging costs, and not for the purpose of making short term gains from sales.

However, we have sold, and may continue to sell, existing assets to acquire new assets, which our management believes might have higher risk-adjusted returns in light of current or anticipated interest rates, federal government programs or general economic conditions or to manage our balance sheet as part of our asset/liability management strategy.

During the three months ended March 31, 2024, we received proceeds of $221.7 million from the sales of RMBS.

During the six months ended June 30, 2024, we received proceeds of $221.7 million from the sales of RMBS.

These sales consisted entirely of pools that were consolidated into a larger pool and simultaneously acquired by us.

No gain or loss was recorded on these sales.

We did not sell any RMBS during the three months ended March 31, 2023.

We did not sell any RMBS during the three months ended June 30, 2024, or the three and six months ended June 30, 2023.

Realized and unrealized gains and losses on RMBS are driven in part by changes in yields and interest rates, the spreads that Agency RMBS trade relative to comparable duration U.S.

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The table below presents historical interest rate data for each quarter end during 2024 to date and 2023.

June 30, 2024

March 31, 2024

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The following table adjusts the Company’s interest income as reported on the Company’s statements of comprehensive income (loss) for the periods indicated to show interest income adjusted for premium amortization and discount accretion on its mortgage-backed security investments.

The purpose of presenting this non-GAAP measure of interest income is to provide management and investors with an alternative way of evaluating yield on RMBS that may be more comparable to some of its peers who amortize premiums and discounts on their PT RMBS investments.

The purpose of presenting this non-GAAP measure of interest income is to provide management and investors with an alternative way of evaluating yield on RMBS that may be more comparable to some of the Company's peers who amortize premiums and discounts on their PT RMBS investments.

($ in thousands)

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Three Months Ended

June 30, 2024

March 31, 2024

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See “—GAAP and Non-GAAP Reconciliations,” for a description of our non-GAAP measures.

For the three months ended March 31, 2024, the Company’s total operating expenses were approximately $3.7 million, compared to approximately $5.0 million for the three months ended March 31, 2023.

The table below presents a breakdown of operating expenses for the three months ended March 31, 2024 and 2023.

For the six and three months ended June 30, 2024, the Company’s total operating expenses were approximately $8.1 million and $4.4 million, compared to approximately $9.8 million and $4.8 million for the six and three months ended June 30, 2023.

The table below presents a breakdown of operating expenses for the six and three months ended June 30, 2024 and 2023.

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Three Months Ended June 30,

Management fees

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As of December 31, 2023, the Company had accrued a liability of $0.6 million for bonuses to be paid to the Manager's employees.

During the first three months of 2024, the Company awarded shares of Company common stock with a fair value of $0.3 million.

Accrued incentive compensation for the three months ended March 31, 2024 includes a reversal of the over accrual of this liability.

During the first six months of 2024, the Company awarded shares of Company common stock with a fair value of $0.3 million.

Accrued incentive compensation for the six months ended June 30, 2024 includes a reversal of the over accrual of this liability.

We are externally managed and advised by Bimini Advisors, LLC (the “Manager”) pursuant to the terms of a management agreement.

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The following table summarizes the management fee and overhead allocation expenses for the three months ended March 31, 2024 and for each quarter in 2023.

The following table summarizes the management fee and overhead allocation expenses for the six months ended June 30, 2024 and 2023, and for each quarter in 2024 to date and 2023.

($ in thousands)

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Three Months Ended

June 30, 2024

March 31, 2024

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March 31, 2023

Six Months Ended

June 30, 2024

June 30, 2023

Financial Condition:

Mortgage-Backed Securities

As of March 31, 2024, our RMBS portfolio consisted of $3,881.1 million of Agency RMBS at fair value and had a weighted average coupon on assets of 4.34%.

During the three months ended March 31, 2024, we received principal repayments of $74.3 million, compared to $61.0 million for the three months ended March 31, 2023.

The average three month prepayment speeds for the quarters ended March 31, 2024 and 2023 were 6.0% and 4.0%, respectively.

As of June 30, 2024, our RMBS portfolio consisted of $4,525.8 million of Agency RMBS at fair value and had a weighted average coupon on assets of 4.68%.

During the six months ended June 30, 2024, we received principal repayments of $172.6 million, compared to $138.4 million for the six months ended June 30, 2023.

The average three month prepayment speeds for the quarters ended June 30, 2024 and 2023 were 7.6% and 5.6%, respectively.

The following table presents the 3-month constant prepayment rate (“CPR”) experienced on our structured and PT RMBS sub-portfolios, on an annualized basis, for the quarterly periods presented.

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Portfolio (%)

June 30, 2024

March 31, 2024

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March 31, 2023

The following tables summarize certain characteristics of the Company’s PT RMBS and structured RMBS as of March 31, 2024 and December 31, 2023:

The following tables summarize certain characteristics of the Company’s PT RMBS and structured RMBS as of June 30, 2024 and December 31, 2023:

($ in thousands)

Asset Category

March 31, 2024

June 30, 2024

Fixed Rate RMBS

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($ in thousands)

March 31, 2024

June 30, 2024

December 31, 2023

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Total Portfolio

March 31, 2024

June 30, 2024

December 31, 2023

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Effective duration is the approximate percentage change in price for a 100 bps change in rates.

An effective duration of 4.550 indicates that an interest rate increase of 1.0% would be expected to cause a 4.550% decrease in the value of the RMBS in the Company’s investment portfolio at March 31, 2024.

An effective duration of 4.290 indicates that an interest rate increase of 1.0% would be expected to cause a 4.290% decrease in the value of the RMBS in the Company’s investment portfolio at June 30, 2024.

An effective duration of 4.400 indicates that an interest rate increase of 1.0% would be expected to cause a 4.400% decrease in the value of the RMBS in the Company’s investment portfolio at December 31, 2023.

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Effective duration quotes for individual investments are obtained from The Yield Book, Inc.

The following table presents a summary of portfolio assets acquired during the three months ended March 31, 2024 and 2023, including securities purchased during the period that settled after the end of the period, if any.

The following table presents a summary of portfolio assets acquired during the six months ended June 30, 2024 and 2023, including securities purchased during the period that settled after the end of the period, if any.

($ in thousands)

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Structured RMBS

As of March 31, 2024, we had established borrowing facilities in the repurchase agreement market with a number of commercial banks and other financial institutions and had borrowings in place with 21 of these counterparties.

As of June 30, 2024, we had established borrowing facilities in the repurchase agreement market with a number of commercial banks and other financial institutions and had borrowings in place with 22 of these counterparties.

None of these lenders are affiliated with the Company.

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We believe our established repurchase agreement borrowing facilities provide borrowing capacity in excess of our needs.

As of March 31, 2024, we had obligations outstanding under the repurchase agreements of approximately $3,711.5 million with a net weighted average borrowing cost of 5.46%.

As of June 30, 2024, we had obligations outstanding under the repurchase agreements of approximately $4,345.7 million with a net weighted average borrowing cost of 5.46%.

The remaining maturity of our outstanding repurchase agreement obligations ranged from 8 to 89 days, with a weighted average remaining maturity of 29 days.

Securing the repurchase agreement obligations as of March 31, 2024 are RMBS with an estimated fair value, including accrued interest, of approximately $3,891.0 million, and cash pledged to counterparties of approximately $7.4 million.

Through April 26, 2024, we have been able to maintain our repurchase facilities with comparable terms to those that existed at March 31, 2024, with maturities through July 16, 2024.

Securing the repurchase agreement obligations as of June 30, 2024 are RMBS with an estimated fair value, including accrued interest, of approximately $4,540.1 million, and cash pledged to counterparties of approximately $11.2 million.

Through July 26, 2024, we have been able to maintain our repurchase facilities with comparable terms to those that existed at June 30, 2024, with maturities through September 27, 2024.

The table below presents information about our period end, maximum and average balances of borrowings for each quarter in 2024 to date and 2023.

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Three Months Ended

June 30, 2024

March 31, 2024

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Economic leverage is calculated by dividing the sum of total liabilities and our net notional TBA position, by stockholders' equity.

We include our net TBA position in our calculation of economic leverage because a forward contract to purchase or sell an Agency RMBS in the TBA market carries similar risks to an Agency RMBS purchased or sold in the cash market and funded with repurchase agreement liabilities.

Adjusted leverage is calculated by dividing our repurchase agreements by stockholders' equity.

Our economic leverage at March 31, 2024 was 7.0 to 1, compared to 6.7 to 1 as of December 31, 2023.

Our adjusted leverage at March 31, 2024 was 7.7 to 1, compared to 7.9 to 1 as of December 31, 2023.

Our economic leverage at June 30, 2024 was 7.1 to 1, compared to 6.7 to 1 as of December 31, 2023.

Our adjusted leverage at June 30, 2024 was 7.8 to 1, compared to 7.9 to 1 as of December 31, 2023.

The following table presents information related to our historical leverage.

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Stockholders'

June 30, 2024

March 31, 2024

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rather haircuts are determined on an individual repo transaction basis.

Throughout the three months ended March 31, 2024, haircuts on our pledged collateral remained stable and as of March 31, 2024, our weighted average haircut was approximately 4.5% of the value of our collateral.

Throughout the six months ended June 30, 2024, haircuts on our pledged collateral remained stable and as of June 30, 2024, our weighted average haircut was approximately 4.4% of the value of our collateral.

TBAs represent a form of off-balance sheet financing and are accounted for as derivative instruments.

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In future periods, we expect to continue to finance our activities in a manner that is consistent with our current operations through repurchase agreements.

As of March 31, 2024, we had cash and cash equivalents of $190.4 million.

We generated cash flows of $118.4 million from principal and interest payments on our RMBS and had average repurchase agreements outstanding of $3,708.6 million during the three months ended March 31, 2024.

As of June 30, 2024, we had cash and cash equivalents of $241.0 million.

We generated cash flows of $262.3 million from principal and interest payments on our RMBS and had average repurchase agreements outstanding of $3,868.6 million during the six months ended June 30, 2024.

As described more fully below, we may also access liquidity by selling our equity or debt securities in public offerings or private placements.

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March 31, 2024

June 30, 2024, we

issued a total of 1,995,000 shares under the June 2024 Equity Distribution Agreement for aggregate gross proceeds of approximately $16.9 million, and net proceeds of approximately $16.6 million, after commissions and fees.

Subsequent to

June 30, 2024, we

issued a total of 6,514,200 shares under the June 2024 Equity Distribution Agreement for aggregate gross proceeds of approximately $55.5 million, and net proceeds of approximately $54.6 million, after commissions and fees.

Economic Summary

Towards the end of 2023 it appeared the interest rate cycle was about to turn.

The current interest rate cycle, which began when the Federal Reserve (the “Fed”) responded to the onset of the pandemic in March of 2020 by aggressively lowering the target range for their overnight funding rate, otherwise known as the Fed funds rate, and then began raising their policy rate from the effective lower bound just above 0% to a target range of 5.25% – 5.50% from March of 2022 through July of 2023.

The Fed was focused on bringing inflation down from multi-decade highs in 2022 and appeared to be well on their way of reaching their policy target of 2.0%.

The markets expected to see the next cycle begin when the Fed pivoted away from additional policy firming and towards the removal of tight monetary policy sometime in early to mid-2024.

Comments by several Fed officials in late 2023, including the chairman, appeared to confirm the Fed was about to do so.

The markets reacted strongly to this development as risk assets of all types rallied and market pricing of future levels of the Fed’s policy rate implied the market expected up to six 25 basis point cuts over the course of 2024, as 2023 came to a close.

While most measures of inflation were clearly declining over the second half of 2023 there was also clear evidence that the economy was not slowing much at all.

Most market participants had anticipated the significant tightening of monetary policy would slow the economy, if not cause a recession, and thus bring inflation down to the Fed’s policy target of 2.0%.

However, economic growth, as measured by gross domestic product (“GDP”), was above trend during the second half of 2023.

The labor market, as measured by the monthly non-farm payroll reports, averaged 213,000 new jobs over the course of the last six months of 2023, a level considered above the rate necessary to absorb new entrants into the labor market and thus keep the unemployment rate from increasing.

For the first three months of 2024 the monthly average has increased to 280,000.

More significantly, monthly inflation readings are above levels observed in late 2023 and it appears inflation may actually be re-accelerating.

Public comments by various Fed officials have generally pushed back against market pricing which implied the market still expected the Fed to pivot soon and start to relax monetary policy.

However, as we enter the second quarter, market pricing of future levels of the Fed’s policy rate are shifting upwards and a pivot in monetary policy does not appear to be imminent.

The extended recovery from the devastating effects on the U.S.

economy of the pandemic in 2020 continued in late 2023 and early 2024.

While economic growth was strong, the labor market remained out of balance with corresponding wage pressures and inflation, particularly services inflation, remained well above the Federal Reserve’s (the “Fed") target level.

These conditions persisted despite over 500 basis points of monetary policy tightening on the part of the Fed over the period from March of 2022 through July of 2023.

Inflation was clearly moderating over the course of the second half of 2023, but growth remained quite strong, well above the economy’s long-run potential.

Despite the strong growth, the Fed appeared to be on the brink of relaxing monetary policy beginning in 2024 based on the persistent trend lower in reported inflation figures in late 2023.

The market was further encouraged by comments from various Fed governors, including the chairman, that there would be eases in 2024.

This changed rapidly as 2024 unfolded and inflation readings reversed course and appeared to accelerate.

The tone of comments by all Fed officials pivoted away from potential near-term easing to the need to maintain higher rates.

The continued strength of the economy enabled the Fed to keep policy restrictive until inflation resumed, moderating towards its 2% target range.

The Fed also made it clear to markets that it was prepared to raise rates further if inflation did indeed accelerate further, although it did not anticipate this would be likely.

These trends continued into April as data for March was released and interest rates continued to increase from the low levels observed in December of 2023.

However, as economic data for April, May and June was released, the data appeared to moderate.

Inflation readings have resumed the trend observed in late 2023 and appear to be headed towards the Fed’s 2% target again.

Job gains – as reflected in the monthly non-farm payroll reports released by the labor department – have moderated as well.

Measures of consumer spending and business activity have slowed as well.

While these readings are not consistent with a recession, they are consistent with growth rates at or near the economy's potential, which appears to indicate the supply/demand imbalances that existed for the last two years have receded.

It appears the brief re-acceleration of inflation during the first quarter of 2024 will not be sustained and represents a one-off incident.

Given this development, the Fed is anticipated to start loosening monetary policy during the second half of 2024.

Current market pricing is for between two and three 25 basis point cuts by the end of the year, as the Fed is perceived to be equally concerned with slowing economic growth as they are with a re-acceleration of inflation.

Interest Rates

As the market sensed the Fed was about to pivot and reverse the stance of monetary policy from additional firming to easing, interest rates decreased over the course of the last two months of 2023.

Rates had peaked in October, reaching cycle highs at most points along the maturity curve.

Treasury yields declined so much in November and December such that all U.S.

Treasuries with a maturity longer than the 1-year bill declined by at least 70 basis points during the fourth quarter, in spite of the significant increases that occurred in October.

As we entered 2024 and the outlook changed with respect to inflation and Fed monetary policy these declines in yields have rapidly reversed.

Over the course of the first quarter of 2024, the curve has flattened as the yield on the 2-year U.S.

Treasury increased by approximately 40 basis points and the yield on the 10-year U.S.

Treasury increased by just over 32 basis points, from 3.881% at December 31, 2023 to 4.208% at March 28, 2024.

As the data has not softened to date during the second quarter, yields continue to retrace the decline since the October 2023 peak, and the yield on the 2 and 10-year U.S.

Treasuries has increased to 5.0% and 4.7%, respectively.

As mentioned above, market pricing implied the Fed would reduce their policy rate by six 25 basis point cuts in 2024 as 2023 came to a close.

When the first quarter of 2024 ended, market pricing was for only three 25 basis point cuts and current market pricing of Fed funds going forward only reflects one 25 basis point cut.

In spite of the reversal in the rates market during the first quarter of 2024 as described above, interest rate volatility declined over the course of the quarter.

A widely followed measure of interest rate volatility is the ICE Bank of America MOVE index.

The index declined from a reading of approximately 127 on January 2, 2024, to a reading of approximately 86.4 on March 28, 2024.

This was a significant development as implied volatility is a significant determinant of Agency MBS performance as it affects the pricing of the implied prepayment option on all residential mortgages.

The Agency RMBS Market

As with interest rates described above by late October of 2023 Agency RMBS spreads to comparable duration U.S.

Treasuries or swaps reached their cycle wide for the cycle.

As the market reversed and risk appetite rapidly recovered the spread contracted quickly – declining by over 50 basis points by year-end.

However, unlike interest rates which reversed much of the decline seen during November and December, over the course of the first quarter of 2024 Agency RMBS spreads, while somewhat volatile, ended the quarter very close to where they were at the beginning of the quarter.

As mentioned above, declining interest rate volatility supported Agency RMBS performance.

However, the sector also benefitted from increased demand from banks and money managers deploying funds from growing flows into fixed income funds.

Based on ICE Bank of America data for the fixed income indices, for the first quarter of 2024 Agency RMBS generated a return of -1.1% and -0.1% versus comparable duration swaps, respectively.

The 30-year fixed rate sector generated returns of -1.3% and -0.2% versus comparable duration swaps, respectively.

With respect to individual sectors of the Agency RMBS index, shorter duration sectors and coupons outperformed owing to the increase in interest rates.

Across the 30-year fixed rate coupon stack returns varied from -2.1% for 2.0% coupons to 1.4% for 7.0% coupons.

Excess returns for the same coupons were -0.6% and 0.8%, respectively, and the distribution of returns followed the durations of the various coupons in a consistent fashion.

The Agency RMBS sector underperformed investment grade and sub-investment grade corporates on an absolute basis.

Relative to comparable duration swaps for the first quarter, Agency RMBS trailed investment grade corporates by 140 bps and sub-investment grade corporates by 190 bps.

The performance of Agency RMBS versus these two sectors of the fixed income markets is important as multi-sector asset managers who allocate funds across the fixed income markets view these three significant sectors on a relative value basis when making allocation decisions.

Movements in interest rate levels across the curve as well as the shape of the curve followed the same pattern as the economic developments described above.

As economic data remained strong in late 2023 and into early 2024 and inflation appeared to reaccelerate, long maturity rates steadily increased.

Starting in late 2023, the yield on the 10-year U.S.

Treasury note increased from 3.80% to just over 4.7% in late April.

Likewise, the shape of the U.S.

Treasury curve, as measured by the difference between the yields on the 2-year U.S.

Treasury note and the 10-year U.S.

Treasury note, flattened during the first quarter of 2024, becoming more inverted as the prospects for interest rate cuts by the Fed were priced out of the market.

As the economic data softened and inflation appeared to slow and resume a steady decline towards the Fed’s 2% target, starting with the April data released in May, the 10-year U.S.

Treasury note yield declined from just over 4.7% in late April to approximately 4.3% currently.

However, the slope of the U.S.

Treasury curve – again, as measured by the difference in yield between the 2-year and 10-year U.S.

Treasury notes – actually continued to flatten until late June.

In the last week of the second quarter, the yield curve began to steepen by over 20 basis points.

However, the catalyst for the steepening in the curve that occurred in late June does not appear to have been driven by economic data, but perhaps by political developments in the United States and European Union, including both the evolving landscape of the U.S.

presidential election in November and the recent elections in France and the United Kingdom, which resulted in a shift in control to more left-leaning parties with the potential for higher fiscal spending and government deficits.

Interest rate volatility embedded in interest rate derivatives, as measured by the MOVE index, reversed the pattern observed during the first quarter of 2024 – gradually declining – and spiked higher in early April, only to moderate again over the balance of the second quarter.

The level of the index ended only slightly higher than the level at the beginning of the second quarter – the index value was 98.6 on June 30, 2024, versus 86.4 on March 28, 2024.

The spike in early April was likely driven by strong jobs and inflation data for March released in early April of 2024.

T he Agency RMBS Market

As the economic data, particularly inflation, moderated over the course of the second quarter of 2024, market participants expected that should the trend continue the Fed would soon begin loosening monetary policy and the curve slope would normalize and become positively sloped again.

Risk assets of all kinds performed very well for the second quarter as investors became comfortable short-term rates had peaked and would soon be heading lower, reducing funding costs and enhancing levered returns on risk assets.

Lower risk assets also generated positive returns, such as Agency RMBS, but the returns were modest.

The Agency RMBS index generated a total return for the quarter of 0.2%, and 0.3% for Fannie Mae Agency RMBS.

Versus comparable duration U.S.

Treasuries (a proxy for hedge adjusted returns), the returns were (0.2)% and (0.25)%, respectively.

These returns for the second quarter of 2024 compare to 4.3% for the S&P 500, 1.1% for the high yield index and absolute returns of between 1.0% and 1.7% for the various sub-sectors of the non-Agency RMBS indices.

Within the stack of 30-year, fixed rate Agency RMBS (the asset class in which the Company invests the vast majority of its capital), absolute returns tracked the coupons of the securities - the higher the coupon, the higher the return.

The return for 2.0% coupon securities was 0.1% for the second quarter, the lowest return, and 1.3% for 7.0% coupon securities, the highest return and coupon.

Within the stack of 30-year, fixed rate Agency RMBS, excess returns versus comparable duration swaps for the second quarter (a proxy for hedged returns) were better for coupons on the lower and higher end of the coupon range, with returns for the middle coupons lagging.

The lowest coupon securities, 2.0%, 2.5%, 3.0% and 3.5%, had excess returns of (0.1)%.

The highest coupons securities, 6.5% and 7.0%, had excess returns of (0.2)% and 0.0%, respectively.

The middle coupon security returns, 4.0% coupons through 6.0% coupons, had excess returns between (0.3)% and (0.6)%.

Recent Legislative and Regulatory Developments

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Treasuries and $35 billion of Agency RMBS per month.

As interest rates have increased and prepayment speeds have slowed, the actual balance sheet reduction of Agency RMBS has trended well below the cap during 2023.

Recently the Fed has indicated they may taper their quantitative tightening by slowing the rate of run-off of their portfolio, although it is likely they will allow their holdings of Agency RMBS to continue at the current pace and slow the run-off of U.S.

Treasuries in a way that achieves their desired rate of portfolio run-off.

On May 1, 2024, the FOMC announced the Fed’s decision to reduce the balance sheet by a maximum of $25 billion of U.S.

Treasuries and $35 billion of Agency RMBS per month.

As interest rates have remained high and prepayment speeds have slowed, the actual balance sheet reduction of Agency RMBS has trended well below the cap.

On September 30, 2019, the FHFA announced that Fannie Mae and Feddie Mac were allowed to increase their capital buffers to $25 billion and $20 billion, respectively, from the prior limit of $3 billion each.

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and introduce a risk weight of 20% for guarantee assets.

On July 27, 2023, the federal banking regulators, including the Office of the Comptroller of the Currency, the FDIC and the Fed, jointly issued a proposed rule that would revise large bank capital requirements (the "Basel III Endgame").

On July 27, 2023, the federal banking regulators, including the Office of the Comptroller of the Currency, (the "OCC") the FDIC and the Fed, jointly issued a proposed rule that would revise large bank capital requirements (the "Basel III Endgame").

The Basel III Endgame, if implemented as proposed, would significantly increase the credit weight risk for balance-sheet mortgages and for Agency RMBS sold to the GSEs, which could disincentivize banks from originating mortgages for sale to the GSEs and impact pricing in the Agency RMBS markets.

The comment period for the Basel III Endgame closed on January 16, 2024, with final rule publication expected in the second or third quarter of 2024 and implementation expected to begin on July 1, 2025.

The comment period for the Basel III Endgame closed on January 16, 2024, and the proposed rule was met with strong objections from the banking industry.

In testimony before the United States Senate Committee on Banking, Housing and Urban Affairs in July 2024, Fed chairman Jerome Powell stated that the OCC, the FDIC and the Fed were in discussions to materially revise the proposed rule, and that there was consensus at the Fed to undergo another comment period.

This would likely delay the process into 2025 and a new presidential administration.

The scope and nature of the actions the U.S.

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In order to protect our net interest margin against increases in short-term interest rates, we may enter into interest rate swaps, which economically convert our floating-rate repurchase agreement debt to fixed-rate debt or utilize other hedging instruments such as Fed Funds, SOFR and T-Note futures contracts, dual digital options or interest rate swaptions.

The current economic and interest rate cycle that began with the onset of the COVID-19 pandemic in 2020 followed by the Fed raising their policy rate by 525 basis points in a little over a year in 2022 and 2023 was expected to end in early 2024 as the Fed pivoted and started to remove their tight monetary policy.

The economy and inflation are simply too strong for this to occur, at least not yet.

While market participants still expect some easing of monetary policy over the course of 2024, as reflected in the pricing of forward overnight rates, the starting point continues to get pushed out further and further into the future, and the magnitude of eases in 2024 continues to decrease.

Incoming economic data so far in 2024 is consistent with firming inflation and a solid economy, and the labor market shows no signs of weakness.

Stimulative fiscal policy out of Washington is working against restrictive monetary policy from the Fed.

While inflation has decreased significantly from the peak seen in 2023 it still remains far above the Fed’s target level of 2.0%.

In spite of the ongoing strength of the economy and interest rates retracing much of the declines seen over the last two months of 2023, Agency MBS securities performed fairly well during the first quarter of 2024.

While absolute returns and duration adjusted excess returns versus comparable duration U.S.

Treasuries were both negative for the quarter, they were only slightly negative, including the excess return of just -0.1%.

At this juncture it is unclear how much longer the economy and inflation will remain too strong for the Fed and whether or not interest rates will continue to rise, and if so to what extent.

When the first quarter of 2024 ended, the spread of the current coupon, 30-year fixed rate Agency RMBS was trading at a spread to comparable duration U.S.

Treasuries near the low end of the prevailing range since mid-2022, shortly after the Fed began their policy firming.

As with the economy, inflation and interest rates, the outlook for the performance of Agency RMBS is unclear and there is the possibility the sector could underperform in the near term if the current trends discussed above continue.

The long-awaited pivot on the part of Federal Reserve may finally be at hand.

Persistently strong growth of the U.S.

economy and above trend inflation appear to have moderated sufficiently that the Fed now sees the risks to the economy as balanced – implying there is equal risk of more growth or a slow-down.

Because the Fed sees its current monetary policy as restrictive, the Fed may begin to reverse some of the tightening that occurred in 2022 and 2023 and ease monetary policy.

Current market pricing is for between two and three 25 basis point cuts by year end with several more in 2025.

Economic data released for April, May and June show moderating inflation that appears headed towards the Fed’s 2% target as well as a labor market more in balance with supply and demand roughly equal.

Should such conditions persist, the Fed should begin lowering the Fed funds rate this year, perhaps starting in September.

The developments described above led risk assets to perform very well during the second quarter of 2024, with the S&P 500 returning nearly 5%.

Less risky assets also generated positive returns for the quarter, although the returns were much more modest.

Agency RMBS returns for the quarter were 0.2% (absolute total return), but returns versus comparable duration swaps (a proxy for hedge returns) were slightly negative, owing largely to very poor relative performance over the last week of the second quarter.

Returns across the coupon stack of 30-year, fixed rate Agency RMBS, where the Company deploys most of its capital, were coupon dependent – ranging from 0.1% for the lowest coupons to 1.3% for the 7.0% coupon, the highest coupon.

Returns versus hedges were mixed, with the “wings,” or the lowest and highest coupons, better than the “belly” or middle coupons.

The Company currently deploys its capital with a bias towards these wing coupons versus the belly coupons and intends to continue to do so for the time being.

Critical Accounting Estimates

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Capital Expenditures

At March 31, 2024, we had no material commitments for capital expenditures.

At June 30, 2024, we had no material commitments for capital expenditures.

In addition to other requirements that must be satisfied to continue to qualify as a REIT, we must pay annual dividends to our stockholders of at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gains.

5 unchanged sentences

2024 - YTD (1)

On April 10, 2024, the Company declared a dividend of $0.12 per share to be paid on May 30, 2024.

The effect of this dividend is included in the table above but is not reflected in the Company’s financial statements as of March 31, 2024.

On July 10, 2024, the Company declared a dividend of $0.12 per share to be paid on August 29, 2024.

The effect of this dividend is included in the table above but is not reflected in the Company’s financial statements as of June 30, 2024.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements