Orchid Island Capital, Inc. 10-K

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information and Holders Our common stock trades on the NYSE under the symbol “ORC.” As of February 21, 2025, we had 93,293,628 shares of common stock issued and outstanding which were held by 12 stockholders of record and approximately 69,600 beneficial owners whose shares were held in “street name” by brokers and depository institutions. Dividend Distribution Policy We intend to continue to make regular monthly cash distributions to our stockholders, as more fully described below. To maintain our qualification as a REIT, we must distribute annually to our stockholders an amount at least equal to 90% of our REIT taxable income, determined without regard to the deductions for dividends paid and excluding any net capital gain. We will be subject to income tax on our taxable income that is not distributed and to an excise tax to the extent that certain percentages of our taxable income are not distributed by specified dates. Income as computed for purposes of the foregoing tax rules will not necessarily correspond to our income as determined for financial reporting purposes pursuant to GAAP. Any additional distributions we make will be authorized by and at the discretion of our Board of Directors based upon a variety of factors deemed relevant by our directors, which may include: ● actual results of operations; ● our financial condition; ● our level of retained cash flows; ● our capital requirements; ● any debt service requirements; ● our taxable income; ● the annual distribution requirements under the REIT provisions of the Code; ● applicable provisions of Maryland law; and ● other factors that our Board of Directors may deem relevant. We have not established a minimum distribution payment level, and we cannot assure you of our ability to make distributions to our stockholders in the future. Our charter authorizes us to issue preferred stock that could have a preference over our common stock with respect to distributions. If we issue any preferred stock, the distribution preference on the preferred stock could limit our ability to make distributions to the holders of our common stock. Our ability to make distributions to our stockholders will depend upon the performance of our investment portfolio, and, in turn, upon our Manager’s management of our business. To the extent that our cash available for distribution is less than the amount required to be distributed under the REIT provisions of the Code, we may consider various funding sources to cover any shortfall, including selling certain of our assets, borrowing funds or using a portion of the net proceeds we receive in future securities offerings (and thus all or a portion of such distributions may constitute a return of capital for U.S. federal income tax purposes). We also may elect to pay all or a portion of any distribution in the form of a taxable distribution of our stock or debt securities. In addition, our Board of Directors may change our distribution policy in the future. 40 Table of Contents Performance Graph Set forth below is a graph comparing the yearly percentage change in the cumulative total return on our common stock through December 31, 2024, with the cumulative total return of the S&P 500 Total Return Index and the FTSE NAREIT Mortgage REIT Index. The performance graph was prepared based on the following assumptions: (i) $100 was invested in the Company's common stock, the S&P 500 Total Return Index and the FTSE NAREIT Mortgage REIT Index on December 31, 2019, and (ii) dividends were reinvested on the relevant payment dates. The information in the performance chart and the table below has been obtained from sources believed to be reliable, but its accuracy nor its completeness can be guaranteed. The historical information set forth below is not necessarily indicative of future performance. 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 Orchid Island Capital, Inc. 100.00 105.25 105.40 58.89 57.09 62.76 NAREIT Mortgage REIT TRR Index 100.00 81.23 93.93 68.94 79.52 79.80 S&P 500 Total Return Index 100.00 118.40 152.39 124.79 157.59 197.02 Securities Authorized for Issuance under Equity Compensation Plans Information about securities authorized for issuance under our equity compensation plans required for this Item 5 is incorporated by reference to our definitive Proxy Statement to be filed in connection with our 2025 annual meeting of stockholders. Unregistered Sales of Equity Securities The Company did not issue or sell equity securities that were not registered under the Securities Act during the year ended December 31, 2024. 41 Table of Contents Issuer Purchases of Equity Securities On July 29, 2015, the Company's Board of Directors authorized the repurchase of up to 400,000 shares of the Company's common stock. On February 8, 2018, the Board of Directors approved an increase in the stock repurchase program for up to an additional 904,564 shares of the Company's common stock. On December 9, 2021, the Board of Directors approved an increase in the number of shares of the Company’s common stock available in the stock repurchase program for up to an additional 3,372,399 shares. On October 12, 2022, the Board of Directors approved an increase in the stock repurchase program for up to an additional 4,300,000 shares of the Company's common stock, bringing the remaining authorization under the stock repurchase program to up to 6,183,601 shares, representing approximately 18% of the Company’s then outstanding shares of common stock. Unless modified or revoked by the Board, the authorization does not expire. The table below presents the Company's share repurchase activity for the three months ended December 31, 2024. Maximum Number of Shares Shares That Total Weighted- Purchased as May Yet Be Number Average Part of Publicly Repurchased of Shares Price Paid Announced Under the Repurchased (1) Per Share Programs Authorization October 1, 2024 - October 31, 2024 - $ - - 3,832,361 November 1, 2024 - November 30, 2024 - $ - - 3,832,361 December 1, 2024 - December 31, 2024 1,920 $ 7.87 - 3,832,361 Totals / Weighted Average 1,920 $ 7.87 - 3,832,361 (1) Includes 1,920 shares of the Company’s common stock acquired by the Company in connection with the satisfaction of tax withholding obligations on vested employment related awards under equity incentive plans. These repurchases do not reduce the number of shares available under the stock repurchase program authorization. ITEM 6. RESERVED. 42 Table of Contents ITEM 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and notes to those statements included in Item 8 of this Form 10-K. The discussion may contain certain forward-looking statements that involve risks and uncertainties. Forward-looking statements are those that are not historical in nature. As a result of many factors, such as those set forth under “Risk Factors” in this Form 10-K, our actual results may differ materially from those anticipated in such forward-looking statements. Common Stock Reverse Split On August 30, 2022, the Company effected a 1-for-5 reverse stock split of its common stock and proportionately decreased the number of authorized shares of common stock. All share and per share information has been retroactively adjusted to reflect the reverse split. Overview We are a specialty finance company that invests in residential mortgage-backed securities (“RMBS”) which are issued and guaranteed by a federally chartered corporation or agency (“Agency RMBS”). Our investment strategy focuses on, and our portfolio consists of, two categories of Agency RMBS: (i) traditional pass-through Agency RMBS, such as mortgage pass-through certificates issued by the Federal National Mortgage Association ("Fannie Mae"), the Federal Home Loan Mortgage Corporation ("Freddie Mac" and together with Fannie Mae, the "Enterprises") or the Government National Mortgage Association ("Ginnie Mae" and, together with the Enterprises the “GSEs”) and collateralized mortgage obligations (“CMOs”) issued by the GSEs (“PT RMBS”) and (ii) structured Agency RMBS, such as interest-only securities (“IOs”), inverse interest-only securities (“IIOs”) and principal only securities (“POs”), among other types of structured Agency RMBS. We were formed by Bimini Capital Management, Inc. ("Bimini") in August 2010, commenced operations on November 24, 2010 and completed our initial public offering (“IPO”) on February 20, 2013. We are externally managed by Bimini Advisors, LLC ("Bimini Advisors," or our "Manager"), an investment adviser registered with the Securities and Exchange Commission (the “SEC”). Our business objective is to provide attractive risk-adjusted total returns over the long term through a combination of capital appreciation and the payment of regular monthly distributions. We intend to achieve this objective by investing in and strategically allocating capital between the two categories of Agency RMBS described above. We seek to generate income from (i) the net interest margin on our leveraged PT RMBS portfolio and the leveraged portion of our structured Agency RMBS portfolio, and (ii) the interest income we generate from the unleveraged portion of our structured Agency RMBS portfolio. We intend to fund our PT RMBS and certain of our structured Agency RMBS through short-term borrowings structured as repurchase agreements. PT RMBS and structured Agency RMBS typically exhibit materially different sensitivities to movements in interest rates. Declines in the value of one portfolio may be offset by appreciation in the other. The percentage of capital that we allocate to our two Agency RMBS asset categories will vary and will be actively managed in an effort to maintain the level of income generated by the combined portfolios, the stability of that income stream and the stability of the value of the combined portfolios. We believe that this strategy will enhance our liquidity, earnings, book value stability and asset selection opportunities in various interest rate environments. We operate so as to qualify to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"). We generally will not be subject to U.S. federal income tax to the extent that we currently distribute all of our REIT taxable income (as defined in the Code) to our stockholders and maintain our REIT qualification. The Company’s common stock trades on the New York Stock Exchange under the symbol “ORC”. Capital Raising Activities On October 29, 2021, we entered into an equity distribution agreement (the “October 2021 Equity Distribution Agreement”) with four sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions. We issued a total of 9,742,188 shares under the October 2021 Equity Distribution Agreement for aggregate gross proceeds of approximately $151.8 million, and net proceeds of approximately $149.3 million, after commissions and fees, prior to its termination in March 2023. 43 Table of Contents On March 7, 2023, we entered into an equity distribution agreement (the “March 2023 Equity Distribution Agreement”) with three sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions. We issued a total of 24,675,497 shares under the March 2023 Equity Distribution Agreement for aggregate gross proceeds of approximately $228.8 million and net proceeds of approximately $225.0 million, after commissions and fees, prior to its termination in June 2024. On June 11, 2024, we entered into an equity distribution agreement (the “June 2024 Equity Distribution Agreement”) with three sales agents pursuant to which we may offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that are deemed to be “at the market” offerings and privately negotiated transactions. Through December 31, 2024, we issued a total of 19,842,089 shares under the June 2024 Equity Distribution Agreement for aggregate gross proceeds of approximately $164.9 million, and net proceeds of approximately $162.1 million, after commissions and fees. Subsequent to December 31, 2024, we issued a total of 10,671,164 shares under the June 2024 Equity Distribution Agreement for aggregate gross proceeds of approximately $85.1 million, and net proceeds of approximately $83.8 million, after commissions and fees. Stock Repurchase Program On July 29, 2015, the Company’s Board of Directors authorized the repurchase of up to 400,000 shares of our common stock. The timing, manner, price and amount of any repurchases is determined by the Company in its discretion and is subject to economic and market conditions, stock price, applicable legal requirements and other factors. The authorization does not obligate the Company to acquire any particular amount of common stock and the program may be suspended or discontinued at the Company’s discretion without prior notice. On February 8, 2018, the Board of Directors approved an increase in the stock repurchase program for up to an additional 904,564 shares of the Company’s common stock. Coupled with the 156,751 shares remaining from the original 400,000 share authorization, the increased authorization brought the total authorization to 1,061,315 shares, representing 10% of the then outstanding share count. On December 9, 2021, the Board of Directors approved an increase in the number of shares of the Company’s common stock available in the stock repurchase program for up to an additional 3,372,399 shares, bringing the remaining authorization under the stock repurchase program to 3,539,861 shares, representing approximately 10% of the Company’s then outstanding shares of common stock. On October 12, 2022, the Board of Directors approved an increase in the number of shares of the Company’s common stock available in the stock repurchase program for up to an additional 4,300,000 shares, bringing the remaining authorization under the stock repurchase program to 6,183,601 shares, representing approximately 18% of the Company’s then outstanding shares of common stock. This stock repurchase program has no termination date. From the inception of the stock repurchase program through December 31, 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 year ended December 31, 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 A variety of industry and economic factors may impact our results of operations and financial condition. These factors include: ● 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 2022 and 2023, the decreases 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; ● competition for, and supply of, investments in Agency RMBS; ● actions taken by the U.S. government, including the presidential administration, the Fed, the Federal Housing Financing Agency (the “FHFA”), the Federal Deposit Insurance Corporation (the "FDIC"), the Federal Housing Administration (the “FHA”), the Federal Open Market Committee (the “FOMC”) and the U.S. Treasury; ● prepayment rates on mortgages underlying our Agency RMBS and credit trends insofar as they affect prepayment rates; and ● other market developments, including bank failures. 44 Table of Contents In addition, a variety of factors relating to our business may also impact our results of operations and financial condition. These factors include: ● our degree of leverage; ● our access to funding and borrowing capacity; ● our borrowing costs; ● our hedging activities; ● the market value of our investments; and ● the requirements to maintain our qualification as a REIT and the requirements to qualify for a registration exemption under the Investment Company Act. Results of Operations Described below are the Company’s results of operations for the year ended December 31, 2024, as compared to the Company’s results of operations for the years ended December 31, 2023 and 2022. Net Income (Loss) Summary Net income for the year ended December 31, 2024 was $37.7 million, or $0.57 per share. Net loss for the year ended December 31, 2023 was $39.2 million, or $0.89 per share. Net loss for the year ended December 31, 2022 was $258.5 million, or $6.90 per share. The components of net income (loss) for the years ended December 31, 2024, 2023 and 2022 are presented in the table below: (in thousands) 2024 2023 2022 Interest income $ 241,577 $ 177,569 $ 144,633 Interest expense (236,281 ) (201,918 ) (61,708 ) Net interest income 5,296 (24,349 ) 82,925 Gains (losses) on RMBS and derivative contracts 49,110 3,654 (323,929 ) Net portfolio income (loss) 54,406 (20,695 ) (241,004 ) Expenses (16,744 ) (18,531 ) (17,449 ) Net income (loss) $ 37,662 $ (39,226 ) $ (258,453 ) GAAP and Non-GAAP Reconciliations In addition to the results presented in accordance with GAAP, our results of operations discussed below include certain non-GAAP financial information, including “Net Earnings Excluding Realized and Unrealized Gains and Losses”, “Economic Interest Expense”, “Economic Net Interest Income,” “Interest Income – Inclusive of Premium Amortization/Discount Accretion” and “Yield on Average RMBS – Inclusive of Premium Amortization/Discount Accretion.” Net Earnings Excluding Realized and Unrealized Gains and Losses We have elected to account for our Agency RMBS under the fair value option. Securities held under the fair value option are recorded at estimated fair value, with changes in the fair value recorded as unrealized gains or losses through the statements of comprehensive income (loss). In addition, we have not designated our derivative financial instruments used for hedging purposes as hedges for accounting purposes, but rather hold them for economic hedging purposes. Changes in fair value of these instruments are presented in a separate line item in the Company’s statements of comprehensive income (loss) and are not included in interest expense. As such, for financial reporting purposes, interest expense and cost of funds are not impacted by the fluctuation in value of the derivative instruments. 45 Table of Contents Presenting net earnings excluding realized and unrealized gains and losses allows management to: (i) isolate the net interest income and other expenses of the Company over time, free of all fair value adjustments and (ii) assess the effectiveness of our funding and hedging strategies on our capital allocation decisions and our asset allocation performance. Our funding and hedging strategies, capital allocation and asset selection are integral to our risk management strategy, and therefore critical to the management of our portfolio. We believe that the presentation of our net earnings excluding realized and unrealized gains is useful to investors because it provides a means of comparing our results of operations to those of our peers who have not elected the same accounting treatment. Our presentation of net earnings excluding realized and unrealized gains and losses may not be comparable to similarly-titled measures of other companies, who may use different calculations. As a result, net earnings excluding realized and unrealized gains and losses should not be considered as a substitute for our GAAP net income (loss) as a measure of our financial performance or any measure of our liquidity under GAAP. 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 years ended December 31, 2024, 2023 and 2022, and for each quarter during 2024, 2023 and 2022. Net Earnings (Loss) Excluding Realized and Unrealized Gains and Losses (in thousands, except per share data) Per Share Net Net Earnings Earnings (Loss) (Loss) Excluding Excluding Net Realized and Realized and Net Realized and Realized and Income Unrealized Unrealized Income Unrealized Unrealized (Loss) Gains and Gains and (Loss) Gains and Gains and (GAAP) Losses (1) Losses (GAAP) Losses (1) Losses Three Months Ended December 31, 2024 $ 5,545 $ 1,759 $ 3,786 $ 0.07 $ 0.02 $ 0.05 September 30, 2024 17,320 21,249 (3,929 ) 0.24 0.29 (0.05 ) June 30, 2024 (4,979 ) 98 (5,077 ) (0.09 ) - (0.09 ) March 31, 2024 19,776 26,004 (6,228 ) 0.38 0.50 (0.12 ) December 31, 2023 27,127 33,977 (6,850 ) 0.52 0.65 (0.13 ) September 30, 2023 (80,132 ) (66,890 ) (13,242 ) (1.68 ) (1.40 ) (0.28 ) June 30, 2023 10,249 23,828 (13,579 ) 0.25 0.59 (0.34 ) March 31, 2023 3,530 12,739 (9,209 ) 0.09 0.33 (0.24 ) December 31, 2022 34,926 36,727 (1,801 ) 0.95 1.00 (0.05 ) September 30, 2022 (84,513 ) (94,433 ) 9,920 (2.40 ) (2.68 ) 0.28 June 30, 2022 (60,139 ) (82,673 ) 22,534 (1.70 ) (2.33 ) 0.63 March 31, 2022 (148,727 ) (183,550 ) 34,823 (4.20 ) (5.19 ) 0.99 Years Ended December 31, 2024 $ 37,662 $ 49,110 $ (11,448 ) $ 0.57 $ 0.75 $ (0.18 ) December 31, 2023 (39,226 ) 3,654 (42,880 ) (0.89 ) 0.08 (0.97 ) December 31, 2022 (258,453 ) (323,929 ) 65,476 (6.90 ) (8.65 ) 1.75 (1) Includes realized and unrealized gains (losses) on RMBS and derivative financial instruments, including net interest income or expense on interest rate swaps. Prior to 2023, we included certain expenses related to our derivative instruments in "Direct REIT operating expenses" in the statements of comprehensive income (loss). Beginning in 2023, we have included these expenses in "Gains (losses) on derivative and hedging instruments." Prior period amounts have been reclassified to conform with the current presentation. The table below presents the effect of this reclassification for each quarter in 2022. 46 Table of Contents Realized and Unrealized Gains and Losses - Reclassification of Derivative Transaction Expenses (in thousands, except per share data) Net Earnings (Loss) Excluding Realized and Unrealized Realized and Unrealized Gains and Losses Gains and Losses Prior Reclassified Current Prior Reclassified Current Presentation Expenses Presentation Presentation Expenses Presentation Three Months Ended December 31, 2022 $ 38,389 $ (1,662 ) $ 36,727 $ (3,463 ) $ (1,662 ) $ (1,801 ) September 30, 2022 (93,544 ) (889 ) (94,433 ) 9,031 (889 ) 9,920 June 30, 2022 (82,282 ) (391 ) (82,673 ) 22,143 (391 ) 22,534 March 31, 2022 (183,232 ) (318 ) (183,550 ) 34,505 (318 ) 34,823 Per Share Three Months Ended December 31, 2022 $ 1.04 $ (0.04 ) $ 1.00 $ (0.09 ) $ (0.04 ) $ (0.05 ) September 30, 2022 (2.66 ) (0.02 ) (2.68 ) 0.26 (0.02 ) 0.28 June 30, 2022 (2.32 ) (0.01 ) (2.33 ) 0.62 (0.01 ) 0.63 March 31, 2022 (5.18 ) (0.01 ) (5.19 ) 0.98 (0.01 ) 0.99 Economic Interest Expense and Economic Net Interest Income We use derivative and other hedging instruments, specifically Fed Funds, SOFR and T-Note futures contracts, short positions in U.S. Treasury securities, interest rate floors and caps, dual digital options, interest rate swaps and swaptions, to hedge a portion of the interest rate risk on repurchase agreements in a rising rate environment. We have not elected to designate our derivative holdings for hedge accounting treatment. Changes in fair value of these instruments are presented in a separate line item in our statements of comprehensive income (loss) and not included in interest expense. As such, for financial reporting purposes, interest expense and cost of funds are not impacted by the fluctuation in value of the derivative instruments. For the purpose of computing economic net interest income and ratios relating to cost of funds measures, GAAP interest expense has been adjusted to reflect the realized and unrealized gains or losses on certain derivative instruments the Company uses, specifically Fed Funds, SOFR and T-Note futures, dual digital options, interest rate floors and caps, and interest rate swaps and swaptions, that pertain to each period presented. We believe that adjusting our interest expense for the periods presented by the gains or losses on these derivative instruments would not accurately reflect our economic interest expense for these periods. The reason is that these derivative instruments may cover periods that extend into the future, not just the current period. Any realized or unrealized gains or losses on the instruments reflect the change in market value of the instrument caused by changes in underlying interest rates applicable to the term covered by the instrument, not just the current period. For each period presented, we have combined the effects of the derivative financial instruments in place for the respective period with the actual interest expense incurred on borrowings to reflect total economic interest expense for the applicable period. Interest expense, including the effect of derivative instruments for the period, is referred to as economic interest expense. Net interest income, when calculated to include the effect of derivative instruments for the period, is referred to as economic net interest income. This presentation includes gains or losses on all contracts in effect during the reporting period, covering the current period as well as periods in the future. From time to time, we invest in TBAs, which are forward contracts for the purchase or sale of Agency RMBS at a predetermined price, face amount, issuer, coupon and stated maturity on an agreed-upon future date. The specific Agency RMBS to be delivered into the contract are not known until shortly before the settlement date. We may choose, prior to settlement, to move the settlement of these securities out to a later date by entering into a dollar roll transaction. The Agency RMBS purchased or sold for a forward settlement date are typically priced at a discount to equivalent securities settling in the current month. Consequently, forward purchases of Agency RMBS and dollar roll transactions represent a form of off-balance sheet financing. These TBAs are accounted for as derivatives and marked to market through the income statement. Gains or losses on TBAs are included with gains or losses on other derivative contracts and are not included in interest income for purposes of the discussions below. 47 Table of Contents We believe that economic interest expense and economic net interest income provide meaningful information to consider, in addition to the respective amounts prepared in accordance with GAAP. The non-GAAP measures help management to evaluate its financial position and performance without the effects of certain transactions and GAAP adjustments that are not necessarily indicative of our current investment portfolio or operations. The unrealized gains or losses on derivative instruments presented in our statements of comprehensive income (loss) are not necessarily representative of the total interest rate expense that we will ultimately realize. This is because as interest rates move up or down in the future, the gains or losses we ultimately realize, and which will affect our total interest rate expense in future periods, may differ from the unrealized gains or losses recognized as of the reporting date. Our presentation of the economic value of our hedging strategy has important limitations. First, other market participants may calculate economic interest expense and economic net interest income differently than the way we calculate them. Second, while we believe that the calculation of the economic value of our hedging strategy described above helps to present our financial position and performance, it may be of limited usefulness as an analytical tool. 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 years ended December 31, 2024, 2023 and 2022 and each quarter during 2024, 2023 and 2022. Gains (Losses) on Derivative Instruments (in thousands) Economic Hedges Recognized in Attributed to Attributed to Income TBA Securities Gain (Loss) Current Future Statement Short Long Period Periods (GAAP) Positions Positions (Non-GAAP) (Non-GAAP) Three Months Ended December 31, 2024 $ 160,412 $ 9,937 $ (683 ) $ 27,782 $ 123,376 September 30, 2024 (140,825 ) (16,315 ) 348 31,924 (156,782 ) June 30, 2024 26,068 3,042 - 29,459 (6,433 ) March 31, 2024 87,899 9,903 105 27,587 50,304 December 31, 2023 (149,016 ) (29,750 ) (2,262 ) 25,161 (142,165 ) September 30, 2023 142,042 21,511 (2,024 ) 24,440 98,115 June 30, 2023 93,367 15,599 (574 ) 23,482 54,860 March 31, 2023 (41,156 ) (5,990 ) - 19,211 (54,377 ) December 31, 2022 (12,319 ) (9,700 ) - 9,414 (12,033 ) September 30, 2022 183,930 10,642 106 4,154 169,028 June 30, 2022 103,367 1,013 1,067 1,605 99,682 March 31, 2022 177,498 2,539 27 (1,605 ) 176,537 Years Ended December 31, 2024 $ 133,554 $ 6,567 $ (230 ) $ 116,752 $ 10,465 December 31, 2023 45,237 1,370 (4,860 ) 92,294 (43,567 ) December 31, 2022 452,476 4,494 1,200 13,568 433,214 The table below presents the effect of the reclassification of derivative expenses discussed above for each quarter in 2022. Gains (Losses) on Derivative Instruments - Reclassification of Derivative Transaction Expenses (in thousands) Recognized in Income Statement Attributed to Current Period Prior Reclassified Current Prior Reclassified Current Presentation Expenses Presentation Presentation Expenses Presentation Three Months Ended December 31, 2022 $ (10,657 ) $ 1,662 $ (12,319 ) $ 11,076 $ 1,662 $ 9,414 September 30, 2022 184,819 889 183,930 5,043 889 4,154 June 30, 2022 103,758 391 103,367 1,996 391 1,605 March 31, 2022 177,816 318 177,498 (1,287 ) 318 (1,605 ) 48 Table of Contents Economic Interest Expense and Economic Net Interest Income (in thousands) Interest Expense on Borrowings Gains (Losses) on Derivative Instruments Net Interest Income GAAP Attributed Economic GAAP Economic Interest Interest to Current Interest Net Interest Net Interest Income Expense Period (1) Expense (2) Income Income (3) Three Months Ended December 31, 2024 $ 71,996 $ 63,853 $ 27,782 $ 36,071 $ 8,143 $ 35,925 September 30, 2024 67,646 67,306 31,924 35,382 340 32,264 June 30, 2024 53,064 53,761 29,459 24,302 (697 ) 28,762 March 31, 2024 48,871 51,361 27,587 23,774 (2,490 ) 25,097 December 31, 2023 49,539 52,325 25,161 27,164 (2,786 ) 22,375 September 30, 2023 50,107 58,705 24,440 34,265 (8,598 ) 15,842 June 30, 2023 39,911 48,671 23,482 25,189 (8,760 ) 14,722 March 31, 2023 38,012 42,217 19,211 23,006 (4,205 ) 15,006 December 31, 2022 31,897 29,512 9,414 20,098 2,385 11,799 September 30, 2022 35,611 21,361 4,154 17,207 14,250 18,404 June 30, 2022 35,268 8,180 1,605 6,575 27,088 28,693 March 31, 2022 41,857 2,655 (1,605 ) 4,260 39,202 37,597 Years Ended December 31, 2024 $ 241,577 $ 236,281 $ 116,752 $ 119,529 $ 5,296 $ 122,048 December 31, 2023 177,569 201,918 92,294 109,624 (24,349 ) 67,945 December 31, 2022 144,633 61,708 13,568 48,140 82,925 96,493 (1) Reflects the effect of derivative instrument hedges for only the period presented. (2) Calculated by adding the effect of derivative instrument hedges attributed to the period presented to GAAP interest expense. (3) Calculated by adding the effect of derivative instrument hedges attributed to the period presented to GAAP net interest income. Net Interest Income During the year ended December 31, 2024, we generated $5.3 million of net interest income, consisting of $241.6 million of interest income from RMBS assets offset by $236.3 million of interest expense on borrowings. For the comparable period ended December 31, 2023, we incurred $24.4 million of net interest expense, consisting of $177.6 million of interest income from RMBS assets offset by $201.9 million of interest expense on borrowings. The $64.0 million increase in interest income was driven by a 97 basis points ("bps") increase in yield on average RMBS, combined with a $453.0 million increase in average RMBS. The $34.4 million increase in interest expense for the year ended December 31, 2024 was driven by a 28 bps increase in the average cost of funds, combined with a $428.4 million increase in average borrowings. For the year ended December 31, 2022, we generated $82.9 million of net interest income, consisting of $144.6 million of interest income from RMBS assets offset by $61.7 million of interest expense on borrowings. The $32.9 million increase in interest income for the year ended December 31, 2023, compared to the year ended December 31, 2022, was due to a 83 bps increase in yield on average RMBS, that was partially offset by a $34.3 million decrease in average RMBS. The $140.2 million increase in interest expense for the year ended December 31, 2023 was due to a 354 bps increase in the average cost of funds, partially offset by a $57.0 million decrease in average borrowings. On an economic basis, our interest expense on borrowings for the years ended December 31, 2024, 2023 and 2022 was $119.5 million, $109.6 million and $48.1 million, respectively, resulting in $122.1 million, $68.0 million and $96.5 million of economic net interest income, respectively. The tables below provide information on our portfolio average balances, interest income, yield on assets, average borrowings, interest expense, cost of funds, net interest income (expense) and net interest spread for each quarter in 2024, 2023 and 2022 and for the years ended December 31, 2024, 2023 and 2022 on both a GAAP and economic basis. 49 Table of Contents ($ in thousands) Average Yield on Interest Expense Average Cost of Funds RMBS Interest Average Average GAAP Economic GAAP Economic Held (1) Income RMBS Borrowings (1) Basis Basis (2) Basis Basis (3) Three Months Ended December 31, 2024 $ 5,348,057 $ 71,996 5.38 % $ 5,128,207 $ 63,853 $ 36,071 4.98 % 2.81 % September 30, 2024 4,984,279 67,646 5.43 % 4,788,287 67,306 35,382 5.62 % 2.96 % June 30, 2024 4,203,416 53,064 5.05 % 4,028,601 53,761 24,302 5.34 % 2.41 % March 31, 2024 3,887,545 48,871 5.03 % 3,708,573 51,361 23,774 5.54 % 2.56 % December 31, 2023 4,207,118 49,539 4.71 % 4,066,298 52,325 27,164 5.15 % 2.67 % September 30, 2023 4,447,098 50,107 4.51 % 4,314,332 58,705 34,265 5.44 % 3.18 % June 30, 2023 4,186,939 39,911 3.81 % 3,985,577 48,671 25,189 4.88 % 2.53 % March 31, 2023 3,769,954 38,012 4.03 % 3,573,941 42,217 23,006 4.72 % 2.57 % December 31, 2022 3,370,608 31,897 3.79 % 3,256,153 29,512 20,098 3.63 % 2.47 % September 30, 2022 3,571,037 35,611 3.99 % 3,446,420 21,361 17,207 2.48 % 2.00 % June 30, 2022 4,260,727 35,268 3.31 % 4,111,544 8,180 6,575 0.80 % 0.64 % March 31, 2022 5,545,844 41,857 3.02 % 5,354,107 2,655 4,260 0.20 % 0.32 % Years Ended December 31, 2024 $ 4,605,824 $ 241,577 5.25 % $ 4,413,417 $ 236,281 $ 119,529 5.35 % 2.71 % December 31, 2023 4,152,777 177,569 4.28 % 3,985,037 201,918 109,624 5.07 % 2.75 % December 31, 2022 4,187,054 144,633 3.45 % 4,042,056 61,708 48,140 1.53 % 1.19 % ($ in thousands) Net Interest Income Net Interest Spread GAAP Economic GAAP Economic Basis Basis (2) Basis Basis (4) Three Months Ended December 31, 2024 $ 8,143 $ 35,925 0.40 % 2.57 % September 30, 2024 340 32,264 (0.19 )% 2.47 % June 30, 2024 (697 ) 28,762 (0.29 )% 2.64 % March 31, 2024 (2,490 ) 25,097 (0.51 )% 2.47 % December 31, 2023 (2,786 ) 22,375 (0.44 )% 2.04 % September 30, 2023 (8,598 ) 15,842 (0.93 )% 1.33 % June 30, 2023 (8,760 ) 14,722 (1.07 )% 1.28 % March 31, 2023 (4,205 ) 15,006 (0.69 )% 1.46 % December 31, 2022 2,385 11,799 0.16 % 1.32 % September 30, 2022 14,250 18,404 1.51 % 1.99 % June 30, 2022 27,088 28,693 2.51 % 2.67 % March 31, 2022 39,202 37,597 2.82 % 2.70 % Years Ended December 31, 2024 $ 5,296 $ 122,048 (0.10 )% 2.54 % December 31, 2023 (24,349 ) 67,945 (0.79 )% 1.53 % December 31, 2022 82,925 96,493 1.92 % 2.26 % (1) Portfolio yields and costs of borrowings presented in the tables above and on pages 51 and 52 are 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. (2) Economic interest expense and economic net interest income presented in the table above and the table on page 52 includes the effect of our derivative instrument hedges for only the periods presented. (3) Represents interest cost of our borrowings and the effect of derivative instrument hedges attributed to the period divided by average RMBS. (4) Economic net interest spread is calculated by subtracting average economic cost of funds from realized yield on average RMBS. 50 Table of Contents 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 years ended December 31, 2024, 2023 and 2022 and for each quarter during 2024, 2023 and 2022. ($ in thousands) Average RMBS Held Interest Income Realized Yield on Average RMBS PT Structured PT Structured PT Structured RMBS RMBS Total RMBS RMBS Total RMBS RMBS Total Three Months Ended December 31, 2024 $ 5,332,441 $ 15,616 $ 5,348,057 $ 71,703 $ 293 $ 71,996 5.38 % 7.51 % 5.38 % September 30, 2024 4,968,076 16,203 4,984,279 67,328 318 67,646 5.42 % 7.87 % 5.43 % June 30, 2024 4,186,794 16,622 4,203,416 52,705 359 53,064 5.04 % 8.64 % 5.05 % March 31, 2024 3,870,794 16,751 3,887,545 48,483 388 48,871 5.01 % 9.27 % 5.03 % December 31, 2023 4,189,599 17,519 4,207,118 49,135 404 49,539 4.69 % 9.21 % 4.71 % September 30, 2023 4,429,159 17,939 4,447,098 49,661 446 50,107 4.48 % 9.96 % 4.51 % June 30, 2023 4,168,333 18,606 4,186,939 39,495 416 39,911 3.79 % 8.95 % 3.81 % March 31, 2023 3,750,184 19,770 3,769,954 37,594 418 38,012 4.01 % 8.44 % 4.03 % December 31, 2022 3,335,154 35,454 3,370,608 31,204 693 31,897 3.74 % 7.83 % 3.79 % September 30, 2022 3,458,277 112,760 3,571,037 32,298 3,313 35,611 3.74 % 11.75 % 3.99 % June 30, 2022 4,069,334 191,393 4,260,727 31,894 3,374 35,268 3.14 % 7.05 % 3.31 % March 31, 2022 5,335,353 210,491 5,545,844 40,066 1,791 41,857 3.00 % 3.40 % 3.02 % Years Ended December 31, 2024 $ 4,589,526 $ 16,298 $ 4,605,824 $ 240,219 $ 1,358 $ 241,577 5.23 % 8.34 % 5.25 % December 31, 2023 4,134,319 18,459 4,152,778 175,885 1,684 177,569 4.25 % 9.12 % 4.28 % December 31, 2022 4,049,530 137,524 4,187,054 135,462 9,171 144,633 3.35 % 6.67 % 3.45 % Interest Expense and the Cost of Funds We had average outstanding borrowings of $4,413.4 million and $3,985.0 million and total interest expense of $236.3 million and $201.9 million for the years ended December 31, 2024 and 2023, respectively. Our average cost of funds was 5.35% for the year ended December 31, 2024, compared to 5.07% for the comparable period in 2023. There was a $428.4 million increase in average outstanding borrowings during the year ended December 31, 2024 as compared to the year ended December 31, 2023. For the year ended December 31, 2022, we had average borrowings of $4,042.1 million and total interest expense of $61.7 million, resulting in an average cost of funds of 1.53%. There was a 354 bps increase in the average cost of funds and an $57.0 million decrease in average outstanding borrowings during the year ended December 31, 2023 as compared to the year ended December 31, 2022. Our economic interest expense was $119.5 million, $109.6 million and $48.1 million for the years ended December 31, 2024, 2023 and 2022, respectively. There was a 4 bps decrease in the average economic cost of funds to 2.71% for the year ended December 31, 2024 from 2.75% for the year ended December 31, 2023. The reason for the decrease in economic cost of funds is primarily due to the positive performance of our hedging activities during the period, offset by the higher cost of our borrowings noted above. There was a 156 bps increase in the average economic cost of funds to 2.75% for the year ended December 31, 2023 from 1.19% for the year ended December 31, 2022. Since all of our repurchase agreements are short-term, changes in market rates directly affect our interest expense. Our average cost of funds calculated on a GAAP basis was 26 bps above one-month average SOFR and 6 bps above six-month average SOFR for the year ended December 31, 2024. Our average economic cost of funds was 238 bps below one-month average SOFR and 258 bps below six-month average SOFR for the year ended December 31, 2024. The average term to maturity of the outstanding repurchase agreements was 26 days at December 31, 2024 and 26 days at December 31, 2023. The tables below present the average balance of borrowings outstanding, interest expense and average cost of funds, and one-month average and six-month average SOFR rates for each quarter in 2024, 2023 and 2022 and for the years ended December 31, 2024, 2023 and 2022 on both a GAAP and economic basis. 51 Table of Contents ($ in thousands) Average Interest Expense Average Cost of Funds Balance of GAAP Economic GAAP Economic Borrowings Basis Basis Basis Basis Three Months Ended December 31, 2024 $ 5,128,207 $ 63,853 $ 36,071 4.98 % 2.81 % September 30, 2024 4,788,287 67,306 35,382 5.62 % 2.96 % June 30, 2024 4,028,601 53,761 24,302 5.34 % 2.41 % March 31, 2024 3,708,573 51,361 23,774 5.54 % 2.56 % December 31, 2023 4,066,298 52,325 27,164 5.15 % 2.67 % September 30, 2023 4,314,332 58,705 34,265 5.44 % 3.18 % June 30, 2023 3,985,577 48,671 25,189 4.88 % 2.53 % March 31, 2023 3,573,941 42,217 23,006 4.72 % 2.57 % December 31, 2022 3,256,153 29,512 20,098 3.63 % 2.47 % September 30, 2022 3,446,420 21,361 17,207 2.48 % 2.00 % June 30, 2022 4,111,544 8,180 6,575 0.80 % 0.64 % March 31, 2022 5,354,107 2,655 4,260 0.20 % 0.32 % Years Ended December 31, 2024 $ 4,413,417 $ 236,281 $ 119,529 5.35 % 2.71 % December 31, 2023 3,985,037 201,918 109,624 5.07 % 2.75 % December 31, 2022 4,042,056 61,708 48,140 1.53 % 1.19 % Average GAAP Cost of Funds Average Economic Cost of Funds Relative to Average Relative to Average Average SOFR One-Month Six-Month One-Month Six-Month One-Month Six-Month SOFR SOFR SOFR SOFR Three Months Ended December 31, 2024 4.53 % 5.03 % 0.45 % (0.05 )% (1.72 )% (2.22 )% September 30, 2024 5.16 % 5.37 % 0.46 % 0.25 % (2.20 )% (2.41 )% June 30, 2024 5.34 % 5.39 % 0.00 % (0.05 )% (2.93 )% (2.98 )% March 31, 2024 5.32 % 5.39 % 0.22 % 0.15 % (2.76 )% (2.83 )% December 31, 2023 5.34 % 5.35 % (0.19 )% (0.20 )% (2.67 )% (2.68 )% September 30, 2023 5.32 % 5.17 % 0.12 % 0.27 % (2.14 )% (1.99 )% June 30, 2023 5.07 % 4.78 % (0.19 )% 0.10 % (2.54 )% (2.25 )% March 31, 2023 4.63 % 4.09 % 0.09 % 0.63 % (2.06 )% (1.52 )% December 31, 2022 4.06 % 2.89 % (0.43 )% 0.74 % (1.59 )% (0.42 )% September 30, 2022 2.47 % 1.43 % 0.01 % 1.05 % (0.47 )% 0.57 % June 30, 2022 1.09 % 0.39 % (0.29 )% 0.41 % (0.45 )% 0.25 % March 31, 2022 0.16 % 0.07 % 0.04 % 0.13 % 0.16 % 0.25 % Years Ended December 31, 2024 5.09 % 5.29 % 0.26 % 0.06 % (2.38 )% (2.58 )% December 31, 2023 5.09 % 4.85 % (0.02 )% 0.22 % (2.34 )% (2.10 )% December 31, 2022 1.94 % 1.20 % (0.41 )% 0.33 % (0.75 )% (0.01 )% 52 Table of Contents Gains or Losses The table below presents our gains or losses for the years ended December 31, 2024, 2023 and 2022. (in thousands) 2024 2023 2022 Realized losses on sales of RMBS $ (4,602 ) $ (22,642 ) $ (133,695 ) Unrealized losses on RMBS and U.S. Treasury Notes (79,842 ) (18,941 ) (642,710 ) Total losses on RMBS and U.S. Treasury Notes (84,444 ) (41,583 ) (776,405 ) Gains on interest rate futures 26,638 32,650 206,907 Gains on interest rate swaps 101,151 19,657 167,641 Gains (losses) on payer swaptions (short positions) - 4,113 (81,050 ) (Losses) gains on payer swaptions (long positions) (72 ) (8,734 ) 152,365 Losses on dual digital option (500 ) - - (Losses) gains on interest rate caps - (219 ) 919 Gains on interest rate floors (long positions) - 1,785 - Losses on interest rate floors (short positions) - (525 ) - Gains on TBA securities (short positions) 6,567 1,370 4,494 (Losses) gains on TBA securities (long positions) (230 ) (4,860 ) 1,200 Total $ 49,110 $ 3,654 $ (323,929 ) 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 years ended December 31, 2024, 2023 and 2022, the Company received proceeds of $904.3 million, $835.1 million, and $2,759.9 million, respectively, from the sales and maturities of RMBS and U.S. Treasury securities. Approximately $221.7 million of these proceeds received in 2024 consisted of pools that were consolidated into a larger pool and simultaneously acquired by us. No gain or loss was recorded on this resecuritization. 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. Treasuries or swaps, as well as varying levels of demand for RMBS, which affect the pricing of the securities in our portfolio. The unrealized gains and losses on RMBS may also include the premium lost as a result of prepayments on the underlying mortgages, decreasing unrealized gains or increasing unrealized losses as prepayment speeds or premiums increase. To the extent RMBS are carried at a discount to par, unrealized gains or losses on RMBS would also include discount accreted as a result of prepayments on the underlying mortgages, increasing unrealized gains or decreasing unrealized losses as speeds on discounts increase. Gains and losses on interest rate futures contracts are affected by changes in implied forward rates during the reporting period. The table below presents historical interest rate data for each quarter end during 2024, 2023 and 2022. 5 Year 10 Year 15 Year 30 Year U.S. U.S Fixed-Rate Fixed-Rate 90 Day Treasury Treasury Mortgage Mortgage Average Rate (1) Rate (1) Rate (2) Rate (2) SOFR (3) December 31, 2024 4.38 % 4.57 % 6.00 % 6.85 % 4.69 % September 30, 2024 3.58 % 3.80 % 5.16 % 6.08 % 5.31 % June 30, 2024 4.33 % 4.34 % 6.16 % 6.86 % 5.35 % March 31, 2024 4.22 % 4.21 % 6.11 % 6.79 % 5.35 % December 31, 2023 3.84 % 3.87 % 5.93 % 6.61 % 5.36 % September 30, 2023 4.61 % 4.57 % 6.72 % 7.31 % 5.27 % June 30, 2023 4.13 % 3.82 % 6.06 % 6.71 % 5.00 % March 31, 2023 3.61 % 3.49 % 5.56 % 6.32 % 4.51 % December 31, 2022 4.00 % 3.88 % 5.68 % 6.42 % 3.62 % September 30, 2022 4.04 % 3.80 % 5.96 % 6.70 % 2.13 % June 30, 2022 3.00 % 2.97 % 4.83 % 5.70 % 0.70 % March 31, 2022 2.42 % 2.33 % 3.83 % 4.67 % 0.09 % (1) Historical 5 and 10 Year U.S. Treasury Rates are obtained from quoted end of day prices on the Chicago Board Options Exchange. (2) Historical 30 Year and 15 Year Fixed Rate Mortgage Rates are obtained from Freddie Mac’s Primary Mortgage Market Survey. (3) Historical SOFR is obtained from the Federal Reserve Bank of New York. The SOFR averages are compounded averages of the SOFR over rolling 30 and 180 calendar day periods. 53 Table of Contents Unrealized Gains and Losses on PT RMBS For the purpose of recording income on the Company’s investments in PT RMBS, interest income is based on the stated interest rate of the security. Using the fair value accounting method, premiums or discounts to the face value of the PT RMBS present at the date of purchase are not amortized. Premium lost and discount accretion resulting from monthly principal repayments are reflected in unrealized gains (losses) on RMBS in the statements of comprehensive income (loss). The following table adjusts the Company’s interest income as reported on the Company’s statements of comprehensive income (loss) for the periods indicated to show interest income adjusted for premium amortization and discount accretion on its mortgage-backed security investments. The purpose of presenting this non-GAAP measure of interest income is to provide management and investors with an alternative way of evaluating yield on RMBS that may be more comparable to some of its peers who amortize premiums and discounts on their PT RMBS investments. ($ in thousands) Unrealized Gains (Losses) on PT RMBS Inclusive of Price Premium Amortization/ Premium Only Discount Accretion Average Yield on Amortization/ Unrealized Yield on RMBS Interest Average As (Discount Gains Interest Average Held Income RMBS Reported (1) Accretion)(2) (Losses) Income (3) RMBS (3) Three Months Ended December 31, 2024 $ 5,348,057 $ 71,996 5.38 % $ (153,880 ) $ (1,600 ) $ (152,280 ) $ 70,396 5.27 % September 30, 2024 4,984,279 67,646 5.43 % 161,919 5,048 156,871 72,694 5.83 % June 30, 2024 4,203,416 53,064 5.05 % (26,642 ) 4,402 (31,044 ) 57,466 5.47 % March 31, 2024 3,887,545 48,871 5.03 % (62,111 ) 3,037 (65,148 ) 51,908 5.34 % December 31, 2023 4,207,118 49,539 4.71 % 206,223 8,067 198,156 57,606 5.48 % September 30, 2023 4,447,098 50,107 4.51 % (210,159 ) 7,252 (217,411 ) 57,359 5.16 % June 30, 2023 4,186,939 39,911 3.81 % (68,898 ) 4,886 (73,784 ) 44,797 4.28 % March 31, 2023 3,769,954 38,012 4.03 % 53,443 4,774 48,669 42,786 4.54 % December 31, 2022 3,370,608 31,897 3.79 % 50,182 6,748 43,434 38,645 4.59 % September 30, 2022 3,571,037 35,611 3.99 % (211,727 ) 4,647 (216,374 ) 40,258 4.51 % June 30, 2022 4,260,727 35,268 3.31 % (176,042 ) 726 (176,768 ) 35,994 3.38 % March 31, 2022 5,545,844 41,857 3.02 % (326,212 ) (8,431 ) (317,781 ) 33,426 2.41 % Years Ended December 31, 2024 $ 4,605,824 $ 241,577 5.25 % $ (80,714 ) $ 10,887 $ (91,601 ) $ 252,464 5.48 % December 31, 2023 4,152,777 177,569 4.28 % (19,391 ) 24,979 (44,370 ) 202,548 4.88 % December 31, 2022 4,187,054 144,633 3.45 % (663,799 ) 3,690 (667,489 ) 148,323 3.54 % (1) As reported in the Company’s statements of comprehensive income (loss) using the fair value accounting method. (2) Premium amortization/discount accretion for each period is calculated using the beginning of period market value of all securities. Amounts presented are intended to approximate amortization/accretion using the yield method over the life of the security based on premium/discount present at purchase date. (3) Interest Income – Inclusive of Premium Amortization/Discount Accretion and Yield on Average RMBS – Inclusive of Premium Amortization/Discount Accretion are non-GAAP measures. See “—GAAP and Non-GAAP Reconciliations,” for a description of our non-GAAP measures. Expenses Total operating expenses were $16.7 million, $18.5 million and $17.5 million for the years ended December 31, 2024, 2023 and 2022, respectively. The table below provides a breakdown of operating expenses for the years ended December 31, 2024, 2023 and 2022. (in thousands) 2024 2023 2022 Management fees $ 9,354 $ 10,491 $ 10,447 Overhead allocation 2,644 2,389 2,042 Incentive compensation 723 1,419 957 Directors fees and liability insurance 1,358 1,322 1,251 Audit, legal and other professional fees 1,341 1,495 1,143 Direct REIT operating expenses 787 715 831 Other administrative 537 700 778 Total expenses $ 16,744 $ 18,531 $ 17,449 54 Table of Contents 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 year ended December 31, 2024, the Company awarded shares of Company common stock with a fair value of $0.3 million. Accrued incentive compensation for the year ended December 31, 2024 includes a reversal of the over accrual of this liability. We are externally managed and advised by Bimini Advisors pursuant to the terms of a management agreement. The management agreement has been renewed through February 20, 2026 and provides for automatic one-year extension options thereafter and is subject to certain termination rights. Under the terms of the management agreement, the Manager is responsible for administering the business activities and day-to-day operations of the Company. The Manager receives a monthly management fee in the amount of: ● One-twelfth of 1.5% of the first $250 million of the Company’s month end equity, as defined in the management agreement, ● One-twelfth of 1.25% of the Company’s month end equity that is greater than $250 million and less than or equal to $500 million, and ● One-twelfth of 1.00% of the Company’s month end equity that is greater than $500 million. The Company is obligated to reimburse the Manager for any direct expenses incurred on its behalf and to pay the Manager the Company’s pro rata portion of certain overhead costs set forth in the management agreement. On April 1, 2022, pursuant to the third amendment to the management agreement entered into on November 16, 2021, the Manager began providing certain repurchase agreement trading, clearing and administrative services to the Company that had been previously provided by AVM, L.P. under an agreement terminated on March 31, 2022. In consideration for such services, the Company pays the following fees to the Manager: ● a daily fee equal to the outstanding principal balance of repurchase agreement funding in place as of the end of such day multiplied by 1.5 basis points for the amount of aggregate outstanding principal balance less than or equal to $5 billion, and multiplied by 1.0 basis point for any amount of aggregate outstanding principal balance in excess of $5 billion, and ● a fee for the clearing and operational services provided by personnel of the Manager equal to $10,000 per month. Should the Company terminate the management agreement without cause, it will pay the Manager a termination fee equal to three times the average annual management fee, as defined in the management agreement, before or on the last day of the term of the agreement. The following table summarizes the management fee and overhead allocation expenses for each quarter in 2024, 2023 and 2022 and for the years ended December 31, 2024, 2023 and 2022. ($ in thousands) Average Average Advisory Services Orchid Orchid Management Overhead Three Months Ended MBS Equity Fee Allocation Total December 31, 2024 $ 5,348,057 $ 817,241 $ 2,487 $ 677 $ 3,164 September 30, 2024 4,984,279 780,010 2,449 637 3,086 June 30, 2024 4,203,416 699,766 2,257 732 2,989 March 31, 2024 3,887,545 672,057 2,161 598 2,759 December 31, 2023 4,207,118 851,532 2,275 617 2,892 September 30, 2023 4,447,098 964,230 2,870 557 3,427 June 30, 2023 4,186,939 899,109 2,704 639 3,343 March 31, 2023 3,769,954 865,722 2,642 576 3,218 December 31, 2022 3,370,608 823,516 2,566 560 3,126 September 30, 2022 3,571,037 839,935 2,616 522 3,138 June 30, 2022 4,260,727 866,539 2,631 519 3,150 March 31, 2022 5,545,844 853,577 2,634 441 3,075 Years Ended December 31, 2024 $ 4,605,824 $ 742,269 $ 9,354 $ 2,644 $ 11,998 December 31, 2023 4,152,777 895,148 10,491 2,389 12,880 December 31, 2022 4,187,054 845,892 10,447 2,042 12,489 55 Table of Contents Financial Condition: Mortgage-Backed Securities As of December 31, 2024, our RMBS portfolio consisted of $5,253.3 million of Agency RMBS at fair value and had a weighted average coupon on assets of 4.99%. During the year ended December 31, 2024, we received principal repayments of $495.3 million, compared to $326.7 million for the year ended December 31, 2023. The average three month prepayment speeds for the quarters ended December 31, 2024 and 2023 were 10.5% and 5.5%, respectively. The following table presents the 3-month constant prepayment rate (“CPR”) experienced on our structured and PT RMBS sub-portfolios, on an annualized basis, for the quarterly periods presented. CPR is a method of expressing the prepayment rate for a mortgage pool that assumes that a constant fraction of the remaining principal is prepaid each month or year. Specifically, the CPR in the chart below represents the three month prepayment rate of the securities in the respective asset category. Structured PT RMBS RMBS Total Three Months Ended Portfolio (%) Portfolio (%) Portfolio (%) December 31, 2024 10.6 7.0 10.5 September 30, 2024 8.8 6.4 8.8 June 30, 2024 7.6 7.1 7.6 March 31, 2024 6.0 5.9 6.0 December 31, 2023 5.4 7.9 5.5 September 30, 2023 6.1 5.7 6.0 June 30, 2023 5.6 7.0 5.6 March 31, 2023 3.9 5.7 4.0 The following tables summarize certain characteristics of the Company’s PT RMBS and structured RMBS as of December 31, 2024 and 2023: ($ in thousands) Weighted Percentage Average of Weighted Maturity Fair Entire Average in Longest Asset Category Value Portfolio Coupon Months Maturity December 31, 2024 Fixed Rate RMBS $ 5,237,812 99.7 % 5.03 % 330 1-Nov-54 Interest-Only Securities 15,308 0.3 % 4.01 % 212 25-Jul-48 Inverse Interest-Only Securities 190 0.0 % 0.00 % 261 15-Jun-42 Total Mortgage Assets $ 5,253,310 100.0 % 4.99 % 328 1-Nov-54 December 31, 2023 Fixed Rate RMBS $ 3,877,082 99.6 % 4.33 % 334 1-Nov-53 Interest-Only Securities 16,572 0.4 % 4.01 % 223 25-Jul-48 Inverse Interest-Only Securities 358 0.0 % 0.00 % 274 15-Jun-42 Total Mortgage Assets $ 3,894,012 100.0 % 4.30 % 331 1-Nov-53 ($ in thousands) December 31, 2024 December 31, 2023 Percentage of Percentage of Agency Fair Value Entire Portfolio Fair Value Entire Portfolio Fannie Mae $ 3,693,032 70.3 % $ 2,714,192 69.7 % Freddie Mac 1,560,278 29.7 % 1,179,820 30.3 % Total Portfolio $ 5,253,310 100.0 % $ 3,894,012 100.0 % 56 Table of Contents December 31, 2024 December 31, 2023 Weighted Average Pass-through Purchase Price $ 102.45 $ 104.10 Weighted Average Structured Purchase Price $ 18.74 $ 18.74 Weighted Average Pass-through Current Price $ 96.44 $ 95.70 Weighted Average Structured Current Price $ 14.38 $ 13.51 Effective Duration (1) 4.200 4.400 (1) Effective duration is the approximate percentage change in price for a 100 bps change in rates. An effective duration of 4.200 indicates that an interest rate increase of 1.0% would be expected to cause a 4.200% decrease in the value of the RMBS in the Company’s investment portfolio at December 31, 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. These figures include the structured securities in the portfolio, but do not include the effect of the Company’s funding cost hedges. 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 years ended December 31, 2024 and 2023. ($ in thousands) 2024 2023 Total Cost Average Price Weighted Average Yield Total Cost Average Price Weighted Average Yield Pass-through RMBS $ 2,393,320 $ 102.06 5.70 % $ 1,521,070 $ 100.27 5.40 % Borrowings As of December 31, 2024, we had established borrowing facilities in the repurchase agreement market with a number of commercial banks and other financial institutions and had borrowings in place with 25 of these counterparties. None of these lenders are affiliated with the Company. These borrowings are secured by the Company’s RMBS and cash, and bear interest at prevailing market rates. We believe our established repurchase agreement borrowing facilities provide borrowing capacity in excess of our needs. As of December 31, 2024, we had obligations outstanding under the repurchase agreements of approximately $5,025.5 million with a net weighted average borrowing cost of 4.66%. The remaining maturity of our outstanding repurchase agreement obligations ranged from 8 to 139 days, with a weighted average remaining maturity of 26 days. Securing the repurchase agreement obligations as of December 31, 2024 are RMBS with an estimated fair value, including accrued interest, of approximately $5,231.9 million. Through February 21, 2025, we have been able to maintain our repurchase facilities with comparable terms to those that existed at December 31, 2024 with maturities extending to various dates through May 19, 2025. The table below presents information about our period end, maximum and average balances of borrowings for each quarter in 2024 and 2023. ($ in thousands) Difference Between Ending Ending Maximum Average Borrowings and Balance of Balance of Balance of Average Borrowings Three Months Ended Borrowings Borrowings Borrowings Amount Percent December 31, 2024 $ 5,025,543 $ 5,230,871 $ 5,128,207 $ (102,664 ) (2.00 )% September 30, 2024 5,230,871 5,252,365 4,788,287 442,584 9.24 % June 30, 2024 4,345,704 4,354,704 4,028,601 317,103 7.87 % March 31, 2024 3,711,498 3,774,739 3,708,573 2,925 0.08 % December 31, 2023 3,705,649 4,426,947 4,066,298 (360,649 ) (8.87 )% September 30, 2023 4,426,947 4,494,858 4,314,332 112,615 2.61 % June 30, 2023 4,201,717 4,201,717 3,985,577 216,140 5.42 % March 31, 2023 3,769,437 3,849,137 3,573,941 195,496 5.47 % 57 Table of Contents Leverage We use two primary measures of leverage. Economic leverage is calculated by dividing the sum of total liabilities and our net notional TBA position, by stockholders' equity. We include our net TBA position in our calculation of economic leverage because a forward contract to purchase or sell an Agency RMBS in the TBA market carries similar risks to an Agency RMBS purchased or sold in the cash market and funded with repurchase agreement liabilities. Adjusted leverage is calculated by dividing our repurchase agreements by stockholders' equity. Our economic leverage at December 31, 2024 was 7.3 to 1, compared to 6.7 to 1 as of December 31, 2023. Our adjusted leverage at December 31, 2024 was 7.5 to 1, compared to 7.9 to 1 as of December 31, 2023. The following table presents information related to our historical leverage. ($ in thousands) Ending Ending Ending Ending Repurchase Total Net TBA Stockholders' Adjusted Economic Agreements Liabilities Positions Equity Leverage Leverage December 31, 2024 $ 5,025,543 $ 5,053,127 $ (150,000 ) $ 668,500 7.5:1 7.3:1 September 30, 2024 5,230,871 5,260,469 (300,000 ) 656,024 8.0:1 7.6:1 June 30, 2024 4,345,704 4,373,973 (400,000 ) 555,932 7.8:1 7.1:1 March 31, 2024 3,711,498 3,733,031 (370,700 ) 481,632 7.7:1 7.0:1 December 31, 2023 3,705,649 3,795,002 (645,700 ) 469,945 7.9:1 6.7:1 September 30, 2023 4,426,947 4,470,052 (502,500 ) 466,841 9.5:1 8.5:1 June 30, 2023 4,201,717 4,240,845 (250,000 ) 490,086 8.6:1 8.1:1 March 31, 2023 3,769,437 3,814,651 (875,000 ) 451,361 8.4:1 6.5:1 Liquidity and Capital Resources Liquidity is our ability to turn non-cash assets into cash, purchase additional investments, repay principal and interest on borrowings, fund overhead, fulfill margin calls and pay dividends. We have both internal and external sources of liquidity. However, our material unused sources of liquidity include cash balances, unencumbered assets and our ability to sell encumbered assets to raise cash. Our balance sheet also generates liquidity on an on-going basis through payments of principal and interest we receive on our RMBS portfolio. Management believes that we currently have sufficient short-term and long-term liquidity and capital resources available for (a) the acquisition of additional investments consistent with the size and nature of our existing RMBS portfolio, (b) the repayments on borrowings and (c) the payment of dividends to the extent required for our continued qualification as a REIT. We may also generate liquidity from time to time by selling our equity or debt securities in public offerings or private placements. Internal Sources of Liquidity Our internal sources of liquidity include our cash balances, unencumbered assets and our ability to liquidate our encumbered security holdings. Our balance sheet also generates liquidity on an on-going basis through payments of principal and interest we receive on our RMBS portfolio. Because our PT RMBS portfolio consists entirely of government and agency securities, we do not anticipate having difficulty converting our assets to cash should our liquidity needs ever exceed our immediately available sources of cash. Our structured RMBS portfolio also consists entirely of governmental agency securities, although they typically do not trade with comparable bid / ask spreads as PT RMBS. However, we anticipate that we would be able to liquidate such securities readily, even in distressed markets, although we would likely do so at prices below where such securities could be sold in a more stable market. To enhance our liquidity even further, we may pledge a portion of our structured RMBS as part of a repurchase agreement funding, but retain the cash in lieu of acquiring additional assets. In this way we can, at a modest cost, retain higher levels of cash on hand and decrease the likelihood we will have to sell assets in a distressed market in order to raise cash. Our strategy for hedging our funding costs typically involves taking short positions in interest rate futures, interest rate swaps, interest rate swaptions or other instruments. When the market causes these short positions to decline in value we are required to meet margin calls with cash. This can reduce our liquidity position to the extent other securities in our portfolio move in price in such a way that we do not receive enough cash via margin calls to offset the derivative related margin calls. If this were to occur in sufficient magnitude, the loss of liquidity might force us to reduce the size of the levered portfolio, pledge additional structured securities to raise funds or risk operating the portfolio with less liquidity. 58 Table of Contents External Sources of Liquidity Our primary external sources of liquidity are our ability to (i) borrow under master repurchase agreements, (ii) use the TBA security market and (iii) sell our equity or debt securities in public offerings or private placements. Our borrowing capacity will vary over time as the market value of our interest earning assets varies. Our master repurchase agreements have no stated expiration, but can be terminated at any time at our option or at the option of the counterparty. However, once a definitive repurchase agreement under a master repurchase agreement has been entered into, it generally may not be terminated by either party. A negotiated termination can occur, but may involve a fee to be paid by the party seeking to terminate the repurchase agreement transaction. Under our repurchase agreement funding arrangements, we are required to post margin at the initiation of the borrowing. The margin posted represents the haircut, which is a percentage of the market value of the collateral pledged. To the extent the market value of the asset collateralizing the financing transaction declines, the market value of our posted margin will be insufficient and we will be required to post additional collateral. Conversely, if the market value of the asset pledged increases in value, we would be over collateralized and we would be entitled to have excess margin returned to us by the counterparty. Our lenders typically value our pledged securities daily to ensure the adequacy of our margin and make margin calls as needed, as do we. Typically, but not always, the parties agree to a minimum threshold amount for margin calls so as to avoid the need for nuisance margin calls on a daily basis. Our master repurchase agreements do not specify the haircut; rather haircuts are determined on an individual repo transaction basis. Throughout the year ended December 31, 2024, haircuts on our pledged collateral remained stable and as of December 31, 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. (See Note 5 to our Financial Statements in this Form 10-K for additional details on of our TBAs). Under certain market conditions, it may be uneconomical for us to roll our TBAs into future months and we may need to take or make physical delivery of the underlying securities. If we were required to take physical delivery to settle a long TBA, we would have to fund our total purchase commitment with cash or other financing sources and our liquidity position could be negatively impacted. Our TBAs are also subject to margin requirements governed by the Mortgage-Backed Securities Division ("MBSD") of the FICC and by our Master Securities Forward Transaction Agreements ("MSFTAs"), which may establish margin levels in excess of the MBSD. Such provisions require that we establish an initial margin based on the notional value of the TBA, which is subject to increase if the estimated fair value of our TBAs or the estimated fair value of our pledged collateral declines. The MBSD has the sole discretion to determine the value of our TBAs and of the pledged collateral securing such contracts. In the event of a margin call, we must generally provide additional collateral on the same business day. Settlement of our TBA obligations by taking delivery of the underlying securities as well as satisfying margin requirements could negatively impact our liquidity position. However, since we do not use TBA dollar roll transactions as our primary source of financing, we believe that we will have adequate sources of liquidity to meet such obligations. We invest a portion of our capital in structured Agency RMBS. We generally do not apply leverage to this portion of our portfolio. The leverage inherent in structured securities replaces the leverage obtained by acquiring PT securities and funding them in the repo market. This structured RMBS strategy has been a core element of the Company’s overall investment strategy since inception. However, we have and may continue to pledge a portion of our structured RMBS in order to raise our cash levels, but generally will not pledge these securities in order to acquire additional assets. 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 December 31, 2024, we had cash and cash equivalents of $309.3 million. We generated cash flows of $711.4 million from principal and interest payments on our RMBS and had average repurchase agreements outstanding of $4,413.4 million during the year ended December 31, 2024. As described more fully below, we may also access liquidity by selling our equity or debt securities in public offerings or private placements. Capital Expenditures At December 31, 2024, we had no material commitments for capital expenditures. 59 Table of Contents Stockholders ’ Equity On October 29, 2021, we entered into an equity distribution agreement (the “October 2021 Equity Distribution Agreement”) with four sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions. We issued a total of 9,742,188 shares under the October 2021 Equity Distribution Agreement for aggregate gross proceeds of approximately $151.8 million, and net proceeds of approximately $149.3 million, after commissions and fees, prior to its termination in March 2023. On March 7, 2023, we entered into an equity distribution agreement (the “March 2023 Equity Distribution Agreement”) with three sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions. We issued a total of 24,675,497 shares under the March 2023 Equity Distribution Agreement for aggregate gross proceeds of approximately $228.8 million and net proceeds of approximately $225.0 million, after commissions and fees, prior to its termination in June 2024. On June 11, 2024, we entered into an equity distribution agreement (the “June 2024 Equity Distribution Agreement”) with three sales agents pursuant to which we may offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that are deemed to be “at the market” offerings and privately negotiated transactions. Through December 31, 2024, we issued a total of 19,842,089 shares under the June 2024 Equity Distribution Agreement for aggregate gross proceeds of approximately $164.9 million, and net proceeds of approximately $162.1 million, after commissions and fees. Subsequent to December 31, 2024, we issued a total of 10,671,164 shares under the June 2024 Equity Distribution Agreement for aggregate gross proceeds of approximately $85.1 million, and net proceeds of approximately $83.8 million, after commissions and fees. Outlook Economic Summary The economic trajectory in place as the third quarter of 2024 came to an end has not changed as we enter 2025. Economic growth is above the level considered sustainable – the level that can persist without causing the economy to overheat and inflation to rise. The labor market no longer appears to be cooling, hiring has stabilized, and the unemployment rate remains in the low 4% area, which is indicative of a tighter labor market, if not an overheating one. Importantly, inflation readings have stabilized at levels clearly above the Fed’s target level of 2%. In response to the resilience of the economy, interest rates have increased and market expectations for further cuts to the Fed’s overnight rate have been reduced to less than one 25 basis point cut by the end of 2025. The strength of the economy has been supported by stimulative fiscal policy on the part of the federal government as budget deficits have consistently approached $2 trillion, representing abnormally high percentages of gross domestic product. The impact of the deficits is partially offset by an expanded balance sheet of the Fed which remains above target levels, allowing the market to avoid having to fund the deficits in their entirety. In November of 2024, the Republican party swept the U.S. national elections, and the pro-business agenda of the new president has enhanced market optimism for sustained growth at or above current levels. President Trump has stated that he intends to use tariffs to shift domestic consumption away from imports and towards domestic producers, at the potential cost of higher prices. The market anticipates that the combination of pro-growth policies on the part of the incoming administration, supported by Republican control of both houses of Congress, along with wide-spread tariffs on a host of imported goods, will both fuel growth and pressure inflation higher. Given an economy that was already growing above sustainable rates, this development casts doubt on the need for additional policy accommodation on the part of the Fed in the near term, if at all. Interest Rates In response to the developments described above, interest rate movements during the fourth quarter of 2024 were significant. As the third quarter came to a close, interest rates were declining in anticipation of the first interest rate cut by the Fed since 2020. The Fed began raising the overnight rate in March of 2022 and did not stop until July of 2023, when the target range for the Fed Funds rate was 5.25% to 5.50%. At the time the Fed lowered the overnight rate by 50 basis points on September 18, 2024, the market expected at least eight more cuts over the next 18 months. Rates reversed course early in the fourth quarter, triggered by the non-farm payroll report for September released in early October. Consequently, the market's outlook for the economy, inflation and future interest rate cuts by the Fed changed dramatically over the course of the fourth quarter and into 2025. 60 Table of Contents With respect to interest rates, the most significant development may have been the dramatic change in the shape of the U.S. Treasury Note yield curve. By the end of 2024, the Fed had lowered the target range for Fed Funds by 100 basis points. The 10-year U.S. Treasury Note yield curve increased by approximately 80 basis points over the quarter, causing the first disinversion of the yield curve between the Fed Funds rate and the 10-year U.S. Treasury Note since June 2022, and between the 2-year and 10-year U.S. Treasury Notes since November 2022. As federal deficits have remained historically high since the pandemic and the market does not anticipate the incoming administration is likely to be fiscally conservative, the market anticipates federal deficits to remain elevated and issuance of U.S. Treasury securities to continue to grow. This has led swap spreads to become increasingly negative (as the market demands a higher yield for a greater supply of U.S. Treasury securities) such that the swap curve remains inverted – although the 18-month to 15-year point are upward sloping. In sharp contrast to market expectations for the evolution of the Fed Funds rate after the Fed’s first cut in mid-September, in early 2025 market expectations are for between one and two additional 25 basis point cuts by the end of 2025. The Agency RMBS Market As a proxy for the performance of the Agency RMBS market during the fourth quarter of 2024, the spread of the 30-year, fixed rate current coupon to the 10-year U.S. Treasury Note hit a multi-year low of approximately 109 basis points the day after the Fed lowered the Fed Funds rate on September 18, 2024. This is in contrast to the spread in May of 2023 of over 200 basis points. The developments described above led to higher interest rates and elevated levels of rate volatility. By the end of October of 2024, the spread had increased to approximately 147 basis points and ended the year at approximately 128 basis points. The Agency RMBS index generated a negative return for the fourth quarter of -3.2% and a return of -0.6% versus comparable duration swaps, as compared to -2.8% and 0.9%, respectively for these measures, for the investment grade corporate index, and 0.2% and 1.4%, respectively for these measures, for high yield debt. While total returns for U.S. Treasury securities were also negative, most sectors of the fixed income markets generated positive total returns for the quarter, as well as positive excess returns versus comparable duration swaps. Within Agency RMBS for the fourth quarter of 2024, conventional 30-year mortgages generated a negative total return of -3.5%, 15-year mortgages generated a negative total return of -2.2% and Ginnie Mae 30-year mortgages generated a total return of -2.7%. Versus comparable duration swaps the returns were -0.8%, -0.5% and -0.3% for 30-year conventional, 15-year conventional and Ginnie Mae 30-year mortgages, respectively. The Company invests predominantly in 30-year conventional mortgages. Returns with the 30-year stack of coupons were negatively correlated with the duration of the respective securities, as lower coupon, longer durations bonds generated the most negative total returns and the highest coupon – 7.0% - generated positive total returns. The range for the coupon stack was -4.8% for the 2.0% coupon to +0.9% for the 7.0% coupon during the fourth quarter of 2024. Excess returns versus comparable duration swaps were in the range of -0.6% to -0.9% for all coupons between 2.0% and 6.0% during the fourth quarter of 2024. Conversely, the excess return for the 6.5% coupon was -0.2% and +0.3% for the 7.0% coupon during the fourth quarter of 2024. Recent Legislative and Regulatory Developments In response to the deterioration in the markets for U.S. Treasuries, Agency RMBS and other mortgage and fixed income markets resulting from the impacts of the COVID-19 pandemic, the Fed implemented a program of quantitative easing. Through November of 2021, the Fed was committed to purchasing $80 billion of U.S. Treasuries and $40 billion of Agency RMBS each month. In November of 2021, it began tapering its net asset purchases each month, ended net asset purchases by early March of 2022, and ended asset purchases entirely in September of 2022. On May 4, 2022, the FOMC announced a plan for reducing the Fed’s balance sheet. In June of 2022, in accordance with this plan, the Fed began reducing its balance sheet by a maximum of $30 billion of U.S. Treasuries and $17.5 billion of Agency RMBS each month. 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. 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. As of December 31, 2024, the Fed had reduced its balance sheet for Agency RMBS by approximately $507 billion from the peak to $2.2 trillion, shedding approximately 37% of the Agency RMBS added during pandemic quantitative easing and representing the lowest level since May 2021. 61 Table of Contents On September 14, 2021, the U.S. 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 (the "September 2021 Provisions"). 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 reduced the risk weight and credit conversion factor for guarantees on commingled securities to 5% and 50%, respectively; replaced the current exposure methodology with the standardized approach for counterparty credit risk as the method for computing exposure and risk-weighted asset amounts for derivatives and cleared transactions; updated the credit score assumption to 680 for single-family mortgage exposures originated without a representative credit score; and introduced a risk weight of 20% for guarantee assets. On January 2, 2025, the U.S. Treasury and FHFA entered into a letter agreement deleting the September 2021 Provisions entirely, as well as providing additional guidance on the process for a potential end to the conservatorship of the Enterprises. On July 27, 2023, the federal banking regulators, including the Office of the Comptroller of the Currency, (the "OCC") the FDIC and the Fed, jointly issued a proposed rule that would revise large bank capital requirements (the "Basel III Endgame"). The Basel III Endgame, if implemented as proposed, would significantly increase the credit weight risk for balance-sheet mortgages and for Agency RMBS sold to the GSEs, which could disincentivize banks from originating mortgages for sale to the GSEs and impact pricing in the Agency RMBS markets. The comment period for the Basel III Endgame closed on January 16, 2024, and the proposed rule was met with strong objections from the banking industry. In testimony before the United States Senate Committee on Banking, Housing and Urban Affairs in July 2024, Fed chairman Jerome Powell stated that the OCC, the FDIC and the Fed were in discussions to materially revise the proposed rule, and that there was consensus at the Fed to undergo another comment period. 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. government or the Fed will ultimately undertake are unknown and will continue to evolve. Effect on Us Regulatory developments, movements in interest rates and prepayment rates affect us in many ways, including the following: Effects on our Assets A change in or elimination of the guarantee structure of Agency RMBS may increase our costs (if, for example, guarantee fees increase) or require us to change our investment strategy altogether. For example, the elimination of the guarantee structure of Agency RMBS may cause us to change our investment strategy to focus on non-Agency RMBS, which in turn would require us to significantly increase our monitoring of the credit risks of our investments in addition to interest rate and prepayment risks. If prepayment rates are relatively low (due, in part, to the refinancing problems described above), lower long-term interest rates can increase the value of our Agency RMBS. This is because investors typically place a premium on assets with coupon/yields that are higher than coupon/yields available in the market. To the extent such securities pre-pay slower than would otherwise be the case, we benefit from an above market coupon/yield for longer, enhancing the return from the security. Although lower long-term interest rates may increase asset values in our portfolio, we may not be able to invest new funds in similarly yielding assets. 62 Table of Contents If prepayment levels increase, the value of any of our Agency RMBS that are carried at a premium to par that are affected by such prepayments may decline. This is because a principal prepayment accelerates the effective term of an Agency RMBS, which would shorten the period during which an investor would receive above-market returns (assuming the yield on the prepaid asset is higher than market yields). Also, prepayment proceeds may not be able to be reinvested in similar-yielding assets. Agency RMBS backed by mortgages with high interest rates are more susceptible to prepayment risk because holders of those mortgages are most likely to refinance to a lower rate. If prepayment levels decrease, the value of any of our Agency RMBS that are carried at a discount to par that are affected by such prepayments may increase. This is because a principal prepayment accelerates the effective term of an Agency RMBS, which would shorten the timeframe over which an investor would receive the principal of the underlying loans. Agency RMBS backed by mortgages with low interest rates are less susceptible to prepayment risk because holders of those mortgages are less likely to refinance to a higher rate. IOs and IIOs, however, may be the types of Agency RMBS most sensitive to increased prepayment rates. Because the holder of an IO or IIO receives no principal payments, the values of IOs and IIOs are entirely dependent on the existence of a principal balance on the underlying mortgages. If the principal balance is eliminated due to prepayment, IOs and IIOs essentially become worthless. Although increased prepayment rates can negatively affect the value of our IOs and IIOs, they have the opposite effect on POs. Because POs act like zero-coupon bonds, meaning they are purchased at a discount to their par value and have an effective interest rate based on the discount and the term of the underlying loan, an increase in prepayment rates would reduce the effective term of our POs and accelerate the yields earned on those assets, which would increase our net income. Higher long-term rates can also affect the value of our Agency RMBS. As long-term rates rise, rates available to borrowers also rise. This tends to cause prepayment activity to slow and extend the expected average life of mortgage cash flows. As the expected average life of the mortgage cash flows increases, coupled with higher discount rates, the value of Agency RMBS declines. Some of the instruments we use to hedge our Agency RMBS assets, such as interest rate futures, swaps and swaptions, are stable average life instruments. This means that to the extent we use such instruments to hedge our Agency RMBS assets, our hedges may not adequately protect us from price declines, and therefore may negatively impact our book value. It is for this reason we use interest only securities in our portfolio. As interest rates rise, the expected average life of these securities increases, causing generally positive price movements as the number and size of the cash flows increase the longer the underlying mortgages remain outstanding. This makes interest only securities desirable hedge instruments for pass-through Agency RMBS. Because we base our investment decisions on risk management principles rather than anticipated movements in interest rates, in a volatile interest rate environment we may allocate more capital to structured Agency RMBS with shorter durations. We believe these securities have a lower sensitivity to changes in long-term interest rates than other asset classes. We may attempt to mitigate our exposure to changes in long-term interest rates by investing in IOs and IIOs, which typically have different sensitivities to changes in long-term interest rates than PT RMBS, particularly PT RMBS backed by fixed-rate mortgages. Effects on our borrowing costs We leverage our PT RMBS portfolio and a portion of our structured Agency RMBS with principal balances through the use of short-term repurchase agreement transactions. The interest rates on our debt are determined by the short term interest rate markets. Increases in the Fed Funds rate or SOFR typically increase our borrowing costs, which could affect our interest rate spread if there is no corresponding increase in the interest we earn on our assets. The impact of these increases would be most prevalent with respect to our Agency RMBS backed by fixed rate mortgage loans because the interest rate on a fixed-rate mortgage loan does not change even though market rates may change. 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. 63 Table of Contents Summary The outlook for the fixed income market pivoted early in the fourth quarter of 2024. As the third quarter came to an end, inflation was falling towards the Fed’s 2% target, the labor market was cooling as hiring levels moderated and the unemployment rate was slowly creeping higher, and the Fed had finally lowered the Fed Funds rate by 50 basis points. At the time, the market expected the Fed to lower the rate by over 200 basis points over the next 18 months. Beginning early in the fourth quarter, the incoming data turned. Readings on the labor market stabilized and hiring stopped slowing. The unemployment rate appeared to plateau, and most importantly, the decline in inflation rates previously in place seemed to lose momentum and inflation remained above the Fed’s 2% target level. In early November, the Republican party swept the U.S. national elections, and the new president has a very pro-growth agenda for the country. President Trump has stated that he favors using tariffs to shift domestic consumption away from imports and towards domestically produced goods. If successful, such a policy could ultimately support strong growth in domestic goods production and employment; however, it is likely to be a source of inflationary pressure in the short term, at a time when inflation is already too high. As the economic outlook shifted, the Fed did lower the Fed Funds rate two more times during 2024 – by 25 basis points in each case. With the Fed Funds rate lowered by 100 basis points over the course of the quarter, the persistently strong economic outlook led to a disinversion of the yield curve between the Fed Funds rate and the 10-year U.S. Treasury Note, and between the 2-year U.S. Treasury Note and 10-year U.S. Treasury Note. The market’s expectation for additional reductions in the Fed Funds rate continued to decline over the course of the fourth quarter and into 2025, and current pricing is for less than two additional 25 basis point reductions. The Agency RMBS market generated negative total returns for the quarter and was one of the worst performing sectors of the fixed income markets. Returns for the Agency RMBS market versus comparable durations swaps, a proxy for returns for levered bond investors such as the Company, were also negative, albeit far less so than the absolute returns. During the fourth quarter, the lowest coupon and longest duration securities generated the worst returns, and performance generally racked these metrics as the highest coupon securities generated the best returns. Looking forward, economic activity remains resilient if not strong, the labor market is quite healthy and inflation, while well off the peak seen in 2022, remains above the Fed’s 2% target. The Fed may reduce the Fed Funds rate again over the next year or so but the new pro-growth administration, potentially inflationary tariffs and continued large federal deficits, coupled with an already strong economy, may stand in the way. Critical Accounting Estimates Our financial statements are prepared in accordance with GAAP. GAAP requires our management to make some complex and subjective decisions and assessments. Our most critical accounting policies involve decisions and assessments which could significantly affect reported assets, liabilities, revenues and expenses. Management has identified its most critical accounting estimates: Mortgage-Backed Securities Our investments in Agency RMBS are accounted for at fair value. We acquire our Agency RMBS for the purpose of generating long-term returns, and not for the short-term investment of idle capital. As discussed in Note 13 to the financial statements, our Agency RMBS are valued using Level 2 valuations, and such valuations currently are determined by our manager based on independent pricing sources and/or third party broker quotes, when available. Because the price estimates may vary, our Manager must make certain judgments and assumptions about the appropriate price to use to calculate the fair values. Alternatively, our Manager could opt to have the value of all of our positions in Agency RMBS determined by either an independent third-party or do so internally. 64 Table of Contents In managing our portfolio, Bimini Advisors employs the following four-step process at each valuation date to determine the fair value of our Agency RMBS: • First, our Manager obtains fair values from subscription-based independent pricing sources. These prices are used by both our Manager as well as many of our repurchase agreement counterparty on a daily basis to establish margin requirements for our borrowings. • Second, our Manager requests non-binding quotes from one to four broker-dealers for certain Agency RMBS in order to validate the values obtained by the pricing service. Our Manager requests these quotes from broker-dealers that actively trade and make markets in the respective asset class for which the quote is requested. • Third, our Manager reviews the values obtained by the pricing source and the broker-dealers for consistency across similar assets. • Finally, if the data from the pricing services and broker-dealers is not homogenous or if the data obtained is inconsistent with our Manager’s market observations, our Manager makes a judgment to determine which price appears the most consistent with observed prices from similar assets and selects that price. To the extent our Manager believes that none of the prices are consistent with observed prices for similar assets, which is typically the case for only an immaterial portion of our portfolio each quarter, our Manager may use a third price that is consistent with observed prices for identical or similar assets. In the case of assets that have quoted prices such as Agency RMBS backed by fixed-rate mortgages, our Manager generally uses the quoted or observed market price. For assets such as Agency RMBS backed by ARMs or structured Agency RMBS, our Manager may determine the price based on the yield or spread that is identical to an observed transaction or a similar asset for which a dealer mark or subscription-based price has been obtained. Management believes its pricing methodology to be consistent with the definition of fair value described in Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements. Derivative Financial Instruments We use derivative instruments to manage interest rate risk, facilitate asset/liability strategies and manage other exposures, and we may continue to do so in the future. The principal instruments that we have used to date are Fed Funds, SOFR, T-Note and Eurodollar futures contracts, interest rate swaps, interest rate swaptions, interest rate caps and TBA securities, but we may enter into other derivatives in the future. We account for TBA securities as derivative instruments. Gains and losses associated with TBA securities transactions are reported in gain (loss) on derivative instruments in the accompanying statements of comprehensive income (loss). We have elected not to treat any of our derivative financial instruments as hedges in order to align the accounting treatment of its derivative instruments with the treatment of our portfolio assets under the fair value option election. All derivative instruments are carried at fair value, and changes in fair value are recorded in earnings for each period. Our futures contracts are Level 1 valuations, as they are exchange-traded instruments and quoted market prices are readily available. Our interest rate swaps, interest rate swaptions and TBA securities are Level 2 valuations. The fair value of interest rate swaps is determined using a discounted cash flow approach using forward market interest rates and discount rates, which are observable inputs. The fair value of interest rate swaptions is determined using an option pricing model. The fair value of our TBA securities are determined by the Company based on independent pricing sources and/or third party broker quotes, similar to how the fair value of our Agency RMBS is derived, as discussed above. Income Recognition Since we commenced operations, we have elected to account for all of our Agency RMBS under the fair value option. All of our Agency RMBS are either pass-through securities or structured Agency RMBS, including CMOs, IOs, IIOs or POs. Income on pass-through securities, POs and CMOs that contain principal balances is based on the stated interest rate of the security. As a result of accounting for our RMBS under the fair value option, premium or discount present at the date of purchase is not amortized. For IOs, IIOs and CMOs that do not contain principal balances, income is accrued based on the carrying value and the effective yield. The difference between income accrued and the interest received on the security is characterized as a return of investment and serves to reduce the asset’s carrying value. At each reporting date, the effective yield is adjusted prospectively for future reporting periods based on the new estimate of prepayments, current interest rates and current asset prices. The new effective yield is calculated based on the carrying value at the end of the previous reporting period, the new prepayment estimates and the contractual terms of the security. Changes in fair value of all of our Agency RMBS during the period are recorded in earnings and reported as unrealized gains (losses) on mortgage-backed securities in the accompanying statements of comprehensive income (loss). For IIO securities, effective yield and income recognition calculations also take into account the index value applicable to the security. 65 Table of Contents Dividends 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 deductions for dividends paid and excluding any net capital gains. REIT taxable income (loss) is computed in accordance with the Code, and can be greater than or less than our financial statement net income (loss) computed in accordance with GAAP. These book to tax differences primarily relate to the recognition of interest income on RMBS, unrealized gains and losses on RMBS, and the amortization of losses on derivative instruments that are treated as funding hedges for tax purposes. We intend to pay regular monthly dividends to our stockholders and have declared the following dividends since the completion of our IPO. (in thousands, except per share amounts) Year Per Share Amount Total 2013 $ 6.975 $ 4,662 2014 10.800 22,643 2015 9.600 38,748 2016 8.400 41,388 2017 8.400 70,717 2018 5.350 55,814 2019 4.800 54,421 2020 3.950 53,570 2021 3.900 97,601 2022 2.475 87,906 2023 1.800 81,127 2024 1.440 96,309 2025 YTD (1) 0.240 22,097 Totals $ 68.130 $ 727,003 (1) On January 8, 2025, the Company declared a dividend of $0.12 per share to be paid on February 27, 2025. On February 12, 2025, the Company declared a dividend of $0.12 per share to be paid on March 28, 2025. The effects of these dividends are included in the table above but are not reflected in the Company’s financial statements as of December 31, 2024. 66 Table of Contents