Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

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 1 of this Form 10-Q. 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 our most recent Annual Report on Form 10-K, our actual results may differ materially from those anticipated in such forward-looking statements. In addition, please see the section "Special Note Regarding Forward-Looking Statements" included at the beginning of this Form 10-Q.

Overview

Bimini Capital Management, Inc., a Maryland corporation ("Bimini Capital" and, collectively with its subsidiaries, the "Company," "we", "us" or "our") is a specialty finance company that operates in three business segments: (i) the asset management segment of Bimini Advisors, LLC (together with Bimini Advisors Holdings, LLC, "Bimini Advisors") (serving as the external manager of Orchid Island Capital, Inc. ("Orchid")), (ii) the asset management segment of Tom Johnson Investment Management, LLC ("TJIM") (providing investment advisory and wealth management services to individuals, high-net-worth families, retirement plans, foundations, and institutions), and (iii) the investment portfolio segment (investing through our wholly owned subsidiary, Royal Palm Capital, LLC (collectively with its wholly owned subsidiaries, "Royal Palm"), in mortgage-backed securities ("MBS") and Orchid common stock in our own portfolio). See Note 14. In the two segments where we invest in MBS, in both cases, the principal and interest payments of these MBS are guaranteed by Fannie Mae, Freddie Mac or the Government National Mortgage Association ("Ginnie Mae" and, collectively with Fannie Mae and Freddie Mac, "GSEs") and are backed primarily by single-family residential mortgage loans. We refer to these types of MBS as "Agency MBS." Our investment strategy focuses on, and our portfolios primarily consist of traditional pass-through ("PT") Agency MBS, such as mortgage pass-through certificates and collateralized mortgage obligations ("CMOs") issued by the GSEs ("PT MBS"); and structured Agency MBS, such as interest only securities ("IOs"), inverse interest only securities ("IIOs") and principal only securities ("POs").

Recent Significant Events

On April 1, 2026, the Company completed the acquisition of an 80% ownership stake in TJIM. As a result of the acquisition, the Company expanded beyond investing in MBS securities solely and into investment management across equity, other areas of the fixed income markets, and balanced strategies for individuals, high-net-worth families, retirement plans, foundations, and institutions. Unless stated otherwise, the financial information contained in this Item 2 regarding the results of operations and financial condition of TJIM take into account only the results of operations, financial condition, and performance of TJIM after April 1, 2026.

The acquisition expanded the nature of the Company's operations and revenue composition. Following the acquisition, a portion of the Company's revenues is derived from recurring management fees based on assets under management ("AUM").

Management believes the acquisition provides:

●

expanded recurring revenue streams;

●

increased exposure to fee-based advisory businesses;

●

enhanced cash flow generation opportunities;

●

expanded client relationships; and

●

additional long-term growth opportunities in asset and wealth management.

Key Business Metrics

Management monitors several operating metrics with respect to TJIM, including:

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assets under management;

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net client inflows and outflows;

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investment performance;

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fee rates;

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client retention;

●

operating margins; and

●

compensation ratios.

Regulatory Environment

As a result of the acquisition, the Company became subject to additional regulatory requirements applicable to SEC-registered investment advisers beyond just Bimini Advisors management of Orchid. Compliance with these regulations has increased operating complexity and may increase future compliance, legal, and administrative costs. These regulations govern, among other matters:

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fiduciary duties to clients;

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custody of client assets;

●

disclosure obligations;

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advertising and marketing practices;

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valuation procedures;

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conflicts of interest;

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trading practices;

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cybersecurity and recordkeeping;

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anti-money laundering compliance;

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privacy and data protection; and

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compliance policies and procedures.

The Company has adopted compliance policies and supervisory procedures designed to address regulatory obligations and fiduciary standards applicable to registered investment advisers. Failure to comply with applicable laws and regulations could result in examinations, investigations, enforcement actions, censures, fines, reputational harm, restrictions on business activities, or the loss of advisory registrations.

Results of Operations

Described below are the Company's results of operations for the nine and three months ended September 30, 2026, as compared to the nine and three months ended September 30, 2025.

Net Income Summary

Consolidated net income attributable to Bimini stockholders for the nine months ended September 30, 2026 was $2.2 million, or $0.22 basic and diluted income per share of Class A Common Stock, as compared to consolidated net income of $2.4 million, or $0.24 basic and diluted income per share of Class A Common Stock, for the nine months ended September 30, 2025. Consolidated net income attributable to Bimini stockholders for the three months ended September 30, 2026 was $1.0 million, or $0.10 basic and diluted income per share of Class A Common Stock, as compared to consolidated net income of $1.8 million, or $0.18 basic and diluted income per share of Class A Common Stock, for the three months ended September 30, 2025. The components of net income for the nine and three months ended September 30, 2026 and 2025, along with the changes in those components are presented in the table below.

(in thousands)
		Nine Months Ended September 30,												Three Months Ended September 30,
		2026				2025				Change				2026				2025				Change
Advisory services revenues		$	18,576			$	11,851			$	6,725			$	6,644			$	4,458			$	2,186
Interest and dividend income			2,209				5,473				(3,264	)			418				1,739				(1,321	)
Interest expense			(2,495	)			(5,277	)			2,782				(660	)			(1,701	)			1,041
Net revenues			18,290				12,047				6,243				6,402				4,496				1,906
Other (expense) revenue			(1,686	)			(356	)			(1,330	)			(1,195	)			669				(1,864	)
Expenses			(12,505	)			(8,715	)			(3,790	)			(3,932	)			(2,972	)			(960	)
Net income before income tax provision			4,099				2,976				1,123				1,275				2,193				(918	)
Income tax provision			1,665				558				1,107				140				370				(230	)
Net income			2,434				2,418				16				1,135				1,823				(688	)
Less: income (loss) attributable to noncontrolling interests			238				-				238				114				-				114
Net income attributable to Bimini Capital Management, Inc. stockholders		$	2,196			$	2,418				(222	)		$	1,021			$	1,823				(802	)

Segment Information

Segment information for the nine and three months ended September 30, 2026 and 2025 is as follows:

(in thousands)
		Asset Management
		Bimini								Investment
Nine Months Ended September 30, 2026		Advisors				TJIM(4)				Portfolio				Corporate				Eliminations				Total
Advisory services, external customers		$	15,155			$	3,421			$	-			$	-			$	-			$	18,576
Advisory services, other operating segments(1)			101				-				-				-				(101	)			-
Interest and dividend income			-				8				2,200				1				-				2,209
Total revenues			15,256				3,429				2,200				1				(101	)			20,785
Interest expense(2)			-				-				(983	)			(1,512	)			-				(2,495	)
Net revenues			15,256				3,429				1,217				(1,511	)			(101	)			18,290
Other income (expense), net			-				14				(1,700	)			-				-				(1,686	)
Operating expenses			(160	)			(2,186	)			(64	)			(10,095	)			-				(12,505	)
Allocated expenses(3)			(7,369	)			(668	)			(2,057	)			10,094				-				-
Intercompany expenses(1)			-				-				(101	)			-				101				-
Income (loss) before income taxes		$	7,727			$	589			$	(2,705	)		$	(1,512	)		$	-			$	4,099

(in thousands)
		Asset Management
		Bimini								Investment
Nine Months Ended September 30, 2025		Advisors				TJIM(4)				Portfolio				Corporate				Eliminations				Total
Advisory services, external customers		$	11,851			$	-			$	-			$	-			$	-			$	11,851
Advisory services, other operating segments(1)			131				-				-				-				(131	)			-
Interest and dividend income			-				-				5,473				-				-				5,473
Total revenues			11,982				-				5,473				-				(131	)			17,324
Interest expense(2)			-				-				(3,655	)			(1,622	)			-				(5,277	)
Net revenues			11,982				-				1,818				(1,622	)			(131	)			12,047
Other income (expense), net			-				-				(356	)			-				-				(356	)
Operating expenses			(117	)			-				(111	)			(8,487	)			-				(8,715	)
Allocated expenses(3)			(5,806	)			-				(2,681	)			8,487				-				-
Intercompany expenses(1)			-				-				(131	)			-				131				-
Income (loss) before income taxes		$	6,059			$	-			$	(1,461	)		$	(1,622	)		$	-			$	2,976

(in thousands)
		Asset Management
		Bimini								Investment
Three Months Ended September 30, 2026		Advisors				TJIM(4)				Portfolio				Corporate				Eliminations				Total
Advisory services, external customers		$	4,951			$	1,693			$	-			$	-			$	-			$	6,644
Advisory services, other operating segments(1)			25				-				-				-				(25	)			-
Interest and dividend income			-				(2	)			419				1				-				418
Total revenues			4,976				1,691				419				1				(25	)			7,062
Interest expense(2)			-				-				(141	)			(519	)			-				(660	)
Net revenues			4,976				1,691				278				(518	)			(25	)			6,402
Other income (expense), net			-				11				(1,205	)			(1	)			-				(1,195	)
Operating expenses			(59	)			(1,066	)			(18	)			(2,789	)			-				(3,932	)
Allocated expenses(3)			(1,956	)			(668	)			(166	)			2,790				-				-
Intercompany expenses(1)			-				-				(25	)			-				25				-
Income (loss) before income taxes		$	2,961			$	(32	)		$	(1,136	)		$	(518	)		$	-			$	1,275

(in thousands)
		Asset Management
		Bimini								Investment
Three Months Ended September 30, 2025		Advisors				TJIM(4)				Portfolio				Corporate				Eliminations				Total
Advisory services, external customers		$	4,458			$	-			$	-			$	-			$	-			$	4,458
Advisory services, other operating segments(1)			50				-				-				-				(50	)			-
Interest and dividend income			-				-				1,739				-				-				1,739
Total revenues			4,508				-				1,739				-				(50	)			6,197
Interest expense(2)			-				-				(1,157	)			(544	)			-				(1,701	)
Net revenues			4,508				-				582				(544	)			(50	)			4,496
Other income, net			-				-				669				-				-				669
Operating expenses			(44	)			-				(46	)			(2,882	)			-				(2,972	)
Allocated expenses(3)			(2,073	)			-				(809	)			2,882				-				-
Intercompany expenses(1)			-				-				(50	)			-				50				-
Income (loss) before income taxes		$	2,391			$	-			$	346			$	(544	)		$	-			$	2,193

(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 expense on repurchase agreements in the Investment Portfolio column and long-term debt in the Corporate column.
(3)	Operating expenses are allocated based on each segment's proportional share of total revenues.
(4)	The activity and results of operations of TJIM prior to April 1, 2026, the closing date of the TJIM Acquisition, are not included.

Assets in each reportable segment were as follows:

(in thousands)
		Asset Management
		Bimini								Investment
		Advisors				TJIM				Portfolio				Corporate				Total
September 30, 2026		$	2,486			$	18,617			$	37,063				6,446			$	64,612
December 31, 2025			2,617				-				120,751				6,326				129,694

Asset Management Segment - Bimini Advisors/Orchid Island

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:

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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

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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 in each quarter and during 2026 and 2025.

(in thousands)
														Advisory Services
										Average												Repurchase,
		Average				Average				Orchid												Clearing and
		Orchid				Orchid				Repurchase				Management				Overhead				Administrative
Three Months Ended		MBS				Equity				Agreements				Fee				Allocation				Fees				Total
September 30, 2026		$	11,103,616			$	1,443,023			$	10,724,316			$	4,071			$	510			$	370			$	4,951
June 30, 2026			11,439,353				1,442,960				10,975,819				4,124				585				369				5,078
March 31, 2026			10,983,600				1,365,471				10,490,095				3,988				786				353				5,127
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
Nine Months Ended
September 30, 2026		$	11,175,523			$	1,417,151			$	10,730,077			$	12,183			$	1,881			$	1,092			$	15,156
September 30, 2025			6,845,383				1,007,961				6,530,260				9,023				2,077				751				11,851

Asset Management Segment -TJIM

TJIM is an SEC-registered investment adviser managing over $1.7 billion in regulatory assets under management across equity, fixed income, and balanced strategies. Operating as a fiduciary, TJIM provides discretionary portfolio management centered on fundamental research, high-quality security selection, and continuous risk oversight.

TJIM delivers investment strategies through two primary operational channels. For direct advisory clients - including individuals, high-net-worth families, retirement plans, foundations, and institutions - TJIM constructs customized Separately Managed Accounts ("SMAs") paired with dedicated personal service. TJIM also serves as a trusted third-party asset manager on many of the industry's prominent nationally distributed platforms, enabling financial advisors at broker-dealers, banks, insurance companies, and independent RIAs to complement their existing practices with TJIM's time-tested strategies.

TJIM is compensated primarily through asset-based management fees calculated as a percentage of assets under management. Management fees are generally calculated as a percentage of AUM and are affected by market conditions, investor inflows and outflows, investment performance, and client retention. Assets under management are influenced by market appreciation or depreciation, investor flows, investment performance, and changes in client allocations. Because advisory revenues are generally based on the value of client assets, declines in financial markets or sustained client withdrawals may adversely affect the Company's revenues, operating margins, cash flows, and results of operations.

TJIM competes with a broad range of financial institutions and investment managers, including registered investment advisers, alternative asset managers, wealth management firms, banks, broker-dealers, insurance companies, and other financial services providers. Competition is based on investment performance, reputation, service quality, distribution capabilities, personnel, product offerings, fees, and client relationships. TJIM's business is dependent on the experience, judgment, and continued service of key investment professionals, portfolio managers, executives, and relationship personnel. The loss of key personnel or an inability to attract and retain qualified professionals could adversely affect investment performance, client retention, and future growth.

The following table presents selected unaudited historical operating information of TJIM, including advisory AUM and advisory services revenue, for the periods indicated, including periods prior to April 1, 2026, the closing date of the TJIM Acquisition. This information is presented solely to provide investors with additional context regarding the historical operations of the acquired business. The information is not intended to represent, and should not be considered indicative of, the results of operations or financial position that would have been achieved had the acquisition occurred on an earlier date, nor is it necessarily indicative of the future results of the combined company.

(in thousands)
		Ending Assets Under Management																Fee Revenue
		Advisory				Sub-advisor				Model								Advisory				Sub-advisor				Model
Three Months Ended		Programs				Programs				Programs				Total				Programs				Programs				Programs				Total
September 30, 2026		$	665,180			$	197,063			$	840,684			$	1,702,927			$	861			$	171			$	661			$	1,693
June 30, 2026			665,996				193,836				870,965				1,730,797				905				152				671				1,728
March 31, 2026			578,611				178,367				876,008				1,632,986				751				156				675				1,582
December 31, 2025			564,931				191,473				893,286				1,649,690				744				161				681				1,586
September 30, 2025			552,213				189,464				914,322				1,655,999				723				152				681				1,556
June 30, 2025			517,635				181,779				902,819				1,602,233				677				151				697				1,525
March 31, 2025			535,911				184,703				911,464				1,632,078				644				158				688				1,490
Nine Months Ended
September 30, 2026		$	665,180			$	197,063			$	840,684			$	1,702,927			$	2,517			$	479			$	2,007			$	5,003
September 30, 2025			552,213				189,464				914,322				1,655,999				2,044				461				2,066				4,571

Investment Portfolio Segment

GAAP and Non-GAAP Reconciliation - Economic Interest Expense and Economic Net Interest Income

We use derivative instruments, primarily U.S. Treasury Note ("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 repurchase agreements 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.

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 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 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 each quarter in 2026 and 2025.

Gains (Losses) on Derivative Instruments

(in thousands)
										Funding Hedges
		Consolidated								Attributed to				Attributed to
		Statement of								Current				Future
		Operations				TBA				Period				Periods
Three Months Ended		(GAAP)				Securities				(Non-GAAP)				(Non-GAAP)
September 30, 2026		$	453			$	-				82				370
June 30, 2026			95				-				81				14
March 31, 2026			178				(55	)			76				157
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	)
Nine Months Ended
September 30, 2026		$	726			$	(55	)		$	239			$	541
September 30, 2025			(1,970	)			-				326				(2,296	)

Economic Net Portfolio Interest Income

(in thousands)
						Interest Expense on Repurchase Agreements												Net Portfolio
		GAAP								Effect of								Interest Income
		Interest				GAAP				Non-GAAP				Economic				GAAP				Economic
Three Months Ended		Income				Basis				Hedges(1)				Basis(2)				Basis				Basis(3)
September 30, 2026		$	247			$	141			$	(82	)		$	59			$	106			$	188
June 30, 2026			251				145				(81	)			64				106				187
March 31, 2026			1,164				697				(76	)			621				467				543
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
Nine Months Ended
September 30, 2026		$	1,662			$	983			$	(239	)		$	744			$	679			$	918
September 30, 2025			4,858				3,655				(326	)			3,329				1,203				1,529

(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.

Net Portfolio Interest Income

In anticipation of the closing of the TJIM Acquisition, we sold a significant portion of the MBS portfolio in the first quarter of 2026. Our outstanding balances under repurchase agreement borrowings declined proportionately as well. As a result, many figures discussed below appear distorted when simple average balances are calculated, such as average MBS held and average outstanding balances under repurchase agreement borrowings. Further, since the sales occurred late in the quarter, interest income and interest expense amounts reflect balances of both assets and borrowing in place for the majority of the quarter. The combination of these two factors led to certain metrics such as our yield on average MBS and cost of funds measures to appear higher than they would have been had these large sales not occurred, or occurred earlier in the quarter. These factors should be kept in mind when reading the discussion of our investment portfolio segment results for the quarter.

During the nine months ended September 30, 2026, we generated $0.7 million of net portfolio interest income, consisting of $1.7 million of interest income from MBS assets offset by $1.0 million of interest expense on repurchase liabilities. For the comparable period ended September 30, 2025, we generated $1.2 million of net portfolio interest income, consisting of $4.9 million of interest income from MBS assets offset by $3.7 million of interest expense on repurchase liabilities. The $3.2 million decrease in interest income was due to an $86.1 million decrease in average MBS holdings, partially offset by a 226 basis point ("bp") increase in yields. There was a $2.7 million decrease in interest expense for the nine months ended September 30, 2026 that was due to an $82.0 million decrease in average repurchase liabilities, partially offset by a 43 bp increase in cost of funds.

During the three months ended September 30, 2026, we generated $0.1 million of net portfolio interest income, consisting of $0.2 million of interest income from MBS assets offset by $0.1 million of interest expense on repurchase liabilities. For the comparable period ended September 30, 2025, we generated $0.4 million of net portfolio interest income, consisting of $1.5 million of interest income from MBS assets offset by $1.2 million of interest expense on repurchase liabilities. The $1.3 million decrease in interest income was due to a $90.8 million decrease in average MBS holdings, partially offset by a 70 bp increase in yields. There was a $1.0 million decrease in interest expense for the three months ended September 30, 2026 that was due to an $86.3 million decrease in average repurchase liabilities, combined with a 70 bp decrease in cost of funds.

Our economic interest expense on repurchase liabilities for the nine months ended September 30, 2026 and 2025 was $0.7 million and $3.3 million, respectively, resulting in $0.9 million and $1.5 million of economic net portfolio interest income, respectively. Our economic interest expense on repurchase liabilities for the three months ended September 30, 2026 and 2025 was $0.1 million and $1.0 million, respectively, resulting in $0.2 million and $0.5 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 the nine months ended September 30, 2026 and 2025 and each quarter in 2026 and 2025 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				MBS				Agreements(1)				Basis				Basis(2)				Basis				Basis(3)
September 30, 2026		$	15,234			$	247				6.49	%		$	14,503			$	141			$	59				3.89	%			1.63	%
June 30, 2026			16,025				251				6.27	%			15,109				145				64				3.83	%			1.68	%
March 31, 2026			52,497				1,164				8.87	%			50,255				697				621				5.55	%			4.94	%
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	%
Nine Months Ended
September 30, 2026		$	27,919			$	1,662				7.94	%		$	26,622			$	983			$	744				4.92	%			3.72	%
September 30, 2025			113,989				4,858				5.68	%			108,607				3,655				3,329				4.49	%			4.09	%

($ in thousands)
		Net Portfolio								Net Portfolio
		Interest Income								Interest Spread
		GAAP				Economic				GAAP				Economic
Three Months Ended		Basis				Basis(2)				Basis				Basis(4)
September 30, 2026		$	106			$	188				2.60	%			4.86	%
June 30, 2026			106				187				2.44	%			4.59	%
March 31, 2026			467				543				3.32	%			3.93	%
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	%
Nine Months Ended
September 30, 2026		$	679			$	918				3.02	%			4.22	%
September 30, 2025			1,203				1,529				1.19	%			1.59	%

(1)	Portfolio yields and costs of borrowings presented in the tables above are calculated based on the average balances of the underlying investment portfolio/repurchase agreement 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 tables above 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 repurchase agreements.
(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 have a more immediate impact on our interest expense. Our average cost of funds calculated on a GAAP basis was 14 bps above the average one-month SOFR and 21 bps above the average six-month SOFR for the quarter ended September 30, 2026. Our average economic cost of funds was 212 bps below the average one-month SOFR and 205 bps below the average six-month SOFR for the quarter ended September 30, 2026. The average term to maturity of the outstanding repurchase agreements was 18 days at September 30, 2026, compared to 31 days at December 31, 2025. The tables below present the average outstanding balances under our repurchase agreements, interest expense and average economic cost of funds, and average one-month and six-month SOFR rates for each quarter in 2026 and 2025, 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
September 30, 2026			3.75	%			3.68	%			0.14	%			0.21	%			(2.12	)%			(2.05	)%
June 30, 2026			3.63	%			3.67	%			0.20	%			0.16	%			(1.95	)%			(1.99	)%
March 31, 2026			3.65	%			3.86	%			1.90	%			1.69	%			1.29	%			1.08	%
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	)%
Nine Months Ended
September 30, 2026			3.68	%			3.74	%			1.24	%			1.18	%			0.04	%			(0.02	)%
September 30, 2025			4.32	%			4.43	%			0.17	%			0.06	%			(0.23	)%			(0.34	)%

Dividend Income from Orchid

We owned 569,071 shares of Orchid common stock throughout each of the nine months ended September 30, 2026 and 2025. Orchid paid total dividends of $0.96 per share and $1.08 per share during the nine months ended September 30, 2026 and 2025, respectively, resulting in dividend income of approximately $0.5 million and $0.6 million, respectively. We owned 569,071 shares of Orchid common stock throughout each of the three months ended September 30, 2026 and 2025. Orchid paid total dividends of $0.30 per share and $0.36 per share during the three months ended September 30, 2026 and 2025, respectively, resulting in dividend income of approximately $0.2 million in each period.

Long-Term Debt

Junior Subordinated Debt

The junior subordinated debt securities paid 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 $1.5 million and $1.6 million for the nine months ended September 30, 2026 and 2025, respectively. The average rate of interest paid for the nine months ended September 30, 2026 was 7.52% compared to 8.07% for the comparable period in 2025. Interest expense on our junior subordinated debt securities was $0.5 million and $0.5 million for the three months ended September 30, 2026 and 2025, respectively. The average rate of interest paid for the three months ended September 30, 2026 was 7.65% compared to 8.03% for the comparable period in 2025.

Note Payable

On October 30, 2019, the Company borrowed $680,000 from a bank which 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 - Investment Portfolio Segment

The table below presents our gains or losses and other income for the nine and three months ended September 30, 2026 and 2025.

(in thousands)
		Nine Months Ended September 30,												Three Months Ended September 30,
		2026				2025				Change				2026				2025				Change
Realized losses on sales of MBS		$	(372	)		$	(178	)		$	(194	)		$	-			$	-			$	-
Unrealized (losses) gains on MBS			(1,034	)			2,230				(3,264	)			(772	)			839				(1,611	)
Total (losses) gains on MBS			(1,406	)			2,052				(3,458	)			(772	)			839				(1,611	)
Gains (losses) on derivative instruments			726				(1,970	)			2,696				452				(170	)			622
Unrealized losses on Orchid Island Capital, Inc. common stock			(1,007	)			(438	)			(569	)			(876	)			-				(876	)
Totals		$	(1,687	)			(356	)			(1,331	)			(1,196	)			669				(1,865	)

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 nine months ended September 30, 2026 and 2025, we received proceeds totaling $68.6 million and $9.8 million, respectively, from the sales of MBS.

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 as of the end of each quarter during 2026 and 2025.

		5 Year			10 Year			15 Year			30 Year			Three
		U.S. Treasury			U.S. Treasury			Fixed-Rate			Fixed-Rate			Month
		Rate(1)			Rate(1)			Mortgage Rate(2)			Mortgage Rate(2)			SOFR(3)
September 30, 2026		5.09%			5.29%			6.60%			7.28%			3.68%
June 30, 2026		4.19%			4.42%			5.84%			6.49%			3.63%
March 31, 2026		3.95%			4.31%			5.75%			6.38%			3.68%
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%

(1)	Historical 5 Year and 10 Year U.S. Treasury Rates are obtained from quoted end of day prices on the Chicago Board Options Exchange.
(2)	Historical 15 Year and 30 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-day periods.

Operating Expenses

For the nine and three months ended September 30, 2026, our total operating expenses were approximately $12.5 million and $3.9 million, respectively, compared to $8.7 million and $3.0 million for the nine and three months ended September 30, 2025, respectively, as detailed in the table below.

(in thousands)
		Nine Months Ended September 30,												Three Months Ended September 30,
		2026				2025				Change				2026				2025				Change
Compensation and related benefits		$	7,234			$	5,567			$	1,667			$	2,568			$	1,795			$	773
Direct advisory services costs			1,184				1,272				(88	)			321				485				(164	)
Audit, legal and other professional fees			752				677				75				260				186				74
Acquisition related expenses			1,627				175				1,452				111				175				(64	)
Directors' fees and liability insurance			664				579				85				258				189				69
Amortization of intangible assets			340				-				340				170				-				170
Administrative and other expenses			704				444				260				245				140				105
		$	12,505			$	8,714			$	3,791			$	3,933			$	2,970			$	963

Approximately $1.3 million and $0.7 million of the increase in compensation and related benefits for the nine- and three-month periods ended September 30, 2026, respectively, was attributable to additional personnel associated with TJIM. Amortization expense for the nine- and three-month periods ended September 30, 2026, primarily reflects the amortization of identifiable intangible assets recognized in connection with the TJIM Acquisition.

Income Tax Provision

We recorded income tax provisions for the nine months ended September 30, 2026 and 2025 of approximately $1.7 million and $0.6 million, respectively, on consolidated pre-tax book income of $4.1 million and $3.0 million, respectively. We recorded income tax provisions for the three months ended September 30, 2026 and 2025 of approximately $0.1 million and $0.4 million, respectively, on consolidated pre-tax book income of $1.3 million and $2.2 million, respectively. The Company uses the discrete-period computation method for determining its income tax 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. During the three months ended June 30, 2026, the Company reassessed the realizability of its deferred tax assets in connection with the acquisition of TJIM. As a result of this reassessment, the Company recorded an increase in its valuation allowance and a corresponding increase in income tax expense of approximately $1.1 million.

Financial Condition:

Mortgage-Backed Securities - Investment Portfolio Segment

As of September 30, 2026, our MBS portfolio consisted of $14.5 million of agency or government MBS at fair value and had a weighted average coupon of 5.34%. During the nine months ended September 30, 2026, we received principal repayments of $4.4 million compared to $10.2 million for the comparable period ended September 30, 2025. The average prepayment speeds for the quarters ended September 30, 2026 and 2025 were 10.2% and 16.8%, 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 in the respective asset category.

		Total
Three Months Ended		Portfolio (%)
September 30, 2026			10.2
June 30, 2026			8.1
March 31, 2026			2.9
December 31, 2025			16.6
September 30, 2025			16.8
June 30, 2025			9.9
March 31, 2025			7.3

The following tables summarize certain characteristics of our MBS portfolio as of September 30, 2026 and December 31, 2025:

($ in thousands)

Weighted

Average

Weighted

Maturity

Fair

Average

in

Longest

Value

Coupon

Months

Maturity

September 30, 2026

$

14,484

5.34

%

316

5/1/2053

December 31, 2025

$

88,929

5.73

%

331

8/1/2054

($ in thousands)
		September 30, 2026								December 31, 2025
						Percentage of								Percentage of
Agency		Fair Value				Entire Portfolio				Fair Value				Entire Portfolio
Fannie Mae		$	2,137				14.8	%		$	21,924				24.7	%
Freddie Mac			12,347				85.2	%			67,005				75.3	%
Total Portfolio		$	14,484				100.0	%		$	88,929				100.0	%

As of September 30, 2026, the Company's portfolio had an effective duration of 4.431, indicating that an interest rate increase of 1.0% would be expected to cause a 4.431% decrease in the value of the MBS in our investment portfolio. As of December 31, 2025, the Company's portfolio had an effective duration of 2.229, indicating that an interest rate increase of 1.0% would be expected to cause a 2.229% 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 duration of IIO's similarly, but the floating rate nature of the coupon of IIOs (which has inverse relationship to their reference index) causes 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 our 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 September 30, 2026, 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)
		Fair				$ Change in Fair Value												% Change in Fair Value
MBS Portfolio		Value				-200BPS				-100BPS				+100BPS				-200BPS				-100BPS				+100BPS
MBS Portfolio		$	14,484			$	1,050			$	586			$	(686	)			7.25	%			4.05	%			(4.74	)%
		Notional				$ Change in Fair Value												% Change in Fair Value
Repurchase Agreement Hedges		Amount				-200BPS				-100BPS				+100BPS				-200BPS				-100BPS				+100BPS
Interest Rate Futures Contracts			10,000				(1,048	)			(507	)			485				(10.48	)%			(5.07	)%			4.85	%
Gross Totals						$	2			$	79			$	(201	)

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 September 30, 2026, 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 four of these counterparties. We believe these facilities provide borrowing capacity in excess of our needs. None of these lenders are affiliated with us. These borrowings are secured by our MBS.

As of September 30, 2026, we had obligations outstanding under the repurchase agreements of approximately $14.0 million with a net weighted average borrowing cost of 3.98%. The remaining maturity of our outstanding repurchase agreement obligations ranged from 14 to 19 days, with a weighted average maturity of 18 days. Securing the repurchase agreement obligation as of September 30, 2026 are MBS with an estimated fair value, including accrued interest, of $14.4 million. Through November 5, 2026, we have been able to maintain our repurchase facilities with comparable terms to those that existed at September 30, 2026 with maturities through November 19, 2026.

The table below presents information about our period-end, maximum and average repurchase agreement obligations for each quarter in 2026 and 2025.

		Ending				Maximum				Average				Difference Between Ending
		Balance				Balance				Balance				Repurchase Agreements and
		of Repurchase				of Repurchase				of Repurchase				Average Repurchase Agreements
Three Months Ended		Agreements				Agreements				Agreements				Amount				Percent
September 30, 2026		$	13,972			$	15,033			$	14,503			$	(531	)			(3.66	)%
June 30, 2026			15,033				15,203				15,109				(76	)			(0.50	)%
March 31, 2026			15,184				85,332				50,255				(35,071	)			(69.79	)%
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	)%

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 our operating expenses, such as payroll for our employees, our professional fees such as legal and accounting, servicing our debt obligations, such as our trust preferred debt (see Note 8 to the consolidated financial statements for more information related to the timing of principal payments and maturities of our long-term debt.), the purchase of additional investments, the repayment of principal and interest on repurchase agreements, and the fulfillment of margin calls. We have both internal and external sources of liquidity. Our material unused sources of liquidity include cash balances, unencumbered assets and our ability to sell encumbered assets to raise cash.

Internal Sources of Liquidity

Our internal sources of liquidity include our cash balances, the collection of management fees and other fees related to our advisory services segments, payments of principal and interest we receive on our MBS portfolio, and dividends we receive on our investment in Orchid common stock. We also possess unencumbered RMBS assets and the ability to liquidate our encumbered security holdings.

While our investment portfolio employs a much lower portion of our capital, the management of the portfolio relies on a hedging strategy that typically involves taking short positions in T-Note and SOFR futures, "to-be-announced" ("TBA") securities 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 positions 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.

In future periods, we expect to continue to finance our activities through repurchase agreements and through revenues from our advisory services business. As of September 30, 2026, we had cash and cash equivalents of $8.4 million. We generated cash flows of $6.3 million from principal and interest payments on our MBS portfolio and had average repurchase agreements outstanding of $26.6 million during the nine months ended September 30, 2026. In addition, during the nine months ended September 30, 2026, we received approximately $15.2 million in management fees and expense reimbursements as manager of Orchid and approximately $0.5 million in dividends from our investment in Orchid common stock.

Capital Expenditures

At September 30, 2026, we had no material commitments for capital expenditures.

Outlook

Orchid Island Capital Inc.

Orchid reported a net loss for the third quarter of 2026 of $179.2 million, or $0.90 per share, and its shareholders equity decreased from $1.441 billion to $1.172 billion. Orchid reported gains on hedge instruments of $335.4 million and realized and unrealized losses on its MBS portfolio of $567.1 million, which together resulted in net losses of $231.7 million. Orchid is obligated to reimburse Bimini for direct expenses paid on its behalf as well as Orchid's pro rata 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 flow from Orchid.

Tom Johnson Investment Management, LLC

The asset management segment of TJIM reported a net loss for the third quarter of $0.03 million, net of allocated overhead expenses of $0.7 million, on management fee revenues of $1.7 million. Total assets under management have were $1.65 billion at December 31, 2025, $1.63 billion at March 31, 2026, $1.73 billion at June 30, 2026 and $1.70 billion at September 30, 2026. Advisory fee revenues for the third quarter were $1.69 million versus $1.73 million for the second quarter of 2026. Advisory fee revenue for the first nine months of 2026 was $5.0 million, versus $4.6 million for the first nine months of 2025. Note that, due to the closing date of the TJIM Acquisition of April 1, 2026, all figures relating to the results of operations of TJIM for periods prior to the second quarter of 2026 are unaudited and are not included in the consolidated results of the Company. Such information is discussed solely to provide investors with additional context regarding the historical operations of TJIM. The information is not intended to represent, and should not be considered indicative of, the results of operations or financial position that would have been achieved had the TJIM Acquisition occurred on an earlier date, nor is it necessarily indicative of the future results of the combined company.

Economic Summary

During the third quarter and early fourth quarter of 2026, interest rates increased to levels not observed since the early 2000s. The move occurred in most western markets, including Japan and most of Europe, and there was a confluence of factors impacting interest rates across these markets. In the U.S., the drivers have been the following:

	●	Iran war-induced supply shocks, as the war continues with no end in sight and frequent escalations.
	●	Persistently high inflation fueled by:
		o	war-related high energy prices, especially diesel fuel which has pervasive supply-chain impacts, and
		o	the AI buildout and associated unprecedented capital expenditures,
		o	tariffs.
	●	Resilient economic growth and expectations for more central bank rate increases.
	●	Fiscal sustainability concerns associated with ongoing fiscal budget deficits.
	●	Surging AI-related debt issuance and increased competition for capital.
	●	Bank of Japan ("BOJ") policy normalization and reduced U.S. Treasury purchases as yields in Japan are no longer so far below U.S. Treasury rates and/or Yen support activities on the part of the Bank of Japan.

With the recent dramatic increases in interest rates there has been widespread deleveraging and forced selling on the part of the various levered investors across fixed income markets. This in turn has put additional downward pressure on various fixed income assets - particularly Agency RMBS like the Company invests in - and interest rates themselves as additional hedging needs lead to shorting of various forms of interest rate products. Interest rates across the yield curve reached levels during the third quarter of 2026, last seen in the early 2000s. Implied interest rate volatility in the swaptions market has spiked higher during the third quarter of 2026 as well. One frequently referenced measure of implied interest rate volatility in the swaptions market - the ICE BofA MOVE index (the "MOVE index"), reached 115.02 just after the Iran war broke out in late February 2026.

Interest Rates

The most significant development during the third quarter of 2026 was the significant increase in global interest rates, particularly in the U.S. The U.S. Treasury curve steepened as rates increased. The yield on the 2-year U.S. Treasury note increased from 4.18% at June 30, 2026, to 4.89% at September 30, 2026. The yield on the 10-year U.S. Treasury note increased from 4.47% at June 30, 2026, to 5.29% at September 30, 2026. As a result, the spread between the 2 and 10-year U.S. Treasury notes increased from 29 bps to 40 bps. Implied interest rate volatility in the swaptions market increased in tandem, reaching levels close to those observed just after the war in Iran started. The MOVE index increased from 71.96 at June 30, 2026, to 110.45 at September 30, 2026.

As interest rates in the U.S. Treasury market increased, mortgage rates available to residential home buyers also increased. The Mortgage Bankers Association U.S. fixed-rate 30-year contract rate weekly index increased from 6.57% on June 26, 2026, to 7.49% on October 2, 2026. With such an increase, housing affordability, already at multi-decade low levels, is even lower. Housing turnover and refinancing activity is likewise further subdued, and prepayments on the Company's portfolio have diminished as well.

With inflation persistently high and economic activity resilient, even in the face of higher interest rates, the Fed raised the overnight Fed Funds rate range in September by 25 bps to 3.75% to 4.00%. Current market pricing, as reflected in the Fed Funds futures market, among others, was for approximately 3.8 additional 25 bps hikes over the next year as of September 30, 2026. Inflation has been above the Fed's 2% inflation target for over five years and the labor market, the second of the Fed's dual mandate focus, remains stable. Fed Chairman Warsh's public comments have repeatedly stressed his desire to get inflation back to the Fed's target level, so these conditions are likely to keep additional rate hike pricing in the market over the near term at least.

While interest rates have increased markedly since the end of the second quarter and the Fed raised the Fed Funds target range 25 bps at its September meeting, the overnight funding markets have been otherwise stable. The Company's funding of the levered RMBS portfolio is accomplished exclusively in the repurchase agreement - or "repo" - market. Repo funding is done at a spread to SOFR. Such spreads have been stable for the past several quarters. In December 2025, the Fed introduced its reserve management purchase program ("RMP"), whereby it buys U.S. Treasury bills in the open market to support the funding markets. The levels of RMP purchases vary as the Fed perceives stability in the funding markets. Also, money market assets are at very high levels by historical standards, with close to $8 trillion at the end of the third quarter of 2026. The allocation of money market assets to the repo market varies over time, but was approximately 30% at the end of the third quarter, thus providing a substantial source of liquidity to the market. As government deficits in the U.S. remain at historically high levels - approximately $2 trillion for the fiscal year ended September 30, 2026 - the government continues to issue increasing levels of U.S. Treasury bills into the market, absorbing funding that might otherwise be available for the repo market. To date this has not materially impacted funding levels, but may do so in the future.

The Agency MBS Market

Interest rates rose substantially during the third quarter of 2026 to multi-decade high levels. As is typically the case, implied interest rate volatility in the swaptions market also rose precipitously during the quarter. Interest rates and implied volatility are the primary variables that impact the Agency RMBS market. The cash flows associated with Agency RMBS are driven in part by the extent of prepayment activity, which is inversely correlated with mortgage rates and the underlying U.S. Treasury rates. Implied volatility is a key variable in the pricing of the borrower's prepayment option embedded in a residential mortgage loan. As interest rates rise, prepayment levels are anticipated to slow - materially in the case of this quarter - and the cash flows associated with Agency RMBS extend. At the end of the third quarter of 2026 nearly all Agency RMBS are trading at a discount to par. The price declines on these securities that occurred during the quarter triggered pervasive forced selling on the part of levered RMBS investors, exacerbating the downward price pressure. This resulted in poor absolute and relative returns for most Agency RMBS. For the third quarter of 2026, the Agency RMBS sector generated a total return of -4.1% and -0.8% versus comparable duration swaps. By comparison, the high-yield and investment-grade corporate bond sectors produced returns of -1.8% and -3.8%, respectively, and excess returns of -0.4% and 0.3%, respectively, versus comparable duration swaps over the same period.

Within Agency RMBS for the third quarter of 2026, conventional 30-year mortgages generated a total return of -4.4%, 15-year mortgages generated a total return of -2.2% and Ginnie Mae 30-year mortgages generated a total return of -4.1%. Versus comparable duration swaps, the returns were -0.8%, 0.4% and -1.0% for 30-year conventional, 15-year conventional and Ginnie Mae 30-year mortgages, respectively. The Company invests predominantly in 30-year conventional mortgages. Absolute returns within the 30-year stack were lowest for lower coupons and increased for progressively higher coupons, with returns for coupons 5% and lower between -4.3% and -5.3%, and for coupons of 5.5% through 7.0% progressively improving from -3.5% to -1.7%. This is consistent with higher interest rates, lower prepayment expectations and the durations of the various coupons inversely related to coupon - the lower the coupon the higher the duration, and vice-versa. Conversely, excess returns were worst for middle coupons - between the 4.0% and 6.0% coupons, with lower and higher coupons slightly better. Excess returns for middle coupons were between -1.1% and -1.3%, while the lower coupons ranged between -0.2% and -0.6%. The poor performance of coupons in the middle of the stack resulted from their more extreme extension as they moved from at or just below par to discount prices - implying the underlying cash flows had the most extreme movement. Previously existing discount securities had already extended, and higher coupons were still slight premiums that had yet to fully extend.

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. Treasury securities 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. 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 kept the balance sheet reduction for Agency RMBS below $20 billion per month throughout 2024 and 2025. On December 1, 2025, the Fed ended quantitative tightening and began reinvesting all proceeds from maturing Agency RMBS 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. RMPs were reduced to $25 billion per month in April 2026, and further reduced to $10 billion per month in May 2026. The Fed paused RMPs from mid-August 2026 through mid-October 2026, although the market anticipates that RMPs will resume and potentially increase in late 2026. As of September 30, 2026, the Fed had reduced its balance sheet for Agency RMBS by approximately $842 billion from the peak of approximately $2.7 trillion to approximately $1.9 trillion, shedding approximately 61% of the Agency RMBS added during pandemic quantitative easing and representing the lowest level since June 2020.

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 and early 2026, there was some speculation in the market regarding progress towards an end to the conservatorship, including through an initial public offering, but no definitive action has been taken and many analysts believe additional capital is needed before the Enterprises can safely exit conservatorship.

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 "2023 Basel III Endgame"). The 2023 Basel III Endgame, if implemented as originally proposed, would have significantly increased the credit weight risk for balance-sheet mortgages and for Agency RMBS sold to the GSEs, which could have disincentivized banks from originating mortgages for sale to the GSEs and impacted pricing in the Agency RMBS markets. The comment period for the 2023 Basel III Endgame closed on January 16, 2024, and the proposed rule was met with strong objections from the banking industry.

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 became 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.

On March 19, 2026, the OCC, FDIC and the Fed rescinded the 2023 Basel III Endgame proposal and concurrently issued three revised notices of proposed rulemaking. The three proposals include (i) a revised Basel III Endgame proposal that would apply an expanded risk-based approach to Category I and Category II banking organizations, thus narrowing the mandatory scope from the 2023 proposal, with all other banking organizations permitted to opt in; (ii) a revised standardized approach proposal that would reduce risk weights for traditional lending activities for banking organizations not subject to the expanded risk-based approach; and (iii) a revised GSIB capital surcharge proposal. The OCC, FDIC, and the Fed estimate that the revised proposals would decrease aggregate common equity tier 1 capital requirements by approximately 4.8% for Category I and Category II banking organizations, in contrast to the significant capital increases that would have resulted under the 2023 Basel III Endgame. Additionally, the revised proposal would eliminate the requirement to deduct mortgage servicing assets from common equity tier 1 capital, instead assigning a 250% risk weight, which is designed to promote mortgage origination and servicing by banking organizations. The Fed voted 6-to-1 to advance all three proposals and the FDIC board voted unanimously in favor of the revised Basel III Endgame and standardized approach proposals. The comment period for the revised proposals closed on June 18, 2026, with the Fed indicating that it hopes to release the final rule by the end of 2026.

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

The following discussion pertains to both Royal Palm's investment portfolio and the investment portfolio of Orchid that is managed by Bimini Advisors.

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 prepay 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 increase, 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 and structured Agency RMBS 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.

With respect to the markets from which the Company derives its revenues and profits, prior to the second quarter of 2026, Orchid and the Company invested exclusively in Agency MBS securities and applied leverage utilizing repurchase agreement funding. The primary drivers of the performance of these assets - both absolute performance and performance relative to hedges - are interest rates, their impact on both asset prices and the level of prepayments, interest rate volatility, particularly the level of implied volatility in interest rate swaptions and various interest rate derivatives, and our funding levels. Accordingly, we have been, and continue to be, significantly exposed to interest rates, and our performance remains driven by our ability to select assets, manage our leverage, and the effectiveness of our hedging strategy. However, as a result of the acquisition of TJIM the Company now derives revenues and profits from the equity market. Accordingly, our focus will broaden to encompass developments in the equity market going forward.

Domestic Equity Market

In stark contrast to recent quarters, artificial intelligence was not the headline story of the third quarter. U.S. equities turned in a respectable period on the surface, with the S&P 500 returning 2.3% including dividends. While technology remained a major driver, the sector was outperformed by Energy by a wide margin. But the real story of the quarter was the sharp increase in interest rates to levels unseen in nearly a quarter of a century.

On August 19, Treasury Secretary Scott Bessent announced a buyback program targeting off-the-run, 10- to 30-year paper, followed by a September 10 operation capped at $6 billion to suppress long-end yields. Similar to "Operation Twist" from the Global Financial Crisis, this modern effort is far more benign in scale. Thus far, it has felt like pushing on a string: yields spiked across the curve, with the 10-year Treasury closing September at 5.29% and shorter maturities pushing past 5.0% in an aggressive bear flattening.

Three primary catalysts are driving yields higher:

●

Inflation Expectations: Persistent war and tariffs continue to lift fuel and materials costs. Facing scarcity, nations aggressively onshore critical production-a reflexive loop that elevates inflation, turns supply chains into defense priorities, and fragments global trade.

●

Fed Restrictiveness: With the September headline Personal Consumption Expenditures price index ("PCE") at 3.6% and core PCE firming at 3.1% (reversing late last year's 2.5% low), the Federal Reserve unanimously raised the Fed Funds target by 25 basis points to 3.75%-4.00%.

●

Deficit Spending: An annual federal shortfall near 6% of GDP adds roughly $2.0 trillion to debt exceeding $40 trillion. With the CBO projecting a 6.7% deficit by 2036, outgrowing this burden is unrealistic; sustainability requires fiscal restraint.

Equity Market Breadth & The Cost of the AI Buildout

U.S. stocks have enjoyed strong topline index returns year-to-date, but market breadth has narrowed considerably as whole sectors failed to participate:

●

Diverging Participation: Only Energy and Tech are beating the broader market year-to-date. The equal-weight S&P 500 fell 1.9% during the quarter, with 350 S&P 500 constituents lagging the benchmark and 237 sitting in negative territory.

●

The Debt-Financed AI Bet: A recent Brookings paper estimates AI data centers must generate ~$3.7 trillion in annual revenue by 2032 (~9% of GDP) for a 10% unlevered return. Because so much AI infrastructure is debt-financed, higher baseline rates and widening credit spreads compound borrowing costs.

Despite AI tailwinds and resilient index returns, rising rates raise critical questions regarding investor appetite for risk assets. With elevated Treasury yields, the risk/reward proposition of owning equities has grown less attractive at the index level.

For equity investors, the silver lining of such concentrated market breadth is that hundreds of high-quality companies have been bypassed in the rush toward headline AI names. In a market where capital costs more, TJIM believes fundamental company discipline, free cash flow generation and strong balance sheets, instead of speculative momentum, will drive stock performance.

Fixed Income Yield and Opportunity

The elevated yields that pressured equities have created an opportunity for fixed income investors. High- quality, liquid fixed income strategies are more compelling than they have been in years. This is not a claim that interest rates can't continue to rise, instead it just highlights that starting yields matter immensely. With TJIM bond portfolios yields of approximately 5%, they are much more resilient to future rate increases than they have been in past cycles. In addition, TJIM portfolios maintain ample dry powder to capitalize opportunistically as these higher yields unfold.

Summary

On April 1, 2026, the Company completed the acquisition of an 80% ownership stake in TJIM. As such, the results of the Company's operations and our focus in our public disclosures going forward will be impacted by factors other than just the fixed income markets and the Agency MBS market, although the MBS market will still be a significant factor. Beginning with the second quarter of 2026 our focus has expanded to include factors impacting the domestic equity markets as well as fixed income markets other than the Agency MBS market.

As we entered 2026, interest rates had been range-bound for more than 12 months, but the range was broken during the first quarter of 2026 as a result of the Iran War. After a brief respite in the conflict, rates moved higher once again as prospects for a resolution dimmed and a new Fed Chairman, Kevin Warsh, took control of the Fed, immediately expressing his strong conviction in ending the five-year period of inflation running above the Fed's 2% target. Interest rate volatility, both realized and implied in interest rate options, has remained subdued outside of the temporary spike at the onset of the Iran War.

At the outset of 2026, there was uncertainty about how the risks facing the economy would ultimately drive Fed policy and the level of interest rates, with resulting impacts on risk assets and Agency RMBS. Inflation was elevated, but risks to the growth outlook were clearly present, creating a quandary for policy makers. This does not appear to be the case now. Growth has proven to be remarkably resilient, as has the labor market, and the growth of the economy is not a pressing concern for policy makers or markets. Inflation, however, remains well above the Fed's target and the Iran War seems likely to persist, representing a continued source of commodity inflation. Looking forward, the Iran War continues to be a dominant force driving the performance of all markets. At this point, it is unclear what the ultimate outcome of the war will be or when it will end. As for the economy and monetary policy, the path of inflation is likely to be the primary driver of monetary policy and interest rate levels in the United States. Both Orchid and the Company have maintained modest levels of leverage for the past several quarters and are likely to continue to do so given the prevailing market uncertainty.

For domestic equity markets, the third quarter of 2026 stood in stark contrast to the broad, powerful optimism of the previous quarter. U.S. equities remained positive, delivering a respectable 2.3% total return. However, debates surrounding the timing and magnitude of artificial intelligence investments were overshadowed by a sharp surge in interest rates, punctuated by the 10-year Treasury yield closing September at 5.29%.

Beneath top-line index gains, market conditions fragmented as investors navigated several compounding headwinds:

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Narrowing Market Breadth: The equal-weight S&P 500 fell 1.9%, with 350 constituents lagging the headline index and 237 issues ending the quarter in negative territory.

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Inflation & Policy Restrictiveness: With September headline PCE climbing to 3.6%, the Federal Reserve unanimously hiked the Fed funds target rate by 25 bps to 3.75%-4.00%.

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Diminished Equity Appeal: Stretched equity valuations paired with ~5% yields on risk-free Treasuries made the risk/reward proposition of equities considerably less attractive.

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Debt Costs & The AI Buildout: Because AI infrastructure is heavily debt-funded, rising benchmark yields and widening credit spreads increasingly threaten corporate capital spending plans.

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. There have been no changes to the processes used to determine our critical accounting estimates as discussed in our annual report on Form 10-K for the year ended December 31, 2025.