BIMINI CAPITAL MANAGEMENT, INC.
For the period ended Sep 30, 2026. Filed Nov 6, 2026.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2026 · Filed Nov 6, 2026
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What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2026-06-30; filed 2026-08-07.
0001437749-26-026516
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2026-09-30; filed 2026-11-06.
0001437749-26-035486
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 144 previous paragraphs and 148 current paragraphs.
94 unchanged; 35 reworded; 19 added; 14 removed; 1 previous and 0 current paragraphs rearranged.
Tables are not compared: 67 previous and 63 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (19)
Current report
During the third quarter and early fourth quarter of 2026, interest rates increased to levels not observed since the early 2000s. The move occurred in most western markets, including Japan and most of Europe, and there was a confluence of factors impacting interest rates across these markets. In the U.S., the drivers have been the following:
Current report
With the recent dramatic increases in interest rates there has been widespread deleveraging and forced selling on the part of the various levered investors across fixed income markets. This in turn has put additional downward pressure on various fixed income assets – particularly Agency RMBS like the Company invests in – and interest rates themselves as additional hedging needs lead to shorting of various forms of interest rate products. Interest rates across the yield curve reached levels during the third quarter of 2026, last seen in the early 2000s. Implied interest rate volatility in the swaptions market has spiked higher during the third quarter of 2026 as well. One frequently referenced measure of implied interest rate volatility in the swaptions market – the ICE BofA MOVE index (the “MOVE index”), reached 115.02 just after the Iran war broke out in late February 2026.
Current report
The most significant development during the third quarter of 2026 was the significant increase in global interest rates, particularly in the U.S. The U.S. Treasury curve steepened as rates increased. The yield on the 2-year U.S. Treasury note increased from 4.18% at June 30, 2026, to 4.89% at September 30, 2026. The yield on the 10-year U.S. Treasury note increased from 4.47% at June 30, 2026, to 5.29% at September 30, 2026. As a result, the spread between the 2 and 10-year U.S. Treasury notes increased from 29 bps to 40 bps. Implied interest rate volatility in the swaptions market increased in tandem, reaching levels close to those observed just after the war in Iran started. The MOVE index increased from 71.96 at June 30, 2026, to 110.45 at September 30, 2026.
Current report
As interest rates in the U.S. Treasury market increased, mortgage rates available to residential home buyers also increased. The Mortgage Bankers Association U.S. fixed-rate 30-year contract rate weekly index increased from 6.57% on June 26, 2026, to 7.49% on October 2, 2026. With such an increase, housing affordability, already at multi-decade low levels, is even lower. Housing turnover and refinancing activity is likewise further subdued, and prepayments on the Company’s portfolio have diminished as well.
Current report
With inflation persistently high and economic activity resilient, even in the face of higher interest rates, the Fed raised the overnight Fed Funds rate range in September by 25 bps to 3.75% to 4.00%. Current market pricing, as reflected in the Fed Funds futures market, among others, was for approximately 3.8 additional 25 bps hikes over the next year as of September 30, 2026. Inflation has been above the Fed’s 2% inflation target for over five years and the labor market, the second of the Fed’s dual mandate focus, remains stable. Fed Chairman Warsh’s public comments have repeatedly stressed his desire to get inflation back to the Fed’s target level, so these conditions are likely to keep additional rate hike pricing in the market over the near term at least.
Current report
While interest rates have increased markedly since the end of the second quarter and the Fed raised the Fed Funds target range 25 bps at its September meeting, the overnight funding markets have been otherwise stable. The Company’s funding of the levered RMBS portfolio is accomplished exclusively in the repurchase agreement – or “repo” – market. Repo funding is done at a spread to SOFR. Such spreads have been stable for the past several quarters. In December 2025, the Fed introduced its reserve management purchase program (“RMP”), whereby it buys U.S. Treasury bills in the open market to support the funding markets. The levels of RMP purchases vary as the Fed perceives stability in the funding markets. Also, money market assets are at very high levels by historical standards, with close to $8 trillion at the end of the third quarter of 2026. The allocation of money market assets to the repo market varies over time, but was approximately 30% at the end of the third quarter, thus providing a substantial source of liquidity to the market. As government deficits in the U.S. remain at historically high levels – approximately $2 trillion for the fiscal year ended September 30, 2026 – the government continues to issue increasing levels of U.S. Treasury bills into the market, absorbing funding that might otherwise be available for the repo market. To date this has not materially impacted funding levels, but may do so in the future.
Current report
Interest rates rose substantially during the third quarter of 2026 to multi-decade high levels. As is typically the case, implied interest rate volatility in the swaptions market also rose precipitously during the quarter. Interest rates and implied volatility are the primary variables that impact the Agency RMBS market. The cash flows associated with Agency RMBS are driven in part by the extent of prepayment activity, which is inversely correlated with mortgage rates and the underlying U.S. Treasury rates. Implied volatility is a key variable in the pricing of the borrower’s prepayment option embedded in a residential mortgage loan. As interest rates rise, prepayment levels are anticipated to slow – materially in the case of this quarter – and the cash flows associated with Agency RMBS extend. At the end of the third quarter of 2026 nearly all Agency RMBS are trading at a discount to par. The price declines on these securities that occurred during the quarter triggered pervasive forced selling on the part of levered RMBS investors, exacerbating the downward price pressure. This resulted in poor absolute and relative returns for most Agency RMBS. For the third quarter of 2026, the Agency RMBS sector generated a total return of -4.1% and -0.8% versus comparable duration swaps. By comparison, the high-yield and investment-grade corporate bond sectors produced returns of -1.8% and -3.8%, respectively, and excess returns of -0.4% and 0.3%, respectively, versus comparable duration swaps over the same period.
Current report
The following discussion pertains to both Royal Palm's investment portfolio and the investment portfolio of Orchid that is managed by Bimini Advisors.
Current report
In stark contrast to recent quarters, artificial intelligence was not the headline story of the third quarter. U.S. equities turned in a respectable period on the surface, with the S&P 500 returning 2.3% including dividends. While technology remained a major driver, the sector was outperformed by Energy by a wide margin. But the real story of the quarter was the sharp increase in interest rates to levels unseen in nearly a quarter of a century.
Current report
On August 19, Treasury Secretary Scott Bessent announced a buyback program targeting off-the-run, 10- to 30-year paper, followed by a September 10 operation capped at $6 billion to suppress long-end yields. Similar to "Operation Twist" from the Global Financial Crisis, this modern effort is far more benign in scale. Thus far, it has felt like pushing on a string: yields spiked across the curve, with the 10-year Treasury closing September at 5.29% and shorter maturities pushing past 5.0% in an aggressive bear flattening.
Current report
Three primary catalysts are driving yields higher:
Current report
Equity Market Breadth & The Cost of the AI Buildout
Current report
U.S. stocks have enjoyed strong topline index returns year-to-date, but market breadth has narrowed considerably as whole sectors failed to participate:
Current report
Despite AI tailwinds and resilient index returns, rising rates raise critical questions regarding investor appetite for risk assets. With elevated Treasury yields, the risk/reward proposition of owning equities has grown less attractive at the index level.
Current report
For equity investors, the silver lining of such concentrated market breadth is that hundreds of high-quality companies have been bypassed in the rush toward headline AI names. In a market where capital costs more, TJIM believes fundamental company discipline, free cash flow generation and strong balance sheets, instead of speculative momentum, will drive stock performance.
Current report
Fixed Income Yield and Opportunity
Current report
The elevated yields that pressured equities have created an opportunity for fixed income investors. High- quality, liquid fixed income strategies are more compelling than they have been in years. This is not a claim that interest rates can’t continue to rise, instead it just highlights that starting yields matter immensely. With TJIM bond portfolios yields of approximately 5%, they are much more resilient to future rate increases than they have been in past cycles. In addition, TJIM portfolios maintain ample dry powder to capitalize opportunistically as these higher yields unfold.
Current report
For domestic equity markets, the third quarter of 2026 stood in stark contrast to the broad, powerful optimism of the previous quarter. U.S. equities remained positive, delivering a respectable 2.3% total return. However, debates surrounding the timing and magnitude of artificial intelligence investments were overshadowed by a sharp surge in interest rates, punctuated by the 10-year Treasury yield closing September at 5.29%.
Current report
Beneath top-line index gains, market conditions fragmented as investors navigated several compounding headwinds:
Removed paragraphs (14)
Previous report
TJIM is compensated primarily through asset-based management fees calculated as a percentage of assets under management. Backed by over four decades of investment experience, the firm’s disciplined approach supported positive growth in both regulatory assets under management and advisory revenues through the six-month period ending June 30, 2026.
Previous report
The second quarter of 2026 was pivotal in many ways. The Fed transitioned from an easing bias to a hiking bias and a new Fed Chairman with a strong anti-inflation disposition was seated. Meanwhile, the war between the United States, Israel and Iran (the “Iran War”) appeared to be on course to wind down by June before conditions deteriorated materially. A near-term resolution now appears unlikely, allowing energy related inflationary pressures to persist.
Previous report
On May 22, 2026, Kevin Warsh became the new Chairman of the Fed, replacing Jerome Powell. The new Chairman brings an elevated level of vigor in addressing the persistently high inflation that has exceeded the Fed’s 2% target for approximately 5 years. Even before Chairman Warsh assumed his new role, the FOMC appeared to be shifting its bias away from additional easing toward hiking. At the Fed’s meeting on April 29, 2026, there were three votes in favor of signaling a more two-sided characterization of the Fed’s future interest rate decisions. At Chairman Warsh’s first press conference on June 17, 2026, all doubt regarding the bias of the FOMC was put to rest. The new Chairman was very stern in declaring his highest priority was bringing inflation back to the Fed’s target.
Previous report
The Iran War appeared to be nearing conclusion when a ceasefire was announced on April 8, 2026, and a formal Memorandum of Understanding (“MOU”) was signed by the parties on June 17, 2026. Shipping traffic through the Strait of Hormuz (“SOH”) was slowly returning to pre-war levels, and market volatility materially subsided. However, shortly after the MOU was signed, hostilities between the parties began to escalate and shipping traffic through the SOH has slowed significantly again. Commodity prices have rebounded in turn and are slowly heading back toward the peak levels reached in the early days of the war. At this point, there is no obvious path to an end to the war, as the two crucial points of disagreement – control over the SOH and the status of Iran’s nuclear capability – seem unlikely to be resolved diplomatically. Unless and until the war pivots again toward a peaceful resolution, upward pressure on commodity prices seems likely to persist, adding to already elevated levels of inflation in the United States and globally.
Previous report
Developments in the Iran War have only exacerbated problems for the new Fed Chair and the FOMC. The economy in the United States has proven to be very resilient in the face of inflation, particularly elevated commodity prices and disruptions to critical supply channels. At the beginning of 2026, the labor market appeared to be stable, yet at low levels of job growth. During the second quarter of 2026, the labor market appeared to pivot as job growth rebounded. Consumer spending has also remained robust. If the war remains unresolved for an extended period, the Fed will likely need to act and increase the Fed Funds rate. Data for June 2026 released in July – namely the jobs report and the consumer price index and producer price index – were all weak. As a result, market pricing of Fed hikes over the balance of 2026 and into 2027 has subsided. Unless this data remains weak, the market is likely to see higher funding levels.
Previous report
Consistent with the pivot in the outlook for Fed policy during the quarter, the nominal rates curve moved higher and flatter during the second quarter of 2026. Specifically, the yield on the 2-year U.S. Treasury note increased from 3.796% at March 31, 2026 to 4.175% at June 30, 2026, while the yield on the 10-year U.S. Treasury note increased from 4.319% at March 31, 2026 to 4.466% at June 30, 2026. As a result, the curve between these two points flattened by approximately 9 basis points. Most proxies for the shape of the rates curve show comparable – or greater – levels of flattening during the second quarter of 2026. The primary impetus for the movements in the nominal U.S. Treasury curve and the swap curve was the pivot in market expectations for Fed Funds rate going forward. At March 31, 2026, market expectations for the Fed Funds rate (based on Fed Funds futures contracts) were for slightly more than one rate cut by year end and two cuts by mid-2027. By the end of the second quarter of 2026, Fed Funds futures implied nearly two hikes by year-end and in excess of three hikes by the end of first quarter of 2027. Current pricing, reflecting the soft June 2026 data released in early July, is unchanged in terms of year-end levels but now reflects very modest cuts in early 2027.
Previous report
The Fed ended its quantitative tightening program, which reduced its balance sheet via the maturation of its holdings, and began reinvesting them into additional U.S. Treasury holdings on December 1, 2025. Run-off from the Agency RMBS holdings is now directed toward purchasing U.S. Treasuries. The Fed also announced its intention, via Reserve Management Purchases (“RMPs”), to grow its balance sheet over time to maintain a stable relationship between the size of its balance sheet and the economy. These steps resulted in increased purchases of U.S. Treasuries by the Fed. When the RMP program was first introduced, U.S. Treasury purchases were $40 billion per month, although they have declined since and are currently $10 billion per month. However, even at the lower level of purchases, the program has been successful at taking pressure off of the overnight funding markets, as market participants such as money-market funds had fewer options to deploy their liquidity and therefore increased the pool of available funds for the overnight repurchase agreement (“repo”) funding markets. As a result, funding levels available to the Company in the repo markets – typically expressed as a spread over SOFR – have remained stable during the second quarter, continuing the trend we saw during the first quarter of 2026.
Previous report
Interest rate volatility spiked meaningfully after the outbreak of the Iran War, consistent with the increase in interest rates across the curve. Volatility peaked just before the first quarter of 2026 ended, with the Merrill Lynch Option Volatility Estimate Index reaching 115.02. Following the announcement of a ceasefire on April 8, 2026, rate volatility dropped nearly to pre-war levels by mid-April and remained relatively stable throughout the balance of the second quarter. Implied interest rate volatility has remained range-bound at low levels since the end of the second quarter. As is typically the case, subdued levels of implied interest rate volatility and range-bound interest rates are conducive to Agency RMBS market performance, and the sector had a positive quarter in both absolute and excess returns. For the second quarter of 2026, the Agency RMBS sector generated a total return of 0.6% and 0.5% versus comparable duration swaps. By comparison, the high-yield and investment-grade corporate bond sectors produced returns of 2.5% and 1.4%, respectively, and excess returns of 2.4% and 1.5%, respectively, versus comparable duration swaps over the same period.
Previous report
The U.S. equity market delivered an exceptionally strong rebound in the second quarter of 2026, recovering from a weaker first quarter and finishing near record highs. The rally was driven by renewed enthusiasm for artificial intelligence ("AI"), stronger-than-expected corporate earnings, easing geopolitical concerns late in the quarter, and resilient economic growth.
Previous report
Performance of the major indexes:
Previous report
Key drivers of the rally:
Previous report
Sector performance:
Previous report
For the domestic equity markets, the second quarter of 2026 was characterized by a broad and powerful recovery in U.S. equities. Large-cap stocks reached or approached record highs, technology once again led the market, and strong corporate fundamentals reinforced investor confidence. While optimism about AI remained the dominant theme, the rally also became more broad-based as improving earnings and easing macroeconomic concerns supported gains across much of the market.
Previous report
Despite the strong gains, investors continued to monitor several risks, with overlap in risks facing the Agency RMBS market:
Reworded paragraphs (35)
Previous wording
On April 1, 2026, the Company completed the acquisition of an 80% ownership stake in TJIM. As a result of the acquisition, the Company expanded beyond investing in MBS securities solely and into investment management across equity, fixed income, and balanced strategies for individuals, high-net-worth families, retirement plans, foundations, and institutions. Unless stated otherwise, the financial information contained in this Item 2 regarding the results of operations and financial condition of TJIM take into account only the results of operations, financial condition, and performance of TJIM after April 1, 2026.
Current wording
On April 1, 2026, the Company completed the acquisition of an 80% ownership stake in TJIM. As a result of the acquisition, the Company expanded beyond investing in MBS securities solely and into investment management across equity, other areas of the fixed income markets, and balanced strategies for individuals, high-net-worth families, retirement plans, foundations, and institutions. Unless stated otherwise, the financial information contained in this Item 2 regarding the results of operations and financial condition of TJIM take into account only the results of operations, financial condition, and performance of TJIM after April 1, 2026.
Previous wording
Described below are the Company’s results of operations for the six and three months ended June 30, 2026, as compared to the six and three months ended June 30, 2025.
Current wording
Described below are the Company’s results of operations for the nine and three months ended September 30, 2026, as compared to the nine and three months ended September 30, 2025.
Previous wording
Consolidated net income attributable to Bimini stockholders for the six months ended June 30, 2026 was $1.2 million, or $0.12 basic and diluted income per share of Class A Common Stock, as compared to consolidated net income of $0.6 million, or $0.06 basic and diluted income per share of Class A Common Stock, for the six months ended June 30, 2025. The components of net income for the six and three months ended June 30, 2026 and 2025, along with the changes in those components are presented in the table below.
Current wording
Consolidated net income attributable to Bimini stockholders for the nine months ended September 30, 2026 was $2.2 million, or $0.22 basic and diluted income per share of Class A Common Stock, as compared to consolidated net income of $2.4 million, or $0.24 basic and diluted income per share of Class A Common Stock, for the nine months ended September 30, 2025. Consolidated net income attributable to Bimini stockholders for the three months ended September 30, 2026 was $1.0 million, or $0.10 basic and diluted income per share of Class A Common Stock, as compared to consolidated net income of $1.8 million, or $0.18 basic and diluted income per share of Class A Common Stock, for the three months ended September 30, 2025. The components of net income for the nine and three months ended September 30, 2026 and 2025, along with the changes in those components are presented in the table below.
Previous wording
Segment information for the six and three months ended June 30, 2026 and 2025 is as follows:
Current wording
Segment information for the nine and three months ended September 30, 2026 and 2025 is as follows:
Previous wording
Management fees are generally calculated as a percentage of AUM and are affected by market conditions, investor inflows and outflows, investment performance, and client retention. Assets under management are influenced by market appreciation or depreciation, investor flows, investment performance, and changes in client allocations. Because advisory revenues are generally based on the value of client assets, declines in financial markets or sustained client withdrawals may adversely affect the Company’s revenues, operating margins, cash flows, and results of operations.
Current wording
TJIM is compensated primarily through asset-based management fees calculated as a percentage of assets under management. Management fees are generally calculated as a percentage of AUM and are affected by market conditions, investor inflows and outflows, investment performance, and client retention. Assets under management are influenced by market appreciation or depreciation, investor flows, investment performance, and changes in client allocations. Because advisory revenues are generally based on the value of client assets, declines in financial markets or sustained client withdrawals may adversely affect the Company’s revenues, operating margins, cash flows, and results of operations.
Previous wording
GAAP and Non-GAAP Reconciliation
Current wording
GAAP and Non-GAAP Reconciliation - Economic Interest Expense and Economic Net Interest Income
Previous wording
During the six months ended June 30, 2026, we generated $0.6 million of net portfolio interest income, consisting of $1.4 million of interest income from MBS assets offset by $0.8 million of interest expense on repurchase liabilities. For the comparable period ended June 30, 2025, we generated $0.8 million of net portfolio interest income, consisting of $3.3 million of interest income from MBS assets offset by $2.5 million of interest expense on repurchase liabilities. The $1.9 million decrease in interest income was due to a $83.7 million decrease in average MBS holdings, offset by a 263 basis point ("bp") increase in yields. There was a $1.7 million decrease in interest expense for the six months ended June 30, 2026 that was due to a $79.8 million decrease in average repurchase liabilities, offset by a 71 bp increase in cost of funds.
Current wording
During the nine months ended September 30, 2026, we generated $0.7 million of net portfolio interest income, consisting of $1.7 million of interest income from MBS assets offset by $1.0 million of interest expense on repurchase liabilities. For the comparable period ended September 30, 2025, we generated $1.2 million of net portfolio interest income, consisting of $4.9 million of interest income from MBS assets offset by $3.7 million of interest expense on repurchase liabilities. The $3.2 million decrease in interest income was due to an $86.1 million decrease in average MBS holdings, partially offset by a 226 basis point ("bp") increase in yields. There was a $2.7 million decrease in interest expense for the nine months ended September 30, 2026 that was due to an $82.0 million decrease in average repurchase liabilities, partially offset by a 43 bp increase in cost of funds.
Previous wording
During the three months ended June 30, 2026, we generated $0.1 million of net portfolio interest income, consisting of $0.3 million of interest income from MBS assets offset by $0.2 million of interest expense on repurchase liabilities. For the comparable period ended June 30, 2025, we generated $0.4 million of net portfolio interest income, consisting of $1.6 million of interest income from MBS assets offset by $1.2 million of interest expense on repurchase liabilities. The $1.3 million decrease in interest income was due to a $98.3 million decrease in average MBS holdings, offset by a 73 bp increase in yields. There was a $1.1 million decrease in interest expense for the three months ended June 30, 2026 that was due to a $93.5 million decrease in average repurchase liabilities, offset by a 56 bp decrease in cost of funds.
Current wording
During the three months ended September 30, 2026, we generated $0.1 million of net portfolio interest income, consisting of $0.2 million of interest income from MBS assets offset by $0.1 million of interest expense on repurchase liabilities. For the comparable period ended September 30, 2025, we generated $0.4 million of net portfolio interest income, consisting of $1.5 million of interest income from MBS assets offset by $1.2 million of interest expense on repurchase liabilities. The $1.3 million decrease in interest income was due to a $90.8 million decrease in average MBS holdings, partially offset by a 70 bp increase in yields. There was a $1.0 million decrease in interest expense for the three months ended September 30, 2026 that was due to an $86.3 million decrease in average repurchase liabilities, combined with a 70 bp decrease in cost of funds.
Previous wording
Our economic interest expense on repurchase liabilities for the six months ended June 30, 2026 and 2025 was $0.7 million and $2.3 million, respectively, resulting in $0.7 million and $1.0 million of economic net portfolio interest income, respectively. Our economic interest expense on repurchase liabilities for the three months ended June 30, 2026 and 2025 was $0.1 million and $1.1 million, respectively, resulting in $0.2 million and $0.5 million of economic net portfolio interest income, respectively.
Current wording
Our economic interest expense on repurchase liabilities for the nine months ended September 30, 2026 and 2025 was $0.7 million and $3.3 million, respectively, resulting in $0.9 million and $1.5 million of economic net portfolio interest income, respectively. Our economic interest expense on repurchase liabilities for the three months ended September 30, 2026 and 2025 was $0.1 million and $1.0 million, respectively, resulting in $0.2 million and $0.5 million of economic net portfolio interest income, respectively.
Previous wording
The tables below provide information on our portfolio average balances, interest income, yield on assets, average repurchase agreement balances, interest expense, cost of funds, net interest income and net interest rate spread for the six months ended June 30, 2026 and 2025 and each quarter in 2026 and 2025 on both a GAAP and economic basis.
Current wording
The tables below provide information on our portfolio average balances, interest income, yield on assets, average repurchase agreement balances, interest expense, cost of funds, net interest income and net interest rate spread for the nine months ended September 30, 2026 and 2025 and each quarter in 2026 and 2025 on both a GAAP and economic basis.
Previous wording
Since all of our repurchase agreements are short-term, changes in market rates have a more immediate impact on our interest expense. Our average cost of funds calculated on a GAAP basis was 20 bps above the average one-month SOFR and 16 bps above the average six-month SOFR for the quarter ended June 30, 2026. Our average economic cost of funds was 195 bps below the average one-month SOFR and 199 bps below the average six-month SOFR for the quarter ended June 30, 2026. The average term to maturity of the outstanding repurchase agreements was 22 days at June 30, 2026, compared to 31 days at December 31, 2025. The tables below present the average outstanding balances under our repurchase agreements, interest expense and average economic cost of funds, and average one-month and six-month SOFR rates for each quarter in 2026 and 2025, on both a GAAP and economic basis.
Current wording
Since all of our repurchase agreements are short-term, changes in market rates have a more immediate impact on our interest expense. Our average cost of funds calculated on a GAAP basis was 14 bps above the average one-month SOFR and 21 bps above the average six-month SOFR for the quarter ended September 30, 2026. Our average economic cost of funds was 212 bps below the average one-month SOFR and 205 bps below the average six-month SOFR for the quarter ended September 30, 2026. The average term to maturity of the outstanding repurchase agreements was 18 days at September 30, 2026, compared to 31 days at December 31, 2025. The tables below present the average outstanding balances under our repurchase agreements, interest expense and average economic cost of funds, and average one-month and six-month SOFR rates for each quarter in 2026 and 2025, on both a GAAP and economic basis.
Previous wording
We owned 569,071 shares of Orchid common stock throughout each of the six months ended June 30, 2026 and 2025. Orchid paid total dividends of $0.66 per share and $0.72 per share during the six months ended June 30, 2026 and 2025, respectively, resulting in dividend income of approximately $0.4 million in each period. We owned 569,071 shares of Orchid common stock throughout each of the three months ended June 30, 2026 and 2025. Orchid paid total dividends of $0.30 per share and $0.36 per share during the three months ended June 30, 2026 and 2025, resulting in dividend income of approximately $0.2 million in each period.
Current wording
We owned 569,071 shares of Orchid common stock throughout each of the nine months ended September 30, 2026 and 2025. Orchid paid total dividends of $0.96 per share and $1.08 per share during the nine months ended September 30, 2026 and 2025, respectively, resulting in dividend income of approximately $0.5 million and $0.6 million, respectively. We owned 569,071 shares of Orchid common stock throughout each of the three months ended September 30, 2026 and 2025. Orchid paid total dividends of $0.30 per share and $0.36 per share during the three months ended September 30, 2026 and 2025, respectively, resulting in dividend income of approximately $0.2 million in each period.
Previous wording
The junior subordinated debt securities paid interest at a floating rate. The interest rate is the CME Term SOFR on the applicable reset date plus the tenor spread adjustment of 0.26161% plus the coupon spread of 3.50%. Interest expense on our junior subordinated debt securities was $1.0 million and $1.1 million for the six months ended June 30, 2026 and 2025, respectively. The average rate of interest paid for the six months ended June 30, 2026 was 7.45% compared to 8.09% for the comparable period in 2025. Interest expense on our junior subordinated debt securities was $0.5 million and $0.5 million for the three months ended June 30, 2026 and 2025, respectively. The average rate of interest paid for the three months ended June 30, 2026 was 7.43% compared to 8.06% for the comparable period in 2025.
Current wording
The junior subordinated debt securities paid interest at a floating rate. The interest rate is the CME Term SOFR on the applicable reset date plus the tenor spread adjustment of 0.26161% plus the coupon spread of 3.50%. Interest expense on our junior subordinated debt securities was $1.5 million and $1.6 million for the nine months ended September 30, 2026 and 2025, respectively. The average rate of interest paid for the nine months ended September 30, 2026 was 7.52% compared to 8.07% for the comparable period in 2025. Interest expense on our junior subordinated debt securities was $0.5 million and $0.5 million for the three months ended September 30, 2026 and 2025, respectively. The average rate of interest paid for the three months ended September 30, 2026 was 7.65% compared to 8.03% for the comparable period in 2025.
Previous wording
The table below presents our gains or losses and other income for the six and three months ended June 30, 2026 and 2025.
Current wording
The table below presents our gains or losses and other income for the nine and three months ended September 30, 2026 and 2025.
Previous wording
We invest in MBS with the intent to earn net income from the realized yield on those assets over their related funding and hedging costs, and not for the purpose of making short term gains from trading in these securities. However, we have sold, and may sell in the future, existing assets to acquire new assets, which our management believes might have higher risk-adjusted returns in light of current or anticipated interest rates, federal government programs or general economic conditions or to manage our balance sheet as part of our asset/liability management strategy. During the six months ended June 30, 2026 and 2025, we received proceeds totaling $68.6 million and $9.8 million, respectively, from the sales of MBS.
Current wording
We invest in MBS with the intent to earn net income from the realized yield on those assets over their related funding and hedging costs, and not for the purpose of making short term gains from trading in these securities. However, we have sold, and may sell in the future, existing assets to acquire new assets, which our management believes might have higher risk-adjusted returns in light of current or anticipated interest rates, federal government programs or general economic conditions or to manage our balance sheet as part of our asset/liability management strategy. During the nine months ended September 30, 2026 and 2025, we received proceeds totaling $68.6 million and $9.8 million, respectively, from the sales of MBS.
Previous wording
For the six and three months ended June 30, 2026, our total operating expenses were approximately $8.6 million and $4.9 million, respectively, compared to $5.7 million and $2.8 million for the six and three months ended June 30, 2025, respectively, as detailed in the table below.
Current wording
For the nine and three months ended September 30, 2026, our total operating expenses were approximately $12.5 million and $3.9 million, respectively, compared to $8.7 million and $3.0 million for the nine and three months ended September 30, 2025, respectively, as detailed in the table below.
Previous wording
Approximately $0.7 million of the increase in compensation and related benefits for the six and three month periods ended June 30, 2026, was attributable to additional personnel associated with the TJIM Acquisition. Amortization expense for the six and three month periods ended June 30, 2026, primarily reflects the amortization of identifiable intangible assets recognized in connection with the TJIM Acquisition.
Current wording
Approximately $1.3 million and $0.7 million of the increase in compensation and related benefits for the nine- and three-month periods ended September 30, 2026, respectively, was attributable to additional personnel associated with TJIM. Amortization expense for the nine- and three-month periods ended September 30, 2026, primarily reflects the amortization of identifiable intangible assets recognized in connection with the TJIM Acquisition.
Previous wording
We recorded income tax provisions for the six months ended June 30, 2026 and 2025 of approximately $1.5 million and $0.2 million, respectively, on consolidated pre-tax book income of $2.8 million and $0.8 million, respectively. We recorded income tax provisions for the three months ended June 30, 2026 and 2025 of approximately $1.3 million and $0.01 million, respectively, on consolidated pre-tax book income of $1.8 million and $0.05 million, respectively. The Company uses the discrete-period computation method for determining its income tax provision. Our income tax provision is affected by numerous factors, including non-deductible expenses, the projected utilization of net operating loss carryovers and changes in our deferred tax assets and liabilities and their valuations, and can result in significant variations in the customary relationship between pretax income and income tax expense. During the three months ended June 30, 2026, the Company reassessed the realizability of its deferred tax assets in connection with the acquisition of TJIM. As a result of this reassessment, the Company recorded an increase in its valuation allowance and a corresponding increase in income tax expense of approximately $1.1 million.
Current wording
We recorded income tax provisions for the nine months ended September 30, 2026 and 2025 of approximately $1.7 million and $0.6 million, respectively, on consolidated pre-tax book income of $4.1 million and $3.0 million, respectively. We recorded income tax provisions for the three months ended September 30, 2026 and 2025 of approximately $0.1 million and $0.4 million, respectively, on consolidated pre-tax book income of $1.3 million and $2.2 million, respectively. The Company uses the discrete-period computation method for determining its income tax provision. Our income tax provision is affected by numerous factors, including non-deductible expenses, the projected utilization of net operating loss carryovers and changes in our deferred tax assets and liabilities and their valuations, and can result in significant variations in the customary relationship between pretax income and income tax expense. During the three months ended June 30, 2026, the Company reassessed the realizability of its deferred tax assets in connection with the acquisition of TJIM. As a result of this reassessment, the Company recorded an increase in its valuation allowance and a corresponding increase in income tax expense of approximately $1.1 million.
Previous wording
As of June 30, 2026, our MBS portfolio consisted of $16.0 million of agency or government MBS at fair value and had a weighted average coupon of 5.35%. During the six months ended June 30, 2026, we received principal repayments of $3.7 million compared to $6.2 million for the comparable period ended June 30, 2025. The average prepayment speeds for the quarters ended June 30, 2026 and 2025 were 8.1% and 9.9%, respectively.
Current wording
As of September 30, 2026, our MBS portfolio consisted of $14.5 million of agency or government MBS at fair value and had a weighted average coupon of 5.34%. During the nine months ended September 30, 2026, we received principal repayments of $4.4 million compared to $10.2 million for the comparable period ended September 30, 2025. The average prepayment speeds for the quarters ended September 30, 2026 and 2025 were 10.2% and 16.8%, respectively.
Previous wording
The following tables summarize certain characteristics of our PT MBS and structured MBS as of June 30, 2026 and December 31, 2025:
Current wording
The following tables summarize certain characteristics of our MBS portfolio as of September 30, 2026 and December 31, 2025:
Previous wording
As of June 30, 2026, the Company's portfolio had an effective duration of 3.495, indicating that an interest rate increase of 1.0% would be expected to cause a 3.495% decrease in the value of the MBS in our investment portfolio. As of December 31, 2025, the Company's portfolio had an effective duration of 2.229, indicating that an interest rate increase of 1.0% would be expected to cause a 2.229% decrease in the value of the MBS in our investment portfolio. These figures do not include the effect of our funding cost hedges. Effective duration quotes for individual investments are obtained from The Yield Book, Inc.
Current wording
As of September 30, 2026, the Company's portfolio had an effective duration of 4.431, indicating that an interest rate increase of 1.0% would be expected to cause a 4.431% decrease in the value of the MBS in our investment portfolio. As of December 31, 2025, the Company's portfolio had an effective duration of 2.229, indicating that an interest rate increase of 1.0% would be expected to cause a 2.229% decrease in the value of the MBS in our investment portfolio. These figures do not include the effect of our funding cost hedges. Effective duration quotes for individual investments are obtained from The Yield Book, Inc.
Previous wording
Prepayments on the loans underlying our MBS can alter the timing of the cash flows received by us. As a result, we gauge the interest rate sensitivity of its assets by measuring their effective duration. While modified duration measures the price sensitivity of a bond to movements in interest rates, effective duration captures both the movement in interest rates and the fact that cash flows to a mortgage related security are altered when interest rates move. Accordingly, when the contract interest rate on a mortgage loan is substantially above prevailing interest rates in the market, the effective duration of securities collateralized by such loans can be quite low because of expected prepayments.
Current wording
Prepayments on the loans underlying our MBS can alter the timing of the cash flows received by us. As a result, we gauge the interest rate sensitivity of our assets by measuring their effective duration. While modified duration measures the price sensitivity of a bond to movements in interest rates, effective duration captures both the movement in interest rates and the fact that cash flows to a mortgage related security are altered when interest rates move. Accordingly, when the contract interest rate on a mortgage loan is substantially above prevailing interest rates in the market, the effective duration of securities collateralized by such loans can be quite low because of expected prepayments.
Previous wording
As of June 30, 2026, we had established borrowing facilities in the repurchase agreement market with a number of commercial banks and other financial institutions and had borrowings in place with three of these counterparties. We believe these facilities provide borrowing capacity in excess of our needs. None of these lenders are affiliated with us. These borrowings are secured by our MBS.
Current wording
As of September 30, 2026, we had established borrowing facilities in the repurchase agreement market with a number of commercial banks and other financial institutions and had borrowings in place with four of these counterparties. We believe these facilities provide borrowing capacity in excess of our needs. None of these lenders are affiliated with us. These borrowings are secured by our MBS.
Previous wording
As of June 30, 2026, we had obligations outstanding under the repurchase agreements of approximately $15.0 million with a net weighted average borrowing cost of 3.76%. The remaining maturity of our outstanding repurchase agreement obligations ranged from 13 to 42 days, with a weighted average maturity of 22 days. Securing the repurchase agreement obligation as of June 30, 2026 are MBS with an estimated fair value, including accrued interest, of $15.9 million. Through August 6, 2026, we have been able to maintain our repurchase facilities with comparable terms to those that existed at June 30, 2026 with maturities through August 31, 2026.
Current wording
As of September 30, 2026, we had obligations outstanding under the repurchase agreements of approximately $14.0 million with a net weighted average borrowing cost of 3.98%. The remaining maturity of our outstanding repurchase agreement obligations ranged from 14 to 19 days, with a weighted average maturity of 18 days. Securing the repurchase agreement obligation as of September 30, 2026 are MBS with an estimated fair value, including accrued interest, of $14.4 million. Through November 5, 2026, we have been able to maintain our repurchase facilities with comparable terms to those that existed at September 30, 2026 with maturities through November 19, 2026.
Previous wording
Our internal sources of liquidity include our cash balances, as well as the collection of management fees and other fees related to our advisory services segments. payments of principal and interest we receive on our MBS portfolio and dividends we receive on our investment in Orchid common stock. We also possess unencumbered RMBS assets and the ability to liquidate our encumbered security holdings.
Current wording
Our internal sources of liquidity include our cash balances, the collection of management fees and other fees related to our advisory services segments, payments of principal and interest we receive on our MBS portfolio, and dividends we receive on our investment in Orchid common stock. We also possess unencumbered RMBS assets and the ability to liquidate our encumbered security holdings.
Previous wording
In future periods, we expect to continue to finance our activities through repurchase agreements and through revenues from our advisory services business. As of June 30, 2026, we had cash and cash equivalents of $6.5 million. We generated cash flows of $5.3 million from principal and interest payments on our MBS portfolio and had average repurchase agreements outstanding of $32.7 million during the six months ended June 30, 2026. In addition, during the six months ended June 30, 2026, we received approximately $10.2 million in management fees and expense reimbursements as manager of Orchid and approximately $0.4 million in dividends from our investment in Orchid common stock.
Current wording
In future periods, we expect to continue to finance our activities through repurchase agreements and through revenues from our advisory services business. As of September 30, 2026, we had cash and cash equivalents of $8.4 million. We generated cash flows of $6.3 million from principal and interest payments on our MBS portfolio and had average repurchase agreements outstanding of $26.6 million during the nine months ended September 30, 2026. In addition, during the nine months ended September 30, 2026, we received approximately $15.2 million in management fees and expense reimbursements as manager of Orchid and approximately $0.5 million in dividends from our investment in Orchid common stock.
Previous wording
Orchid reported net income for the second quarter of 2026 of $89.2 million, or $0.44 per share and its shareholders equity increased from $1.392 billion to $1.441 billion. During the second quarter, market conditions were generally favorable for levered MBS investors. Orchid reported gains on hedge instruments of $62.4 million and realized and unrealized losses on its MBS portfolio of $26.4 million, which together resulted in gains of $36.0 million. Orchid is obligated to reimburse Bimini for direct expenses paid on its behalf as well as Orchid’s pro-rata share of overhead expenses as defined in the management agreement. As a stockholder of Orchid, we will also continue to share in distributions, if any, paid by Orchid to its stockholders. Our operating results are also impacted by changes in the market value of our holdings of Orchid common shares, although these market value changes do not impact our cash flow from Orchid.
Current wording
Orchid reported a net loss for the third quarter of 2026 of $179.2 million, or $0.90 per share, and its shareholders equity decreased from $1.441 billion to $1.172 billion. Orchid reported gains on hedge instruments of $335.4 million and realized and unrealized losses on its MBS portfolio of $567.1 million, which together resulted in net losses of $231.7 million. Orchid is obligated to reimburse Bimini for direct expenses paid on its behalf as well as Orchid’s pro rata share of overhead expenses as defined in the management agreement. As a stockholder of Orchid, we will also continue to share in distributions, if any, paid by Orchid to its stockholders. Our operating results are also impacted by changes in the market value of our holdings of Orchid common shares, although these market value changes do not impact our cash flow from Orchid.
Previous wording
The asset management segment of TJIM reported a net loss for the second quarter of $0.3 million, net of allocated expenses of $0.9 million, on management fee revenues of $1.7 million. Total assets under management have increased from $1.65 billion at December 31, 2025 and $1.63 billion at March 31, 2026, to $1.73 billion at June 30, 2026. Advisory fee revenues for the second quarter were $1.73 million versus $1.58 million for the first quarter of 2026. Advisory fee revenue for the first six months of 2026 were $3.31 million, versus $3.02 million for the first six months of 2025. Note that, due to the closing date of the TJIM Acquisition of April 1, 2026, all figures relating to the results of operations of TJIM for periods prior to the second quarter of 2026 are unaudited and are not included in the consolidated results of the Company. Such information is discussed solely to provide investors with additional context regarding the historical operations of TJIM. The information is not intended to represent, and should not be considered indicative of, the results of operations or financial position that would have been achieved had the TJIM Acquisition occurred on an earlier date, nor is it necessarily indicative of the future results of the combined company.
Current wording
The asset management segment of TJIM reported a net loss for the third quarter of $0.03 million, net of allocated overhead expenses of $0.7 million, on management fee revenues of $1.7 million. Total assets under management have were $1.65 billion at December 31, 2025, $1.63 billion at March 31, 2026, $1.73 billion at June 30, 2026 and $1.70 billion at September 30, 2026. Advisory fee revenues for the third quarter were $1.69 million versus $1.73 million for the second quarter of 2026. Advisory fee revenue for the first nine months of 2026 was $5.0 million, versus $4.6 million for the first nine months of 2025. Note that, due to the closing date of the TJIM Acquisition of April 1, 2026, all figures relating to the results of operations of TJIM for periods prior to the second quarter of 2026 are unaudited and are not included in the consolidated results of the Company. Such information is discussed solely to provide investors with additional context regarding the historical operations of TJIM. The information is not intended to represent, and should not be considered indicative of, the results of operations or financial position that would have been achieved had the TJIM Acquisition occurred on an earlier date, nor is it necessarily indicative of the future results of the combined company.
Previous wording
Within Agency RMBS for the second quarter of 2026, conventional 30-year mortgages generated a total return of 0.6%, 15-year mortgages generated a total return of 0.1% and Ginnie Mae 30-year mortgages generated a total return of 0.7%. Versus comparable duration swaps, the returns were 0.6%, 0.0% and 0.6% for 30-year conventional, 15-year conventional and Ginnie Mae 30-year mortgages, respectively. The Company invests predominantly in 30-year conventional mortgages. Returns with the 30-year stack were lowest for lower coupons and increased for progressively higher coupons, with returns for coupons 4% and lower between 0.2% and 0.5%, and above 1.0% for coupons of 5% and higher. This is consistent with higher interest rates, lower prepayment expectations, and the durations of the various coupons inversely related to coupon – the lower the coupon the higher the duration, and visa-versa. Conversely, excess returns were best for middle coupons – between the 4.5% and 6.0% coupons, with lower and higher coupons lagging. Excess returns for middle coupons were between 0.7% and 1.2%, while the lower and higher coupons ranged between 0.3% and 0.8%.
Current wording
Within Agency RMBS for the third quarter of 2026, conventional 30-year mortgages generated a total return of -4.4%, 15-year mortgages generated a total return of -2.2% and Ginnie Mae 30-year mortgages generated a total return of -4.1%. Versus comparable duration swaps, the returns were -0.8%, 0.4% and -1.0% for 30-year conventional, 15-year conventional and Ginnie Mae 30-year mortgages, respectively. The Company invests predominantly in 30-year conventional mortgages. Absolute returns within the 30-year stack were lowest for lower coupons and increased for progressively higher coupons, with returns for coupons 5% and lower between -4.3% and -5.3%, and for coupons of 5.5% through 7.0% progressively improving from -3.5% to –1.7%. This is consistent with higher interest rates, lower prepayment expectations and the durations of the various coupons inversely related to coupon – the lower the coupon the higher the duration, and vice-versa. Conversely, excess returns were worst for middle coupons – between the 4.0% and 6.0% coupons, with lower and higher coupons slightly better. Excess returns for middle coupons were between -1.1% and -1.3%, while the lower coupons ranged between -0.2% and -0.6%. The poor performance of coupons in the middle of the stack resulted from their more extreme extension as they moved from at or just below par to discount prices – implying the underlying cash flows had the most extreme movement. Previously existing discount securities had already extended, and higher coupons were still slight premiums that had yet to fully extend.
Previous wording
In response to the deterioration in the markets for U.S. Treasuries, Agency RMBS and other mortgage and fixed income markets resulting from the impacts of the COVID-19 pandemic, the Fed implemented a program of quantitative easing. Through November of 2021, the Fed was committed to purchasing $80 billion of U.S. Treasuries and $40 billion of Agency RMBS each month. In November of 2021, it began tapering its net asset purchases each month, ended net asset purchases by early March of 2022, and ended asset purchases entirely in September of 2022. On May 4, 2022, the FOMC announced a plan for reducing the Fed’s balance sheet. In June of 2022, in accordance with this plan, the Fed began reducing its balance sheet by a maximum of $30 billion of U.S. Treasuries and $17.5 billion of Agency RMBS each month. On September 21, 2022, the FOMC announced the Fed’s decision to continue reducing its balance sheet by a maximum of $60 billion of U.S. Treasuries and $35 billion of Agency RMBS per month. On May 1, 2024, the FOMC announced the Fed’s decision to reduce its balance sheet by a maximum of $25 billion of U.S. Treasury securities and remove the cap on Agency RMBS reduction, with any amounts in excess of $35 billion per month being reinvested in U.S. Treasury securities. On March 19, 2025, the FOMC announced the Fed’s decision to reduce its balance sheet by a maximum of $5 billion of U.S. Treasury securities beginning April 1, 2025. Relatively high interest rates and slow prepayment speeds kept the balance sheet reduction for Agency RMBS below $20 billion per month throughout 2024 and 2025. On December 1, 2025, the Fed ended quantitative tightening and began reinvesting all proceeds from maturing Agency RMBS up to a $35 billion per month cap in U.S. Treasuries and announced that it would begin buying an additional $40 billion per month of U.S. Treasuries via RMPs in order to maintain an ample level of reserves on an ongoing basis. RMPs were reduced to $25 billion per month in April 2026, and further reduced to $10 billion per month in May 2026, As of June 30, 2026, the Fed had reduced its balance sheet for Agency RMBS by approximately $792 billion from the peak of approximately $2.7 trillion to approximately $1.9 trillion, shedding approximately 58% of the Agency RMBS added during pandemic quantitative easing and representing the lowest level since August 2020.
Current wording
In response to the deterioration in the markets for U.S. Treasuries, Agency RMBS and other mortgage and fixed income markets resulting from the impacts of the COVID-19 pandemic, the Fed implemented a program of quantitative easing. Through November of 2021, the Fed was committed to purchasing $80 billion of U.S. Treasuries and $40 billion of Agency RMBS each month. In November of 2021, it began tapering its net asset purchases each month, ended net asset purchases by early March of 2022, and ended asset purchases entirely in September of 2022. On May 4, 2022, the FOMC announced a plan for reducing the Fed’s balance sheet. In June of 2022, in accordance with this plan, the Fed began reducing its balance sheet by a maximum of $30 billion of U.S. Treasuries and $17.5 billion of Agency RMBS each month. On September 21, 2022, the FOMC announced the Fed’s decision to continue reducing its balance sheet by a maximum of $60 billion of U.S. Treasuries and $35 billion of Agency RMBS per month. On May 1, 2024, the FOMC announced the Fed’s decision to reduce its balance sheet by a maximum of $25 billion of U.S. Treasury securities and remove the cap on Agency RMBS reduction, with any amounts in excess of $35 billion per month being reinvested in U.S. Treasury securities. On March 19, 2025, the FOMC announced the Fed’s decision to reduce its balance sheet by a maximum of $5 billion of U.S. Treasury securities beginning April 1, 2025. Relatively high interest rates and slow prepayment speeds kept the balance sheet reduction for Agency RMBS below $20 billion per month throughout 2024 and 2025. On December 1, 2025, the Fed ended quantitative tightening and began reinvesting all proceeds from maturing Agency RMBS up to a $35 billion per month cap in U.S. Treasuries and announced that it would begin buying an additional $40 billion per month of U.S. Treasuries via RMPs in order to maintain an ample level of reserves on an ongoing basis. RMPs were reduced to $25 billion per month in April 2026, and further reduced to $10 billion per month in May 2026. The Fed paused RMPs from mid-August 2026 through mid-October 2026, although the market anticipates that RMPs will resume and potentially increase in late 2026. As of September 30, 2026, the Fed had reduced its balance sheet for Agency RMBS by approximately $842 billion from the peak of approximately $2.7 trillion to approximately $1.9 trillion, shedding approximately 61% of the Agency RMBS added during pandemic quantitative easing and representing the lowest level since June 2020.
Previous wording
On March 19, 2026, the OCC, FDIC and the Fed rescinded the 2023 Basel III Endgame proposal and concurrently issued three revised notices of proposed rulemaking. The three proposals include (i) a revised Basel III Endgame proposal that would apply an expanded risk-based approach to Category I and Category II banking organizations, thus narrowing the mandatory scope from the 2023 proposal, with all other banking organizations permitted to opt in; (ii) a revised standardized approach proposal that would reduce risk weights for traditional lending activities for banking organizations not subject to the expanded risk-based approach; and (iii) a revised GSIB capital surcharge proposal. The OCC, FDIC, and the Fed estimate that the revised proposals would decrease aggregate common equity tier 1 capital requirements by approximately 4.8% for Category I and Category II banking organizations, in contrast to the significant capital increases that would have resulted under the 2023 Basel III Endgame. Additionally, the revised proposal would eliminate the requirement to deduct mortgage servicing assets from common equity tier 1 capital, instead assigning a 250% risk weight, which is designed to promote mortgage origination and servicing by banking organizations. The Fed voted 6-to-1 to advance all three proposals and the FDIC board voted unanimously in favor of the revised Basel III Endgame and standardized approach proposals. The comment period for the revised proposals closed on June 18, 2026, with the Fed indicating that they hope to release the final rule by the end of 2026.
Current wording
On March 19, 2026, the OCC, FDIC and the Fed rescinded the 2023 Basel III Endgame proposal and concurrently issued three revised notices of proposed rulemaking. The three proposals include (i) a revised Basel III Endgame proposal that would apply an expanded risk-based approach to Category I and Category II banking organizations, thus narrowing the mandatory scope from the 2023 proposal, with all other banking organizations permitted to opt in; (ii) a revised standardized approach proposal that would reduce risk weights for traditional lending activities for banking organizations not subject to the expanded risk-based approach; and (iii) a revised GSIB capital surcharge proposal. The OCC, FDIC, and the Fed estimate that the revised proposals would decrease aggregate common equity tier 1 capital requirements by approximately 4.8% for Category I and Category II banking organizations, in contrast to the significant capital increases that would have resulted under the 2023 Basel III Endgame. Additionally, the revised proposal would eliminate the requirement to deduct mortgage servicing assets from common equity tier 1 capital, instead assigning a 250% risk weight, which is designed to promote mortgage origination and servicing by banking organizations. The Fed voted 6-to-1 to advance all three proposals and the FDIC board voted unanimously in favor of the revised Basel III Endgame and standardized approach proposals. The comment period for the revised proposals closed on June 18, 2026, with the Fed indicating that it hopes to release the final rule by the end of 2026.
Previous wording
If prepayment rates are relatively low (due, in part, to the refinancing problems described above), lower long-term interest rates can increase the value of our Agency RMBS. This is because investors typically place a premium on assets with coupon/yields that are higher than coupon/yields available in the market. To the extent such securities pre-pay slower than would otherwise be the case, we benefit from an above market coupon/yield for longer, enhancing the return from the security. Although lower long-term interest rates may increase asset values in our portfolio, we may not be able to invest new funds in similarly yielding assets.
Current wording
If prepayment rates are relatively low (due, in part, to the refinancing problems described above), lower long-term interest rates can increase the value of our Agency RMBS. This is because investors typically place a premium on assets with coupon/yields that are higher than coupon/yields available in the market. To the extent such securities prepay slower than would otherwise be the case, we benefit from an above market coupon/yield for longer, enhancing the return from the security. Although lower long-term interest rates may increase asset values in our portfolio, we may not be able to invest new funds in similarly yielding assets.
Previous wording
If prepayment levels increase, the value of any of our Agency RMBS that are carried at a premium to par that are affected by such prepayments may decline. This is because a principal prepayment accelerates the effective term of an Agency RMBS, which would shorten the period during which an investor would receive above-market returns (assuming the yield on the prepaid asset is higher than market yields). Also, prepayment proceeds may not be able to be reinvested in similar-yielding assets. Agency RMBS backed by mortgages with high interest rates are more susceptible to prepayment risk because holders of those mortgages are most likely to refinance to a lower rate. If prepayment levels decrease, the value of any of our Agency RMBS that are carried at a discount to par that are affected by such prepayments may increase. This is because a principal prepayment accelerates the effective term of an Agency RMBS, which would shorten the timeframe over which an investor would receive the principal of the underlying loans. Agency RMBS backed by mortgages with low interest rates are less susceptible to prepayment risk because holders of those mortgages are less likely to refinance to a higher rate. IOs and IIOs, however, may be the types of Agency RMBS most sensitive to increased prepayment rates. Because the holder of an IO or IIO receives no principal payments, the values of IOs and IIOs are entirely dependent on the existence of a principal balance on the underlying mortgages. If the principal balance is eliminated due to prepayment, IOs and IIOs essentially become worthless. Although increased prepayment rates can negatively affect the value of our IOs and IIOs, they have the opposite effect on POs. Because POs act like zero-coupon bonds, meaning they are purchased at a discount to their par value and have an effective interest rate based on the discount and the term of the underlying loan, an increase in prepayment rates would reduce the effective term of our POs and accelerate the yields earned on those assets, which would increase our net income.
Current wording
If prepayment levels increase, the value of any of our Agency RMBS that are carried at a premium to par that are affected by such prepayments may decline. This is because a principal prepayment accelerates the effective term of an Agency RMBS, which would shorten the period during which an investor would receive above-market returns (assuming the yield on the prepaid asset is higher than market yields). Also, prepayment proceeds may not be able to be reinvested in similar-yielding assets. Agency RMBS backed by mortgages with high interest rates are more susceptible to prepayment risk because holders of those mortgages are most likely to refinance to a lower rate. If prepayment levels increase, the value of any of our Agency RMBS that are carried at a discount to par that are affected by such prepayments may increase. This is because a principal prepayment accelerates the effective term of an Agency RMBS, which would shorten the timeframe over which an investor would receive the principal of the underlying loans. Agency RMBS backed by mortgages with low interest rates are less susceptible to prepayment risk because holders of those mortgages are less likely to refinance to a higher rate. IOs and IIOs, however, may be the types of Agency RMBS most sensitive to increased prepayment rates. Because the holder of an IO or IIO receives no principal payments, the values of IOs and IIOs are entirely dependent on the existence of a principal balance on the underlying mortgages. If the principal balance is eliminated due to prepayment, IOs and IIOs essentially become worthless. Although increased prepayment rates can negatively affect the value of our IOs and IIOs, they have the opposite effect on POs. Because POs act like zero-coupon bonds, meaning they are purchased at a discount to their par value and have an effective interest rate based on the discount and the term of the underlying loan, an increase in prepayment rates would reduce the effective term of our POs and accelerate the yields earned on those assets, which would increase our net income.
Previous wording
With respect to the markets in which the Company derives its revenues and profits from, prior to the second quarter of 2026, Orchid and Company invested exclusively in Agency MBS securities and applied leverage utilizing repurchase agreement funding. The primary drivers of the performance of these assets – both absolute performance and performance relative to hedges – are interest rates, their impact on both asset prices and the level of prepayments, interest rate volatility, particularly the level of implied volatility in interest rate swaptions and various interest rate derivatives, and our funding levels. Accordingly, we have had, and continue to be significantly exposed to interest rates, and our performance remains driven by our ability to select assets, manage our leverage, and the effectiveness of our hedging strategy. However, as a result of the acquisition of TJIM the Company now derives revenues and profits from the equity market. Accordingly, our focus will broaden to encompass developments in the equity market going forward.
Current wording
With respect to the markets from which the Company derives its revenues and profits, prior to the second quarter of 2026, Orchid and the Company invested exclusively in Agency MBS securities and applied leverage utilizing repurchase agreement funding. The primary drivers of the performance of these assets – both absolute performance and performance relative to hedges – are interest rates, their impact on both asset prices and the level of prepayments, interest rate volatility, particularly the level of implied volatility in interest rate swaptions and various interest rate derivatives, and our funding levels. Accordingly, we have been, and continue to be, significantly exposed to interest rates, and our performance remains driven by our ability to select assets, manage our leverage, and the effectiveness of our hedging strategy. However, as a result of the acquisition of TJIM the Company now derives revenues and profits from the equity market. Accordingly, our focus will broaden to encompass developments in the equity market going forward.
Previous wording
At the outset of 2026, there was uncertainty about how the risks facing the economy would ultimately drive Fed policy and the level of interest rates, with resulting impacts on risk assets and Agency RMBS. Inflation was elevated, but risks to the growth outlook were clearly present, creating a quandary for policy makers. This does not appear to be the case now. Growth has proven to be remarkably resilient, as has the labor market, and the growth of the economy is not a pressing concern for policy makers or markets. Inflation, however, remains well above the Fed’s target and the Iran War seems likely to persist, representing a continued source of commodity inflation. Data released for June in early July reflected a welcome decrease in the various inflation measures, but considerable doubt remains regarding the sustainability of these readings. Looking forward, the Iran War continues to be a dominant force driving the performance of all markets. At this point, it is unclear what the ultimate outcome of the war will be or when it will end. As for the economy and monetary policy, the outlook is no longer uncertain, as the path of inflation alone is likely to drive monetary policy and interest rate levels in the United States. Both Orchid and the Company have maintained modest levels of leverage for the past several quarters and are likely to continue to do so given the prevailing market uncertainty.
Current wording
At the outset of 2026, there was uncertainty about how the risks facing the economy would ultimately drive Fed policy and the level of interest rates, with resulting impacts on risk assets and Agency RMBS. Inflation was elevated, but risks to the growth outlook were clearly present, creating a quandary for policy makers. This does not appear to be the case now. Growth has proven to be remarkably resilient, as has the labor market, and the growth of the economy is not a pressing concern for policy makers or markets. Inflation, however, remains well above the Fed’s target and the Iran War seems likely to persist, representing a continued source of commodity inflation. Looking forward, the Iran War continues to be a dominant force driving the performance of all markets. At this point, it is unclear what the ultimate outcome of the war will be or when it will end. As for the economy and monetary policy, the path of inflation is likely to be the primary driver of monetary policy and interest rate levels in the United States. Both Orchid and the Company have maintained modest levels of leverage for the past several quarters and are likely to continue to do so given the prevailing market uncertainty.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
Economic Interest Expense and Economic Net Interest Income