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What changed in Orchid Island Capital, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Orchid Island Capital, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+290 added−319 removedSource: 10-K (2024-02-23) vs 10-K (2023-03-03)

Top changes in Orchid Island Capital, Inc.'s 2023 10-K

290 paragraphs added · 319 removed · 215 edited across 5 sections

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

72 edited+12 added−23 removed323 unchanged
Biggest changeCertain provisions of the Maryland General Corporation Law (the “MGCL”), may have the effect of inhibiting a third party from making a proposal to acquire us or impeding a change of control under circumstances that otherwise could provide our stockholders with the opportunity to realize a premium over the then-prevailing market price of our common stock, including: ● “business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our outstanding voting stock or an affiliate or associate of ours who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner of 10% or more of the voting power of our then-outstanding stock) or an affiliate of an interested stockholder for five years after the most recent date on which the stockholder became an interested stockholder, and thereafter require two supermajority stockholder votes to approve any such combination; and ● “control share” provisions that provide that a holder of “control shares” of the Company (defined as voting shares of stock which, when aggregated with all other shares of stock owned by the acquiror or in respect of which the acquiror is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), entitle the acquiror to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares,” subject to certain exceptions) generally has no voting rights with respect to the control shares except to the extent approved by our stockholders by the affirmative vote of two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
Biggest changeCertain provisions of the Maryland General Corporation Law (the “MGCL”), may have the effect of inhibiting a third party from making a proposal to acquire us or impeding a change of control under circumstances that otherwise could provide our stockholders with the opportunity to realize a premium over the then-prevailing market price of our common stock, including: ● “business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our outstanding voting stock or an affiliate or associate of ours who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner of 10% or more of the voting power of our then-outstanding stock) or an affiliate of an interested stockholder for five years after the most recent date on which the stockholder became an interested stockholder, and thereafter require two supermajority stockholder votes to approve any such combination; and ● “control share” provisions that provide that a holder of “control shares” of the Company (defined as voting shares of stock which, when aggregated with all other shares of stock owned by the acquiror or in respect of which the acquiror is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), entitle the acquiror to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares,” subject to certain exceptions) generally has no voting rights with respect to the control shares except to the extent approved by our stockholders by the affirmative vote of two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares. 30 Table of Contents We have elected to opt-out of these provisions of the MGCL, in the case of the business combination provisions, by resolution of our Board of Directors (provided that such business combination is first approved by our Board of Directors, including a majority of our directors who are not affiliates or associates of such person), and in the case of the control share provisions, pursuant to a provision in our bylaws.
Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “ Risk Factors ” and should be carefully considered, together with other information in this Report and our other filings with the SEC, before making an investment decision regarding our common stock. ● Increases in interest rates may negatively affect the value of our investments and increase the cost of our borrowings, which could result in reduced earnings or losses and materially adversely affect our ability to pay distributions to our stockholders. ● An increase in interest rates may also cause a decrease in the volume of newly issued, or investor demand for, Agency RMBS, which could materially adversely affect our ability to acquire assets that satisfy our investment objectives and our business, financial condition and results of operations and our ability to pay distributions to our stockholders. ● Interest rate mismatches between our Agency RMBS and our borrowings may reduce our net interest margin during periods of changing interest rates, which could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders. ● Further downgrades of the U.S. credit rating, automatic spending cuts, or another government shutdown could negatively impact our liquidity, financial condition and earnings. ● Although structured Agency RMBS are generally subject to the same risks as our pass-through Agency RMBS, certain types of risks may be enhanced depending on the type of structured Agency RMBS in which we invest. ● Differences in the stated maturity of our fixed rate assets, or in the timing of interest rate adjustments on our adjustable-rate assets, and our borrowings may adversely affect our profitability. ● Changes in the levels of prepayments on the mortgages underlying our Agency RMBS might decrease net interest income or result in a net loss, which could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders. ● Volatile market conditions for mortgages and mortgage-related assets as well as the broader financial markets can result in a significant contraction in liquidity for mortgages and mortgage-related assets, which may adversely affect the value of the assets in which we invest. ● Failure to procure adequate repurchase agreement financing, or to renew or replace existing repurchase agreement financing as it matures, could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders. ● Adverse market developments could cause our lenders to require us to pledge additional assets as collateral.
Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “ Risk Factors ” and should be carefully considered, together with other information in this Report and our other filings with the SEC, before making an investment decision regarding our common stock. ● Increases in interest rates may negatively affect the value of our investments and increase the cost of our borrowings, which could result in reduced earnings or losses and materially adversely affect our ability to pay distributions to our stockholders. ● An increase in interest rates may also cause a decrease in the volume of newly issued, or investor demand for, Agency RMBS, which could materially adversely affect our ability to acquire assets that satisfy our investment objectives and our business, financial condition and results of operations and our ability to pay distributions to our stockholders. ● Interest rate mismatches between our Agency RMBS and our borrowings may reduce our net interest margin during periods of changing interest rates, which could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders. ● Further downgrades of the U.S. credit rating, automatic spending cuts, mounting budget deficits or another government shutdown could negatively impact our liquidity, financial condition and earnings. ● Although structured Agency RMBS are generally subject to the same risks as our pass-through Agency RMBS, certain types of risks may be enhanced depending on the type of structured Agency RMBS in which we invest. ● Differences in the stated maturity of our fixed rate assets, or in the timing of interest rate adjustments on our adjustable-rate assets, and our borrowings may adversely affect our profitability. ● Changes in the levels of prepayments on the mortgages underlying our Agency RMBS might decrease net interest income or result in a net loss, which could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders. ● Volatile market conditions for mortgages and mortgage-related assets as well as the broader financial markets can result in a significant contraction in liquidity for mortgages and mortgage-related assets, which may adversely affect the value of the assets in which we invest. ● Failure to procure adequate repurchase agreement financing, or to renew or replace existing repurchase agreement financing as it matures, could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders. ● Adverse market developments could cause our lenders to require us to pledge additional assets as collateral.
Hedging may fail to protect or could adversely affect us because, among other things: 16 ● hedging can be expensive, particularly during periods of rising and volatile interest rates; ● available interest rate hedging may not correspond directly with the interest rate risk for which protection is sought; ● the duration of the hedge may not match the duration of the related liability; ● certain types of hedges may expose us to risk of loss beyond the fee paid to initiate the hedge; ● the amount of gross income that a REIT may earn from hedging transactions, other than hedging transactions that satisfy certain requirements of the Code, is limited by the U.S. federal income tax provisions governing REITs; ● the credit quality of the counterparty on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; and ● the counterparty in the hedging transaction may default on its obligation to pay.
Hedging may fail to protect or could adversely affect us because, among other things: 16 Table of Contents ● hedging can be expensive, particularly during periods of rising and volatile interest rates; ● available interest rate hedging may not correspond directly with the interest rate risk for which protection is sought; ● the duration of the hedge may not match the duration of the related liability; ● certain types of hedges may expose us to risk of loss beyond the fee paid to initiate the hedge; ● the amount of gross income that a REIT may earn from hedging transactions, other than hedging transactions that satisfy certain requirements of the Code, is limited by the U.S. federal income tax provisions governing REITs; ● the credit quality of the counterparty on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; and ● the counterparty in the hedging transaction may default on its obligation to pay.
In response to events having or expected to have adverse economic consequences or which create market uncertainty, clearing facilities or exchanges upon which some of our hedging instruments, such as T-Note, Fed Funds and Eurodollar futures contracts and interest rate swaps, are traded may require us to post additional collateral against our hedging instruments.
In response to events having or expected to have adverse economic consequences or which create market uncertainty, clearing facilities or exchanges upon which some of our hedging instruments, such as T-Note, Fed Funds, SOFR and Eurodollar futures contracts and interest rate swaps, are traded may require us to post additional collateral against our hedging instruments.
In addition, if the lender is a broker or dealer subject to the Securities Investor Protection Act of 1970, or an insured depository institution subject to the Federal Deposit Insurance Act, our ability to exercise our rights to recover our investment under a repurchase agreement or to be compensated for any damages resulting from the lender’s insolvency may be further limited by those statutes. 20 If our lenders default on their obligations to resell the Agency RMBS back to us at the end of the repo transaction term, or if the value of the Agency RMBS has declined by the end of the repo transaction term or if we default on our obligations under the repo transaction, we will lose money on these transactions, which, in turn, may materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders.
In addition, if the lender is a broker or dealer subject to the Securities Investor Protection Act of 1970, or an insured depository institution subject to the Federal Deposit Insurance Act, our ability to exercise our rights to recover our investment under a repurchase agreement or to be compensated for any damages resulting from the lender’s insolvency may be further limited by those statutes. 20 Table of Contents If our lenders default on their obligations to resell the Agency RMBS back to us at the end of the repo transaction term, or if the value of the Agency RMBS has declined by the end of the repo transaction term or if we default on our obligations under the repo transaction, we will lose money on these transactions, which, in turn, may materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders.
In that case, the Investment Allocation Agreement allows for a protocol of allocating assets so that, on an overall basis, each account is treated equitably. 25 There are conflicts of interest in our relationships with our Manager and Bimini, which could result in decisions that are not in the best interests of our stockholders.
In that case, the Investment Allocation Agreement allows for a protocol of allocating assets so that, on an overall basis, each account is treated equitably. There are conflicts of interest in our relationships with our Manager and Bimini, which could result in decisions that are not in the best interests of our stockholders.
Our stockholders are therefore subject to the risk of our future securities offerings reducing the market price of our common stock and diluting their common stock. 36 We are subject to risks related to corporate social responsibility. Our business faces public scrutiny related to environmental, social and governance (“ESG”) activities.
Our stockholders are therefore subject to the risk of our future securities offerings reducing the market price of our common stock and diluting their common stock. We are subject to risks related to corporate social responsibility. Our business faces public scrutiny related to environmental, social and governance (“ESG”) activities.
Such models and other data may be incorrect, misleading or incomplete, which could cause us to purchase assets that do not meet our expectations or to make asset management decisions that are not in line with our strategy. 11 ● Valuations of some of our assets are inherently uncertain, may be based on estimates, may fluctuate over short periods of time and may differ from the values that would have been used if a ready market for these assets existed.
Such models and other data may be incorrect, misleading or incomplete, which could cause us to purchase assets that do not meet our expectations or to make asset management decisions that are not in line with our strategy. 11 Table of Contents ● Valuations of some of our assets are inherently uncertain, may be based on estimates, may fluctuate over short periods of time and may differ from the values that would have been used if a ready market for these assets existed.
Interest rate caps on Agency RMBS backed by ARMs and hybrid ARMs could reduce our net interest margin if interest rates were to increase beyond the level of the caps, which could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders. 18 Volatile market conditions for mortgages and mortgage-related assets as well as the broader financial markets can result in a significant contraction in liquidity for mortgages and mortgage-related assets, which may adversely affect the value of the assets in which we invest.
Interest rate caps on Agency RMBS backed by ARMs and hybrid ARMs could reduce our net interest margin if interest rates were to increase beyond the level of the caps, which could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders. 18 Table of Contents Volatile market conditions for mortgages and mortgage-related assets as well as the broader financial markets can result in a significant contraction in liquidity for mortgages and mortgage-related assets, which may adversely affect the value of the assets in which we invest.
Concerns over rising interest rates, growing inflation, economic recession, geopolitical issues including events such as the COVID-19 pandemic or other global pandemics, the war in Ukraine, policy priorities of a new U.S. presidential administration, trade wars, unemployment, the availability and cost of financing, the mortgage market and a declining real estate market or prolonged government shutdown may contribute to increased volatility and diminished expectations for the economy and markets.
Concerns over rising interest rates, growing inflation, economic recession, geopolitical issues including events such as the COVID-19 pandemic or other global pandemics, the wars in Ukraine and Israel, policy priorities of a new U.S. presidential administration, trade wars, unemployment, the availability and cost of financing, the mortgage market and a declining real estate market or prolonged government shutdown may contribute to increased volatility and diminished expectations for the economy and markets.
Military conflict in Ukraine and the resulting sanctions and penalties have caused, and may continue to cause, increased price volatility for publicly traded securities and other national, regional and international economic disruptions and economic uncertainty.
Military conflict in Ukraine and Israel and the resulting sanctions and penalties have caused, and may continue to cause, increased price volatility for publicly traded securities and other national, regional and international economic disruptions and economic uncertainty.
Some of the factors that could negatively affect the share price or trading volume of our common stock include: ● actual or anticipated variations in our operating results or distributions; ● changes in our earnings estimates or publication of research reports about us or the real estate or specialty finance industry; ● the market valuations of Agency RMBS; ● increases in market interest rates that lead purchasers of our common stock to expect a higher dividend yield; ● government action or regulation; ● changes in our book value; ● changes in market valuations of similar companies; ● adverse market reaction to any increased indebtedness we incur in the future; ● a change in our Manager or additions or departures of key management personnel; ● actions by institutional stockholders; ● speculation in the press or investment community; and ● general market and economic conditions.
Some of the factors that could negatively affect the share price or trading volume of our common stock include: 27 Table of Contents ● actual or anticipated variations in our operating results or distributions; ● changes in our earnings estimates or publication of research reports about us or the real estate or specialty finance industry; ● the market valuations of Agency RMBS; ● increases in market interest rates that lead purchasers of our common stock to expect a higher dividend yield; ● government action or regulation; ● changes in our book value; ● changes in market valuations of similar companies; ● adverse market reaction to any increased indebtedness we incur in the future; ● a change in our Manager or additions or departures of key management personnel; ● actions by institutional stockholders; ● speculation in the press or investment community; and ● general market and economic conditions.
If we are not able to renew our existing repurchase agreements or arrange for new financing on terms acceptable to us, or if we are required to post more collateral or face larger haircuts, we may have to curtail our asset acquisition activities and/or dispose of assets. 21 Issues related to financing are exacerbated in times of significant dislocation in the financial markets, for example, such as those experienced related to the COVID-19 pandemic.
If we are not able to renew our existing repurchase agreements or arrange for new financing on terms acceptable to us, or if we are required to post more collateral or face larger haircuts, we may have to curtail our asset acquisition activities and/or dispose of assets. 21 Table of Contents Issues related to financing are exacerbated in times of significant dislocation in the financial markets, for example, such as those experienced related to the COVID-19 pandemic.
The occurrence of similar crises in the future could cause increased volatility in the economies and financial markets of countries throughout a region, or even globally. 22 Competition might prevent us from acquiring Agency RMBS at favorable yields, which could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders.
The occurrence of similar crises in the future could cause increased volatility in the economies and financial markets of countries throughout a region, or even globally. 22 Table of Contents Competition might prevent us from acquiring Agency RMBS at favorable yields, which could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders.
As of December 31, 2022, we had met all margin call requirements, but a sufficiently deep and/or rapid increase in margin calls or haircuts could have an adverse impact on our liquidity. We may change our investment strategy, investment guidelines and asset allocation without notice or stockholder consent, which may result in riskier investments.
As of December 31, 2023, we had met all margin call requirements, but a sufficiently deep and/or rapid increase in margin calls or haircuts could have an adverse impact on our liquidity. We may change our investment strategy, investment guidelines and asset allocation without notice or stockholder consent, which may result in riskier investments.
As the Fed began to increase over-night funding rates during 2022 short-term interest rates began to rise faster than longer-term interest rates and eventually the U.S. Treasury yield curve became inverted, whereby yields on short-terms rates exceeded yields on long-term interest rates. This condition has continued into 2023 and may continue into the future.
As the Fed began to increase over-night funding rates during 2022 short-term interest rates began to rise faster than longer-term interest rates and eventually the U.S. Treasury yield curve became inverted, whereby yields on short-terms rates exceeded yields on long-term interest rates. This condition continued into 2023 and 2024, and may continue into the future.
No strategy can completely insulate us from prepayment or other such risks. 15 Failure to procure adequate repurchase agreement financing, or to renew or replace existing repurchase agreement financing as it matures, could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
No strategy can completely insulate us from prepayment or other such risks. 15 Table of Contents Failure to procure adequate repurchase agreement financing, or to renew or replace existing repurchase agreement financing as it matures, could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
These and other provisions in our management agreement make non-renewal of our management agreement difficult and costly. ● We have not established a minimum distribution payment level, and we cannot assure you of our ability to make distributions to our stockholders in the future. ● Loss of our exemption from regulation under the Investment Company Act would negatively affect the value of shares of our common stock and our ability to pay distributions to our stockholders. ● Failure to obtain and maintain an exemption from being regulated as a commodity pool operator could subject us to additional regulation and compliance requirements and may result in fines and other penalties which could materially adversely affect our business and financial condition. ● Our ownership limitations and certain other provisions of applicable law and our charter and bylaws may restrict business combination opportunities that would otherwise be favorable to our stockholders. ● Our failure to maintain our qualification as a REIT would subject us to U.S. federal income tax, which could adversely affect the value of the shares of our common stock and would substantially reduce the cash available for distribution to our stockholders. ● We cannot predict the effect that government policies, laws and plans adopted in response to the COVID-19 pandemic, any other global pandemic, or global recessionary economic conditions will have on us. 12 Risk Factors You should carefully consider the risks described below and all other information contained in this Report, including our annual financial statements and related notes thereto, before making an investment decision regarding our common stock.
These and other provisions in our management agreement make non-renewal of our management agreement difficult and costly. ● We have not established a minimum distribution payment level, and we cannot assure you of our ability to make distributions to our stockholders in the future. ● Loss of our exemption from regulation under the Investment Company Act would negatively affect the value of shares of our common stock and our ability to pay distributions to our stockholders. ● Failure to obtain and maintain an exemption from being regulated as a commodity pool operator could subject us to additional regulation and compliance requirements and may result in fines and other penalties which could materially adversely affect our business and financial condition. ● Our ownership limitations and certain other provisions of applicable law and our charter and bylaws may restrict business combination opportunities that would otherwise be favorable to our stockholders. ● Our failure to maintain our qualification as a REIT would subject us to U.S. federal income tax, which could adversely affect the value of the shares of our common stock and would substantially reduce the cash available for distribution to our stockholders. ● We cannot predict the effect that government policies, laws and plans adopted in response to geopolitical events, a global pandemic, or global recessionary economic conditions will have on us. 12 Table of Contents Risk Factors You should carefully consider the risks described below and all other information contained in this Report, including our annual financial statements and related notes thereto, before making an investment decision regarding our common stock.
Our use of leverage could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders. For example: 17 ● our borrowings are secured by our pass-through Agency RMBS and a portion of our structured Agency RMBS under repurchase agreements.
Our use of leverage could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders. For example: 17 Table of Contents ● our borrowings are secured by our pass-through Agency RMBS and a portion of our structured Agency RMBS under repurchase agreements.
During periods of rising short-term interest rates, the income we earn on these securities will not change (with respect to Agency RMBS backed by fixed-rate mortgage loans) or will not increase at the same rate (with respect to Agency RMBS backed by ARMs and hybrid ARMs) as our related financing costs, which may reduce our net interest margin or result in losses. 13 Further downgrades of the U.S. credit rating, automatic spending cuts, or another government shutdown could negatively impact our liquidity, financial condition and earnings.
During periods of rising short-term interest rates, the income we earn on these securities will not change (with respect to Agency RMBS backed by fixed-rate mortgage loans) or will not increase at the same rate (with respect to Agency RMBS backed by ARMs and hybrid ARMs) as our related financing costs, which may reduce our net interest margin or result in losses. 13 Table of Contents Further downgrades of the U.S. credit rating, automatic spending cuts, mounting budget deficits or another government shutdown could negatively impact our liquidity, financial condition and earnings.
Unless our failure to qualify as a REIT was subject to relief under U.S. federal tax laws, we could not re-elect to qualify as a REIT until the fifth calendar year following the year in which we failed to qualify. Complying with REIT requirements may cause us to forego or liquidate otherwise attractive investments.
Unless our failure to qualify as a REIT was subject to relief under U.S. federal tax laws, we could not re-elect to qualify as a REIT until the fifth calendar year following the year in which we failed to qualify. 31 Table of Contents Complying with REIT requirements may cause us to forego or liquidate otherwise attractive investments.
To the extent the financial or mortgage markets do not respond favorably to any of these actions, such actions do not function as intended, or prepayments increase materially as a result of these actions, our business, results of operations and financial condition may be materially adversely affected. 37 ITEM 1B. UNRESOLVED STAFF COMMENTS None.
To the extent the financial or mortgage markets do not respond favorably to any of these actions, such actions do not function as intended, or prepayments increase materially as a result of these actions, our business, results of operations and financial condition may be materially adversely affected. 36 Table of Contents ITEM 1B. UNRESOLVED STAFF COMMENTS None.
With respect to pass-through Agency RMBS, faster-than-expected prepayments could also materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders in various ways, including the following: ● A portion of our pass-through Agency RMBS backed by ARMs and hybrid ARMs may initially bear interest at rates that are lower than their fully indexed rates, which are equivalent to the applicable index rate plus a margin.
To the extent that our pass-through Agency RMBS are carried at a premium to par, faster-than-expected prepayments could also materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders in various ways, including the following: ● A portion of our pass-through Agency RMBS backed by ARMs and hybrid ARMs may initially bear interest at rates that are lower than their fully indexed rates, which are equivalent to the applicable index rate plus a margin.
In addition, we may have adjustable-rate assets with interest rates that vary over time based upon changes in an objective index, such as LIBOR, the U.S. Treasury rate or the Secured Overnight Financing Rate (“SOFR”). These indices generally reflect short-term interest rates but these assets may not reset in a manner that matches our borrowings.
In addition, we may have adjustable-rate assets with interest rates that vary over time based upon changes in an objective index, such as the U.S. Treasury rate or SOFR. These indices generally reflect short-term interest rates but these assets may not reset in a manner that matches our borrowings.
Furthermore, because predictive models are usually constructed based on historical data supplied by third parties, the success of relying on such models may depend heavily on the accuracy and reliability of the supplied historical data, and, in the case of predicting performance in scenarios with little or no historical precedent (such as extreme broad-based declines in home prices, or deep economic recessions or depressions), such models must employ greater degrees of extrapolation and are therefore more speculative and less reliable.
Furthermore, because predictive models are usually constructed based on historical data supplied by third parties, the success of relying on such models may depend heavily on the accuracy and reliability of the supplied historical data, and, in the case of predicting performance in scenarios with little or no historical precedent (such as extreme broad-based declines in home prices, or deep economic recessions or depressions), such models must employ greater degrees of extrapolation and are therefore more speculative and less reliable. 19 Table of Contents All valuation models rely on correct market data input.
The law is unclear regarding whether forward settling contracts will be qualifying assets for the 75% asset test and whether income and gains from dispositions of forward settling contracts will be qualifying income for the 75% gross income test. 33 Until we receive a favorable private letter ruling from the IRS or we are advised by counsel that forward settling contracts should be treated as qualifying assets for purposes of the 75% asset test, we will limit our investment in forward settling contracts and any non-qualifying assets to no more than 25% of our total gross assets at the end of any calendar quarter and will limit the forward settling contracts issued by any one issuer to no more than 5% of our total gross assets at the end of any calendar quarter.
Until we receive a favorable private letter ruling from the IRS or we are advised by counsel that forward settling contracts should be treated as qualifying assets for purposes of the 75% asset test, we will limit our investment in forward settling contracts and any non-qualifying assets to no more than 25% of our total gross assets at the end of any calendar quarter and will limit the forward settling contracts issued by any one issuer to no more than 5% of our total gross assets at the end of any calendar quarter.
Our use of certain hedging techniques may expose us to counterparty risks. To the extent that our hedging instruments are not traded on regulated exchanges, guaranteed by an exchange or its clearinghouse, or regulated by any U.S. or foreign governmental authorities, there may not be requirements with respect to record keeping, financial responsibility or segregation of customer funds and positions.
To the extent that our hedging instruments are not traded on regulated exchanges, guaranteed by an exchange or its clearinghouse, or regulated by any U.S. or foreign governmental authorities, there may not be requirements with respect to record keeping, financial responsibility or segregation of customer funds and positions.
Liquidation of our assets may jeopardize our REIT qualification. To maintain our qualification as a REIT, we must comply with requirements regarding our assets and our sources of income.
To maintain our qualification as a REIT, we must comply with requirements regarding our assets and our sources of income.
Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland, or, if that court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division, will be the sole and exclusive forum for (a) any Internal Corporate Claim, as such term is defined in the MGCL, (b) any derivative action or proceeding brought on our behalf, (c) any action asserting a claim of breach of any duty owed by any of our directors or officers to us or to our stockholders, (d) any action asserting a claim against us or any of our directors or officers arising pursuant to any provision of the MGCL or our charter or bylaws or (e) any other action asserting a claim against us or any of our directors or officers that is governed by the internal affairs doctrine. 31 This exclusive forum provision may limit the ability of our stockholders to bring a claim in a judicial forum that such stockholders find favorable for disputes with us or our directors or officers, which may discourage such lawsuits against us and our directors and officers.
Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland, or, if that court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division, will be the sole and exclusive forum for (a) any Internal Corporate Claim, as such term is defined in the MGCL, (b) any derivative action or proceeding brought on our behalf, (c) any action asserting a claim of breach of any duty owed by any of our directors or officers to us or to our stockholders, (d) any action asserting a claim against us or any of our directors or officers arising pursuant to any provision of the MGCL or our charter or bylaws or (e) any other action asserting a claim against us or any of our directors or officers that is governed by the internal affairs doctrine.
Consequently, we will be restricted to operating within the parameters discussed in the no-action letter and will not enter into hedging transactions covered by the no-action letter if they would cause us to exceed the limits set forth in the no-action letter.
We have claimed the relief afforded by the above-described no-action letter. Consequently, we will be restricted to operating within the parameters discussed in the no-action letter and will not enter into hedging transactions covered by the no-action letter if they would cause us to exceed the limits set forth in the no-action letter.
The more favorable rates applicable to regular corporate qualified dividends could cause investors who are taxed at individual rates to perceive investments in REITs to be relatively less attractive than investments in the stock of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our common stock.
The more favorable rates applicable to regular corporate qualified dividends could cause investors who are taxed at individual rates to perceive investments in REITs to be relatively less attractive than investments in the stock of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our common stock. 34 Table of Contents Liquidation of our assets may jeopardize our REIT qualification.
If we fail to qualify for an exemption from registration as an investment company or an exclusion from the definition of an investment company, our ability to use leverage would be substantially reduced, and we would not be able to conduct our business as described herein.
The net effect of these factors would be to lower our net interest income. If we fail to qualify for an exemption from registration as an investment company or an exclusion from the definition of an investment company, our ability to use leverage would be substantially reduced, and we would not be able to conduct our business as described herein.
Our use of leverage could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders. We calculate our leverage ratio by dividing our total liabilities by total equity at the end of each period.
Our use of leverage could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders. We calculate our leverage ratio by dividing our total liabilities, adjusted for net notional TBA positions, by total stockholders' equity at the end of each period.
Our charter and bylaws and Maryland law contain provisions that may delay, defer or prevent a change in control or other transaction that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders, including business combination provisions, supermajority vote and cause requirements for removal of directors, provisions that vacancies on our Board of Directors may be filled only by the remaining directors for the full term of the directorship in which the vacancy occurred, the power of our Board of Directors to increase or decrease the aggregate number of authorized shares of stock or the number of shares of any class or series of stock, to cause us to issue additional shares of stock of any class or series and to fix the terms of one or more classes or series of stock without stockholder approval, the restrictions on ownership and transfer of our stock and advance notice requirements for director nominations and stockholder proposals.
Our charter and bylaws and Maryland law contain provisions that may delay, defer or prevent a change in control or other transaction that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders, including business combination provisions, supermajority vote and cause requirements for removal of directors, provisions that vacancies on our Board of Directors may be filled only by the remaining directors for the full term of the directorship in which the vacancy occurred, the power of our Board of Directors to increase or decrease the aggregate number of authorized shares of stock or the number of shares of any class or series of stock, to cause us to issue additional shares of stock of any class or series and to fix the terms of one or more classes or series of stock without stockholder approval, the restrictions on ownership and transfer of our stock and advance notice requirements for director nominations and stockholder proposals. 29 Table of Contents To assist us in qualifying as a REIT, among other purposes, ownership of our stock by any person will generally be limited to 9.8% in value or number of shares, whichever is more restrictive, of any class or series of our stock.
However, the CFTC’s Division of Swap Dealer and Intermediary Oversight issued a no-action letter saying, although it believes that mortgage REITs are properly considered commodity pools, it would not recommend that the CFTC take enforcement action against the operator of a mortgage REIT who does not register as a CPO if, among other things, the mortgage REIT limits the initial margin and premiums required to establish its swaps, futures and other commodity interest positions to not more than five percent (5%) of its total assets, the mortgage REIT limits the net income derived annually from those commodity interest positions which are not qualifying hedging transactions to less than five percent (5%) of its gross income and interests in the mortgage REIT are not marketed to the public as or in a commodity pool or otherwise as or in a vehicle for trading in the commodity futures, commodity options or swaps markets. 29 We use hedging instruments in conjunction with our investment portfolio and related borrowings to reduce or mitigate risks associated with changes in interest rates, mortgage spreads, yield curve shapes and market volatility.
However, the CFTC’s Division of Swap Dealer and Intermediary Oversight issued a no-action letter saying, although it believes that mortgage REITs are properly considered commodity pools, it would not recommend that the CFTC take enforcement action against the operator of a mortgage REIT who does not register as a CPO if, among other things, the mortgage REIT limits the initial margin and premiums required to establish its swaps, futures and other commodity interest positions to not more than five percent (5%) of its total assets, the mortgage REIT limits the net income derived annually from those commodity interest positions which are not qualifying hedging transactions to less than five percent (5%) of its gross income and interests in the mortgage REIT are not marketed to the public as or in a commodity pool or otherwise as or in a vehicle for trading in the commodity futures, commodity options or swaps markets.
Treasury or yield curve, occurred during 2022 and may continue well into the future. Under such conditions our funding costs may equal or exceed yields available on our assets, adversely impacting our financial condition and results of operations and our ability to pay dividends to our stockholders.
This phenomenon, typically referred to as an inverted U.S. Treasury or yield curve, occurred during 2022 and 2023, and may continue well into the future. Under such conditions our funding costs may equal or exceed yields available on our assets, adversely impacting our financial condition and results of operations and our ability to pay dividends to our stockholders.
While it is very difficult to predict the impact of a continuing Fed portfolio runoff or potential sales of Agency RMBS on the supply, prices and liquidity of Agency RMBS, returns on Agency RMBS may be adversely affected. 14 Short-term interest rates are currently higher than long-term interest rates. This phenomenon, typically referred to as an inverted U.S.
While it is very difficult to predict the impact of a continuing Fed portfolio runoff or potential sales of Agency RMBS on the supply, prices and liquidity of Agency RMBS, returns on Agency RMBS may be adversely affected. 14 Table of Contents Short-term interest rates are currently higher than long-term interest rates.
We cannot predict the effect that government policies, laws and plans adopted in response to the COVID-19 pandemic, any other global pandemic, or the global recessionary economic conditions will have on us.
We cannot predict the effect that government policies, laws and plans adopted in response to geopolitical events, a global pandemic, or the global recessionary economic conditions will have on us.
The ultimate impact on the operations of the Enterprises from the conservatorships and the support they receive from the U.S. government is not determinable and could affect the Enterprises in such a way that our business, operations and financial condition may be adversely affected.
We invest in securities guaranteed by the Enterprises which are currently under conservatorship by the FHFA. The ultimate impact on the operations of the Enterprises from the conservatorships and the support they receive from the U.S. government is not determinable and could affect the Enterprises in such a way that our business, operations and financial condition may be adversely affected.
We have not established a minimum distribution payment level, and we cannot assure you of our ability to make distributions to our stockholders in the future. We intend to continue to make monthly distributions to our stockholders in amounts such that we distribute all or substantially all of our REIT taxable income in each year, subject to certain adjustments.
We intend to continue to make monthly distributions to our stockholders in amounts such that we distribute all or substantially all of our REIT taxable income in each year, subject to certain adjustments. We have not established a minimum distribution payment level, and our ability to make distributions might be harmed by the risk factors described herein.
The Fed owns approximately $2.6 trillion of Agency RMBS as of December 31, 2022.
The Fed owns approximately $2.4 trillion of Agency RMBS as of December 31, 2023.
Cauley and Haas may have a conflict of interest with respect to actions by our Board of Directors that relate to Bimini or our Manager. As of March 3, 2023, Bimini owned approximately 1.5% of our outstanding shares of common stock.
Cauley and Haas may have a conflict of interest with respect to actions by our Board of Directors that relate to Bimini or our Manager. 25 Table of Contents As of February 23, 2024, Bimini owned approximately 1.1% of our outstanding shares of common stock.
Adverse incidents with respect to ESG activities could impact the cost of our operations and relationships with investors, all of which could adversely affect our business and results of operations. Additionally, new legislative or regulatory initiatives related to ESG could adversely affect our business. The market and economic disruptions caused by COVID-19 have negatively impacted our business.
Adverse incidents with respect to ESG activities could impact the cost of our operations and relationships with investors, all of which could adversely affect our business and results of operations. Additionally, new legislative or regulatory initiatives related to ESG could adversely affect our business.
A TRS may earn income that would not be qualifying income if earned directly by the parent REIT. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS.
A REIT may own up to 100% of the stock of one or more TRSs. A TRS may earn income that would not be qualifying income if earned directly by the parent REIT. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS.
Furthermore, any policy changes to the relationship between the Enterprises and the U.S. government may create market uncertainty and have the effect of reducing the actual or perceived credit quality of securities issued by the Enterprises. It may also interrupt the cash flow received by investors on the underlying Agency RMBS.
Furthermore, any policy changes to the relationship between the Enterprises and the U.S. government may create market uncertainty and have the effect of reducing the actual or perceived credit quality of securities issued by the Enterprises.
Our management agreement is automatically renewed in accordance with the terms of the agreement, each year, on February 20. Upon the expiration of any automatic renewal term, our Manager may elect not to renew the management agreement without cause, and without penalty, on 180-days’ prior written notice to us.
Upon the expiration of any automatic renewal term, our Manager may elect not to renew the management agreement without cause, and without penalty, on 180-days’ prior written notice to us.
The inaccuracy of any such opinions, advice or statements may adversely affect our REIT qualification and result in significant corporate-level tax. 35 General Risk Factors The occurrence of cyber-incidents, or a deficiency in our cybersecurity or in those of any of our third party service providers could negatively impact our business by causing a disruption to our operations, a compromise or corruption of our confidential information or damage to our business relationships or reputation, all of which could negatively impact our business and results of operations.
General Risk Factors The occurrence of cyber-incidents, or a deficiency in our cybersecurity or in those of any of our third party service providers could negatively impact our business by causing a disruption to our operations, a compromise or corruption of our confidential information or damage to our business relationships or reputation, all of which could negatively impact our business and results of operations.
These provisions, along with the restrictions on ownership and transfer contained in our charter and certain provisions of Maryland law described below, could discourage unsolicited acquisition proposals or make it more difficult for a third party to gain control of us, which could adversely affect the market price of our securities. 30 Our rights and the rights of our stockholders to take action against our directors and officers are limited, which could limit your recourse in the event of actions not in your best interests.
These provisions, along with the restrictions on ownership and transfer contained in our charter and certain provisions of Maryland law described below, could discourage unsolicited acquisition proposals or make it more difficult for a third party to gain control of us, which could adversely affect the market price of our securities.
Alternatively, if we fail to qualify for this exemption, we may have to register under the Investment Company Act and we could become subject to substantial regulation with respect to our capital structure (including our ability to use leverage), management, operations, transactions with affiliated persons (as defined in the Investment Company Act), portfolio composition, including restrictions with respect to diversification and industry concentration, and other matters.
Alternatively, if we fail to qualify for this exemption, we may have to register under the Investment Company Act and we could become subject to substantial regulation with respect to our capital structure (including our ability to use leverage), management, operations, transactions with affiliated persons (as defined in the Investment Company Act), portfolio composition, including restrictions with respect to diversification and industry concentration, and other matters. 28 Table of Contents We may be required at times to adopt less efficient methods of financing certain of our securities, and we may be precluded from acquiring certain types of higher yielding securities.
There can be no assurance as to how, in the long term, these and other actions by the U.S. government will affect the efficiency, liquidity and stability of the financial and mortgage markets or prepayments on Agency RMBS.
We cannot assure you that these programs will be effective, sufficient or will otherwise have a positive impact on our business. There can be no assurance as to how, in the long term, these and other actions by the U.S. government will affect the efficiency, liquidity and stability of the financial and mortgage markets or prepayments on Agency RMBS.
The impact of this or any further downgrades to the U.S. government’s sovereign credit rating or its perceived creditworthiness could adversely affect the U.S. and global financial markets and economic conditions.
The impact of this or any further downgrades to the U.S. government’s sovereign credit rating or its perceived creditworthiness could adversely affect the U.S. and global financial markets and economic conditions. In addition, disagreement over the federal budget has caused the U.S. federal government to shut down for periods of time.
The investments we make in accordance with our investment objectives may result in a high amount of risk when compared to alternative investment options and volatility or loss of principal. Our investments may be highly speculative and aggressive, and therefore an investment in our common stock may not be suitable for someone with lower risk tolerance.
The investments we make in accordance with our investment objectives may result in a high amount of risk when compared to alternative investment options and volatility or loss of principal.
If we pay dividends in our common stock and a significant number of our stockholders determine to sell shares of our common stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our common stock. 34 Our ownership limitations may restrict change of control or business combination opportunities in which our stockholders might receive a premium for their stock.
If we pay dividends in our common stock and a significant number of our stockholders determine to sell shares of our common stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our common stock.
In addition, any TRSs we form will be subject to regular corporate U.S. federal, state and local taxes. Any of these taxes would decrease cash available for distributions to stockholders. The failure of Agency RMBS subject to a repurchase agreement to qualify as real estate assets would adversely affect our ability to continue to qualify as a REIT.
Any of these taxes would decrease cash available for distributions to stockholders. 32 Table of Contents The failure of Agency RMBS subject to a repurchase agreement to qualify as real estate assets would adversely affect our ability to continue to qualify as a REIT.
Our Manager’s entitlement to substantial non-performance-based compensation may reduce its incentive to devote sufficient time and effort to seeking investments that provide attractive risk-adjusted returns for our investment portfolio.
Our Manager’s entitlement to substantial non-performance-based compensation may reduce its incentive to devote sufficient time and effort to seeking investments that provide attractive risk-adjusted returns for our investment portfolio. This in turn could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
These actions could have the effect of reducing our income and amounts available for distribution to our stockholders. 32 Failure to make required distributions would subject us to tax, which would reduce the cash available for distribution to our stockholders.
Failure to make required distributions would subject us to tax, which would reduce the cash available for distribution to our stockholders.
All of the foregoing could materially adversely affect the availability, pricing, liquidity, market value and financing of our assets and materially adversely affect our business, operations and financial condition and our ability to pay distributions to our stockholders.
It may also interrupt the cash flow received by investors on the underlying Agency RMBS. 23 Table of Contents All of the foregoing could materially adversely affect the availability, pricing, liquidity, market value and financing of our assets and materially adversely affect our business, operations and financial condition and our ability to pay distributions to our stockholders.
In such situations, we may not receive the level of support and assistance that we otherwise would likely have received if we were internally managed or if such executives were not otherwise committed to provide support to Bimini. 24 Our Board of Directors has adopted investment guidelines that require that any investment transaction between us and Bimini or any affiliate of Bimini receive the prior approval of a majority of our independent directors.
In such situations, we may not receive the level of support and assistance that we otherwise would likely have received if we were internally managed or if such executives were not otherwise committed to provide support to Bimini.
Accordingly, no assurance can be given as to: ● the likelihood that an actual market for our common stock will continue; ● the liquidity of any such market; ● the ability of any holder to sell shares of our common stock; or ● the prices that may be obtained for our common stock. 28 Risks Related to Our Organization and Structure Loss of our exemption from regulation under the Investment Company Act would negatively affect the value of shares of our common stock and our ability to pay distributions to our stockholders.
Accordingly, no assurance can be given as to: ● the likelihood that an actual market for our common stock will continue; ● the liquidity of any such market; ● the ability of any holder to sell shares of our common stock; or ● the prices that may be obtained for our common stock.
This in turn could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders. 26 Our Manager will not be liable to us for any acts or omissions performed in accordance with the management agreement, including with respect to the performance of our investments.
Our Manager will not be liable to us for any acts or omissions performed in accordance with the management agreement, including with respect to the performance of our investments.
We could be materially adversely affected by any such change to any existing, or any new, law, regulation or administrative interpretation, which could reduce the market price of our common stock. In addition, at any time, the U.S. federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be amended.
Additionally, revisions to these laws, regulations or administrative or judicial interpretations could cause us to change our investments. We could be materially adversely affected by any such change to any existing, or any new, law, regulation or administrative or judicial interpretation, which could reduce the market price of our common stock.
If Bimini sells a large number of our securities in the public market, the sale could reduce the market price of our common stock and could impede our ability to raise future capital. 27 We may be subject to adverse legislative or regulatory changes that could reduce the market price of our common stock.
As of February 23, 2024, Bimini owns 569,071 shares of our common stock. If Bimini sells a large number of our securities in the public market, the sale could reduce the market price of our common stock and could impede our ability to raise future capital.
As a result, we may be required to liquidate from our portfolio otherwise attractive investments or contribute such investments to a TRS.
As a result, we may be required to liquidate from our portfolio otherwise attractive investments or contribute such investments to a TRS. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.
We do not use these instruments for the purpose of trading in commodity interests, and we do not consider the Company or its operations to be a commodity pool as to which CPO registration or compliance is required. We have claimed the relief afforded by the above-described no-action letter.
We do not currently engage in any speculative derivatives activities or other non-hedging transactions using swaps, futures or options on futures. We do not use these instruments for the purpose of trading in commodity interests, and we do not consider the Company or its operations to be a commodity pool as to which CPO registration or compliance is required.
Our ownership of and relationship with any TRSs that we form will be limited and a failure to comply with the limits would jeopardize our REIT qualification and may result in the application of a 100% excise tax. A REIT may own up to 100% of the stock of one or more TRSs.
This could increase the cost of our hedging activities or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. 33 Table of Contents Our ownership of and relationship with any TRSs that we form will be limited and a failure to comply with the limits would jeopardize our REIT qualification and may result in the application of a 100% excise tax.
Future offerings of debt securities, which would be senior to our common stock upon liquidation, or equity securities, which would dilute our existing stockholders and may be senior to our common stock for the purposes of distributions, may harm the value of our common stock.
Such additional restrictive covenants and operating restrictions could have a material adverse effect on our business, financial condition and results of operations and our ability to pay distributions to our stockholders. 35 Table of Contents Future offerings of debt securities, which would be senior to our common stock upon liquidation, or equity securities, which would dilute our existing stockholders and may be senior to our common stock for the purposes of distributions, may harm the value of our common stock.
Accordingly, we may compete for access to the benefits that we expect our relationship with our Manager and Bimini to provide.
Further, we do not have any agreement or understanding with Bimini that would give us any priority over Bimini or any of its affiliates. Accordingly, we may compete for access to the benefits that we expect our relationship with our Manager and Bimini to provide.
Our management agreement does not require our Manager to dedicate specific personnel to our operations or a specific amount of time to our business. Additionally, because we are affiliated with Bimini, we may be negatively impacted by an event or factors that negatively impacts or could negatively impact Bimini’s business or financial condition.
Additionally, because we are affiliated with Bimini, we may be negatively impacted by an event or factors that negatively impacts or could negatively impact Bimini’s business or financial condition. 24 Table of Contents Our management agreement is automatically renewed in accordance with the terms of the agreement, each year, on February 20.
However, this policy will not eliminate the conflicts of interest that our officers will face in making investment decisions on behalf of Bimini and us. Further, we do not have any agreement or understanding with Bimini that would give us any priority over Bimini or any of its affiliates.
Our Board of Directors has adopted investment guidelines that require that any investment transaction between us and Bimini or any affiliate of Bimini receive the prior approval of a majority of our independent directors. However, this policy will not eliminate the conflicts of interest that our officers will face in making investment decisions on behalf of Bimini and us.
For example, we may enter into SOFR-based swaps to hedge rising borrowing costs, which may not fully offset such rising costs as well as LIBOR-based swaps may have in the past. Because of the foregoing risks, our hedging activity could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders.
In addition, hedging activities could result in losses if the event against which we hedge does not occur. Because of the foregoing risks, our hedging activity could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders. Our use of certain hedging techniques may expose us to counterparty risks.
At any time, laws or regulations, or the administrative interpretations of those laws or regulations, which impact our business and Maryland corporations may be amended. In addition, the markets for RMBS and derivatives, including interest rate swaps, have been the subject of intense scrutiny in recent years.
In addition, the markets for RMBS and derivatives, including interest rate swaps, have been the subject of intense scrutiny in recent years. We cannot predict when or if any new law, regulation or administrative or judicial interpretation, or any amendment to any existing law, regulation or administrative or judicial interpretation, will be adopted or promulgated or will become effective.
We have not established a minimum distribution payment level, and our ability to make distributions might be harmed by the risk factors described herein.
Our investments may be highly speculative and aggressive, and therefore an investment in our common stock may not be suitable for someone with lower risk tolerance. 26 Table of Contents We have not established a minimum distribution payment level, and we cannot assure you of our ability to make distributions to our stockholders in the future.
Removed
Absent further quantitative easing by the Fed, these developments could cause interest rates and borrowing costs to rise, which may negatively impact the value of our investments and our ability to access the debt markets on favorable terms. In addition, disagreement over the federal budget has caused the U.S. federal government to shut down for periods of time.
Added
Our management agreement does not require our Manager to dedicate specific personnel to our operations or a specific amount of time to our business.
Removed
In addition, hedging activities could result in losses if the event against which we hedge does not occur. Moreover, the expected transition from LIBOR to alternative reference rates adds additional complications to our hedging activity.
Added
We may be subject to adverse legislative or regulatory changes that could reduce the market price of our common stock. At any time, laws or regulations, or the administrative or judicial interpretations of those laws or regulations, which impact our business and Maryland corporations may be amended.
Removed
Models may also include LIBOR as an input. Thus, the transition away from LIBOR to SOFR may require changes to the models and/or impair the historical relationships patterned within these models as a result of less historical data than is currently available for LIBOR. 19 All valuation models rely on correct market data input.
Added
In addition, at any time, the U.S. federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be amended.
Removed
The replacement of LIBOR with an alternative reference rate may adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders.
Added
Risks Related to Our Organization and Structure Loss of our exemption from regulation under the Investment Company Act would negatively affect the value of shares of our common stock and our ability to pay distributions to our stockholders.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES We do not own any real property. Our offices are owned by Bimini, the parent of our Manager, and are located at 3305 Flamingo Drive, Vero Beach, Florida 32963. We consider this property to be adequate for our business as currently conducted. Our telephone number is (772) 231-1400.
Biggest changeITEM 2. PROPERTIES We do not own any real property. Our offices are owned by Bimini, the parent of our Manager, and are located at 3305 Flamingo Drive, Vero Beach, Florida 32963. We consider this property to be adequate for our business as currently conducted. Our telephone number is (772) 231-1400. 38 Table of Contents

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeMaximum Number of Shares Shares That Total Weighted- Purchased as May Yet Be Number Average Part of Publicly Repurchased of Shares Price Paid Announced Under the Repurchased(1) Per Share Programs Authorization October 1, 2022 - October 31, 2022 1,644,044 $ 8.64 1,644,044 5,845,557 November 1, 2022 - November 30, 2022 - - 5,845,557 December 1, 2022 - December 31, 2022 544,533 $ 10.67 544,166 5,301,391 Totals / Weighted Average 2,188,577 $ 9.14 2,188,210 5,301,391 (1) Includes 367 shares of the Company’s common stock acquired by the Company in connection with the satisfaction of tax withholding obligations on vested employment related awards under equity incentive plans.
Biggest changeMaximum Number of Shares Shares That Total Weighted- Purchased as May Yet Be Number Average Part of Publicly Repurchased of Shares Price Paid Announced Under the Repurchased (1) Per Share Programs Authorization October 1, 2023 - October 31, 2023 - $ - - 4,928,350 November 1, 2023 - November 30, 2023 - $ - - 4,928,350 December 1, 2023 - December 31, 2023 700,691 $ 7.81 699,748 4,228,602 Totals / Weighted Average 700,691 $ 7.81 699,748 4,228,602 (1) Includes 943 shares of the Company’s common stock acquired by the Company in connection with the satisfaction of tax withholding obligations on vested employment related awards under equity incentive plans.
Unregistered Sales of Equity Securities The Company did not issue or sell equity securities that were not registered under the Securities Act during the year ended December 31, 2022. 40 Issuer Purchases of Equity Securities On July 29, 2015, the Company's Board of Directors authorized the repurchase of up to 400,000 shares of the Company's common stock.
Unregistered Sales of Equity Securities The Company did not issue or sell equity securities that were not registered under the Securities Act during the year ended December 31, 2023. Issuer Purchases of Equity Securities On July 29, 2015, the Company's Board of Directors authorized the repurchase of up to 400,000 shares of the Company's common stock.
In addition, our Board of Directors may change our distribution policy in the future. 39 Performance Graph Set forth below is a graph comparing the yearly percentage change in the cumulative total return on our common stock, with the cumulative total return of the S&P 500 Total Return Index, the FTSE NAREIT Mortgage REIT Index and an index of selected issuers in our Agency REIT Peer Group (composed of AGNC Investment Corp., Annaly Capital Management, Inc., Arlington Asset Investment Corp., ARMOUR Residential REIT, Inc., Cherry Hill Mortgage Investment Corporation and Dynex Capital, Inc.) for the period beginning December 31, 2017, and ending December 31, 2022, assuming the investment of $100 on December 31, 2017 and the reinvestment of dividends.
In addition, our Board of Directors may change our distribution policy in the future. 40 Table of Contents Performance Graph Set forth below is a graph comparing the yearly percentage change in the cumulative total return on our common stock, with the cumulative total return of the S&P 500 Total Return Index, the FTSE NAREIT Mortgage REIT Index and an index of selected issuers in our Agency REIT Peer Group (composed of AGNC Investment Corp., Annaly Capital Management, Inc., ARMOUR Residential REIT, Inc., Cherry Hill Mortgage Investment Corporation and Dynex Capital, Inc.) for the period beginning December 31, 2018, and ending December 31, 2023, assuming the investment of $100 on December 31, 2018 and the reinvestment of dividends.
Unless modified or revoked by the Board, the authorization does not expire. The table below presents the Company's share repurchase activity for the three months ended December 31, 2022.
Unless modified or revoked by the Board, the authorization does not expire. 41 Table of Contents The table below presents the Company's share repurchase activity for the three months ended December 31, 2023.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information and Holders Our common stock trades on the NYSE under the symbol “ORC.” As of March 3, 2023, we had 39,081,942 shares of common stock issued and outstanding which were held by 14 stockholders of record and approximately 60,000 beneficial owners whose shares were held in “street name” by brokers and depository institutions.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information and Holders Our common stock trades on the NYSE under the symbol “ORC.” As of February 23, 2024, we had 51,303,301 shares of common stock issued and outstanding which were held by 13 stockholders of record and approximately 57,500 beneficial owners whose shares were held in “street name” by brokers and depository institutions.
The historical information set forth below is not necessarily indicative of future performance. 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 Orchid Island Capital, Inc. 100.00 79.67 85.13 89.61 89.73 50.14 Agency REIT Peer Group 100.00 93.60 102.42 101.15 104.73 81.92 NAREIT Mortgage REIT TRR Index 100.00 97.48 118.27 96.07 111.09 81.53 S&P 500 Total Return Index 100.00 95.62 125.72 148.85 191.58 156.88 Securities Authorized for Issuance under Equity Compensation Plans Information about securities authorized for issuance under our equity compensation plans required for this Item 5 is incorporated by reference to our definitive Proxy Statement to be filed in connection with our 2023 annual meeting of stockholders.
The historical information set forth below is not necessarily indicative of future performance. 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Orchid Island Capital, Inc. 100.00 106.86 112.47 112.63 62.93 61.01 Agency REIT Peer Group 100.00 102.20 90.93 92.41 73.83 80.55 NAREIT Mortgage REIT TRR Index 100.00 121.33 98.56 113.97 83.64 96.48 S&P 500 Total Return Index 100.00 131.49 155.68 200.37 164.08 207.21 Securities Authorized for Issuance under Equity Compensation Plans Information about securities authorized for issuance under our equity compensation plans required for this Item 5 is incorporated by reference to our definitive Proxy Statement to be filed in connection with our 2024 annual meeting of stockholders.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeTreasury and TBA Current Future Statement Securities Gain (Loss) Period Periods (GAAP) (Short Positions) (Long Positions) (Non-GAAP) (Non-GAAP) Three Months Ended December 31, 2022 $ (10,657 ) $ (9,700 ) $ - $ 11,076 $ (12,033 ) September 30, 2022 184,819 10,642 106 5,043 169,028 June 30, 2022 103,758 1,013 1,067 1,996 99,682 March 31, 2022 177,816 2,539 27 (1,287 ) 176,537 December 31, 2021 10,945 2,568 - (7,949 ) 16,326 September 30, 2021 5,375 (2,306 ) - (1,248 ) 8,929 June 30, 2021 (34,915 ) (5,963 ) - (5,104 ) (23,848 ) March 31, 2021 45,472 9,133 (8,559 ) (4,044 ) 48,942 December 31, 2020 8,538 (436 ) 5,480 (5,790 ) 9,284 September 30, 2020 4,079 131 3,336 (6,900 ) 7,512 June 30, 2020 (8,851 ) 582 1,133 (5,751 ) (4,815 ) March 31, 2020 (82,858 ) (7,090 ) - (4,900 ) (70,868 ) Years Ended December 31, 2022 $ 455,736 $ 4,494 $ 1,200 $ 16,828 $ 433,214 December 31, 2021 26,877 3,432 (8,559 ) (18,345 ) 50,349 December 31, 2020 (79,092 ) (6,813 ) 9,949 (23,341 ) (58,887 ) Economic Interest Expense and Economic Net Interest Income (in thousands) Interest Expense on Borrowings Gains (Losses) on Derivative Instruments Net Interest Income GAAP Attributed Economic GAAP Economic Interest Interest to Current Interest Net Interest Net Interest Income Expense Period(1) Expense(2) Income Income(3) Three Months Ended December 31, 2022 $ 31,897 $ 29,512 $ 11,076 $ 18,436 $ 2,385 $ 13,461 September 30, 2022 35,611 21,361 5,043 16,318 14,250 19,293 June 30, 2022 35,268 8,180 1,996 6,184 27,088 29,084 March 31, 2022 41,857 2,655 (1,287 ) 3,942 39,202 37,915 December 31, 2021 44,421 2,023 (7,949 ) 9,972 42,398 34,449 September 30, 2021 34,169 1,570 (1,248 ) 2,818 32,599 31,351 June 30, 2021 29,254 1,556 (5,104 ) 6,660 27,698 22,594 March 31, 2021 26,856 1,941 (4,044 ) 5,985 24,915 20,871 December 31, 2020 25,893 2,011 (5,790 ) 7,801 23,882 18,092 September 30, 2020 27,223 2,043 (6,900 ) 8,943 25,180 18,280 June 30, 2020 27,258 4,479 (5,751 ) 10,230 22,779 17,028 March 31, 2020 35,671 16,523 (4,900 ) 21,423 19,148 14,248 Years Ended December 31, 2022 $ 144,633 $ 61,708 $ 16,828 $ 44,880 $ 82,925 $ 99,753 December 31, 2021 134,700 7,090 (18,345 ) 25,435 127,610 109,265 December 31, 2020 116,045 25,056 (23,341 ) 48,397 90,989 67,648 (1) Reflects the effect of derivative instrument hedges for only the period presented.
Biggest changeGains (Losses) on Derivative Instruments - Reclassification of Derivative Transaction Expenses (in thousands) Recognized in Income Statement Attributed to Current Period Prior Reclassified Current Prior Reclassified Current Presentation Expenses Presentation Presentation Expenses Presentation Three Months Ended December 31, 2022 $ (10,657 ) $ 1,662 $ (12,319 ) $ 11,076 $ 1,662 $ 9,414 September 30, 2022 184,819 889 183,930 5,043 889 4,154 June 30, 2022 103,758 391 103,367 1,996 391 1,605 March 31, 2022 177,816 318 177,498 (1,287 ) 318 (1,605 ) December 31, 2021 10,945 112 10,833 (7,949 ) 112 (8,061 ) September 30, 2021 5,375 70 5,305 (1,248 ) 70 (1,318 ) June 30, 2021 (34,915 ) 82 (34,997 ) (5,104 ) 82 (5,186 ) March 31, 2021 45,472 121 45,351 (4,044 ) 121 (4,165 ) Economic Interest Expense and Economic Net Interest Income (in thousands) Interest Expense on Borrowings Gains (Losses) on Derivative Instruments Net Interest Income GAAP Attributed Economic GAAP Economic Interest Interest to Current Interest Net Interest Net Interest Income Expense Period (1) Expense (2) Income Income (3) Three Months Ended December 31, 2023 $ 49,539 $ 52,325 $ 25,161 $ 27,164 $ (2,786 ) $ 22,375 September 30, 2023 50,107 58,705 24,440 34,265 (8,598 ) 15,842 June 30, 2023 39,911 48,671 23,482 25,189 (8,760 ) 14,722 March 31, 2023 38,012 42,217 19,211 23,006 (4,205 ) 15,006 December 31, 2022 31,897 29,512 9,414 20,098 2,385 11,799 September 30, 2022 35,611 21,361 4,154 17,207 14,250 18,404 June 30, 2022 35,268 8,180 1,605 6,575 27,088 28,693 March 31, 2022 41,857 2,655 (1,605 ) 4,260 39,202 37,597 December 31, 2021 44,421 2,023 (8,061 ) 10,084 42,398 34,337 September 30, 2021 34,169 1,570 (1,318 ) 2,888 32,599 31,281 June 30, 2021 29,254 1,556 (5,186 ) 6,742 27,698 22,512 March 31, 2021 26,856 1,941 (4,165 ) 6,106 24,915 20,750 Years Ended December 31, 2023 $ 177,569 $ 201,918 $ 92,294 $ 109,624 $ (24,349 ) $ 67,945 December 31, 2022 144,633 61,708 13,568 48,140 82,925 96,493 December 31, 2021 134,700 7,090 (18,730 ) 25,820 127,610 108,880 (1) Reflects the effect of derivative instrument hedges for only the period presented.
Morgan a 30-day option to purchase up to an additional 228,000 shares of our common stock on the same terms and conditions, which J.P. Morgan exercised in full on January 21, 2021.
Morgan a 30-day option to purchase up to an additional 228,000 shares of our common stock on the same terms and conditions, which J.P. Morgan exercised in full on January 21, 2021.
The closing of the offering of 1,840.000 shares of our common stock occurred on March 5, 2021, with proceeds to us of approximately $50.0 million, net of offering expenses.
The closing of the offering of 1,840.000 shares of our common stock occurred on March 5, 2021, with proceeds to us of approximately $50.0 million, net of offering expenses.
We issued a total of 9,881,467 shares under the June 2021 Equity Distribution Agreement for aggregate gross proceeds of approximately $250.0 million, and net proceeds of approximately $246.2 million, after commissions and fees, prior to its termination in October 2021.
We issued a total of 9,881,467 shares under the June 2021 Equity Distribution Agreement for aggregate gross proceeds of approximately $250.0 million, and net proceeds of approximately $246.2 million, after commissions and fees, prior to its termination in October 2021.
These letter agreements provide, in part, (i) there will be no exit from conservatorship until all material litigation is settled and the Enterprise has common equity Tier 1 capital of at least 3% of its assets, (ii) the Enterprises will comply with the FHFA’s regulatory capital framework, (iii) higher-risk single-family mortgage acquisitions will be restricted to current levels, and (iv) the U.S.
These letter agreements provide, in part, (i) there will be no exit from conservatorship until all material litigation is settled and the Enterprise has common equity Tier 1 capital of at least 3% of its assets, (ii) the Enterprises will comply with the FHFA’s regulatory capital framework, (iii) higher-risk single-family mortgage acquisitions will be restricted to then current levels, and (iv) the U.S.
Treasury securities, interest rate swaps and swaptions, to hedge a portion of the interest rate risk on repurchase agreements in a rising rate environment. We have not elected to designate our derivative holdings for hedge accounting treatment.
Treasury securities, interest rate caps, interest rate swaps and swaptions, to hedge a portion of the interest rate risk on repurchase agreements in a rising rate environment. We have not elected to designate our derivative holdings for hedge accounting treatment.
Increases in the Fed Funds rate, SOFR or LIBOR 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.
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.
We acquire our Agency RMBS for the purpose of generating long-term returns, and not for the short-term investment of idle capital. As discussed in Note 12 to the financial statements, our Agency RMBS are valued using Level 2 valuations, and such valuations currently are determined by our manager based on independent pricing sources and/or third party broker quotes, when available.
We acquire our Agency RMBS for the purpose of generating long-term returns, and not for the short-term investment of idle capital. As discussed in Note 13 to the financial statements, our Agency RMBS are valued using Level 2 valuations, and such valuations currently are determined by our manager based on independent pricing sources and/or third party broker quotes, when available.
(See Note 4 to our Financial Statements in this Form 10-K for additional details on of our TBAs). Under certain market conditions, it may be uneconomical for us to roll our TBAs into future months and we may need to take or make physical delivery of the underlying securities.
(See Note 5 to our Financial Statements in this Form 10-K for additional details on of our TBAs). Under certain market conditions, it may be uneconomical for us to roll our TBAs into future months and we may need to take or make physical delivery of the underlying securities.
The tables below provide information on our portfolio average balances, interest income, yield on assets, average borrowings, interest expense, cost of funds, net interest income and net interest spread for each quarter in 2022, 2021 and 2020 and for the years ended December 31, 2022, 2021 and 2020 on both a GAAP and economic basis.
The tables below provide information on our portfolio average balances, interest income, yield on assets, average borrowings, interest expense, cost of funds, net interest income and net interest spread for each quarter in 2023, 2022 and 2021 and for the years ended December 31, 2023, 2022 and 2021 on both a GAAP and economic basis.
Throughout the year ended December 31, 2022, haircuts on our pledged collateral remained stable and as of December 31, 2022, our weighted average haircut was approximately 4.5% of the value of our collateral. TBAs represent a form of off-balance sheet financing and are accounted for as derivative instruments.
Throughout the year ended December 31, 2023, haircuts on our pledged collateral remained stable and as of December 31, 2023, our weighted average haircut was approximately 4.5% of the value of our collateral. TBAs represent a form of off-balance sheet financing and are accounted for as derivative instruments.
Average balances for quarterly periods are calculated using two data points, the beginning and ending balances. (2) Economic interest expense and economic net interest income presented in the table above and the tables on page 51 includes the effect of our derivative instrument hedges for only the periods presented.
Average balances for quarterly periods are calculated using two data points, the beginning and ending balances. (2) Economic interest expense and economic net interest income presented in the table above and the tables on page 52 includes the effect of our derivative instrument hedges for only the periods presented.
As described above, the Agency RMBS market began to experience severe dislocations in mid-March 2020 as a result of the economic, health and market turmoil brought about by COVID-19. On March 23, 2020, the Fed announced that it would purchase Agency RMBS and U.S.
The Agency RMBS market began to experience severe dislocations in mid-March 2020 as a result of the economic, health and market turmoil brought about by COVID-19. On March 23, 2020, the Fed announced that it would purchase Agency RMBS and U.S.
The principal instruments that we have used to date are Fed Funds, T-Note and Eurodollar futures contracts, interest rate swaps, interest rate swaptions and TBA securities, but we may enter into other derivatives in the future. We account for TBA securities as derivative instruments.
The principal instruments that we have used to date are Fed Funds, SOFR, T-Note and Eurodollar futures contracts, interest rate swaps, interest rate swaptions, interest rate caps and TBA securities, but we may enter into other derivatives in the future. We account for TBA securities as derivative instruments.
The table below presents a reconciliation of our net income (loss) determined in accordance with GAAP and net earnings excluding realized and unrealized gains and losses. Described below are the Company's results of operations for the years ended December 31, 2022, 2021 and 2020.
The table below presents a reconciliation of our net income (loss) determined in accordance with GAAP and net earnings excluding realized and unrealized gains and losses. Described below are the Company's results of operations for the years ended December 31, 2023, 2022 and 2021.
On August 4, 2020, we entered into an equity distribution agreement (the “August 2020 Equity Distribution Agreement”) with four sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $150,000,000 of shares of our common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions.
Capital Raising Activities On August 4, 2020, we entered into an equity distribution agreement (the “August 2020 Equity Distribution Agreement”) with four sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $150,000,000 of shares of our common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions.
We issued a total of 5,498,730 shares under the August 2020 Equity Distribution Agreement for aggregate gross proceeds of approximately $150.0 million, and net proceeds of approximately $147.4 million, after commissions and fees, prior to its termination in June 2021. 42 On January 20, 2021, we entered into an underwriting agreement (the “January 2021 Underwriting Agreement”) with J.P.
We issued a total of 5,498,730 shares under the August 2020 Equity Distribution Agreement for aggregate gross proceeds of approximately $150.0 million, and net proceeds of approximately $147.4 million, after commissions and fees, prior to its termination in June 2021. 43 Table of Contents On January 20, 2021, we entered into an underwriting agreement (the “January 2021 Underwriting Agreement”) with J.P.
Coupled with the 156,751 shares remaining from the original 400,000 share authorization, the increased authorization brought the total authorization to 1,061,316 shares, representing 10% of the then outstanding share count.
Coupled with the 156,751 shares remaining from the original 400,000 share authorization, the increased authorization brought the total authorization to 1,061,315 shares, representing 10% of the then outstanding share count.
Treasury; ● prepayment rates on mortgages underlying our Agency RMBS and credit trends insofar as they affect prepayment rates; and ● other market developments. In addition, a variety of factors relating to our business may also impact our results of operations and financial condition.
Treasury; ● prepayment rates on mortgages underlying our Agency RMBS and credit trends insofar as they affect prepayment rates; and ● other market developments, including bank failures. In addition, a variety of factors relating to our business may also impact our results of operations and financial condition.
On October 29, 2021, we entered into an equity distribution agreement (the “October 2021 Equity Distribution Agreement”) with four sales agents pursuant to which we may offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that are deemed to be “at the market” offerings and privately negotiated transactions.
On October 29, 2021, we entered into an equity distribution agreement (the “October 2021 Equity Distribution Agreement”) with four sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions.
Realized and unrealized gains and losses on RMBS are driven in part by changes in yields and interest rates, the spreads that Agency RMBS trade relative to comparable duration U.S. Treasuries or swaps, as well as varying levels of demand for RMBS, which affect the pricing of the securities in our portfolio.
Treasury securities. 53 Table of Contents Realized and unrealized gains and losses on RMBS are driven in part by changes in yields and interest rates, the spreads that Agency RMBS trade relative to comparable duration U.S. Treasuries or swaps, as well as varying levels of demand for RMBS, which affect the pricing of the securities in our portfolio.
Securities held under the fair value option are recorded at estimated fair value, with changes in the fair value recorded as unrealized gains or losses through the statements of operations. In addition, we have not designated our derivative financial instruments used for hedging purposes as hedges for accounting purposes, but rather hold them for economic hedging purposes.
Securities held under the fair value option are recorded at estimated fair value, with changes in the fair value recorded as unrealized gains or losses through the statements of comprehensive income (loss). In addition, we have not designated our derivative financial instruments used for hedging purposes as hedges for accounting purposes, but rather hold them for economic hedging purposes.
On September 30, 2019, the FHFA announced that the Enterprises were allowed to increase their capital buffers to $25 billion and $20 billion, respectively, from the prior limit of $3 billion each. This step could ultimately lead to the Enterprises being privatized and represents the first concrete step on the road to Enterprise reform.
On September 30, 2019, the FHFA announced that Fannie Mae and Freddie Mac were allowed to increase their capital buffers to $25 billion and $20 billion, respectively, from the prior limit of $3 billion each. This step could ultimately lead to the Enterprises being privatized and represents the first concrete step on the road to Enterprise reform.
However, our material unused sources of liquidity include cash balances, unencumbered assets and our ability to sell encumbered assets to raise cash. Our balance sheet also generates liquidity on an on-going basis through payments of principal and interest we receive on our RMBS portfolio.
We have both internal and external sources of liquidity. However, our material unused sources of liquidity include cash balances, unencumbered assets and our ability to sell encumbered assets to raise cash. Our balance sheet also generates liquidity on an on-going basis through payments of principal and interest we receive on our RMBS portfolio.
Changes in fair value of these instruments are presented in a separate line item in the Company’s statements of operations and are not included in interest expense. As such, for financial reporting purposes, interest expense and cost of funds are not impacted by the fluctuation in value of the derivative instruments.
Changes in fair value of these instruments are presented in a separate line item in the Company’s statements of comprehensive income (loss) and are not included in interest expense. As such, for financial reporting purposes, interest expense and cost of funds are not impacted by the fluctuation in value of the derivative instruments.
Changes in fair value of these instruments are presented in a separate line item in our 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.
Changes in fair value of these instruments are presented in a separate line item in our statements of comprehensive income (loss) and not included in interest expense. As such, for financial reporting purposes, interest expense and cost of funds are not impacted by the fluctuation in value of the derivative instruments.
Gains and losses on interest rate futures contracts are affected by changes in implied forward rates during the reporting period. The table below presents historical interest rate data for each quarter end during 2022, 2021 and 2020. 5 Year 10 Year 15 Year 30 Year 90 Day U.S. Treasury U.S.
Gains and losses on interest rate futures contracts are affected by changes in implied forward rates during the reporting period. The table below presents historical interest rate data for each quarter end during 2023, 2022 and 2021. 5 Year 10 Year 15 Year 30 Year U.S.
For the year ended December 31, 2022 as compared to the year ended December 31, 2021, there was a $9.9 million increase in interest income due to a 72 bps increase in the yield on average RMBS, offset by a $745.5 million decrease in average RMBS.
The $9.9 million increase in interest income for the year ended December 31, 2022, compared to the year ended December 31, 2021, was due to a 72 bps increase in yield on average RMBS, that was partially offset by a $745.5 million decrease in average RMBS.
On October 29, 2021, we entered into the October 2021 Equity Distribution Agreement with four sales agents pursuant to which we may offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that are deemed to be “at the market” offerings and privately negotiated transactions.
On October 29, 2021, we entered into an equity distribution agreement (the “October 2021 Equity Distribution Agreement”) with four sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions.
Effective duration quotes for individual investments are obtained from The Yield Book, Inc. The following table presents a summary of portfolio assets acquired during the years ended December 31, 2022 and 2021.
Effective duration quotes for individual investments are obtained from The Yield Book, Inc. 57 Table of Contents The following table presents a summary of portfolio assets acquired during the years ended December 31, 2023 and 2022.
Gains and losses associated with TBA securities transactions are reported in gain (loss) on derivative instruments in the accompanying statements of operations. We have elected not to treat any of our derivative financial instruments as hedges in order to align the accounting treatment of its derivative instruments with the treatment of our portfolio assets under the fair value option election.
Gains and losses associated with TBA securities transactions are reported in gain (loss) on derivative instruments in the accompanying statements of comprehensive income (loss). 66 Table of Contents We have elected not to treat any of our derivative financial instruments as hedges in order to align the accounting treatment of its derivative instruments with the treatment of our portfolio assets under the fair value option election.
The $54.6 million increase in interest expense for the year ended December 31, 2022 was driven by a 138 bps increase in the average cost of funds, offset by a $665.5 million decrease in average borrowings.
The $54.6 million increase in interest expense for the year ended December 31, 2022 was due to a 138 bps increase in the average cost of funds, partially offset by a $665.5 million decrease in average borrowings.
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.
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.
An effective duration of 3.39 indicates that an interest rate increase of 1.0% would be expected to cause a 3.39% decrease in the value of the RMBS in the Company’s investment portfolio at December 31, 2021. These figures include the structured securities in the portfolio, but do not include the effect of the Company’s funding cost hedges.
An effective duration of 5.58 indicates that an interest rate increase of 1.0% would be expected to cause a 5.58% decrease in the value of the RMBS in the Company’s investment portfolio at December 31, 2022. These figures include the structured securities in the portfolio, but do not include the effect of the Company’s funding cost hedges.
The unrealized gains or losses on derivative instruments presented in our statements of operations are not necessarily representative of the total interest rate expense that we will ultimately realize.
The unrealized gains or losses on derivative instruments presented in our statements of comprehensive income (loss) are not necessarily representative of the total interest rate expense that we will ultimately realize.
For the purpose of computing economic net interest income and ratios relating to cost of funds measures, GAAP interest expense has been adjusted to reflect the realized and unrealized gains or losses on certain derivative instruments the Company uses, specifically Eurodollar, Fed Funds and U.S. Treasury futures, and interest rate swaps and swaptions, that pertain to each period presented.
For the purpose of computing economic net interest income and ratios relating to cost of funds measures, GAAP interest expense has been adjusted to reflect the realized and unrealized gains or losses on certain derivative instruments the Company uses, specifically Fed Funds, SOFR and T-Note futures, and interest rate swaps and swaptions, that pertain to each period presented.
We were formed by Bimini in August 2010, commenced operations on November 24, 2010 and completed our initial public offering (“IPO”) on February 20, 2013. We are externally managed by Bimini Advisors, an investment adviser registered with the Securities and Exchange Commission (the “SEC”).
We were formed by Bimini Capital Management, Inc. ("Bimini") in August 2010, commenced operations on November 24, 2010 and completed our initial public offering (“IPO”) on February 20, 2013. We are externally managed by Bimini Advisors, LLC ("Bimini Advisors," or our "Manager"), an investment adviser registered with the Securities and Exchange Commission (the “SEC”).
This 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.
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.
On June 14, 2022, the Enterprises announced that they would each charge a 50 bps fee for commingled securities issued on or after July 1, 2022 to cover the additional capital required for such securities under the Enterprise capital framework, which was subsequently reduced on January 19, 2023 to 9.375 bps for commingled securities issued on or after April 1, 2023 to address industry concern that the fee posed a risk to the fungibility of the Uniform Mortgage-Backed Security (“UMBS”) and negatively impacted liquidity and pricing in the market for TBA securities. 60 In 2017, policymakers announced that LIBOR will be replaced by December 31, 2021.
On June 14, 2022, the Enterprises announced that they would each charge a 50 bps fee for commingled securities issued on or after July 1, 2022 to cover the additional capital required for such securities under the Enterprise capital framework, which was subsequently reduced on January 19, 2023 to 9.375 bps for commingled securities issued on or after April 1, 2023 to address industry concern that the fee posed a risk to the fungibility of the Uniform Mortgage-Backed Security (“UMBS”) and negatively impacted liquidity and pricing in the market for TBA securities.
(2) Calculated by adding the effect of derivative instrument hedges attributed to the period presented to GAAP interest expense.
(2) Calculated by adding the effect of derivative instrument hedges attributed to the period presented to GAAP interest expense. (3) Calculated by adding the effect of derivative instrument hedges attributed to the period presented to GAAP net interest income.
Our most critical accounting policies involve decisions and assessments which could significantly affect reported assets, liabilities, revenues and expenses. Management has identified its most critical accounting estimates: Mortgage-Backed Securities Our investments in Agency RMBS are accounted for at fair value.
GAAP requires our management to make some complex and subjective decisions and assessments. Our most critical accounting policies involve decisions and assessments which could significantly affect reported assets, liabilities, revenues and expenses. Management has identified its most critical accounting estimates: Mortgage-Backed Securities Our investments in Agency RMBS are accounted for at fair value.
As described more fully below, we may also access liquidity by selling our equity or debt securities in public offerings or private placements. 57 Stockholders ’ Equity On January 23, 2020, we entered into the January 2020 Equity Distribution Agreement with three sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $200,000,000 of shares of our common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions.
As described more fully below, we may also access liquidity by selling our equity or debt securities in public offerings or private placements. 60 Table of Contents Stockholders ’ Equity On August 4, 2020, we entered into the August 2020 Equity Distribution Agreement with four sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $150,000,000 of shares of our common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions.
Our average cost of funds was 1.53% for the year ended December 31, 2022, compared to 0.15% for the comparable period in 2021. There was a $665.5 million decrease in average outstanding borrowings during the year ended December 31, 2022 as compared to the year ended December 31, 2021.
Our average cost of funds was 5.07% for the year ended December 31, 2023, compared to 1.53% for the comparable period in 2022. There was a $57.0 million decrease in average outstanding borrowings during the year ended December 31, 2023 as compared to the year ended December 31, 2022.
In future periods, we expect to continue to finance our activities in a manner that is consistent with our current operations through repurchase agreements. As of December 31, 2022, we had cash and cash equivalents of $205.7 million.
In future periods, we expect to continue to finance our activities in a manner that is consistent with our current operations through repurchase agreements. As of December 31, 2023, we had cash and cash equivalents of $171.9 million.
An effective duration of 5.58 indicates that an interest rate increase of 1.0% would be expected to cause a 5.58% decrease in the value of the RMBS in the Company’s investment portfolio at December 31, 2022.
An effective duration of 4.40 indicates that an interest rate increase of 1.0% would be expected to cause a 4.40% decrease in the value of the RMBS in the Company’s investment portfolio at December 31, 2023.
The tables below present a reconciliation of the adjustments to interest expense shown for each period relative to our derivative instruments, and the income statement line item, gains (losses) on derivative instruments, calculated in accordance with GAAP for the years ended December 31, 2022, 2021 and 2020 and each quarter during 2022, 2021 and 2020. 46 Gains (Losses) on Derivative Instruments (in thousands) Economic Hedges Recognized in Attributed to Attributed to Income U.S.
The tables below present a reconciliation of the adjustments to interest expense shown for each period relative to our derivative instruments, and the income statement line item, gains (losses) on derivative instruments, calculated in accordance with GAAP for the years ended December 31, 2023, 2022 and 2021 and each quarter during 2023, 2022 and 2021.
We believe that this strategy will enhance our liquidity, earnings, book value stability and asset selection opportunities in various interest rate environments. We operate so as to qualify to be taxed as a REIT under the Code.
We believe that this strategy will enhance our liquidity, earnings, book value stability and asset selection opportunities in various interest rate environments. We operate so as to qualify to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code").
Treasury Rates are obtained from quoted end of day prices on the Chicago Board Options Exchange. (2) Historical 30 Year and 15 Year Fixed Rate Mortgage Rates are obtained from Freddie Mac’s Primary Mortgage Market Survey.
Treasury Rates are obtained from quoted end of day prices on the Chicago Board Options Exchange. (2) Historical 30 Year and 15 Year Fixed Rate Mortgage Rates are obtained from Freddie Mac’s Primary Mortgage Market Survey. (3) Historical SOFR is obtained from the Federal Reserve Bank of New York.
There was a 97 bps decrease in the average economic cost of funds to 0.54% for the year ended December 31, 2021 from 1.51% for the year ended December 31, 2020. Since all of our repurchase agreements are short-term, changes in market rates directly affect our interest expense.
There was a 64 bps increase in the average economic cost of funds to 1.19% for the year ended December 31, 2022 from 0.55% for the year ended December 31, 2021. Since all of our repurchase agreements are short-term, changes in market rates directly affect our interest expense.
(in thousands, except per share amounts) Year Per Share Amount Total 2013 $ 6.975 $ 4,662 2014 10.800 22,643 2015 9.600 38,748 2016 8.400 41,388 2017 8.400 70,717 2018 5.350 55,814 2019 4.800 54,421 2020 3.950 53,570 2021 3.900 97,601 2022 2.475 87,906 2023 YTD (1) 0.320 12,540 Totals $ 64.970 $ 540,010 (1) On January 11, 2023, the Company declared a dividend of $0.16 per share that was paid on February 24, 2023.
(in thousands, except per share amounts) Year Per Share Amount Total 2013 $ 6.975 $ 4,662 2014 10.800 22,643 2015 9.600 38,748 2016 8.400 41,388 2017 8.400 70,717 2018 5.350 55,814 2019 4.800 54,421 2020 3.950 53,570 2021 3.900 97,601 2022 2.475 87,906 2023 1.800 81,127 2024 YTD (1) 0.240 12,362 Totals $ 66.690 $ 620,959 (1) On January 10, 2024, the Company declared a dividend of $0.12 per share to be paid on February 27, 2024.
There was a 63 bps decrease in the average cost of funds and an $1,510.5 million increase in average outstanding borrowings during the year ended December 31, 2021 as compared to the year ended December 31, 2020. Our economic interest expense was $44.9 million, $25.4 million and $48.4 million for the years ended December 31, 2022, 2021 and 2020, respectively.
There was a 138 bps increase in the average cost of funds and an $665.5 million decrease in average outstanding borrowings during the year ended December 31, 2022 as compared to the year ended December 31, 2021. Our economic interest expense was $109.6 million, $48.1 million and $25.8 million for the years ended December 31, 2023, 2022 and 2021, respectively.
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.
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.
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.
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 the balance sheet by a maximum of $60 billion of U.S.
On February 15, 2023, the Company declared a dividend of $0.16 per share to be paid on March 29, 2023. The effects of these dividends are included in the table above but are not reflected in the Company’s financial statements as of December 31, 2022. 65
On February 14, 2024, the Company declared a dividend of $0.12 per share to be paid on March 26, 2024. The effects of these dividends are included in the table above but are not reflected in the Company’s financial statements as of December 31, 2023. 67 Table of Contents
Treasuries in the amounts needed to support smooth market functioning, which largely stabilized the Agency RMBS market, but ended these purchases in March 2022 and announced plans to reduce its balance sheet. The Fed’s planned reduction of its balance sheet could negatively impact our investment portfolio.
Treasuries in the amounts needed to support smooth market functioning, which largely stabilized the Agency RMBS market, but ended these purchases in March 2022 and announced plans to reduce its balance sheet.
For the comparable period ended December 31, 2021, we generated $127.6 million of net interest income, consisting of $134.7 million of interest income from RMBS assets offset by $7.1 million of interest expense on borrowings.
For the comparable period ended December 31, 2022, we generated $82.9 million of net interest income, consisting of $144.6 million of interest income from RMBS assets offset by $61.7 million of interest expense on borrowings.
The $9.9 million increase in interest income was driven by a 72 basis points ("bps") increase in yield on average RMBS that was partially offset by a $745.5 million decrease in average RMBS.
The $32.9 million increase in interest income was driven by an 83 basis points ("bps") increase in yield on average RMBS that was partially offset by a $34.3 million decrease in average RMBS.
Treasury Fixed-Rate Fixed-Rate Average Rate(1) Rate(1) Mortgage Rate(2) Mortgage Rate(2) SOFR(3) December 31, 2022 4.00 % 3.88 % 5.68 % 6.42 % 3.62 % September 30, 2022 4.04 % 3.80 % 5.96 % 6.70 % 2.13 % June 30, 2022 3.00 % 2.97 % 4.83 % 5.70 % 0.70 % March 31, 2022 2.42 % 2.33 % 3.83 % 4.67 % 0.09 % December 31, 2021 1.26 % 1.51 % 2.33 % 3.11 % 0.05 % September 30, 2021 1.00 % 1.53 % 2.28 % 3.01 % 0.05 % June 30, 2021 0.87 % 1.44 % 2.34 % 3.02 % 0.02 % March 31, 2021 0.94 % 1.75 % 2.45 % 3.17 % 0.04 % December 31, 2020 0.36 % 0.92 % 2.17 % 2.67 % 0.09 % September 30, 2020 0.27 % 0.68 % 2.40 % 2.90 % 0.09 % June 30, 2020 0.29 % 0.65 % 2.59 % 3.13 % 0.05 % March 31, 2020 0.38 % 0.70 % 2.92 % 3.50 % 1.26 % (1) Historical 5 and 10 Year U.S.
U.S Fixed-Rate Fixed-Rate 90 Day Treasury Treasury Mortgage Mortgage Average Rate (1) Rate (1) Rate (2) Rate (2) SOFR (3) December 31, 2023 3.84 % 3.87 % 5.93 % 6.61 % 5.36 % September 30, 2023 4.61 % 4.57 % 6.72 % 7.31 % 5.27 % June 30, 2023 4.13 % 3.82 % 6.06 % 6.71 % 5.00 % March 31, 2023 3.61 % 3.49 % 5.56 % 6.32 % 4.51 % December 31, 2022 4.00 % 3.88 % 5.68 % 6.42 % 3.62 % September 30, 2022 4.04 % 3.80 % 5.96 % 6.70 % 2.13 % June 30, 2022 3.00 % 2.97 % 4.83 % 5.70 % 0.70 % March 31, 2022 2.42 % 2.33 % 3.83 % 4.67 % 0.09 % December 31, 2021 1.26 % 1.51 % 2.33 % 3.11 % 0.05 % September 30, 2021 1.00 % 1.53 % 2.28 % 3.01 % 0.05 % June 30, 2021 0.87 % 1.44 % 2.34 % 3.02 % 0.02 % March 31, 2021 0.94 % 1.75 % 2.45 % 3.17 % 0.04 % (1) Historical 5 and 10 Year U.S.
The average term to maturity of the outstanding repurchase agreements was 27 days and 27 days at December 31, 2022 and 2021, respectively. 50 The tables below present the average balance of borrowings outstanding, interest expense and average cost of funds, and one-month average and six-month average SOFR rates for each quarter in 2022, 2021 and 2020 and for the years ended December 31, 2022, 2021 and 2020 on both a GAAP and economic basis.
The tables below present the average balance of borrowings outstanding, interest expense and average cost of funds, and one-month average and six-month average SOFR rates for each quarter in 2023, 2022 and 2021 and for the years ended December 31, 2023, 2022 and 2021 on both a GAAP and economic basis.
Our average cost of funds calculated on a GAAP basis was 41 bps below one-month average SOFR and 33 bps above six-month average SOFR for the year ended December 31, 2022. Our average economic cost of funds was 83 bps below one-month average SOFR and 9 bps below six-month average SOFR for the year ended December 31, 2022.
Our average cost of funds calculated on a GAAP basis was 2 bps below one-month average SOFR and 22 bps above six-month average SOFR for the year ended December 31, 2023. Our average economic cost of funds was 234 bps below one-month average SOFR and 210 bps below six-month average SOFR for the year ended December 31, 2023.
As of December 31, 2022, we had obligations outstanding under the repurchase agreements of approximately $3,378.4 million with a net weighted average borrowing cost of 4.44%. The remaining maturity of our outstanding repurchase agreement obligations ranged from 3 to 173 days, with a weighted average remaining maturity of 27 days.
As of December 31, 2023, we had obligations outstanding under the repurchase agreements of approximately $3,705.6 million with a net weighted average borrowing cost of 5.55%. The remaining maturity of our outstanding repurchase agreement obligations ranged from 4 to 113 days, with a weighted average remaining maturity of 26 days.
When the market causes these short positions to decline in value we are required to meet margin calls with cash. This can reduce our liquidity position to the extent other securities in our portfolio move in price in such a way that we do not receive enough cash via margin calls to offset the derivative related margin calls.
This can reduce our liquidity position to the extent other securities in our portfolio move in price in such a way that we do not receive enough cash via margin calls to offset the derivative related margin calls.
Results of Operations Described below are the Company’s results of operations for the years ended December 31, 2022, as compared to the Company’s results of operations for the years ended December 31, 2021 and 2020. Net (Loss) Income Summary Net loss for the year ended December 31, 2022 was $258.5 million, or $6.90 per share.
Results of Operations Described below are the Company’s results of operations for the year ended December 31, 2023, as compared to the Company’s results of operations for the years ended December 31, 2022 and 2021. Net Loss Summary Net loss for the year ended December 31, 2023 was $39.2 million, or $0.89 per share.
Our investment strategy focuses on, and our portfolio consists of, two categories of Agency RMBS: (i) traditional pass-through Agency RMBS, such as mortgage pass-through certificates issued by the GSEs and collateralized mortgage obligations (“CMOs”) issued by the GSEs (“PT RMBS”) and (ii) structured Agency RMBS, such as interest-only securities (“IOs”), inverse interest-only securities (“IIOs”) and principal only securities (“POs”), among other types of structured Agency RMBS.
Our investment strategy focuses on, and our portfolio consists of, two categories of Agency RMBS: (i) traditional pass-through Agency RMBS, such as mortgage pass-through certificates issued by the Federal National Mortgage Association ("Fannie Mae"), the Federal Home Loan Mortgage Corporation ("Freddie Mac" and together with Fannie Mae, the "Enterprises") or the Government National Mortgage Association ("Ginnie Mae" and, together with the Enterprises the “GSEs”) and collateralized mortgage obligations (“CMOs”) issued by the GSEs (“PT RMBS”) and (ii) structured Agency RMBS, such as interest-only securities (“IOs”), inverse interest-only securities (“IIOs”) and principal only securities (“POs”), among other types of structured Agency RMBS.
(in thousands) 2022 2021 2020 Realized losses on sales of RMBS $ (133,695 ) $ (5,542 ) $ (24,986 ) Unrealized (losses) gains on RMBS and U.S. Treasury Notes (642,710 ) (198,454 ) 25,761 Total (losses) gains on RMBS and U.S.
(in thousands) 2023 2022 2021 Realized losses on sales of RMBS $ (22,642 ) $ (133,695 ) $ (5,542 ) Unrealized losses on RMBS and U.S. Treasury Notes (18,941 ) (642,710 ) (198,454 ) Total losses on RMBS and U.S.
On August 4, 2020, we entered into the August 2020 Equity Distribution Agreement with four sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $150,000,000 of shares of our common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions.
On March 7, 2023, we entered into an equity distribution agreement (the “March 2023 Equity Distribution Agreement”) with three sales agents pursuant to which we may offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that are deemed to be “at the market” offerings and privately negotiated transactions.
Capital Raising Activities On January 23, 2020, we entered into an equity distribution agreement (the “January 2020 Equity Distribution Agreement”) with three sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $200,000,000 of shares of our common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions.
On March 7, 2023, we entered into an equity distribution agreement (the “March 2023 Equity Distribution Agreement”) with three sales agents pursuant to which we may offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that are deemed to be “at the market” offerings and privately negotiated transactions.
These factors include: ● interest rate trends; ● increases in our cost of funds resulting from increases in the Federal Funds rate that are controlled by the Fed that occurred in 2022 and are likely to occur in 2023; ● the difference between Agency RMBS yields and our funding and hedging costs; ● competition for, and supply of, investments in Agency RMBS; ● actions taken by the U.S. government, including the presidential administration, the Fed, the FHFA, the FHA, the FOMC and the U.S.
These factors include: ● interest rate trends; ● increases in our cost of funds resulting from increases in the Federal Funds rate that are controlled by the Federal Reserve (the "Fed") that occurred in 2022 and 2023; ● the difference between Agency RMBS yields and our funding and hedging costs; ● competition for, and supply of, investments in Agency RMBS; ● actions taken by the U.S. government, including the presidential administration, the Fed, the Federal Housing Financing Agency (the “FHFA”), the Federal Deposit Insurance Corporation (the "FDIC"), the Federal Housing Administration (the “FHA”), the Federal Open Market Committee (the “FOMC”) and the U.S.
During the years ended December 31, 2022, 2021 and 2020, the Company received proceeds of $2,759.9 million $2,851.7 million, and $4,200.5 million, respectively, from the sales of RMBS.
During the years ended December 31, 2023, 2022 and 2021, the Company received proceeds of $835.1 million, $2,759.9 million, and $2,851.7 million, respectively, from the sales and maturities of RMBS and U.S.
During the year ended December 31, 2022, the Company repurchased a total of 2,538,470 shares of its common stock at an aggregate cost of approximately $24.5 million, including commissions and fees, for a weighted average price of $9.63 per share.
During the year ended December 31, 2023, the Company repurchased a total of 1,072,789 shares of its common stock at an aggregate cost of approximately $9.4 million, including commissions and fees, for a weighted average price of $8.79 per share.
We generated cash flows of $589.9 million from principal and interest payments on our RMBS and had average repurchase agreements outstanding of $4,042.1 million during the year ended December 31, 2022.
We generated cash flows of $490.0 million from principal and interest payments on our RMBS and had average repurchase agreements outstanding of $3,985.0 million during the year ended December 31, 2023.
This stock repurchase program has no termination date. From the inception of the stock repurchase program through December 31, 2022, the Company repurchased a total of 3,675,572 shares at an aggregate cost of approximately $64.8 million, including commissions and fees, for a weighted average price of $17.63 per share.
This stock repurchase program has no termination date. 44 Table of Contents From the inception of the stock repurchase program through December 31, 2023, the Company repurchased a total of 4,748,361 shares at an aggregate cost of approximately $74.2 million, including commissions and fees, for a weighted average price of $15.63 per share.
Structured PT RMBS RMBS Total Three Months Ended Portfolio (%) Portfolio (%) Portfolio (%) December 31, 2022 4.9 6.0 5.0 September 30, 2022 6.1 10.4 6.5 June 30, 2022 8.3 13.7 9.4 March 31, 2022 8.1 19.5 10.7 December 31, 2021 9.0 24.6 11.4 September 30, 2021 9.8 25.1 12.4 June 30, 2021 10.9 29.9 12.9 March 31, 2021 9.9 40.3 12.0 54 The following tables summarize certain characteristics of the Company’s PT RMBS and structured RMBS as of December 31, 2022 and 2021: ($ in thousands) Weighted Percentage Average of Weighted Maturity Fair Entire Average in Longest Asset Category Value Portfolio Coupon Months Maturity December 31, 2022 Fixed Rate RMBS $ 3,519,906 99.4 % 3.47 % 339 1-Nov-52 Interest-Only Securities 19,669 0.6 % 4.01 % 234 25-Jul-48 Inverse Interest-Only Securities 427 0.0 % 0.00 % 286 15-Jun-42 Total Mortgage Assets $ 3,540,002 100.0 % 3.46 % 336 1-Nov-52 December 31, 2021 Fixed Rate RMBS $ 6,298,189 96.7 % 2.93 % 342 1-Dec-51 Interest-Only Securities 210,382 3.2 % 3.40 % 263 25-Jan-52 Inverse Interest-Only Securities 2,524 0.1 % 3.75 % 300 15-Jun-42 Total Mortgage Assets $ 6,511,095 100.0 % 3.03 % 325 25-Jan-52 ($ in thousands) December 31, 2022 December 31, 2021 Percentage of Percentage of Agency Fair Value Entire Portfolio Fair Value Entire Portfolio Fannie Mae $ 2,320,960 65.6 % $ 4,719,349 72.5 % Freddie Mac 1,219,042 34.4 % 1,791,746 27.5 % Total Portfolio $ 3,540,002 100.0 % $ 6,511,095 100.0 % December 31, 2022 December 31, 2021 Weighted Average Pass-through Purchase Price $ 106.41 $ 107.19 Weighted Average Structured Purchase Price $ 18.74 $ 15.21 Weighted Average Pass-through Current Price $ 91.46 $ 105.31 Weighted Average Structured Current Price $ 14.05 $ 14.08 Effective Duration (1) 5.58 3.39 (1) Effective duration is the approximate percentage change in price for a 100 bps change in rates.
Structured PT RMBS RMBS Total Three Months Ended Portfolio (%) Portfolio (%) Portfolio (%) December 31, 2023 5.4 7.9 5.5 September 30, 2023 6.1 5.7 6.0 June 30, 2023 5.6 7.0 5.6 March 31, 2023 3.9 5.7 4.0 December 31, 2022 4.9 6.0 5.0 September 30, 2022 6.1 10.4 6.5 June 30, 2022 8.3 13.7 9.4 March 31, 2022 8.1 19.5 10.7 The following tables summarize certain characteristics of the Company’s PT RMBS and structured RMBS as of December 31, 2023 and 2022: ($ in thousands) Weighted Percentage Average of Weighted Maturity Fair Entire Average in Longest Asset Category Value Portfolio Coupon Months Maturity December 31, 2023 Fixed Rate RMBS $ 3,877,082 99.6 % 4.33 % 334 1-Nov-53 Interest-Only Securities 16,572 0.4 % 4.01 % 223 25-Jul-48 Inverse Interest-Only Securities 358 0.0 % 0.00 % 274 15-Jun-42 Total Mortgage Assets $ 3,894,012 100.0 % 4.30 % 331 1-Nov-53 December 31, 2022 Fixed Rate RMBS $ 3,519,906 99.4 % 3.47 % 339 1-Nov-52 Interest-Only Securities 19,669 0.6 % 4.01 % 234 25-Jul-48 Inverse Interest-Only Securities 427 0.0 % 0.00 % 286 15-Jun-42 Total Mortgage Assets $ 3,540,002 100.0 % 3.46 % 336 1-Nov-52 ($ in thousands) December 31, 2023 December 31, 2022 Percentage of Percentage of Agency Fair Value Entire Portfolio Fair Value Entire Portfolio Fannie Mae $ 2,714,192 69.7 % $ 2,320,960 65.6 % Freddie Mac 1,179,820 30.3 % 1,219,042 34.4 % Total Portfolio $ 3,894,012 100.0 % $ 3,540,002 100.0 % December 31, 2023 December 31, 2022 Weighted Average Pass-through Purchase Price $ 104.10 $ 106.41 Weighted Average Structured Purchase Price $ 18.74 $ 18.74 Weighted Average Pass-through Current Price $ 95.70 $ 91.46 Weighted Average Structured Current Price $ 13.51 $ 14.05 Effective Duration (1) 4.40 5.58 (1) Effective duration is the approximate percentage change in price for a 100 bps change in rates.
There was a 57 bps increase in the average economic cost of funds to 1.11% for the year ended December 31, 2022 from 0.54% for the year ended December 31, 2021.
There was a 156 bps increase in the average economic cost of funds to 2.75% for the year ended December 31, 2023 from 1.19% for the year ended December 31, 2022.
For the year ended December 31, 2020, we had average borrowings of $3,197.0 million and total interest expense of $25.1 million, resulting in an average cost of funds of 0.78%.
For the year ended December 31, 2021, we had average borrowings of $4,707.5 million and total interest expense of $7.1 million, resulting in an average cost of funds of 0.15%.
On an economic basis, our interest expense on borrowings for the years ended December 31, 2022, 2021 and 2020 was $44.9 million, $25.4 million and $48.4 million, respectively, resulting in $99.8 million, $109.3 million and $67.7 million of economic net interest income, respectively.
On an economic basis, our interest expense on borrowings for the years ended December 31, 2023, 2022 and 2021 was $109.6 million, $48.1 million and $25.8 million, respectively, resulting in $68.0 million, $96.5 million and $108.9 million of economic net interest income, respectively.
Although increased prepayment rates can negatively affect the value of our IOs and IIOs, they have the opposite effect on POs.
If the principal balance is eliminated due to prepayment, IOs and IIOs essentially become worthless. Although increased prepayment rates can negatively affect the value of our IOs and IIOs, they have the opposite effect on POs.
Alternatively, our Manager could opt to have the value of all of our positions in Agency RMBS determined by either an independent third-party or do so internally. 63 In managing our portfolio, Bimini Advisors employs the following four-step process at each valuation date to determine the fair value of our Agency RMBS: • First, our Manager obtains fair values from subscription-based independent pricing sources.
In managing our portfolio, Bimini Advisors employs the following four-step process at each valuation date to determine the fair value of our Agency RMBS: • First, our Manager obtains fair values from subscription-based independent pricing sources.
($ in thousands) Average Average Advisory Services Orchid Orchid Management Overhead Three Months Ended MBS Equity Fee Allocation Total December 31, 2022 $ 3,370,608 $ 823,516 $ 2,566 $ 560 $ 3,126 September 30, 2022 3,571,037 839,935 2,616 522 3,138 June 30, 2022 4,260,727 866,539 2,631 519 3,150 March 31, 2022 5,545,844 853,577 2,634 441 3,075 December 31, 2021 6,056,259 806,382 2,587 443 3,030 September 30, 2021 5,136,331 672,384 2,156 390 2,546 June 30, 2021 4,504,887 542,679 1,792 395 2,187 March 31, 2021 4,032,716 456,687 1,621 404 2,025 December 31, 2020 3,633,631 387,503 1,384 442 1,826 September 30, 2020 3,422,564 368,588 1,252 377 1,629 June 30, 2020 3,126,779 361,093 1,268 348 1,616 March 31, 2020 3,269,859 376,673 1,377 347 1,724 Years Ended December 31, 2022 $ 4,187,054 $ 845,892 $ 10,447 $ 2,042 $ 12,489 December 31, 2021 4,932,548 619,533 8,156 1,632 9,788 December 31, 2020 3,363,208 373,464 5,281 1,514 6,795 Financial Condition: Mortgage-Backed Securities As of December 31, 2022, our RMBS portfolio consisted of $3,540.0 million of Agency RMBS at fair value and had a weighted average coupon on assets of 3.46%.
($ in thousands) Average Average Advisory Services Orchid Orchid Management Overhead Three Months Ended MBS Equity Fee Allocation Total December 31, 2023 $ 4,207,118 $ 851,532 $ 2,275 $ 617 $ 2,892 September 30, 2023 4,447,098 964,230 2,870 557 3,427 June 30, 2023 4,186,939 899,109 2,704 639 3,343 March 31, 2023 3,769,954 865,722 2,642 576 3,218 December 31, 2022 3,370,608 823,516 2,566 560 3,126 September 30, 2022 3,571,037 839,935 2,616 522 3,138 June 30, 2022 4,260,727 866,539 2,631 519 3,150 March 31, 2022 5,545,844 853,577 2,634 441 3,075 December 31, 2021 6,056,259 806,382 2,587 443 3,030 September 30, 2021 5,136,331 672,384 2,156 390 2,546 June 30, 2021 4,504,887 542,679 1,792 395 2,187 March 31, 2021 4,032,716 456,687 1,621 404 2,025 Years Ended December 31, 2023 $ 4,152,777 $ 895,148 $ 10,491 $ 2,389 $ 12,880 December 31, 2022 4,187,054 845,892 10,447 2,042 12,489 December 31, 2021 4,932,548 619,533 8,156 1,632 9,788 Financial Condition: Mortgage-Backed Securities As of December 31, 2023, our RMBS portfolio consisted of $3,894.0 million of Agency RMBS at fair value and had a weighted average coupon on assets of 4.30%.
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.
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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

11 edited+2 added−4 removed34 unchanged
Biggest changeInterest Rate Sensitivity (1) Portfolio Market Book Change in Interest Rate Value(2)(3) Value(2)(4) As of December 31, 2022 -200 Basis Points 0.52 % 4.18 % -100 Basis Points 0.61 % 4.92 % -50 Basis Points 0.40 % 3.25 % +50 Basis Points (0.43 )% (3.47 )% +100 Basis Points (1.04 )% (8.38 )% +200 Basis Points (2.51 )% (20.27 )% As of December 31, 2021 -200 Basis Points (2.01 )% (17.00 )% -100 Basis Points (0.33 )% (2.76 )% -50 Basis Points 0.19 % 1.59 % +50 Basis Points (0.48 )% (4.04 )% +100 Basis Points (1.64 )% (13.91 )% +200 Basis Points (4.79 )% (40.64 )% (1) Interest rate sensitivity is derived from models that are dependent on inputs and assumptions provided by third parties as well as by our Manager, and assumes there are no changes in mortgage spreads and assumes a static portfolio.
Biggest changeInterest Rate Sensitivity (1) Portfolio Market Book Change in Interest Rate Value (2)(3) Value (2)(4) As of December 31, 2023 -200 Basis Points (2.03 )% (16.78 )% -100 Basis Points (0.54 )% (4.48 )% -50 Basis Points (0.17 )% (1.40 )% +50 Basis Points 0.00 % 0.02 % +100 Basis Points (0.15 )% (1.23 )% +200 Basis Points (0.81 )% (6.70 )% As of December 31, 2022 -200 Basis Points 0.52 % 4.18 % -100 Basis Points 0.61 % 4.92 % -50 Basis Points 0.40 % 3.25 % +50 Basis Points (0.43 )% (3.47 )% +100 Basis Points (1.04 )% (8.38 )% +200 Basis Points (2.51 )% (20.27 )% (1) Interest rate sensitivity is derived from models that are dependent on inputs and assumptions provided by third parties as well as by our Manager, and assumes there are no changes in mortgage spreads and assumes a static portfolio.
We have a negatively convex asset profile and a linear to slightly positively convex hedge portfolio (short positions). It is not at all uncommon for us to have losses in both directions. All changes in value in the table below are measured as percentage changes from the investment portfolio value and net asset value at the base interest rate scenario.
We have a negatively convex asset profile and a linear to slightly positively convex hedge portfolio (short positions). It is not uncommon for us to have losses in both directions. All changes in value in the table below are measured as percentage changes from the investment portfolio value and net asset value at the base interest rate scenario.
We may utilize a variety of financial instruments in order to limit the effects of changes in interest rates on our operations. The principal instruments that we use are futures contracts, interest rate swaps and swaptions. These instruments are intended to serve as an economic hedge against future interest rate increases on our repurchase agreement borrowings.
We may utilize a variety of financial instruments in order to limit the effects of changes in interest rates on our operations. The principal instruments that we use are futures contracts, interest rate swaps and swaptions, and interest rate caps. These instruments are intended to serve as an economic hedge against future interest rate increases on our repurchase agreement borrowings.
The base interest rate scenario assumes interest rates and prepayment projections as of December 31, 2022 and 2021. Actual results could differ materially from estimates , especially in the current market environment.
The base interest rate scenario assumes interest rates and prepayment projections as of December 31, 2023 and 2022. Actual results could differ materially from estimates , especially in the current market environment.
However, there is no guarantee our efforts to manage counterparty credit risk will be successful and we could suffer significant losses if unsuccessful. 68
However, there is no guarantee our efforts to manage counterparty credit risk will be successful, and we could suffer significant losses if unsuccessful. 71 Table of Contents
As of December 31, 2022, we had unrestricted cash and cash equivalents of $205.7 million and unpledged securities of approximately $27.4 million (not including unsettled securities purchases or securities pledged to us) available to meet margin calls on our repurchase agreements and derivative contracts, and for other corporate purposes.
As of December 31, 2023, we had unrestricted cash and cash equivalents of $171.9 million and unpledged securities of approximately $28.5 million (not including unsettled securities purchases or securities pledged to us) available to meet margin calls on our repurchase agreements and derivative contracts, and for other corporate purposes.
However, empirical results and various third party models may produce different duration numbers for the same securities. 66 The following sensitivity analysis shows the estimated impact on the fair value of our interest rate-sensitive investments and hedge positions as of December 31, 2022 and December 31, 2021, assuming rates instantaneously fall 200 bps, fall 100 bps, fall 50 bps, rise 50 bps, rise 100 bps and rise 200 bps, adjusted to reflect the impact of convexity, which is the measure of the sensitivity of our hedge positions and Agency RMBS’ effective duration to movements in interest rates.
The following sensitivity analysis shows the estimated impact on the fair value of our interest rate-sensitive investments and hedge positions as of December 31, 2023 and December 31, 2022, assuming rates instantaneously fall 200 bps, fall 100 bps, fall 50 bps, rise 50 bps, rise 100 bps and rise 200 bps, adjusted to reflect the impact of convexity, which is the measure of the sensitivity of our hedge positions and Agency RMBS’ effective duration to movements in interest rates.
We may reinvest principal repayments at a yield that is lower or higher than the yield on the repaid investment, thus affecting our net interest income by altering the average yield on our assets. 67 Spread Risk When the market spread widens between the yield on our Agency RMBS and benchmark interest rates, our net book value could decline if the value of our Agency RMBS falls by more than the offsetting fair value increases on our hedging instruments tied to the underlying benchmark interest rates.
Spread Risk When the market spread widens between the yield on our Agency RMBS and benchmark interest rates, our net book value could decline if the value of our Agency RMBS falls by more than the offsetting fair value increases on our hedging instruments tied to the underlying benchmark interest rates.
Counterparty Credit Risk We are exposed to counterparty credit risk relating to potential losses that could be recognized in the event that the counterparties to our repurchase agreements and derivative contracts fail to perform their obligations under such agreements.
In extreme situations, we may be forced to sell assets to maintain adequate liquidity, which could cause us to incur realized losses. 70 Table of Contents Counterparty Credit Risk We are exposed to counterparty credit risk relating to potential losses that could be recognized in the event that the counterparties to our repurchase agreements and derivative contracts fail to perform their obligations under such agreements.
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.
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. 68 Table of Contents We face the risk that the market value of our PT RMBS assets will increase or decrease at different rates than that of our structured RMBS or liabilities, including our hedging instruments.
Prepayment Risk Because residential borrowers have the option to prepay their mortgage loans at par at any time, we face the risk that we will experience a return of principal on our investments faster than anticipated.
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. 69 Table of Contents Prepayment Risk Because residential borrowers have the option to prepay their mortgage loans at par at any time, we face the risk that we will experience a return of principal on our investments faster than anticipated.
Removed
We face the risk that the market value of our PT RMBS assets will increase or decrease at different rates than that of our structured RMBS or liabilities, including our hedging instruments. Accordingly, we assess our interest rate risk by estimating the duration of our assets and the duration of our liabilities.
Added
Accordingly, we assess our interest rate risk by estimating the duration of our assets and the duration of our liabilities. We generally calculate duration using various third party models. However, empirical results and various third party models may produce different duration numbers for the same securities.
Removed
We generally calculate duration using various third party models.
Added
We may reinvest principal repayments at a yield that is lower or higher than the yield on the repaid investment, thus affecting our net interest income by altering the average yield on our assets.
Removed
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.
Removed
In extreme situations, we may be forced to sell assets to maintain adequate liquidity, which could cause us to incur realized losses.

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