Annual Report for Fiscal Year Ending 12-31, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion of our consolidated financial condition, cash flows and results of operations should be read in conjunction with the consolidated 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. 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.

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 borrowed funds, including changes in the Federal Funds rate that are controlled by the Fed;

●

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

●

competition for, and supply of, investments in Agency MBS;

●

actions taken by the U.S. government, including the presidential administration, the Fed, the FOMC, the FHFA and the U.S. Treasury;

●

prepayment rates on mortgages underlying our Agency MBS, and credit trends insofar as they affect prepayment rates;

●

geopolitical events that affect the U.S. and international economies; and

●

other financial market developments.

In addition, a variety of factors relating to our business may also impact our results of operations and financial condition. These factors include:

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our use of leverage to finance our assets;

●

our access to funding and borrowing capacity;

●

our borrowing costs;

●

our hedging activities;

●

the market value of our investments;

●

the requirements for us to maintain a registration exemption under the Investment Company Act;

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our ability to use net operating loss carryforwards and other tax attributes to reduce our taxable income;

●

the impact of possible future changes in tax laws or tax rates;

	●	our ability to manage the portfolio of Orchid and maintain our role as manager;
	●	the financial performance of Orchid and resulting changes in Orchid's stockholders' equity and our advisory services revenue; and
	●	the carrying value of our investment in Orchid's common stock and dividend income received on that investment.

Results of Operations

Described below are the Company's results of operations for the year ended December 31, 2025, as compared to the year ended December 31, 2024.

Net Income (Loss) Summary

Consolidated net income for the year ended December 31, 2025was $5.8 million, or $0.58 basic and diluted income per share of Class A Common Stock, as compared to consolidated net loss of $1.3 million, or $0.13 basic and diluted loss per share of Class A Common Stock, for the year ended December 31, 2024.

The components of net income (loss) for the years ended December 31, 2025 and 2024, along with the changes in those components are presented in the table below:

(in thousands)
		2025				2024				Change
Advisory services revenue		$	16,575			$	12,784			$	3,791
Interest and dividend income			7,128				6,658				470
Interest expense			(6,812	)			(7,541	)			729
Net revenues			16,891				11,901				4,990
Other income			205				1,167				(962	)
Expenses			(12,604	)			(11,257	)			(1,347	)
Net income before income tax (benefit) provision			4,492				1,811				2,681
Income tax (benefit) provision			(1,309	)			3,117				(4,426	)
Net income (loss)		$	5,801			$	(1,306	)		$	7,107

GAAP and Non-GAAP Reconciliation

Economic Interest Expense and Economic Net Interest Income

We use derivative instruments, primarily T-Note and SOFR futures contracts to hedge a portion of the interest rate risk on repurchase agreements in a rising rate environment.

We have not designated our derivative financial instruments as hedge accounting relationships, but rather hold them for economic hedging purposes. Changes in fair value of these instruments are presented in a separate line item in our consolidated statements of operations 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, as reflected in our consolidated statements of operations, is adjusted to reflect the realized and unrealized gains or losses on certain derivative instruments the Company uses that pertain to each period presented. We believe that adjusting our GAAP interest expense for the periods presented by the gains or losses on these derivative instruments may 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 derivative 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, which changes are reflective of the future periods covered by the derivative 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 our 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.

We believe that economic interest expense and economic net interest income provide meaningful information to consider, in addition to the financial information prepared in accordance with GAAP. The non-GAAP measures help management to evaluate our 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 gains or losses on derivative instruments presented in our consolidated statements of operations are not necessarily representative of the total interest 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 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 discussed above to interest expense shown for each period relative to our derivative instruments, and the consolidated statements of operations line item, gains (losses) on derivative instruments, calculated in accordance with GAAP for the years ended December 31, 2025 and 2024 and for each quarter during 2025 and 2024.

Gains (Losses) on Derivative Instruments

(in thousands)
						Funding Hedges
		Consolidated				Attributed to				Attributed to
		Statement of				Current				Future
		Operations				Period				Periods
Three Months Ended		(GAAP)				(Non-GAAP)				(Non-GAAP)
December 31, 2025		$	36			$	109			$	(73	)
September 30, 2025			(170	)			108				(278	)
June 30, 2025			(431	)			112				(543	)
March 31, 2025			(1,369	)			106				(1,475	)
December 31, 2024			3,015				1				3,014
September 30, 2024			(1,991	)			(36	)			(1,955	)
June 30, 2024			212				44				168
March 31, 2024			1,171				21				1,150
Years Ended
December 31, 2025		$	(1,934	)		$	435			$	(2,369	)
December 31, 2024			2,407				30				2,377

Economic Net Portfolio Interest Income

(in thousands)
						Interest Expense on Repurchase Agreements												Net Portfolio Interest Income
Three Months Ended		Interest Income				GAAP Basis				Effect of Non-GAAP Hedges(1)				Economic Basis(2)				GAAP Basis				Economic Basis(3)
December 31, 2025		$	1,451			$	1,022			$	(109	)		$	913			$	429			$	538
September 30, 2025			1,534				1,157				(108	)			1,049				377				485
June 30, 2025			1,582				1,191				(112	)			1,079				391				503
March 31, 2025			1,742				1,307				(106	)			1,201				435				541
December 31, 2024			1,673				1,402				(1	)			1,401				271				272
September 30, 2024			1,485				1,373				36				1,409				112				76
June 30, 2024			1,287				1,157				(44	)			1,113				130				174
March 31, 2024			1,394				1,208				(21	)			1,187				186				207
Years Ended
December 31, 2025		$	6,309			$	4,677			$	(435	)		$	4,242			$	1,632			$	2,067
December 31, 2024			5,839				5,140				(30	)			5,110				699				729

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

(2)	Calculated by subtracting the effect of derivative instrument hedges attributed to the period presented from GAAP interest expense.

(3)	Calculated by adding the effect of derivative instrument hedges attributed to the period presented to GAAP net portfolio interest income.

Economic Net Interest Income

(in thousands)
										Interest
		Net Portfolio								Expense on
		Interest Income								Long-Term				Net Interest Income (Expense)
		GAAP				Economic				Debt				GAAP				Economic
Three Months Ended		Basis				Basis(1)				(GAAP)				Basis				Basis(4)
December 31, 2025		$	429			$	538			$	514			$	(85	)		$	24
September 30, 2025			377				485				544				(167	)			(59	)
June 30, 2025			391				503				540				(149	)			(37	)
March 31, 2025			435				541				538				(103	)			3
December 31, 2024			271				272				581				(310	)			(309	)
September 30, 2024			112				76				607				(495	)			(531	)
June 30, 2024			130				174				605				(475	)			(431	)
March 31, 2024			186				207				608				(422	)			(401	)
Years Ended
December 31, 2025		$	1,632			$	2,067			$	2,136			$	(504	)		$	(69	)
December 31, 2024			699				729				2,401				(1,702	)			(1,672	)

(1)	Calculated by adding the effect of derivative instrument hedges attributed to the period presented to GAAP net portfolio interest income.

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

(3)	Calculated by adding the effect of derivative instrument hedges attributed to the period presented to GAAP net interest income.

Segment Information

We have two operating segments: (a) the asset management segment, which includes the investment advisory services provided by Bimini Advisors to Orchid and Royal Palm; and (b) the investment portfolio segment, which includes the investment activities conducted by Royal Palm. Segment information for the years ended December 31, 2025 and 2024 is as follows:

(in thousands)
		Asset Management				Investment Portfolio				Corporate					Eliminations				Total
2025
Advisory services, external customers		$	16,575			$	-			$	-				$	-			$	16,575
Advisory services, other operating segments(1)			189				-				-					(189	)			-
Interest and dividend income			-				7,129				-					-				7,129
Interest expense			-				(4,677	)			(2,136	)	(2)			-				(6,813	)
Net revenues			16,764				2,452				(2,136	)				(189	)			16,891
Other income			-				205				-					-				205
Operating expenses(3)			(8,778	)			(3,825	)			-					-				(12,603	)
Intercompany expenses(1)			-				(189	)			-					189				-
Income (loss) before income taxes		$	7,986			$	(1,357	)		$	(2,136	)			$	-			$	4,493
Year-end assets		$	2,617			$	120,751			$	6,326				$	-			$	129,694

		Asset Management				Investment Portfolio				Corporate					Eliminations				Total
2024
Advisory services, external customers		$	12,784			$	-			$	-				$	-			$	12,784
Advisory services, other operating segments(1)			145				-				-					(145	)			-
Interest and dividend income			-				6,657				1					-				6,658
Interest expense			-				(5,140	)			(2,401	)	(2)			-				(7,541	)
Net revenues			12,929				1,517				(2,400	)				(145	)			11,901
Other (expense) income			-				1,167				-					-				1,167
Operating expenses(3)			(7,241	)			(4,016	)			(1	)				-				(11,258	)
Intercompany expenses(1)			-				(145	)			-					145				-
Income (loss) before income taxes		$	5,688			$	(1,477	)		$	(2,401	)			$	-			$	1,810
Year-end assets		$	2,006			$	146,714			$	6,134				$	-			$	154,854

(1)	Includes fees paid by Royal Palm to Bimini Advisors for advisory services at an annualized rate of 1.5% of capital allocated to Royal Palm's MBS portfolio.

(2)	Includes interest on long-term debt.

(3)	Corporate expenses are allocated based on each segment's proportional share of total revenues.

Asset Management Segment

Advisory Services Revenue

Advisory services revenue consists of management fees and overhead reimbursements charged to Orchid for the management of its portfolio pursuant to the terms of a management agreement. We receive a monthly management fee in the amount of:

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One-twelfth of 1.50% of the first $250 million of Orchid's month-end equity, as defined in the management agreement,

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One-twelfth of 1.25% of Orchid's month-end equity that is greater than $250 million and less than or equal to $500 million, and

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One-twelfth of 1.00% of Orchid's month-end equity that is greater than $500 million.

The Company also provides certain repurchase agreement trading, clearing and administrative services to Orchid. In consideration for such services, Orchid pays the following fees to the Company:

●

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.

In addition, Orchid is obligated to reimburse us for any direct expenses incurred on its behalf and to pay to us an amount equal to Orchid's pro rata portion of certain overhead costs set forth in the management agreement. The management agreement has been renewed through February 2027 and provides for automatic one-year extension options. Should Orchid terminate the management agreement without cause, it will be obligated to pay to us 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 applicable renewal term.

The following table summarizes the advisory services revenue received from Orchid for the years ended December 31, 2025 and 2024 and each quarter during 2025 and 2024.

($ in thousands)
										Average				Advisory Services
		Average				Average				Orchid												Repurchase,
		Orchid				Orchid				Repurchase				Management				Overhead				Clearing and
Three Months Ended		MBS				Equity				Agreements				Fee				Allocation				Administrative				Total
December 31, 2025		$	9,492,369			$	1,233,957			$	9,061,222			$	3,700			$	705			$	319			$	4,724
September 30, 2025			7,674,720				1,108,307				7,331,428				3,294				887				277				4,458
June 30, 2025			6,865,727				1,012,986				6,537,260				2,982				582				247				3,811
March 31, 2025			5,995,702				902,590				5,722,092				2,747				608				227				3,582
December 31, 2024			5,348,057				817,241				5,128,207				2,488				677				222				3,387
September 30, 2024			4,984,279				780,010				4,788,287				2,448				637				216				3,301
June 30, 2024			4,203,416				699,766				4,028,601				2,257				732				178				3,167
March 31, 2024			3,887,545				672,057				3,708,573				2,161				598				170				2,929
Years Ended
December 31, 2025		$	7,507,130			$	1,064,460			$	7,163,001			$	12,723			$	2,782			$	1,070			$	16,575
December 31, 2024			4,605,824				742,269				4,413,417				9,354				2,644				786				12,784

Pending Acquisition of Tom Johnson Investment Management

On January 13, 2026, the Company announced that Holdings has entered into an agreement to purchase eighty percent (80%) of the fully diluted equity interests of TJIM, a privately held registered investment adviser. The transaction is expected to close at the beginning of the second quarter of 2026. As of the announcement date, TJIM had approximately $1.6 billion of assets under management across equity and fixed income markets. TJIM's management agreements are diverse, covering individual accounts, sub-advisory agreements, and wrap programs. The existing owners of TJIM will retain an ownership interest in TJIM and Bimini intends to retain its current staff and investment management team following the closing of the transaction. The transaction agreements include mutual put and call rights that could result in the Company's acquisition of the remaining 20% equity interest retained by the existing owners. The transaction is intended to transition Bimini into a pure asset management firm with a more diverse mix of assets under its respective management teams.

If the acquisition of TJIM is completed, the composition of the Company's business will change both from the perspective of how its capital is deployed and how it reports its results for its operating segments. The acquisition of an 80% ownership interest in TJIM will require the deployment of a significant portion of the Company's capital, including all capital currently deployed into the investment portfolio, with the exception of shares of Orchid. The results of TJIM going forward would represent a significant portion of the Company's aggregate results. If the acquisition is completed and the Company is able to generate and retain earnings going forward, the Company expects that such funds will be deployed into an Agency MBS investment portfolio, in which case they are expected to be managed more conservatively in terms of the amount of leverage employed when compared to leverage employed by the Company historically. Given the Company's intention to retain ownership of shares of Orchid if the transaction closes, the Company's operating segments would consist of the management of Orchid, the controlling stake in the operations of TJIM, and to a lesser extent its investment portfolio, for a total of three reportable segments.

With respect to the Company's results of operations for 2025 and 2024, the investment portfolio comprised one of the Company's reportable segments and the Company deployed significant capital to those operations. Accordingly, such operations are described in detail below.

Investment Portfolio Segment

Net Portfolio Interest Income

We define net portfolio interest income as interest income on MBS less interest expense on repurchase agreement funding. During the year ended December 31, 2025, we generated $1.6 million of net portfolio interest income, consisting of $6.3 million of interest income from MBS assets offset by $4.7 million of interest expense on repurchase liabilities. For the year ended December 31, 2024, we generated $0.7 million of net portfolio interest income, consisting of $5.8 million of interest income from MBS assets offset by $5.1 millionof interest expense on repurchase liabilities. The $0.5 million increase in interest income for the year ended December 31, 2025was primarily due to a $9.4 million increase in average MBS balances, offset by a 7 basis point ("bp") decrease in yields earned on the portfolio. The $0.5 million decrease in interest expense for the year ended December 31, 2025was primarily due to a 90 bp decrease in cost of funds, offset by a $9.0 million increase in average repurchase liabilities.

Our economic interest expense on repurchase liabilities for the years ended December 31, 2025 and 2024was $4.2 million and $5.1 million, respectively, resulting in $2.1 million and $0.7 million of economic net portfolio interest income, respectively.

The tables below provide information on our portfolio average balances, interest income, yield on assets, average repurchase agreement balances, interest expense, cost of funds, net interest income and net interest rate spread for each quarter in 2025 and 2024 and for the years ended December 31, 2025 and 2024 on both a GAAP and economic basis.

($ in thousands)
		Average								Yield on				Average				Interest Expense								Average Cost of Funds
		MBS				Interest				Average				Repurchase				GAAP				Economic				GAAP				Economic
Three Months Ended		Held(1)				Income(2)				MBS				Agreements(1)				Basis				Basis(2)				Basis				Basis(3)
December 31, 2025		$	96,668			$	1,451				6.00	%		$	92,640			$	1,022			$	913				4.41	%			3.94	%
September 30, 2025			106,016				1,534				5.79	%			100,848				1,157				1,049				4.59	%			4.16	%
June 30, 2025			114,294				1,582				5.54	%			108,626				1,191				1,079				4.39	%			3.97	%
March 31, 2025			121,657				1,742				5.73	%			116,346				1,307				1,201				4.49	%			4.13	%
December 31, 2024			120,388				1,673				5.56	%			115,102				1,402				1,401				4.87	%			4.87	%
September 30, 2024			102,422				1,485				5.80	%			97,949				1,373				1,409				5.61	%			5.75	%
June 30, 2024			87,539				1,287				5.88	%			83,737				1,157				1,113				5.53	%			5.32	%
March 31, 2024			90,697				1,394				6.15	%			85,753				1,208				1,187				5.63	%			5.54	%
Years Ended
December 31, 2025		$	109,659			$	6,309				5.75	%		$	104,615			$	4,677			$	4,242				4.47	%			4.06	%
December 31, 2024			100,262				5,839				5.82	%			95,635				5,140				5,110				5.37	%			5.34	%

($ in thousands)
		Net Portfolio								Net Portfolio
		Interest Income								Interest Spread
		GAAP				Economic				GAAP				Economic
Three Months Ended		Basis				Basis(2)				Basis				Basis(4)
December 31, 2025		$	429			$	538				1.59	%			2.06	%
September 30, 2025			377				485				1.20	%			1.63	%
June 30, 2025			391				503				1.15	%			1.57	%
March 31, 2025			435				541				1.24	%			1.60	%
December 31, 2024			271				272				0.69	%			0.69	%
September 30, 2024			112				76				0.19	%			0.05	%
June 30, 2024			130				174				0.35	%			0.56	%
March 31, 2024			186				207				0.52	%			0.61	%
Years Ended
December 31, 2025		$	1,632			$	2,067				1.28	%			1.69	%
December 31, 2024			699				729				0.45	%			0.48	%

(1)	Portfolio yields and costs of borrowings presented in the tables above and the tables on page 41 are calculated based on the average balances of the underlying investment portfolio/repurchase agreement balances and are annualized for the periods presented.

(2)	Economic interest expense and economic net interest income presented in the tables above and the tables on page 41 include the effect of derivative instrument hedges for only the period presented.

(3)	Represents interest cost of our borrowings and the effect of derivative instrument hedges attributed to the period related to hedging activities divided by average MBS held.

(4)	Economic net interest spread is calculated by subtracting average economic cost of funds from yield on average MBS.

Cost of Funds

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 28 bps above the one-month average SOFR and 10 bps above the six-month average SOFR for the year ended December 31, 2025. Our average economic cost of funds was 13 bps below the one-month average SOFR and 31 bps below the six-month average SOFR for the year ended December 31, 2025. The average term to maturity of the outstanding repurchase agreements decreased to 31 days as of December 31, 2025 from 49 days as of December 31, 2024.

The table below presents one-month average and six-month average SOFR rates for each quarter in 2025 and 2024 and for the years ended December 31, 2025 and 2024 on both a GAAP and economic basis.

										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
Three Months Ended		One-Month				Six-Month				SOFR				SOFR				SOFR				SOFR
December 31, 2025			3.79	%			4.20	%			0.62	%			0.21	%			0.15	%			(0.26	)%
September 30, 2025			4.31	%			4.37	%			0.28	%			0.22	%			(0.15	)%			(0.21	)%
June 30, 2025			4.32	%			4.37	%			0.07	%			0.02	%			(0.35	)%			(0.40	)%
March 31, 2025			4.33	%			4.55	%			0.16	%			(0.06	)%			(0.20	)%			(0.42	)%
December 31, 2024			4.53	%			5.03	%			0.34	%			(0.16	)%			0.34	%			(0.16	)%
September 30, 2024			5.16	%			5.37	%			0.45	%			0.24	%			0.59	%			0.38	%
June 30, 2024			5.34	%			5.39	%			0.19	%			0.14	%			(0.02	)%			(0.07	)%
March 31, 2024			5.32	%			5.39	%			0.31	%			0.24	%			0.22	%			0.15	%
Years Ended
December 31, 2025			4.19	%			4.37	%			0.28	%			0.10	%			(0.13	)%			(0.31	)%
December 31, 2024			5.09	%			5.30	%			0.28	%			0.07	%			0.25	%			0.04	%

Dividend Income from Orchid

We owned 569,071 shares of Orchid common stock throughout each of the years ended December 31, 2025 and 2024. Orchid paid total dividends of $1.44 per share during 2025and $1.44 per share during 2024. During the years ended December 31, 2025 and 2024, we received dividends on our Orchid common stock of approximately $0.8 million and $0.8 million, respectively.

Long-Term Debt

Junior Subordinated Debt

The junior subordinated debt securities pay interest at a floating rate. The interest rate is the CME Term SOFR on the applicable reset date plus the tenor spread adjustment of 0.26161% plus the coupon spread of 3.50%. Interest expense on our junior subordinated debt securities was approximately $2.1 million and $2.4 million for the years ended December 31, 2025 and 2024, respectively. The average rate of interest paid for the year ended December 31, 2025was 7.94% compared to 8.97% for the year ended December 31, 2024. As of December 31, 2025, the interest rate was 7.48%.

Note Payable

On October 30, 2019, the Company borrowed $680,000 from a bank. The related note is secured by a mortgage on the Company's office building and has a final maturity of October 30, 2039. Through October 30, 2024, interest accrued on the note at 4.89%. Thereafter, interest accrues based on the weekly average yield to the United States Treasury securities adjusted to a constant maturity of 5 years, plus 3.25%. The interest rate reset to 7.37% on October 30, 2024 and will reset again on October 30, 2029.

Gains or Losses and Other Income

The table below presents our gains or losses and other income for the years ended December 31, 2025 and 2024.

(in thousands)
		2025				2024				Change
Realized losses on sales of MBS		$	(219	)		$	(562	)		$	343
Unrealized gains (losses) on MBS			2,688				(309	)			2,997
Total gains (losses) on MBS			2,469				(871	)			3,340
(Losses) gains on derivative instruments			(1,934	)			2,407				(4,341	)
Unrealized losses on Orchid Island Capital, Inc. common stock			(330	)			(370	)			40

We invest in MBS 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 trading in these securities. However, we have sold, and may sell in the future, 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 year ended December 31, 2025, we received proceeds of $19.5 million from the sales of MBS compared to $46.3 million for the year ended December 31, 2024.

The fair value of our MBS portfolio and derivative instruments, and the gains (losses) reported on those financial instruments, are driven in part by changes in yields and interest rates, the spreads that MBS trade relative to comparable duration U.S. Treasuries or swaps, as well as varying levels of demand for MBS, which affect the pricing of the securities in our portfolio. The unrealized gains and losses on MBS 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 MBS are carried at a discount to par, unrealized gains or losses on MBS 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 2025 and 2024.

						15 Year		30 Year		90 Day
		5 Year		10 Year		Fixed-Rate		Fixed-Rate		Average
		Treasury Rate(1)		Treasury Rate(1)		Mortgage Rate(2)		Mortgage Rate(2)		SOFR(3)
December 31, 2025		3.72%		4.16%		5.44%		6.15%		4.01%
September 30, 2025		3.73%		4.15%		5.49%		6.30%		4.35%
June 30, 2025		3.80%		4.23%		5.89%		6.77%		4.34%
March 31, 2025		3.98%		4.25%		5.89%		6.65%		4.35%
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%		5.31%

(1)	Historical 5 Year and 10 Year 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.

Operating Expenses

For the year ended December 31, 2025, our total operating expenses were approximately $12.6 million compared to approximately $11.3 million for the year ended December 31, 2024 as detailed in the table below.

(in thousands)
		2025				2024				Change
Compensation and benefits		$	8,310			$	7,287			$	1,023
Direct advisory services costs			1,695				1,667				28
Audit, legal and other professional fees			1,124				654				470
Directors' fees and liability insurance			872				841				31
Administrative and other expenses			603				809				(206	)
		$	12,604			$	11,258			$	1,346

Income Taxes

In 2025, we recorded an income tax benefit of $1.3 million, including a $3.7 million decrease in the deferred tax asset valuation allowance as a result of management's reassessment, as of December 31, 2025, of the Company's ability to utilize tax NOLs to offset future taxable income. During 2025, Orchid raised approximately $741.4 million in new capital. This increase in Orchid's equity should increase Bimini's future management fee revenues, allowing the Company to utilize more of its tax NOLs. In 2024, we recorded an income tax provision of $3.1 million, including a $1.3 million increase in the deferred tax asset valuation allowance as a result of management's reassessment, as of December 31, 2024, of the Company's ability to utilize NOLs to offset future taxable income. The Company uses the discrete-period computation method for determining its income tax (benefit) provision. Our income tax provision is affected by numerous factors, including non-deductible expenses, the projected utilization of net operating loss carryovers and changes in our deferred tax assets and liabilities and their valuations, and can result in significant variations in the customary relationship between pretax income and income tax expense. Non-deductible expenses, including executive compensation in excess of Section 162(m) limitations increased the income tax provision by $0.8 million and $0.9 million for the years ended December 31, 2025 and 2024, respectively.

Financial Condition:

Mortgage-Backed Securities

As of December 31, 2025, our MBS portfolio consisted of $88.9 million of agency or government MBS at fair value and had a weighted average coupon of 5.73%. During the year ended December 31, 2025, we received principal repayments of $16.4 million compared to $13.4 million for the year ended December 31, 2024. The average prepayment speeds for the quarters ended December 31, 2025 and 2024 were 16.6% and 11.1%, respectively.

The following table presents the three-month constant prepayment rate ("CPR") experienced on our portfolio, 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.

		Total
Three Months Ended		Portfolio (%)
December 31, 2025			16.6
September 30, 2025			16.8
June 30, 2025			9.9
March 31, 2025			7.3
December 31, 2024			11.1
September 30, 2024			6.3
June 30, 2024			10.0
March 31, 2024			16.5

The following tables summarize certain characteristics of our PT MBS and structured MBS as of December 31, 2025 and 2024:

($ in thousands)
														Weighted
						Percentage								Average
						of				Weighted				Maturity
		Fair				Entire				Average				in			Longest
		Value				Portfolio				Coupon				Months			Maturity
December 31, 2025		$	88,929				100.0	%			5.73	%			331		1-Aug-54
December 31, 2024		$	122,348				100.0	%			5.26	%			340		1-Jan-55

($ in thousands)
		December 31, 2025								December 31, 2024
						Percentage of								Percentage of
Agency		Fair Value				Entire Portfolio				Fair Value				Entire Portfolio
Fannie Mae		$	21,924				24.7	%		$	32,692				26.7	%
Freddie Mac			67,005				75.3	%			89,656				73.3	%
Total Portfolio		$	88,929				100.0	%		$	122,348				100.0	%

As of December 31, 2025, the Company's portfolio had an effective duration of 2.23, indicating that an interest rate increase of 1.0% would be expected to cause a 2.23% decrease in the value of the MBS in our investment portfolio. As of December 31, 2024, the Company's portfolio had an effective duration of 3.62, indicating that an interest rate increase of 1.0% would be expected to cause a 3.62% decrease in the value of the MBS in our investment portfolio. These figures do not include the effect of our funding cost hedges. Effective duration quotes for individual investments are obtained from The Yield Book, Inc.

Our portfolio of PT MBS is typically comprised of adjustable-rate MBS, fixed-rate MBS and hybrid adjustable-rate MBS. We generally seek to acquire low duration assets that offer high levels of protection from mortgage prepayments provided that they are reasonably priced by the market. The stated contractual final maturity of the mortgage loans underlying our portfolio of PT MBS generally ranges up to 30 years. However, the effect of prepayments of the underlying mortgage loans tends to shorten the resulting cash flows from our investments substantially. Prepayments occur for various reasons, including refinancing of underlying mortgages, loan payoffs in connection with home sales, and borrowers paying more than their scheduled loan payments, which accelerates the amortization of the loans.

The duration of our IO and IIO portfolios will vary greatly depending on the structural features of the securities. While prepayment activity will always affect the cash flows associated with the securities, the interest only nature of IO's may cause their durations to become extremely negative when prepayments are high, and less negative when prepayments are low. Prepayments affect the durations of IIO's similarly, but the floating rate nature of the coupon of IIOs (which has an inverse relationship to their reference index) cause their price movements - and model duration - to be affected by changes in both prepayments and their reference index - both current and anticipated levels. As a result, the duration of IIO securities will also vary greatly.

Prepayments on the loans underlying our MBS can alter the timing of the cash flows received by us. As a result, we gauge the interest rate sensitivity of its assets by measuring their effective duration. While modified duration measures the price sensitivity of a bond to movements in interest rates, effective duration captures both the movement in interest rates and the fact that cash flows to a mortgage related security are altered when interest rates move. Accordingly, when the contract interest rate on a mortgage loan is substantially above prevailing interest rates in the market, the effective duration of securities collateralized by such loans can be quite low because of expected prepayments.

We face the risk that the market value of our MBS assets will increase or decrease at different rates than those of our hedging instruments. Accordingly, we assess our interest rate risk by estimating the duration of our assets and the duration of our hedge instruments. We generally calculate duration and effective duration using various third-party models or obtain these quotes from third-parties. However, empirical results and various third-party models may produce different duration numbers for the same securities.

The following sensitivity analysis shows the estimated impact on the fair value of our interest rate-sensitive investments and hedge positions as of December 31, 2025, assuming rates instantaneously fall 200 bps, fall 100 bps and rise 100 bps, adjusted to reflect the impact of convexity, which is the measure of the sensitivity of our hedge positions and Agency MBS' effective duration to movements in interest rates.

($ in thousands)
						$ Change in Fair Value												% Change in Fair Value
			Fair Value				-200bps				-100bps				+100bps				-200bps				-100bps				+100bps
MBS Portfolio		$	88,929			$	2,323			$	1,448			$	(2,631	)			2.61	%			1.63	%			(2.96	)%
		Notional				$ Change in Fair Value												% Change in Fair Value
Repurchase Agreement Hedges		Amount				-200bps				-100bps				+100bps				-200bps				-100bps				+100bps
Futures Contracts		$	62,400				(7,957	)			(3,839	)			3,586				(12.75	)%			(6.15	)%			5.75	%
Totals						$	(5,634	)		$	(2,391	)		$	955

In addition to changes in interest rates, other factors impact the fair value of our interest rate-sensitive investments and hedging instruments, such as the shape of the yield curve, market expectations as to future interest rate changes and other market conditions. Accordingly, in the event of changes in actual interest rates, the change in the fair value of our assets would likely differ from that shown above and such difference might be material and adverse to our stockholders.

Repurchase Agreements

As of December 31, 2025, 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 seven of these counterparties. We believe these facilities provide borrowing capacity in excess of our needs. None of these lenders are affiliated with the Company. These borrowings are secured by our MBS and cash.

As of December 31, 2025, we had obligations outstanding under the repurchase agreements of approximately $85.3 million with a net weighted average borrowing cost of 3.98%. The remaining maturity of our outstanding repurchase agreement obligations ranged from 21 to 58 days, with a weighted average maturity of 31 days. Securing the repurchase agreement obligation as of December 31, 2025are MBS with an estimated fair value, including accrued interest, of $89.2 million. Through March 13, 2026, we have been able to maintain our repurchase facilities with comparable terms to those that existed as of December 31, 2025with maturities through March 24, 2026.

The table below presents information about our period-end and average repurchase agreement obligations for each quarter in 2025 and 2024.

($ in thousands)
														Difference Between Ending
		Ending				Maximum				Average				Repurchase Agreements and
		Balance of				Balance of				Balance of				Average
		Repurchase				Repurchase				Repurchase				Repurchase Agreements
Three Months Ended		Agreements				Agreements (1)				Agreements (2)				Amount				Percent
December 31, 2025		$	85,326			$	99,953			$	92,640			$	(7,314	)			(7.90	)%
September 30, 2025			99,953				101,788				100,848				(895	)			(0.89	)%
June 30, 2025			101,742				115,096				108,626				(6,884	)			(6.34	)%
March 31, 2025			115,511				117,603				116,346				(835	)			(0.72	)%
December 31, 2024			117,181				117,324				115,102				2,079				1.81	%
September 30, 2024			113,023				113,026				97,949				15,074				15.39	%
June 30, 2024			82,876				84,553				83,737				(861	)			(1.03	)%
March 31, 2024			84,599				87,523				85,753				(1,154	)			(1.35	)%

(1)	Maximum balance during the quarter reflects the highest daily close-of business balance outstanding under repurchase agreements for the period.

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

Liquidity and Capital Resources

Liquidity is our ability to turn non-cash assets into cash to fund our operations and to meet our obligations in both the short-term (one year or less) and long-term (greater than one year). Our material cash requirements include the purchase of additional investments, repay principal and interest on repurchase agreements and long-term debt (see Note 9 to the consolidated financial statements included in Item 8 of Part II of this Report for more information related to the timing of principal payments and maturities of our long-term debt.), fund overhead and fulfill margin calls. 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 MBS portfolio and dividends we receive on our investment in Orchid common stock.

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 ongoing basis through payments of principal and interest we receive on our MBS portfolio and dividends we receive on our investment in Orchid common stock.

We employ a hedging strategy that typically involves taking short positions in T-Note and SOFR futures, TBAs 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 through margin calls to offset the futures or TBA short position 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.

External Sources of Liquidity

Our primary external sources of liquidity are our ability to (i) borrow under master repurchase agreements and (ii) use the TBA security market. 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.

We invest a portion of our capital in structured MBS. 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. However, we have and may continue to pledge a portion of our structured MBS 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 through repurchase agreements and through revenues from our advisory services business. As of December 31, 2025, we had cash and cash equivalents of $12.7 million. We generated cash flows of $22.6 million from principal and interest payments on our MBS portfolio and had average repurchase agreements outstanding of $104.6 million during the year ended December 31, 2025. In addition, during the year ended December 31, 2025, we received approximately $16.6 million in management fees and expense reimbursements as manager of Orchid and approximately $0.8 million in dividends from our investment in Orchid common stock.

Capital Expenditures

As of December 31, 2025, we had no material commitments for capital expenditures.

Outlook

Orchid Island Capital Inc.

Orchid reported net income for the fourth quarter 2025 of $103.4 million, or $0.62 per share and its stockholders' equity increased from $1.086 billion to $1.372 billion. Orchid's stockholders' equity at the end of 2024 was $668.5 million so the increase to $1.372 billion represents an increase of approximately 105%. During the fourth quarter market conditions were favorable for levered MBS investors as Orchid reported gains on hedge instruments of $14.0 million and realized and unrealized gains on its MBS portfolio of $56.7 million, which together equaled $70.7 million. Net income for the full year of 2025 was $159.0 million, or $1.24 per share. Orchid is obligated to reimburse Bimini for direct expenses paid on its behalf as well as Orchid's pro-rate share of overhead expenses as defined in the management agreement. As a stockholder of Orchid, we will also continue to share in distributions, if any, paid by Orchid to its stockholders. Our operating results are also impacted by changes in the market value of our holdings of Orchid common shares, although these market value changes do not impact our cash flows from Orchid.

Economic Summary

As the year 2025 came to a close, market conditions were relatively calm. The government shutdown that commenced October 1, 2025, and lasted for six weeks, indirectly contributed to the calm. As a result of the government shutdown, many entities that provide economic data to the markets were unable to do so and it took several weeks after the government reopened before they were able to resume. The lack of economic data deprived both the markets and Fed policy makers of the ability to gauge the performance of the economy and its many components, such as the labor market, consumer spending and price data. As a result, market participants and the Fed were left with limited data from private sources. The result of the data vacuum for the markets was a continuation of the status quo, as the market awaited further clarification on growth and inflation. Interest rates were stable and traded in a rather tight range. Interest rate implied volatility continued its long decline that started in early April 2025, after the Trump administration imposed broad tariffs. The FOMC opted to continue on their path of policy normalization by lowering the Fed Funds rate twice in the fourth quarter of 2025, in each case by 25 basis points. In doing so, the Fed believed they had reached the upper end of neutral - implying the neutral policy rate was in fact a range versus a specific rate level.

As with prior quarters, the economy continues to operate with elevated inflation relative to the Fed's 2% target, and with evidence of a fragile labor market. There is ample data to support either thesis regarding the outlook for the economy, and market participants and FOMC members are split on how monetary policy should be managed to address the Fed's dual mandates. The two rate cuts that occurred during the fourth quarter of 2025 were the result of split votes whereby some members dissented in both the direction of more cuts and fewer, or no cuts. As we near the end of the first quarter of 2026 the dilemma persists, although the FOMC opted to hold policy steady at their January 2026 meeting, claiming they had time to monitor the incoming data for now as monetary policy was deemed near neutral and there was no pressing need to increase accommodation.

One additional development that will likely impact monetary policy going forward was the decision by President Trump to nominate Kevin Warsh as the next chairman of the Fed in late January. The term of the current chairman, Jerome Powell, ends in May of 2026. While President Trump has been highly critical of Chairman Powell and openly stated his desire for lower interest rates, the market does not appear to anticipate incoming Chairman Warsh will aggressively lower the Fed Funds rate. In fact, incoming Chairman Warsh is expected to be more of a proponent of fighting inflation and shrinking the Fed's balance sheet.

Interest Rates

As alluded to above, interest rates were quite stable over the course of the fourth quarter of 2025 and into the first quarter of 2026. All indicators of economic activity, while often of suspect quality and not always available or timely, did not indicate much changed during the fourth quarter. Inflation data remained above the Fed's target, although there did not appear to be material flow-through from the tariffs implemented during the year, and the labor market, while not robust, did not appear to be deteriorating. The Fed lowered the Fed Funds rate two times in the fourth quarter - a continuation of their plan to bring monetary policy towards neutral - and signaled they had done so. Additional cuts may come if needed but are not anticipated in the near term. Longer maturity U.S. Treasury rates remained in a tight range throughout the fourth quarter and remained so into the first quarter of 2026. As a result of the two 25 basis point rate cuts by the Fed in the fourth quarter, the spread between the Fed Funds rate and the two-year U.S. Treasury is less inverted than was the case at September 30, 2025, reflecting both the cuts and the market pricing in fewer cuts in the future. Accordingly, the U.S. Treasury curve is slightly steeper, as evidenced by the spread between the 2-year and 10-year U.S. Treasury notes increasing from approximately 54 basis points to approximately 70 basis points at year-end.

The Federal Reserve ended their quantitative tightening program, which reduced their balance sheet via the maturation of their holdings, and began reinvesting them into additional U.S. Treasury holdings on December 1, 2025. Run-off from the Agency residential mortgage-backed securities ("RMBS") holdings is now directed towards purchasing U.S. Treasury bills. The Fed also announced their intention, via Reserve Management Purchases ("RMPs"), to grow their balance sheet over time to maintain a stable relationship between the size of their balance sheet and the economy. These steps will result in increased purchases of U.S. Treasury securities by the Fed going forward, and interest rate swap spreads have widened - or become less negative - as a result. The widening of swap spreads, particularly longer-dated spreads, caused the swap curve to steepen more than the cash U.S. Treasury curve. Longer-dated swap spreads had become progressively more negative over the previous years, reflecting the market's concern with increasing government issuance of U.S. Treasury securities. The increased purchases by the Fed offset some of the impact of the deficit-induced growth in issuance anticipated in the future.

As realized interest rate volatility was very low during the quarter, implied rate volatility in the swaptions market continued to decline and has reached multi-year lows in early 2026.

The Agency MBS Market

As a proxy for the performance of the Agency RMBS market during 2025, the spread of the 30-year, fixed rate current coupon to the 10-year U.S. Treasury Note peaked at approximately 142 basis points in April 2025, not long after the market turmoil surrounding the various tariff measures introduced by the Trump administration on April 2, 2025. Since then, the spread has steadily declined, closely mirroring the performance of implied interest rate volatility, an important driver of Agency RMBS performance. The current coupon spread to the 10-year U.S. Treasury was at approximately 105 basis points at the beginning of the fourth quarter of 2025, and approximately 88 basis points at the end of the fourth quarter. In January 2026, President Trump announced plans for the Enterprises to purchase up to $200 billion of Agency RMBS in 2026 in an effort to drive mortgage rates down and improve housing affordability. The market reacted strongly to the news, and the current coupon spread tightened to approximately 74 basis points, the tightest level since early 2022 when the Fed was still buying Agency RMBS under its quantitative easing program. Since the announcement, spreads have widened slightly but are still lower than the level at the end of 2025.

Within Agency RMBS for the fourth quarter of 2025, conventional 30-year mortgages generated a total return of 1.7%, 15-year mortgages generated a total return of 1.5% and Ginnie Mae 30-year mortgages generated a total return of 1.5%. Versus comparable duration swaps, the returns were 1.4%, 0.8% and 1.1% 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 very consistent across the various coupons: the 2.0% coupon generated a return of 1.3%, the 3.5% coupon generated a return of 2.2% and all other coupons were between 1.6% and 1.8%. Excess returns versus comparable duration swaps were in the range of -0.5% to 2.1%, with the 3.5% coupon again being the outlier to the upside. The highest coupons - 6.0% and higher - all generated excess returns below 1.0%. Excess returns for the balance of the coupons were between 1.1% and 1.7%, similar to absolute returns.

Recent Legislative and Regulatory Developments

In response to the deterioration in the markets for U.S. Treasuries, Agency MBS 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 MBS 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 MBS 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 MBS 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. Treasury securities and remove the cap on Agency MBS reduction, with any amounts in excess of $35 billion per month being reinvested in U.S. Treasury securities. On March 19, 2025, the FOMC announced the Fed's decision to reduce its balance sheet by a maximum of $5 billion of U.S. Treasury securities beginning April 1, 2025. Relatively high interest rates and slow prepayment speeds have kept the balance sheet reduction for Agency MBS below $20 billion per month throughout 2024 and 2025. As of December 31, 2025, the Fed had reduced its balance sheet for Agency MBS by approximately $741 billion from the peak to $2.0 trillion, shedding approximately 54% of the Agency MBS added during pandemic quantitative easing and representing the lowest level since December 2020. On December 1, 2025, the Fed ended quantitative tightening and began reinvesting all proceeds from maturing Agency MBS up to a $35 billion per month cap in U.S. Treasuries and announced that it would begin buying an additional $40 billion per month of U.S. Treasuries via RMPs in order to maintain an ample level of reserves on an ongoing basis.

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. Throughout 2025, there was some speculation in the market regarding progress towards an end to the conservatorship, including through an initial public offering, but a directive by the Trump administration in January 2026 that the Enterprises purchase up to $200 billion of Agency MBS from their accumulated cash reserves will increase the Enterprises' balance sheets and exposure to mortgage risk and could make a near-term end to the conservatorship unlikely. The announcement of the directive, designed to increase liquidity and compress the spread between mortgage interest rates and the 10-year U.S. Treasury, had the intended effect immediately and significantly increased mortgage application volumes. The longer-term implications of this directive remain to be seen, with some analysts fearing a demand surge in home prices negating any affordability gains, systemic instability due to increased exposure to mortgage risk by the Enterprises, and volatility in the 10-year U.S. Treasury and mortgage interest spreads if the Fed decides to tighten monetary policy while the Trump administration is loosening it through the Enterprises. Further, the Enterprises are quickly approaching their regulatory asset caps, and it is unclear whether the FHFA will raise these caps to signal a long-term commitment to this directive or whether this is a limited intervention.

On July 27, 2023, the federal banking regulators, including the Office of the Comptroller of the Currency, (the "OCC") the Federal Deposit Insurance Corporation (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 originally proposed, would significantly increase the credit weight risk for balance-sheet mortgages and for Agency MBS sold to the GSEs, which could disincentivize banks from originating mortgages for sale to the GSEs and impact pricing in the Agency MBS 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. While implementation of the Basel III Endgame has since stalled, Fed Vice Chair for Supervision Michelle Bowman commented in August 2025 that a revised Basel III Endgame is expected to be issued for public comment in early 2026, which the market expects to be more capital-neutral than the original proposal. On November 25, 2025, the Fed, OCC and FDIC jointly adopted a final rule to revise the enhanced supplementary leverage ratio for globally systemically important bank holding companies ("GSIBs"). The rule, which becomes effective April 1, 2026 and may be adopted by banks subject to the rule as early as January 1, 2026, seeks to promote effective GSIB capital management and remove disincentives for banks to engage in low-risk activities, particularly in the U.S. Treasury market. This shift is expected to free up significant capital, allowing GSIBs greater discretion in asset allocation and potentially fostering increased lending and economic activity.

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.

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 PT 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, ERIS SOFR Swap, and T-Note futures contracts, dual digital options or interest rate swaptions.

Summary

The fixed income markets have experienced a period of calm as 2025 came to close and we enter 2026. Interest rates have remained in a very tight range, implied interest rate volatility has continued the steady decline that began in April of 2025, and Agency RMBS performed well during the fourth quarter of 2025. Other sectors of the fixed income markets performed well during the fourth quarter as well, and spreads on investment grade corporate bonds reached levels not seen since 1998. Risk sentiment generally was quite strong during the quarter, and the S&P 500 generated a return of 2.3%. The government shutdown that started on October 1, 2025, and lasted until mid-November created a near complete data vacuum for the markets during the quarter. Once the government reopened it was several weeks before data for the quarter was available. Exacerbating the data shortage was the perception the data was of poor-quality owing to frequent and substantial revisions after the initial release. The market had limited means to gauge the strength of the economy. The Fed did lower the Fed Funds rate twice in the fourth quarter - in both cases by 25 basis points - and stated they had reached the upper end of what they deemed the range of neutral. However, owing to the lack of the most critical data on the labor market and inflation - and the fact that the data that was available did not indicate much had changed with the economy since the shutdown began - the Fed seems likely to hold rates steady for now until incoming data dictates otherwise. This seems especially likely to be the case as President Trump announced Kevin Warsh will replace current Chairman Powell in May, and the Fed is not likely to take meaningful policy steps just before a chairmanship transition.

The Agency RMBS market generated a total return of 1.7% for the quarter, consistent with the solid returns for all sectors of the fixed income markets. The return for the Agency RMBS market versus comparable durations swaps, a proxy for returns for levered bond investors such as the Company, was 1.3%. During the fourth quarter, excess returns were generally even across the various 30-year coupons - with the 3.5% coupon being an outlier to the upside at 2.2%. The highest coupons, 6.0% and higher, lagged the returns of the rest of the coupon stack on an excess return basis, all between 0.5% and 0.9%.

Looking forward, economic activity remains resilient and could strengthen as the stimulative components of the One Big Beautiful Bill Act, passed in mid-2025, start to impact the economy - lower tax withholding, capital expenditure expensing, less regulation, among other measures. The labor market still seems weak, although it is not deteriorating. Inflation remains sticky, still above the Fed's target level of 2%, but there do not appear to be meaningful follow-through impacts from the tariffs introduced in 2025. Monetary policy may remain steady for the time being as well. If these conditions persist, interest rates are likely to remain stable, implied interest rate volatility subdued and risk assets, including Agency RMBS, will likely perform well. This outlook will change if interest rates move substantially in either direction, especially if the movement is towards higher rates, and interest rate implied volatility increases materially.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with GAAP, which requires our management to make some complex and subjective decisions, estimates and assessments. Our most critical accounting policies involve decisions, estimates and assessments which can have a material impact on reported assets, liabilities, revenues and expenses and these estimates can change each reporting period. Management has identified the following as its most critical accounting estimates:

Mortgage-Backed Securities

Our investments in MBS are accounted for at fair value. We acquire our MBS for the purpose of generating long-term returns, and not for the short-term investment of idle capital.

As discussed in Note 14 to our consolidated financial statements included in Item 8 of Part II of this Report, our MBS are valued using Level 2 valuations, and such valuations currently are determined based on independent pricing sources and/or third party broker quotes, when available. Because the price estimates may vary, management must make certain judgments and assumptions about the appropriate price to use to calculate the fair values. Alternatively, the Company could opt to have the value of all of our positions in MBS determined by either an independent third-party or do so internally. In managing our portfolio, the Company employs the following four-step process at each valuation date to determine the fair value of our MBS.

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First, the Company obtains fair values from subscription-based independent pricing services.

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Second, the Company requests non-binding quotes from one to four broker-dealers for certain MBS in order to validate the values obtained by the pricing service. The Company requests these quotes from broker-dealers that actively trade and make markets in the respective asset class for which the quote is requested.

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Third, the Company reviews the values obtained by the pricing source and the broker-dealers for consistency across similar assets.

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Finally, if the data from the pricing services and broker-dealers is not homogenous or if the data obtained is inconsistent with management's market observations, the Company makes a judgment to determine which price appears the most consistent with observed prices from similar assets and selects that price. To the extent management 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, the Company 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 MBS backed by fixed-rate mortgages, the Company generally uses the quoted or observed market price. For assets such as Agency MBS backed by ARMs or structured Agency MBS, the Company 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 Accounting Standards Codification Topic 820, Fair Value Measurements.

Income Recognition

All of our MBS are either PT MBS or structured MBS, including CMOs, IOs, IIOs or POs. Income on PT MBS, POs and CMOs that contain principal balances is based on the stated interest rate of the security. As a result of accounting for our MBS 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. As cash is received it is first applied to accrued interest and then to reduce the carrying value of the security. At each reporting date, the effective yield is adjusted prospectively from the reporting period 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 MBS during the period are recorded in earnings and reported as unrealized gains or losses on mortgage-backed securities in the accompanying consolidated statements of operations. For IIO securities, effective yield and income recognition calculations also take into account the index value applicable to the security.

Income Taxes

Income taxes are provided for using the asset and liability method. Deferred tax assets and liabilities represent the differences between the financial statement and income tax bases of assets and liabilities using enacted tax rates. The measurement of net deferred tax assets is adjusted by a valuation allowance if, based on the Company's evaluation, it is more likely than not that they will not be realized. A majority of the Company's net deferred tax assets, which consist primarily of NOLs, are expected to be realized over an extended number of years. Management's conclusion is supported by taxable income projections which include forecasts of management fees, Orchid dividends and net interest income, and the subsequent reinvestment of those amounts into the MBS portfolio. However, management reassesses its valuation allowance conclusions whenever there is a material change in taxable income projections.