What changed in this filing

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Item 1. Financial Statements

2024-10-25 compared with 2024-07-26 · 347 added, 345 removed, 1235 unchanged (36% of the section changed)

3 unchanged sentences

($ in thousands, except per share data)

September 30,

Mortgage-backed securities, at fair value (includes pledged assets of $ 5,438,185 and $ 3,885,554 , respectively)

10 unchanged sentences

Derivative assets

Receivable for investment securities and TBA transactions

$ 5,916,493 $ 4,264,947

14 unchanged sentences

20,000,000 shares authorized;

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

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

Common Stock, $ 0.01 par value;

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

100,000,000 shares authorized, 78,082,645 shares issued and outstanding as of September 30, 2024 and 51,636,074 shares issued and outstanding as of December 31, 2023

Additional paid-in capital

10 unchanged sentences

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

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

For the Nine and Three Months Ended September 30, 2024 and 2023

($ in thousands, except per share data)

Six Months Ended June 30,

Three Months Ended June 30,

Nine Months Ended September 30,

Three Months Ended September 30,

Interest income

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

Interest expense

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

Net interest expense

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

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

Net interest (expense) income

Realized gains (losses) on mortgage-backed securities

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

Treasury securities

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

Gains on derivative and other hedging instruments

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

(Losses) gains on derivative and other hedging instruments

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

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.

Unrealized 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 Six Months Ended June 30, 2024 and 2023

For the Nine Months Ended September 30, 2024 and 2023

(in thousands)

Comprehensive

Balances, January 1, 2024

Balances, June 30, 2024

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

- - - 17,320 - 17,320

Unrealized loss on available-for-sale securities

Unrealized gain on available-for-sale securities

- - - - 48 48

7 unchanged sentences

( 63 ) ( 1 ) ( 511 ) - - ( 512 )

Balances, March 31, 2024

Balances, September 30, 2024

78,083 $ 781 $ 1,003,504 $ ( 348,316 ) $ 55 $ 656,024

Balances, June 30, 2023

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

- - - ( 80,132 ) - ( 80,132 )

Unrealized gain on available-for-sale securities

6 unchanged sentences

8,432 84 80,342 - - 80,426

Balances, June 30, 2024

Shares repurchased and retired

Balances, September 30, 2023

52,332 $ 523 $ 873,862 $ ( 407,560 ) $ 16 $ 466,841

2 unchanged sentences

- - - 32,117 - 32,117

Unrealized loss on available-for-sale securities

- - - - 38 38

Cash dividends declared ($ 1.08 per share)

6 unchanged sentences

( 396 ) ( 4 ) ( 3,286 ) - - ( 3,290 )

Balances, March 31, 2023

Balances, September 30, 2024

78,083 $ 781 $ 1,003,504 $ ( 348,316 ) $ 55 $ 656,024

Balances, January 1, 2023

36,765 368 779,602 ( 341,207 ) - 438,763

- - - ( 66,353 ) - ( 66,353 )

Unrealized gain on available-for-sale securities

- - - - 16 16

Cash dividends declared ($ 1.44 per share)

4 unchanged sentences

15,880 157 159,281 - - 159,438

Balances, June 30, 2023

Shares repurchased and retired

( 373 ) ( 3 ) ( 3,960 ) - - ( 3,963 )

Balances, September 30, 2023

52,332 $ 523 $ 873,862 $ ( 407,560 ) $ 16 $ 466,841

See Notes to Financial Statements

1 unchanged sentence

CONDENSED STATEMENTS OF CASH FLOWS

For the Six Months Ended June 30, 2024 and 2023

For the Nine Months Ended September 30, 2024 and 2023

($ in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

$ 14,797 $ 13,779

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

Net income (loss)

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

Stock based compensation

1 unchanged sentence

Treasury Bills

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

Realized (gains) losses on mortgage-backed securities

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

Treasury securities

87,865 15,644

Realized and unrealized gains on derivative instruments

( 41,972 ) ( 15,244 )

Realized and unrealized losses (gains) on derivative instruments

Changes in operating assets and liabilities:

Accrued interest receivable

( 4,037 ) ( 3,747 )

( 278 ) ( 339 )

Accrued interest payable

2 unchanged sentences

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 payments on derivative instruments

( 4,090 ) ( 11,484 )

Net (payments on) proceeds from derivative instruments

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

( 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

June 30, 2024

September 30, 2024

ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

10 unchanged sentences

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.

Through September 30, 2024 , t he Company issued a total of 15,309,022 shares under the June 2024 Equity Distribution Agreement for aggregate gross proceeds of approximately $ 128.6 million, and net proceeds of approximately $ 126.5 million, after commissions and fees.

Subsequent to September 30, 2024 , t he Company issued a total of 332,000 shares under the June 2024 Equity Distribution Agreement for aggregate gross proceeds of approximately $ 2.7 million , and net proceeds of approximately $ 2.7 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 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 .

Operating results for the nine and three month periods ended September 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 June 30, 2024 .

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

Variable Interest Entities ( “ VIEs ” )

9 unchanged sentences

(in thousands)

June 30, 2024

September 30, 2024

December 31, 2023

17 unchanged sentences

The Company also invests in U.S.

Treasury Notes and U.S.

Treasury Notes ("T-Notes") and U.S.

Treasury Bills (collectively, "U.S.

12 unchanged sentences

Treasury securities are based on quoted prices for identical assets in active markets.

Income on PT RMBS and U.S.

Treasury Notes is based on the stated interest rate of the security.

Income on PT RMBS and T-Notes is based on the stated interest rate of the security.

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

17 unchanged sentences

The Company uses derivative and other hedging instruments to manage interest rate risk, facilitate asset/liability strategies and manage other exposures, and it may continue to do so in the future.

The principal instruments that the Company has used to date are Treasury Note (“T-Note”), Secured Overnight Financing Rate ("SOFR"), federal funds (“Fed Funds”) and Eurodollar futures contracts, short positions in U.S.

The principal instruments that the Company has used to date are T-Note, Secured Overnight Financing Rate ("SOFR"), federal funds (“Fed Funds”) futures contracts, short positions in U.S.

Treasury securities, interest rate swaps, options to enter in interest rate swaps (“interest rate swaptions”), dual digital options, interest rate caps and floors, and “to-be-announced” (“TBA”) securities transactions, but the Company may enter into other derivative and other hedging instruments in the future.

43 unchanged sentences

ASU 2023 - 07 requires additional disclosures about reportable segments’ significant expenses on an interim and annual basis.

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 ASU 2023 - 07 and the impact on its future financial statements.

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

The Company does not expect the provisions of ASU 2023 - 07 to have a significant 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 June 30, 2024 and December 31, 2023 :

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

(in thousands)

June 30, 2024

September 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 $ 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 notional balance for the interest-only securities portfolio was $ 88.8 million and $ 98.6 million as of September 30, 2024 and December 31, 2023, respectively.

The notional balance for the inverse interest-only securities portfolio was $ 23.4 million and $ 26.8 million as of September 30, 2024 and December 31, 2023, respectively.

The following table is a summary of the Company’s net gain (loss) from the sale of RMBS for the nine months ended September 30, 2024 and 2023.

(in thousands)

Nine Months Ended September 30,

Proceeds from sales of RMBS (1)

$ 288,242 $ -

Carrying value of RMBS sold

( 287,732 ) -

Net gain on sales of RMBS

Gross gain on sales of RMBS

Gross loss on sales of RMBS

Net gain on sales of RMBS

During the nine months ended September 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 June 30, 2024, or the three and six months ended June 30, 2023.

TREASURY SECURITIES, AVAILABLE-FOR-SALE

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

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

Treasury securities with a fair value of approximately $ 99.5 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 June 30, 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 September 30, 2024 and December 31, 2023 are as follows:

(in thousands)

June 30, 2024

September 30, 2024

Treasury Bill maturing 10/24/2024

17 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 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:

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

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

($ in thousands)

June 30, 2024

September 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 $ 11.2 million as of June 30, 2024 .

In addition, cash pledged to counterparties for repurchase agreements was approximately $ 9.2 million as of September 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 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 .

At September 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 $ 221.0 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 September 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 June 30, 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 September 30, 2024 and December 31, 2023 .

(in thousands)

1 unchanged sentence

Balance Sheet Location

June 30, 2024

September 30, 2024

December 31, 2023

4 unchanged sentences

Derivative assets, at fair value

Dual digital option

TBA securities

Derivative assets, at fair value

3 unchanged sentences

Derivative liabilities, at fair value

$ 844 $ 12,694

Total derivative liabilities, at fair value

$ 844 $ 12,694

Margin Balances Posted to (from) Counterparties

4 unchanged sentences

Restricted cash

TBA securities

Other liabilities

Interest rate swaption contracts

2 unchanged sentences

$ 847 $ 28,396

Fed Funds, T-Note and SOFR futures are cash settled futures contracts on an interest rate, with gains and losses credited or charged to the Company’s cash accounts on a daily basis.

Fed Funds, T-Note and SOFR futures are cash and securities settled futures contracts on their respective underlying or delivery eligible underlying U.S.

Treasury security, with gains and losses credited or charged to the Company’s cash accounts on a daily basis.

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 June 30, 2024 and December 31, 2023 .

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

($ in thousands)

June 30, 2024

September 30, 2024

Expiration Year

Treasury Note Futures Contracts (Short Positions) (2)

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

T-Note Futures Contracts (Short Positions)(2)

December 2024 10-year T-Note futures (Dec 2024 - Dec 2034 Hedge Period)

$ 12,500 3.73 % 3.62 % $ ( 88 )

12 unchanged sentences

129,000 3.21 % 3.00 % ( 275 )

June 2026 3-Month SOFR futures (Mar 2026 - Jun 2026 Hedge Period)

104,000 3.15 % 2.97 % ( 178 )

September 2026 3-Month SOFR futures (Jun 2026 - Sep 2026 Hedge Period)

104,000 3.11 % 2.98 % ( 137 )

December 2026 3-Month SOFR futures (Sep 2026 - Dec 2026 Hedge Period)

29,000 3.34 % 3.01 % ( 96 )

March 2027 3-Month SOFR futures (Dec 2026 - Mar 2027 Hedge Period)

16,250 3.10 % 3.04 % ( 10 )

($ in thousands)

1 unchanged sentence

Expiration Year

Treasury Note Futures Contracts (Short Positions) (2)

T-Note Futures Contracts (Short Positions)(2)

March 2024 5-year T-Note futures (Mar 2024 - Mar 2029 Hedge Period)

20 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 $ 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 $ 114.28 at September 30, 2024 and $ 112.89 at December 31, 2023 .

The contract values of the short positions were $ 14.3 million and $ 361.2 million at September 30, 2024 and December 31, 2023 , respectively.

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

3 unchanged sentences

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 June 30, 2024 and December 31, 2023 .

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

($ in thousands)

June 30, 2024

September 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 dual digital option and payer swaption positions at June 30, 2024 and December 31, 2023 .

The table below presents information related to the Company’s payer swaption position at December 31, 2023 .

($ in thousands)

Underlying Swap

June 30, 2024

Dual Digital Option (1)

$ 500 $ 105 2.7 $ 9,412 n/a n/a

December 31, 2023

1 unchanged sentence

$ 1,619 $ 72 5.0 $ 800,000 5.40 % SOFR

If, on September, 20, 2024, the S&P 500 Index (SPX) is lower than 4,725.166 , and the SOFR 10 Year Swap Rate is above 3.883 %, the Company will receive the notional amount.

If either condition is not met, the Company will receive $ 0 .

We purchase interest rate swaptions to help mitigate the potential impact of larger, more rapid changes in interest rates on the performance of our investment portfolio.

4 unchanged sentences

If we sell or exercise a swaption, the realized gain or loss on the swaption would be equal to the difference between the cash or the fair value of the underlying interest rate swap and the premium paid.

A dual digital option is a type of binary, or digital option, that involves both upper and lower conditions.

A dual digital option will only activate if both conditions are met at expiration.

If both conditions are met, we will receive the notional amount.

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 June 30, 2024 and December 31, 2023 .

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

($ in thousands)

June 30, 2024

September 30, 2024

30-Year TBA securities:

12 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 (loss) for the six and three months ended June 30, 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 nine and three months ended September 30, 2024 and 2023 .

(in thousands)

Six Months Ended June 30,

Three Months Ended June 30,

Nine Months Ended September 30,

Three Months Ended September 30,

Interest rate futures contracts (short position)

30 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 June 30, 2024 and December 31, 2023 .

(in thousands)

June 30, 2024

September 30, 2024

December 31, 2023

1 unchanged sentence

PT RMBS - fair value

$ 5,422,450 $ - $ 5,422,450 $ 3,868,624 $ - $ 3,868,624

Structured RMBS - fair value

15,735 - 15,735 16,930 - 16,930

Treasury securities

- 99,467 99,467 - 79,680 79,680

Accrued interest on pledged securities

22,853 - 22,853 14,922 - 14,922

Restricted cash

9,172 2,440 11,612 - 28,396 28,396

$ 5,470,210 $ 101,907 $ 5,572,117 $ 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 June 30, 2024 and December 31, 2023 .

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

(in thousands)

June 30, 2024

September 30, 2024

December 31, 2023

Assets Pledged to Orchid

$ 4,954 $ 1,593 $ 6,547 $ 42,179 $ - $ 42,179

Treasury securities - fair value

1,923 - 1,923 10,429 - 10,429

$ 6,877 $ 1,593 $ 8,470 $ 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 June 30, 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 September 30, 2024 and December 31, 2023 .

(in thousands)

1 unchanged sentence

Gross Amount Not

Offset in the Balance Sheet

Gross Gross of Assets Offset in the Balance Sheet

Amount Amount Presented Financial

Offset in the

June 30, 2024

September 30, 2024

Interest rate swaps

Dual digital option

$ 14,678 $ - $ 14,678 $ - $ - $ 14,678

TBA securities

2,168 - 2,168 - ( 1,593 ) 575

$ 16,846 $ - $ 16,846 $ - $ ( 1,593 ) $ 15,253

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

of Liabilities

Offset in the Balance Sheet

Offset in the

Gross Gross of Liabilities Offset in the Balance Sheet

of Offset in the in the Instruments

as Collateral

June 30, 2024

September 30, 2024

Repurchase Agreements

TBA securities

$ 5,230,871 $ - $ 5,230,871 $ ( 5,221,699 ) $ ( 9,172 ) $ -

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 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.

During the nine months ended September 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)

7 unchanged sentences

8.40 11,990,383 100,698

At the Market Offering Program (3)

Third Quarter

8.25 13,314,022 109,891

26,794,480 $ 223,698

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 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.

From the inception of the stock repurchase program through September 30, 2024 , the Company repurchased a total of 5,144,602 shares at an aggregate cost of approximately $ 77.5 million , including commissions and fees, for a weighted average price of $ 15.07 per share.

During the nine months ended September 30, 2024 , the Company repurchased a total of 396,241 shares at an aggregate cost of approximately $ 3.3 million , including commissions and fees, for a weighted average price of $ 8.30 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 July 25, 2024 was 3,895,829 shares.

The remaining authorization under the stock repurchase program as of October 24, 2024 was 3,832,361 shares.

Cash Dividends

6 unchanged sentences

$ 67.650 $ 685,335

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 .

On October 16, 2024 , the Company declared a dividend of $ 0.12 per share to be paid on November 27, 2024 .

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

STOCK INCENTIVE PLAN

14 unchanged sentences

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 .

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

($ in thousands, except per share data)

Six Months Ended June 30,

Nine Months Ended September 30,

Unvested, beginning of period (1)

8 unchanged sentences

Intrinsic value, end of period

$ 814 $ 1,084

Weighted-average remaining vesting term (in years)

3 unchanged sentences

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 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.

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

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

($ in thousands, except per share data)

Six Months Ended June 30,

Nine Months Ended September 30,

Fully vested shares granted

12 unchanged sentences

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 six months ended June 30, 2024 and 2023 .

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

($ in thousands, except per share data)

Six Months Ended June 30,

Nine Months Ended September 30,

Outstanding, beginning of period

9 unchanged sentences

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 June 30, 2024 .

Management is not aware of any reported or unreported contingencies at September 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 six and three months ended June 30, 2024 and 2023 .

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

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

(in thousands, except per share information)

Six Months Ended June 30,

Three Months Ended June 30,

Nine Months Ended September 30,

Three Months Ended September 30,

Basic and diluted EPS per common share:

1 unchanged sentence

Net income (loss) - Basic and diluted

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

Weighted average shares of common stock:

Shares of common stock outstanding at the balance sheet date

64,824 43,897 64,824 43,897

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

221 178 - 178

Effect of weighting

( 10,246 ) ( 4,719 ) ( 7,060 ) ( 3,864 )

Weighted average shares-basic and diluted

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

Net income (loss) per common share:

Basic and diluted

$ 0.27 $ 0.35 $ ( 0.09 ) $ 0.25

Anti-dilutive incentive shares not included in calculation

The framework for using fair value to measure assets and liabilities defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price).

26 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 six and three months ended June 30, 2024 and 2023 .

Treasury securities, derivatives and TBA securities were recorded at fair value on a recurring basis during the nine and three months ended September 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 June 30, 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 June 30, 2024 and December 31, 2023 .

The following table presents financial assets (liabilities) measured at fair value on a recurring basis as of September 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

June 30, 2024

September 30, 2024

Mortgage-backed securities

1 unchanged sentence

Interest rate swaps

Dual digital option

TBA securities

5 unchanged sentences

TBA securities

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.

During the nine and three months ended September 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 $ 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.

Total expenses recorded for the management fee, allocated overhead and repurchase agreement trading, clearing and administrative services were approximately $ 9.4 million and $ 3.3 million for the nine and three months ended September 30, 2024 , respectively, and $ 10.5 million and $ 3.6 million for the nine and three months ended September 30, 2023 , respectively.

At September 30, 2024 and December 31, 2023 , the net amount due to affiliates was approximately $ 1.2 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 June 30, 2024 , Bimini owned 569,071 shares, or 0.9 %, of the Company’s common stock.

In addition, as of September 30, 2024 , Bimini owned 569,071 shares, or 0.7 %, of the Company’s common stock.

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

27 unchanged sentences

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.

Through September 30, 2024, we issued a total of 15,309,022 shares under the June 2024 Equity Distribution Agreement for aggregate gross proceeds of approximately $128.6 million, and net proceeds of approximately $126.5 million, after commissions and fees.

Subsequent to September 30, 2024, we issued a total of 332,000 shares under the June 2024 Equity Distribution Agreement for aggregate gross proceeds of approximately $2.7 million, and net proceeds of approximately $2.7 million, after commissions and fees.

Stock Repurchase Agreement

7 unchanged sentences

This stock repurchase program has no termination date.

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.

During the nine months ended September 30, 2024 , the Company repurchased a total of 396,241 shares of its common stock at an aggregate cost of approximately $ 3.3 million , including commissions and fees, for a weighted average price of $ 8.30 per share.

Factors that Affect our Results of Operations and Financial Condition

2 unchanged sentences

interest rate trends;

changes in our cost of funds, including increases in the Fed Funds rate that are controlled by the Federal Reserve (the "Fed") that occurred in 2023, or potential decreases in the Fed Funds rate;

changes in our cost of funds, including increases in the Fed Funds rate that are controlled by the Federal Reserve (the "Fed") that occurred in 2023, the decrease in the Fed Funds rate in 2024, or potential additional decreases in the Fed Funds rate;

the difference between Agency RMBS yields and our funding and hedging costs;

13 unchanged sentences

Results of Operations

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.

Described below are the Company’s results of operations for the nine and three months ended September 30, 2024, as compared to the Company’s results of operations for the nine and three months ended September 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:

Net income for the nine months ended September 30, 2024 was $32.1 million, or $0.53 per share.

Net loss for the nine months ended September 30, 2023 was $66.4 million, or $1.58 per share.

Net income for the three months ended September 30, 2024 was $17.3 million, or $0.24 per share.

Net loss for the three months ended September 30, 2023 was $80.1 million, or $1.68 per share.

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

(in thousands)

Six Months Ended June 30,

Three Months Ended June 30,

Nine Months Ended September 30,

Three Months Ended September 30,

Interest income

Interest expense

Net interest expense

Gains on RMBS and derivative contracts

Net interest (expense) income

Gains (losses) on RMBS and derivative contracts

Net portfolio income (loss)

15 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 six months ended June 30, 2024 and 2023, and for each quarter in 2024 to date and 2023.

Described below are the Company’s results of operations for the nine months ended September 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

September 30, 2024

June 30, 2024

4 unchanged sentences

March 31, 2023

Six Months Ended

June 30, 2024

June 30, 2023

Nine Months Ended

September 30, 2024

September 30, 2023

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

29 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 six months ended June 30, 2024 and 2023, and for each quarter of 2024 to date and 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 nine months ended September 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

September 30, 2024

June 30, 2024

4 unchanged sentences

March 31, 2023

Six Months Ended

June 30, 2024

June 30, 2023

Nine Months Ended

September 30, 2024

September 30, 2023

Economic Interest Expense and Economic Net Interest Income

3 unchanged sentences

Three Months Ended

September 30, 2024

June 30, 2024

4 unchanged sentences

March 31, 2023

Six Months Ended

June 30, 2024

June 30, 2023

Nine Months Ended

September 30, 2024

September 30, 2023

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

2 unchanged sentences

Net Interest Income (Expense)

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.

During the nine months ended September 30, 2024 , we incurred net interest expense of $2.8 million consisting of $169.6 million of interest income from RMBS assets offset by $172.4 million of interest expense on borrowings.

For the comparable period ended September 30, 2023 , we incurred $21.6 million of net interest expense, consisting of $128.0 million of interest income from RMBS assets offset by $149.6 million of interest expense on borrowings.

The $41.6 million increase in interest income was due to a 106 basis point ("bps") increase i n the yield on average RMBS, combined with a $223.7 million increase in average RMBS .

The $22.8 million increase in interest expense was due to a 47 bps increase in the average cost of funds, combined with an $217.2 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.

During the three months ended September 30, 2024 , we earned net interest income of $0.3 million consisting of $67.6 million of interest income from RMBS assets offset by $67.3 million of interest expense on borrowings.

For the comparable period ended September 30, 2023 , we incurred $8.6 million of net interest expense, consisting of $50.1 million of interest income from RMBS assets offset by $58.7 million of interest expense on borrowings.

The $17.5 million increase in interest income was due to a 92 bps increase in the yield on average RMBS, combined with a $537.2 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 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.

The $8.6 million increase in interest expense was due to an 18 bps increase in the average cost of funds, combined with a $474.0 million increase in average outstanding borrowings.

On an economic basis, our interest expense on borrowings for the nine months ended September 30, 2024 and 2023 was $83.5 million and $82.5 million , respectively, resulting in $86.1 million and $45.6 million of economic net interest income, respectively.

On an economic basis, our interest expense on borrowings for the three months ended September 30, 2024 and 2023 was $35.4 million and $34.3 million , respectively, resulting in $32.3 million and $15.8 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 nine months ended September 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

September 30, 2024

June 30, 2024

4 unchanged sentences

March 31, 2023

Six Months Ended

June 30, 2024

June 30, 2023

Nine Months Ended

September 30, 2024

September 30, 2023

($ in thousands)

2 unchanged sentences

Three Months Ended

September 30, 2024

June 30, 2024

4 unchanged sentences

March 31, 2023

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.

Nine Months Ended

September 30, 2024

September 30, 2023

Portfolio yields and costs of borrowings presented in the tables above and the tables on pages 30 and 31 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 six months ended June 30, 2024 and 2023, and for each quarter of 2024 to date and 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 nine months ended September 30, 2024 and 2023, and for each quarter of 2024 to date and 2023.

($ in thousands)

3 unchanged sentences

Three Months Ended

September 30, 2024

June 30, 2024

4 unchanged sentences

March 31, 2023

Six Months Ended

June 30, 2024

June 30, 2023

Nine Months Ended

September 30, 2024

September 30, 2023

Interest Expense and the Cost of Funds

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.

We had average outstanding borrowings of $4.2 billion and $4.0 billion and total interest expense of $172.4 million and $149.6 million for the nine months ended September 30, 2024 and 2023, respectively.

Our average cost of funds was 5.51% for the nine months ended September 30, 2024, compared to 5.04% for the comparable period in 2023.

The $22.8 million increase in interest expense was due to the 47 bps increase in the average cost of funds, combined with a $217.2 million increase in average outstanding borrowings during the nine months ended September 30, 2024, as compared to the comparable period in 2023.

We had average outstanding borrowings of $4.8 billion and $4.3 billion and total interest expense of $67.3 million and $58.7 million for the three months ended September 30, 2024 and 2023, respectively.

Our average cost of funds was 5.62% for the three months ended September 30, 2024, compared to 5.44% for the comparable period in 2023.

The $8.6 million increase in interest expense was due to the 18 bps increase in the average cost of funds, combined with a $474.0 million increase in average outstanding borrowings during the three months ended September 30, 2024, as compared to the comparable period in 2023.

Our economic interest expense was $83.5 million and $82.5 million for the nine months ended September 30, 2024 and 2023, respectively.

There was an 11 bps decrease in the average economic cost of funds to 2.67% for the nine months ended September 30, 2024, from 2.78% for the nine months ended September 30, 2023.

Our economic interest expense was $35.4 million and $34.3 million for the three months ended September 30, 2024 and 2023, respectively.

There was a 22 bps decrease in the average economic cost of funds to 2.96% for the three months ended September 30, 2024, from 3.18% for the three months ended September 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 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.

Our average cost of funds calculated on a GAAP basis was 46 bps above the one-month average SOFR and 25 bps above the six-month average SOFR for the quarter ended September 30, 2024.

Our average economic cost of funds was 220 bps below the average one-month SOFR and 241 bps below the average six-month SOFR for the quarter ended September 30, 2024.

The average term to maturity of the outstanding repurchase agreements was 25 days at September 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 nine months ended September 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

September 30, 2024

June 30, 2024

4 unchanged sentences

March 31, 2023

Six Months Ended

June 30, 2024

June 30, 2023

Nine Months Ended

September 30, 2024

September 30, 2023

Average GAAP Cost of Funds

3 unchanged sentences

Three Months Ended

September 30, 2024

June 30, 2024

4 unchanged sentences

March 31, 2023

Six Months Ended

June 30, 2024

Nine Months Ended

September 30, 2024

September 30, 2023

Gains or Losses

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

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

(in thousands)

Six Months Ended June 30,

Three Months Ended June 30,

Realized losses on sales of RMBS

Unrealized losses on RMBS and U.S.

Nine Months Ended September 30,

Three Months Ended September 30,

Realized gains (losses) on sales of RMBS

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

Treasury securities

Total losses on RMBS and U.S.

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

Treasury securities

Gains on T-Note futures

Gains on interest rate swaps

(Losses) gains on interest rate swaps

Gains on payer swaptions (short positions)

4 unchanged sentences

Gains on interest rate floors (long positions)

Gains on TBA securities (short positions)

(Losses) gains on TBA securities (short positions)

Gains (losses) on TBA securities (long positions)

Total gains from derivative instruments

Total (losses) 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 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 June 30, 2024, or the three and six months ended June 30, 2023.

During the nine months ended September 30, 2024, we received proceeds of $288.2 million.

Approximately $221.7 million of these proceeds consisted of pools that were consolidated into a larger pool and simultaneously acquired by us.

No gain or loss was recorded on this resecuritization.

During the three months ended September 30, 2024, we received proceeds of approximately $66.5 million from the sales of RMBS, resulting in gains of approximately $0.5 million.

We did not sell any RMBS during the three and nine months ended September 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.

September 30, 2024

June 30, 2024

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Three Months Ended

September 30, 2024

June 30, 2024

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

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.

For the nine and three months ended September 30, 2024, the Company’s total operating expenses were approximately $12.4 million and $4.3 million, compared to approximately $14.5 million and $4.6 million for the nine and three months ended September 30, 2023.

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

(in thousands)

Six Months Ended June 30,

Three Months Ended June 30,

Nine Months Ended September 30,

Three Months Ended September 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 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.

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

Accrued incentive compensation for the nine months ended September 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 six months ended June 30, 2024 and 2023, and for each quarter in 2024 to date and 2023.

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

($ in thousands)

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Three Months Ended

September 30, 2024

June 30, 2024

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March 31, 2023

Six Months Ended

June 30, 2024

June 30, 2023

Nine Months Ended

September 30, 2024

September 30, 2023

Financial Condition:

Mortgage-Backed Securities

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.

As of September 30, 2024, our RMBS portfolio consisted of $5,442.8 million of Agency RMBS at fair value and had a weighted average coupon on assets of 4.90%.

During the nine months ended September 30, 2024, we received principal repayments of $310.3 million, compared to $237.9 million for the nine months ended September 30, 2023.

The average three month prepayment speeds for the quarters ended September 30, 2024 and 2023 were 8.8% and 6.0%, 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 (%)

September 30, 2024

June 30, 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 June 30, 2024 and December 31, 2023:

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

($ in thousands)

Asset Category

June 30, 2024

September 30, 2024

Fixed Rate RMBS

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($ in thousands)

June 30, 2024

September 30, 2024

December 31, 2023

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Total Portfolio

June 30, 2024

September 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 4.290 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 3.490 indicates that an interest rate increase of 1.0% would be expected to cause a 3.490% decrease in the value of the RMBS in the Company’s investment portfolio at September 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 six months ended June 30, 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 nine months ended September 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 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.

As of September 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 25 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 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%.

As of September 30, 2024, we had obligations outstanding under the repurchase agreements of approximately $5,230.9 million with a net weighted average borrowing cost of 5.24%.

The remaining maturity of our outstanding repurchase agreement obligations ranged from 9 to 51 days, with a weighted average remaining maturity of 25 days.

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.

Securing the repurchase agreement obligations as of September 30, 2024 are RMBS with an estimated fair value, including accrued interest, of approximately $5,461.0 million, and cash pledged to counterparties of approximately $9.2 million.

Through October 25, 2024, we have been able to maintain our repurchase facilities with comparable terms to those that existed at September 30, 2024, with maturities through November 20, 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

September 30, 2024

June 30, 2024

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

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.

Our economic leverage at September 30, 2024 was 7.6 to 1, compared to 6.7 to 1 as of December 31, 2023.

Our adjusted leverage at September 30, 2024 was 8.0 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'

September 30, 2024

June 30, 2024

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rather haircuts are determined on an individual repo transaction basis.

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.

Throughout the nine months ended September 30, 2024, haircuts on our pledged collateral remained stable and as of September 30, 2024, our weighted average haircut was approximately 4.3% 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 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 of September 30, 2024, we had cash and cash equivalents of $322.1 million.

We generated cash flows of $459.4 million from principal and interest payments on our RMBS and had average repurchase agreements outstanding of $4,175.2 million during the nine months ended September 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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June 30, 2024, we

September 30, 2024, we

issued a total of 15,309,022 shares under the June 2024 Equity Distribution Agreement for aggregate gross proceeds of approximately $128.6 million, and net proceeds of approximately $126.5 million, after commissions and fees.

Subsequent to

June 30, 2024, we

September 30, 2024, we

issued a total of 332,000 shares under the June 2024 Equity Distribution Agreement for aggregate gross proceeds of approximately $2.7 million, and net proceeds of approximately $2.7 million, after commissions and fees.

Economic Summary

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.

The trajectory of the economy that existed as the second quarter of 2024 ended continued into the third quarter.

The trend was apparent in the incoming economic data, the level of interest rates and the outlook for monetary policy on the part of the Fed.

With respect to the latter, the Fed finally lowered the Fed Funds rate in late September by 50 basis points, the first interest rate cut since the Fed stopped tightening monetary policy in March of 2023.

The move was well telegraphed by various Fed officials during their public comments leading up to the event as the Fed was careful not to surprise the market with the cut.

Throughout the third quarter, incoming labor market and inflation data was consistent with the Fed’s view that inflation was approaching its 2% target and would soon get there.

The Fed's focus has shifted to the labor market and ensuring the supply/demand balance that had led to a low unemployment rate and outsized wage gains did not slow too much and jeopardize its efforts to fulfill its second mandate of full employment.

Further, elevated interest rate levels had materially impacted the housing market and other interest rate sensitive sectors of the economy, so the Fed feared that if the labor market cooled too much then economic growth could as well.

The manufacturing side of the economy was already weak, so all things considered the Fed's movement of monetary policy back towards the neutral rate was consistent with its mandates.

Unlike the inflation and labor market data, consumer spending levels and economic growth generally – as measured by GDP – were still quite robust during the third quarter and, in the case of the latter, trending at or above sustainable trend growth rates.

However, as long as inflation data continued to move towards its target level – and such data was already there when three- or six-month measures were annualized – the Fed appeared comfortable lowering the Fed Funds rate to ensure the labor market did not cool too much.

As the fourth quarter of 2024 begins, the latest reading on the labor market appears to have reversed the slowing trend apparent over the last several months as the September reading was very strong, previous months data was revised higher and the unemployment rate declined.

Also, in late September, the government revised previously released data on gross domestic income (“GDI”), another measure of economic growth.

GDI data over the past several quarters had been quite low and inconsistent with GDP data and consumer spending levels.

Most economists believed the GDI data painted the more accurate picture of the true level of economic growth in the economy.

However, the GDI data was revised higher and was now consistent with the GDP data.

Together with the latest labor market data, the economy now appears quite healthy and the market expects that the Fed will be more conservative in the timing and extent of further reductions in the Fed Funds rate.

Interest Rates

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.

Over the course of the third quarter of 2024, interest rates continued to decrease as they had through the last two months of the second quarter.

After the yield on the 10-year T-Note peaked at 4.7% in late April 2024, the yield trended downward until hitting a year-to-date low near 3.6% on September 16, 2024.

However, the GDI revisions in late September, coupled with the resurgence in the labor market data released in early October, drove 10-year U.S.

Treasury rates back above 4% in early October.

Otherwise, the U.S Treasury and swap curves steepened throughout the third quarter of 2024.

The spread between the 2-year and 10-year T-Notes turned positive in early September 2024 for the first time since mid-2022, ending the longest period of inversion ever recorded.

As noted above, the Fed reduced the overnight Fed Funds rate at its meeting in September by 50 basis points.

Given developments discussed above that occurred prior to the Fed’s meeting in September – cooling inflation data, a slowing labor market and comments by Fed officials regarding their desire to start to remove overly restrictive monetary policy – the market anticipated two such 50 basis point cuts and at least one additional 25 basis point cut by year-end based on price levels in the futures and related markets.

The developments late in the third quarter of 2024 and early in the fourth quarter of 2024 – the GDI revisions, September labor market report and even the September inflation report released in early October, which was slightly higher than expectations – have reduced market expectations of further Fed Funds rate cuts this year to less than two more 25 basis point cuts.

Some economists believe the economy may have achieved a “soft” landing after the 500+ basis point hikes initiated by the Fed.

A soft landing refers to the outcome where the economy does not suffer a contraction or even slowdown growth following a tightening cycle by the Fed.

Such instances are very rare, and it remains to be seen if this will prove to be the case.

Interest rate volatility embedded in interest rate derivatives, as measured by the MOVE index, was elevated throughout the third quarter of 2024 and even increased further still late in the quarter after the Fed Funds rate cut, likely in response to the developments discussed above, geopolitical events in the Middle East and uncertainty surrounding the U.S.

presidential election in November.

The value of the index approached a year-to-date high reading in early October.

Given that uncertainty surrounding these same events remains, it is likely interest rate volatility will remain elevated through the fourth quarter of 2024.

T he Agency RMBS Market

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Treasuries and $17.5 billion of Agency RMBS each month.

On September 21, 2022, the FOMC announced the Fed’s decision to continue reducing the balance sheet by a maximum of $60 billion of U.S.

Treasuries and $35 billion of Agency RMBS per month.

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.

On September 21, 2022, the FOMC announced the Fed’s decision to continue reducing its balance sheet by a maximum of $60 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.

This step could ultimately lead to the Enterprises being privatized and represents the first concrete step on the road to Enterprise reform.

In December 2020, the FHFA released a final rule on a new regulatory framework for the Enterprises which seeks to implement both a risk-based capital framework and minimum leverage capital requirements.

On January 14, 2021, the U.S.

Treasury and the FHFA executed letter agreements allowing the Enterprises to continue to retain capital up to their regulatory minimums, including buffers, as prescribed in the December rule.

These letter agreements provide, in part, (i) there will be no exit from conservatorship until all material litigation is settled and the Enterprise has common equity Tier 1 capital of at least 3% of its assets, (ii) the Enterprises will comply with the FHFA’s regulatory capital framework, (iii) higher-risk single-family mortgage acquisitions will be restricted to then current levels, and (iv) the U.S.

Treasury and the FHFA will establish a timeline and process for future Enterprise reform.

However, no definitive proposals or legislation have been released or enacted with respect to ending the conservatorship, unwinding the Enterprises, or materially reducing the roles of the Enterprises in the U.S.

mortgage market.

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

Treasuries and remove the cap on Agency RMBS reduction, with any amounts in excess of $35 billion per month being reinvested in U.S.

Treasury securities.

Relatively high interest rates and slow prepayment speeds have kept the balance sheet reduction for Agency RMBS below $20 billion per month throughout 2024, although an increase in mortgage refinance applications following the announcement of the Fed Funds rate cut in September 2024 may accelerate the process.

As of August 2024, the Fed had reduced its balance sheet for Agency RMBS by approximately $440 billion from the peak to $2.3 trillion, shedding approximately 32% of the Agency RMBS added during pandemic quantitative easing and representing the lowest level since June 2021.

On September 14, 2021, the U.S.

Treasury and the FHFA suspended certain policy provisions in the January agreement, including limits on loans acquired for cash consideration, multifamily loans, loans with higher risk characteristics and second homes and investment properties.

On February 25, 2022, the FHFA published a final rule, effective as of April 26, 2022, amending the Enterprise capital framework established in December 2020 by, among other things, replacing the fixed leverage buffer equal to 1.5% of an Enterprise’s adjusted total assets with a dynamic leverage buffer equal to 50% of an Enterprise’s stability capital buffer, reducing the risk weight floor from 10% to 5%, and removing the requirement that the Enterprises must apply an overall effectiveness adjustment to their credit risk transfer exposures.

On June 14, 2022, the Enterprises announced that they would each charge a 50 bps fee for commingled securities issued on or after July 1, 2022 to cover the additional capital required for such securities under the Enterprise capital framework, which was subsequently reduced on January 19, 2023 to 9.375 bps for commingled securities issued on or after April 1, 2023 to address industry concern that the fee posed a risk to the fungibility of the Uniform Mortgage-Backed Security (“UMBS”) and negatively impacted liquidity and pricing in the market for TBA securities.

Treasury and the FHFA suspended certain policy provisions in the Enterprise capital framework established in December 2020, including limits on loans acquired for cash consideration, multifamily loans, loans with higher risk characteristics and second homes and investment properties.

Effective April 26, 2022, the FHFA further amended this framework by, among other things, replacing the fixed leverage buffer equal to 1.5% of an Enterprise’s adjusted total assets with a dynamic leverage buffer equal to 50% of an Enterprise’s stability capital buffer, reducing the risk weight floor from 10% to 5%, and removing the requirement that the Enterprises must apply an overall effectiveness adjustment to their credit risk transfer exposures.

On June 14, 2022, the Enterprises announced that they would each charge a 50 bps fee for commingled securities issued on or after July 1, 2022 to cover the additional capital required for such securities under the Enterprise capital framework, which was subsequently reduced on January 19, 2023 to 9.375 bps for commingled securities issued on or after April 1, 2023 to address industry concern that the fee posed a risk to the fungibility of the Uniform Mortgage-Backed Security and negatively impacted liquidity and pricing in the market for TBA securities.

On November 30, 2023, the FHFA published a final rule, which became effective April 1, 2024, which will, among other things, reduce the risk weight and credit conversion factor for guarantees on commingled securities to 5% and 50%, respectively;

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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.

In remarks given on September 10, 2024, Michael Barr, the Fed's Vice Chair for Supervision, confirmed that the Basel III Endgame was being rewritten to, among other things, reduce the risk weights for residential real estate and retail exposures, extend the scope of the reduced risk weight for certain low-risk corporate debt, and eliminate the minimum haircut for securities financing transactions.

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 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.

The long-awaited impacts of tight monetary policy orchestrated by the Fed appear to have finally slowed inflation sufficiently such that the Fed could re-focus on its second mandate – full employment in the economy.

The labor market data over the course of the second and third quarters of 2024 reflected greater balance between the supply and demand for labor, such that hiring and wage growth were slowing and the unemployment rate was rising gradually.

In late September 2024, the Fed reduced the Fed funds rate by 50 basis points, and the market anticipated it was the first of many such cuts.

In contrast, growth in the economy, as measured by both GDP and GDI as well as consumer spending, has remained robust throughout.

However, the non-farm payroll report for September 2024, released in early October, as well as the latest readings on inflation suggest that the Fed may be more conservative in the timing and extent of further reductions in the Fed Funds rate than the market had expected at the beginning of the third quarter.

Interest rates decreased over the course of the third quarter of 2024, continuing the trend started in late April 2024.

Treasury curve also steepened as the market anticipated additional easing of monetary policy by the Fed and the spread between the 2-year and 10-year T-Notes finally turned positive in early September 2024 after being inverted since mid-2022, the longest inversion ever.

Cheaper funding levels coupled with a still healthy economy were supportive of risk assets, and domestic fixed income securities all generated positive returns for the quarter.

Agency RMBS also generated positive excess returns versus comparable duration swaps.

Based on recent positive economic data, it is unclear how much further the Fed will go in relaxing monetary policy.

Further, geo-political events around the world, especially in the Middle East, as well as the U.S.

presidential election in November, are cause for uncertainty in the outlook for markets and the economy.

The market in which the Company invests the preponderance of its capital, the Agency RMBS market, has performed well so far in 2024, and potential returns available in the market remain attractive.

While additional Fed Funds rate cuts by the Fed may be supportive of the Company’s earnings going forward, the Company also expects that its hedge positions in place will allow it to continue to generate attractive dividends if current market rates persist.

Critical Accounting Estimates

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Capital Expenditures

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

At September 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.

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2024 - YTD (1)

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.

On October 16, 2024, the Company declared a dividend of $0.12 per share to be paid on November 27, 2024.

The effect of this dividend is included in the table above but is not reflected in the Company’s financial statements as of September 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