bmnm10q20210630p1i0.jpg
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10‑Q

10-Q
☑
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September
June 30, 20202021

◻ 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________
to ___________

Commission File Number:  001-32171

:
001-32171
Bimini Capital Management, Inc.
Bimini Capital Management, Inc.
(Exact name of registrant as specified in its charter)
Maryland
72-1571637
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
Maryland72-1571637
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)

3305 Flamingo Drive
,
Vero Beach
,
Florida
32963
(Address of principal executive offices) (Zip Code)

(772) (
772
)
231-1400
(Registrant’s telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Act: None.
Indicate by check
mark whether the
registrant (1) has filed
all reports required
to be filed
by Section 13 or
15(d) of the
Securities Exchange Act
of
1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports),
and (2) has been subject to such
filing requirements for the past 90 days.
Yes
ý
No ◻
☐
Indicate by check mark whether
the registrant has submitted electronically
every Interactive Data File required
to be submitted pursuant to
Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or
(or for such shorter period that the registrant was required
to submit such
files).
Yes
ý
No ◻
☐
Indicate by check mark whether the registrant is a
large accelerated filer, an accelerated filer,
a non-accelerated filer, a smaller reporting
company, or
an emerging growth company. See the definitions of "large accelerated filer," "accelerated
"accelerated filer", "smaller reporting company", and "emerging growth
company" in Rule 12b-2 of the Exchange Act. Check one:
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☐
(Do not check if a smaller reporting company)
Smaller reporting company
☒
Emerging growth company
☐
◻
Accelerated filer
◻
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
Smaller reporting company
⌧
 
Emerging growth company
◻

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻ 
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ◻ 
☐
No
ý
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date:

Title of each ClassLatest Practicable DateShares Outstanding
Title of each Class
Latest Practicable Date
Shares Outstanding
Class A Common Stock, $0.001 par value
August 13, 2021
10,795,676
Class B Common Stock, $0.001 par value
August 13, 2021
31,938
Class C Common Stock, $0.001 par value
August 13, 2021
31,938
November 6, 202011,608,555
Class B Common Stock, $0.001 par value
November 6, 202031,938
Class C Common Stock, $0.001 par value
November 6, 202031,938

BIMINI CAPITAL MANAGEMENT, INC.

TABLE OF CONTENTS


Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
1
Condensed Consolidated Balance Sheets (unaudited)
1
Condensed Consolidated Statements of Operations (unaudited)
2
Condensed Consolidated Statement of Stockholders’ Equity (unaudited)
3
Condensed Consolidated Statements of Cash Flows (unaudited)
4
Notes to Condensed Consolidated Financial Statements
5
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
26
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
54
ITEM 4. Controls and Procedures
54
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
55
ITEM 1A. Risk Factors
55
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
55
ITEM 3. Defaults Upon Senior Securities
55
ITEM 4. Mine Safety Disclosures
55
ITEM 5. Other Information
55
ITEM 6. Exhibits
56
SIGNATURES
57
PART I. FINANCIAL
INFORMATION

ITEM 1. Financial
Statements
1
Condensed
Consolidated
Balance Sheets
(unaudited)
1
Condensed
Consolidated
Statements
of Operations
(unaudited)
2
Condensed
Consolidated
Statement
of Stockholders’
Equity (unaudited)
3
Condensed
Consolidated
Statements
of Cash Flows
(unaudited)
4
Notes to Condensed
Consolidated
Financial Statements
(unaudited)
5
ITEM 2. Management’s
Discussion
and Analysis
of Financial
Condition
and Results
of Operations
21
ITEM 3. Quantitative
and Qualitative
Disclosures
About Market
Risk
44
ITEM 4. Controls
and Procedures
55
PART II. OTHER INFORMATION
ITEM 1. Legal
Proceedings
46
ITEM 1A.
Risk Factors
46
ITEM 2. Unregistered
Sales of Equity
Securities
and Use of
Proceeds
46
ITEM 3. Defaults
Upon Senior
Securities
46
ITEM 4. Mine
Safety Disclosures
46
ITEM 5. Other
Information
46
ITEM 6. Exhibits
46
SIGNATURES
48
- 1 -
PART I. FINANCIAL
INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIMINI CAPITAL MANAGEMENT, INC. 
CONDENSED CONSOLIDATED BALANCE SHEETS 
       
  (Unaudited)    
   September 30, 2020  December 31, 2019 
ASSETS:      
Mortgage-backed securities, at fair value
      
Pledged to counterparties
 
$
73,115,844
  
$
217,793,209
 
Unpledged
  
28,685
   
47,744
 
Total mortgage-backed securities
  
73,144,529
   
217,840,953
 
Cash and cash equivalents
  
5,837,067
   
8,070,067
 
Restricted cash
  
1,253,075
   
4,315,050
 
Orchid Island Capital, Inc. common stock, at fair value
  
13,002,739
   
8,892,211
 
Accrued interest receivable
  
234,431
   
750,875
 
Property and equipment, net
  
2,110,752
   
2,162,975
 
Real property held for sale
  
450,000
   
450,000
 
Deferred tax assets
  
24,003,192
   
33,288,536
 
Other assets
  
2,127,592
   
3,718,281
 
Total Assets 
$
122,163,377
  
$
279,488,948
 
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
         
LIABILITIES:        
Repurchase agreements
 
$
70,685,172
  
$
209,954,000
 
Long-term debt
  
27,618,048
   
27,481,121
 
Accrued interest payable
  
83,384
   
645,302
 
Other liabilities
  
1,346,817
   
1,431,534
 
Total Liabilities  
99,733,421
   
239,511,957
 
         
COMMITMENTS AND CONTINGENCIES        
         
STOCKHOLDERS' EQUITY:        
Preferred stock, $0.001 par value; 10,000,000 shares authorized; 100,000 shares
        
designated Series A Junior Preferred Stock, 9,900,000 shares undesignated;
        
no shares issued and outstanding as of September 30, 2020 and December 31, 2019
  
-
   
-
 
Class A Common stock, $0.001 par value; 98,000,000 shares designated: 11,608,555
        
shares issued and outstanding as of September 30, 2020 and December 31, 2019
  
11,609
   
11,609
 
Class B Common stock, $0.001 par value; 1,000,000 shares designated, 31,938 shares
        
issued and outstanding as of September 30, 2020 and December 31, 2019
  
32
   
32
 
Class C Common stock, $0.001 par value; 1,000,000 shares designated, 31,938 shares
        
issued and outstanding as of September 30, 2020 and December 31, 2019
  
32
   
32
 
Additional paid-in capital
  
332,642,758
   
332,642,758
 
Accumulated deficit
  
(310,224,475
)
  
(292,677,440
)
Stockholders’ Equity  
22,429,956
   
39,976,991
 
Total Liabilities and Stockholders' Equity 
$
122,163,377
  
$
279,488,948
 
See Notes to Condensed Consolidated Financial Statements 

-1-
BIMINI CAPITAL MANAGEMENT, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 
(Unaudited) 
For the Nine and Three Months Ended September 30, 2020 and 2019 
             
   Nine Months Ended September 30,  Three Months Ended September 30, 
  2020  2019  2020  2019 
Revenues:            
Advisory services
 
$
4,969,143
  
$
5,052,251
  
$
1,629,463
  
$
1,791,135
 
Interest income
  
3,167,439
   
5,970,482
   
604,158
   
1,646,389
 
Dividend income from Orchid Island Capital, Inc. common stock
  
1,246,636
   
1,094,426
   
493,118
   
364,809
 
Total revenues
  
9,383,218
   
12,117,159
   
2,726,739
   
3,802,333
 
Interest expense
                
Repurchase agreements
  
(1,030,372
)
  
(3,654,675
)
  
(42,955
)
  
(1,001,781
)
Long-term debt
  
(893,299
)
  
(1,195,690
)
  
(261,341
)
  
(389,543
)
Net revenues
  
7,459,547
   
7,266,794
   
2,422,443
   
2,411,009
 
                 
Other income (expense):                
Unrealized gains on mortgage-backed securities
  
303,651
   
6,226,586
   
275,796
   
950,334
 
Realized (losses) gains on mortgage-backed securities
  
(5,804,656
)
  
23,078
   
-
   
23,078
 
Unrealized gains (losses) on Orchid Island Capital, Inc. common stock
  
38,935
   
(972,823
)
  
793,727
   
(927,222
)
(Losses) gains on derivative instruments
  
(5,292,346
)
  
(6,105,202
)
  
75
   
(483,446
)
Gains on retained interests in securitizations
  
58,735
   
314,984
   
58,735
   
39,869
 
Impairment of real property held for sale
  
-
   
(673,438
)
  
-
   
(673,438
)
Other (expense) income
  
(8,248
)
  
32,523
   
(8,890
)
  
32,029
 
Total other (expense) income  
(10,703,929
)
  
(1,154,292
)
  
1,119,443
   
(1,038,796
)
                 
Expenses:                
Compensation and related benefits
  
3,157,074
   
3,074,650
   
1,010,407
   
987,024
 
Directors' fees and liability insurance
  
511,786
   
490,775
   
166,093
   
169,468
 
Audit, legal and other professional fees
  
467,015
   
381,024
   
120,374
   
96,996
 
Administrative and other expenses
  
870,919
   
878,924
   
318,874
   
352,896
 
Total expenses  
5,006,794
   
4,825,373
   
1,615,748
   
1,606,384
 
                 
Net (loss) income before income tax provision
  
(8,251,176
)
  
1,287,129
   
1,926,138
   
(234,171
)
Income tax provision
  
9,295,859
   
942,364
   
608,351
   
537,945
 
                 
Net (loss) income $(17,547,035) $344,765  $1,317,787  $(772,116)
                 
Basic and Diluted Net (loss) income Per Share of:                
CLASS A COMMON STOCK
                
Basic and Diluted
 
$
(1.51
)
 
$
0.03
  
$
0.11
  
$
(0.07
)
CLASS B COMMON STOCK
                
Basic and Diluted
 
$
(1.51
)
 
$
0.03
  
$
0.11
  
$
(0.07
)
Weighted Average Shares Outstanding:                
CLASS A COMMON STOCK
                
Basic and Diluted
  
11,608,555
   
12,370,114
   
11,608,555
   
11,704,207
 
CLASS B COMMON STOCK
                
Basic and Diluted
  
31,938
   
31,938
   
31,938
   
31,938
 
See Notes to Condensed Consolidated Financial Statements 

-2-
BIMINI CAPITAL MANAGEMENT, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 
(Unaudited) 
For the Nine and Three Months Ended September 30, 2020 and 2019 
                
     Stockholders' Equity    
  Common Stock  Additional  Accumulated    
  Shares  Par Value  Paid-in Capital  Deficit  Total 
Balances, January 1, 2019
  
12,773,145
  
$
12,773
  
$
334,919,265
  
$
(305,977,417
)
 
$
28,954,621
 
Net income
  
-
   
-
   
-
   
1,618,603
   
1,618,603
 
Class A common shares repurchased and retired
  
(714
)
  
-
   
(1,542
)
  
-
   
(1,542
)
Balances, March 31, 2019
  
12,772,431
  
$
12,773
  
$
334,917,723
  
$
(304,358,814
)
 
$
30,571,682
 
Net loss
  
-
   
-
   
-
   
(501,722
)
  
(501,722
)
Balances, June 30, 2019
  
12,772,431
  
$
12,773
  
$
334,917,723
  
$
(304,860,536
)
 
$
30,069,960
 
Net loss
      
-
   
-
   
(772,116
)
  
(772,116
)
Class A common shares repurchased and retired
  
(1,100,000
)
  
(1,100
)
  
(2,274,965
)
  
-
   
(2,276,065
)
Balances, September 30, 2019
  
11,672,431
  
$
11,673
  
$
332,642,758
  
$
(305,632,652
)
 
$
27,021,779
 
                     
Balances, January 1, 2020
  
11,672,431
  
$
11,673
  
$
332,642,758
  
$
(292,677,440
)
 
$
39,976,991
 
Net loss
  
-
   
-
   
-
   
(22,332,947
)
  
(22,332,947
)
Balances, March 31, 2020
  
11,672,431
  
$
11,673
  
$
332,642,758
  
$
(315,010,387
)
 
$
17,644,044
 
Net income
  
-
   
-
   
-
   
3,468,125
   
3,468,125
 
Balances, June 30, 2020
  
11,672,431
  
$
11,673
  
$
332,642,758
  
$
(311,542,262
)
 
$
21,112,169
 
Net income
  
-
   
-
   
-
   
1,317,787
   
1,317,787
 
Balances, September 30, 2020
  
11,672,431
  
$
11,673
  
$
332,642,758
  
$
(310,224,475
)
 
$
22,429,956
 
See Notes to Condensed Consolidated Financial Statements 

-3-
BIMINI CAPITAL MANAGEMENT, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
(Unaudited) 
For the Nine Months Ended September 30, 2020 and 2019 
       
  2020  2019 
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net (loss) income
 
$
(17,547,035
)
 
$
344,765
 
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
        
Depreciation
  
52,223
   
54,886
 
Deferred income tax provision
  
9,285,344
   
1,136,975
 
Losses (gains) on mortgage-backed securities, net
  
5,501,005
   
(6,249,664
)
Gains on retained interests in securitizations
  
(58,735
)
  
(314,984
)
Impairment of real property held for sale
  
-
   
673,438
 
Unrealized (gains) losses on Orchid Island Capital, Inc. common stock
  
(38,935
)
  
972,823
 
Realized and unrealized losses on forward settling TBA securities
  
1,441,406
   
2,005,175
 
Changes in operating assets and liabilities:
        
Accrued interest receivable
  
516,444
   
194,552
 
Other assets
  
1,590,689
   
(158,981
)
Accrued interest payable
  
(561,918
)
  
(365,887
)
Other liabilities
  
(26,123
)
  
(315,920
)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
  
154,365
   
(2,022,822
)
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
From mortgage-backed securities investments:
        
Purchases
  
(43,129,835
)
  
(3,285,372
)
Sales
  
171,155,249
   
43,975,274
 
Principal repayments
  
11,170,005
   
14,756,931
 
Proceeds from termination of retained interests
  
58,735
   
314,984
 
Net settlement of forward settling TBA contracts
  
(1,500,000
)
  
(2,889,941
)
Purchases of Orchid Island Capital, Inc. common stock
  
(4,071,593
)
  
-
 
NET CASH PROVIDED BY INVESTING ACTIVITIES
  
133,682,561
   
52,871,876
 
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Proceeds from repurchase agreements
  
501,460,570
   
860,182,000
 
Principal repayments on repurchase agreements
  
(640,729,398
)
  
(906,103,000
)
Net proceeds on long-term debt
  
136,927
   
-
 
Class A common shares repurchased and retired
  
-
   
(2,277,607
)
NET CASH USED IN FINANCING ACTIVITIES
  
(139,131,901
)
  
(48,198,607
)
         
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
  
(5,294,975
)
  
2,650,447
 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of the period
  
12,385,117
   
6,240,488
 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of the period
 
$
7,090,142
  
$
8,890,935
 
         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:        
Cash paid (received) during the period for:
        
Interest expense
 
$
2,485,589
  
$
5,216,252
 
Income taxes
 
$
(1,568,363
)
 
$
(46,700
)
See Notes to Condensed Consolidated Financial Statements 
-4-
BIMINI CAPITAL MANAGEMENT,
INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited)
June 30, 2021
December 31, 2020
ASSETS:
Mortgage-backed securities, at fair value
Pledged to counterparties
$
68,973,238
$
65,153,274
Unpledged
20,392
24,957
Total mortgage
-backed securities
68,993,630
65,178,231
Cash and cash equivalents
7,275,488
7,558,342
Restricted cash
5,892,425
3,353,015
Orchid Island Capital, Inc. common stock, at fair value
13,469,903
13,547,764
Accrued interest receivable
216,050
202,192
Property and equipment, net
2,058,815
2,093,440
Deferred tax assets
34,499,829
34,668,467
Due from affiliates
794,251
632,471
Other assets
1,471,857
1,466,647
Total Assets
$
134,672,248
$
128,700,569
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Repurchase agreements
$
71,345,999
$
65,071,113
Long-term debt
27,449,886
27,612,781
Accrued interest payable
77,569
107,417
Other liabilities
940,301
1,421,409
Total Liabilities
99,813,755
94,212,720
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY:
Preferred stock, $
0.001
par value;
10,000,000
shares authorized;
100,000
shares
designated Series A Junior Preferred Stock,
9,900,000
shares undesignated;
no shares issued and outstanding as of June 30, 2021 and December
31, 2020
0
0
Class A Common stock, $
0.001
par value;
98,000,000
shares designated:
11,608,555
shares issued and outstanding as of June 30, 2021 and December 31,
2020
11,609
11,609
Class B Common stock, $
0.001
par value;
1,000,000
shares designated,
31,938
shares
issued and outstanding as of June 30, 2021 and December 31, 2020
32
32
Class C Common stock, $
0.001
par value;
1,000,000
shares designated,
31,938
shares
issued and outstanding as of June 30, 2021 and December 31, 2020
32
32
Additional paid-in capital
332,642,758
332,642,758
Accumulated deficit
(297,795,938)
(298,166,582)
Stockholders’ Equity
34,858,493
34,487,849
Total Liabilities
and Stockholders' Equity
$
134,672,248
$
128,700,569
See Notes to Condensed Consolidated Financial Statements
- 2 -
BIMINI CAPITAL MANAGEMENT,
INC.
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS
(Unaudited)
For the Six and Three Months Ended June 30, 2021 and
2020
Six Months Ended June 30,
Three Months Ended June 30,
2021
2020
2021
2020
Revenues:
Advisory services
$
4,211,221
$
3,339,680
$
2,185,812
$
1,615,083
Interest income
1,189,068
2,563,281
578,450
523,287
Dividend income from Orchid Island Capital, Inc. common stock
1,012,189
753,518
506,094
388,709
Total revenues
6,412,478
6,656,479
3,270,356
2,527,079
Interest expense
Repurchase agreements
(71,197)
(987,417)
(31,339)
(59,601)
Long-term debt
(499,112)
(631,958)
(249,564)
(282,457)
Net revenues
5,842,169
5,037,104
2,989,453
2,185,021
Other income (expense):
Unrealized (losses) gains on mortgage-backed securities
(1,897,862)
27,855
(505,601)
602,136
Realized losses on mortgage-backed securities
0
(5,804,656)
0
0
Unrealized (losses) gains on Orchid Island Capital, Inc. common stock
(77,861)
(754,792)
(2,128,193)
3,653,312
Losses on derivative instruments
(133)
(5,292,421)
(376)
(1,690)
Other income
153,973
642
153,887
318
Total other (expense)
income
(1,821,883)
(11,823,372)
(2,480,283)
4,254,076
Expenses:
Compensation and related benefits
2,190,220
2,146,667
1,066,690
1,046,623
Directors' fees and liability insurance
377,634
345,693
189,614
181,112
Audit, legal and other professional fees
271,903
346,641
134,735
187,348
Administrative and other expenses
641,247
552,045
333,382
270,005
Total expenses
3,481,004
3,391,046
1,724,421
1,685,088
Net income (loss) before income tax provision (benefit)
539,282
(10,177,314)
(1,215,251)
4,754,009
Income tax provision (benefit)
168,638
8,687,508
(295,465)
1,285,884
Net income (loss)
$
370,644
$
(18,864,822)
$
(919,786)
$
3,468,125
Basic and Diluted Net income (loss) Per Share of:
CLASS A COMMON STOCK
Basic and Diluted
$
0.03
$
(1.62)
$
(0.08)
$
0.30
CLASS B COMMON STOCK
Basic and Diluted
$
0.03
$
(1.62)
$
(0.08)
$
0.30
Weighted Average Shares Outstanding:
CLASS A COMMON STOCK
Basic and Diluted
11,608,555
11,608,555
11,608,555
11,608,555
CLASS B COMMON STOCK
Basic and Diluted
31,938
31,938
31,938
31,938
See Notes to Condensed Consolidated Financial Statements
- 3 -
BIMINI CAPITAL MANAGEMENT,
INC.
CONDENSED CONSOLIDATED STATEMENTS
OF STOCKHOLDERS' EQUITY
(Unaudited)
For the Six and Three Months Ended June 30, 2021 and
2020
Stockholders' Equity
Common Stock
Additional
Accumulated
Shares
Par Value
Paid-in Capital
Deficit
Total
Balances, January 1, 2020
11,672,431
$
11,673
$
332,642,758
$
(292,677,440)
$
39,976,991
Net loss
-
0
0
(22,332,947)
(22,332,947)
Balances, March 31, 2020
11,672,431
$
11,673
$
332,642,758
$
(315,010,387)
$
17,644,044
Net income
-
0
0
3,468,125
3,468,125
Balances, June 30, 2020
11,672,431
$
11,673
$
332,642,758
$
(311,542,262)
$
21,112,169
Balances, January 1, 2021
11,672,431
$
11,673
$
332,642,758
$
(298,166,582)
$
34,487,849
Net income
-
0
0
1,290,430
1,290,430
Balances, March 31, 2021
11,672,431
$
11,673
$
332,642,758
$
(296,876,152)
$
35,778,279
Net loss
-
0
0
(919,786)
(919,786)
Balances, June 30, 2021
11,672,431
$
11,673
$
332,642,758
$
(297,795,938)
$
34,858,493
See Notes to Condensed Consolidated Financial Statements
- 4 -
BIMINI CAPITAL MANAGEMENT,
INC.
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
For the Six Months Ended June 30, 2021 and 2020
2021
2020
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)
$
370,644
$
(18,864,822)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation
34,625
34,911
Deferred income tax provision
168,638
8,686,736
Losses on mortgage-backed securities, net
1,897,862
5,776,801
PPP loan forgiveness
(153,724)
0
Unrealized losses on Orchid Island Capital, Inc. common stock
77,861
754,792
Realized and unrealized losses on forward settling TBA securities
0
1,441,406
Changes in operating assets and liabilities:
Accrued interest receivable
(13,858)
556,646
Due from affiliates
(161,780)
52,970
Other assets
(5,210)
(20,960)
Accrued interest payable
(28,289)
(575,438)
Other liabilities
(481,108)
(489,128)
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES
1,705,661
(2,646,086)
CASH FLOWS FROM INVESTING ACTIVITIES:
From mortgage-backed securities investments:
Purchases
(13,139,464)
(20,823,373)
Sales
0
171,155,249
Principal repayments
7,426,203
8,914,759
Net settlement of forward settling TBA contracts
0
(1,500,000)
Purchases of Orchid Island Capital, Inc. common stock
0
(3,615,712)
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES
(5,713,261)
154,130,923
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from repurchase agreements
117,034,000
430,566,397
Principal repayments on repurchase agreements
(110,759,114)
(588,903,397)
Proceeds from long-term debt
0
152,165
Principal repayments on long-term debt
(10,730)
(10,125)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
6,264,156
(158,194,960)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS
AND RESTRICTED CASH
2,256,556
(6,710,123)
CASH, CASH EQUIVALENTS AND
RESTRICTED CASH, beginning of the period
10,911,357
12,385,117
CASH, CASH EQUIVALENTS AND
RESTRICTED CASH, end of the period
$
13,167,913
$
5,674,994
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid (received) during the period for:
Interest expense
$
600,157
$
2,194,813
Income taxes
$
0
$
13,465
See Notes to Condensed Consolidated Financial Statements
- 5 -
BIMINI CAPITAL
MANAGEMENT, INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
SeptemberJune 30, 20202021

NOTE 1.
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Business
Description

Bimini Capital Management, Inc., a Maryland corporation (“Bimini Capital” or the “Company”)
formed in September 2003, is a
holding company.
The Company operates in two business segments through its principal wholly-owned
operating subsidiary, Royal
Palm Capital LLC, which includes its wholly-owned subsidiary, Bimini Advisors Holdings, LLC.

Bimini Advisors Holdings, LLC and its wholly-owned subsidiary, Bimini Advisors, LLC (an
investment advisor registered with the
Securities and Exchange Commission), are collectively referred to as "Bimini Advisors."
Bimini Advisors manages a residential
mortgage-backed securities (“MBS”) portfolio for Orchid Island Capital, Inc.
("Orchid") and receives fees for providing these services.
Bimini Advisors also manages the MBS portfolio of Royal Palm Capital, LLC.

Royal Palm Capital, LLC maintains an investment portfolio, consisting primarily of MBS investments
and shares of Orchid common
stock, for its own benefit. Royal Palm Capital, LLC and its wholly-owned subsidiaries
are collectively referred to as "Royal Palm."

COVID-19
Impact
Beginning
in March 2020,
the global
pandemic associated
with the novel
coronavirus
(“COVID-19”)
and related
economic conditions
began to impact
our financial
position and
results of
operations.
As a result
of the economic,
health and
market turmoil
brought about
by
COVID-19,
the MBS market
experienced
severe dislocations.
This resulted
in falling
prices of
our assets
and increased
margin calls
from
our repurchase
agreement
lenders, resulting
in material
adverse effects
on our results
of operations
and to our
financial condition.
The MBS market
largely stabilized
after the
Federal Reserve
announced
on March 23,
2020 that
it would purchase
MBS and U.S.
Treasuries in
the amounts
needed to
support smooth
market functioning.
As of March
31, 2020,
and at all
times since
then, we
have timely
satisfied all
margin calls.
The MBS
market continues
to react to
the pandemic
and the various
measures put
in place to
stabilize the
market. To the extent
the financial
or mortgage
markets do
not respond
favorably to
any of these
actions, or
such actions
do not function
as intended,
our business,
results of
operations
and financial
condition
may continue
to be materially
adversely affected.
Although the
Company cannot
estimate the
length or
gravity of
the impact
of the COVID-19
pandemic at
this time, it
may have a
material adverse
effect
on the Company’s
results of
future operations,
financial position,
and liquidity
during 2021.
Consolidation

The accompanying consolidated financial statements include the accounts of Bimini
Capital, Bimini Advisors and Royal Palm.
All
inter-company accounts and transactions have been eliminated from the consolidated
financial statements.

Variable Interest Entities (“VIEs”)

A variable interest entity ("VIE") is consolidated by an enterprise if it is deemed the
primary beneficiary of the VIE. Bimini Capital
has a common share investment in a trust used in connection with the issuance of Bimini
Capital's junior subordinated notes. See Note
8 for a description of the accounting used for this VIE.

The Company obtains interests in VIEs through its investments in mortgage-backed
securities.
The interests in these VIEs are
- 6 -
passive in nature and are not expected to result in the Company obtaining a controlling
financial interest in these VIEs in the future.
As
a result, the Company does not consolidate these VIEs and accounts for the interest
in these VIEs as mortgage-backed securities.
See Note 3 for additional information regarding the Company’s investments in mortgage-backed securities.
The maximum exposure to
loss for these VIEs is the carrying value of the mortgage-backed securities.

Basis of
Presentation

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting
principles generally accepted in the United States (“GAAP”) for interim financial
information and with the instructions to Form 10-Q and
Article 8 of Regulation S-X.
Accordingly, they may not include all of the information and footnotes required by GAAP for complete
financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for
a fair presentation have been included.
Operating results for the ninesix and three month periodsthree-month period ended SeptemberJune 30, 2020 2021
are not necessarily
indicative of the results that may be expected for the year ending December 31, 2020.2021.

-5-
The consolidated balance sheet at December 31, 20192020 has been derived from the
audited financial statements at that date but
does not include all of the information and footnotes required by GAAP for complete
consolidated financial statements.
For further
information, refer to the financial statements and footnotes thereto included in the
Company’s Annual Report on Form 10-K for the year
ended December 31, 2019.

COVID-19 Impact

Beginning in mid-March 2020, the global pandemic associated with the novel coronavirus COVID-19 (“COVID-19”) and related economic conditions began to impact our financial position and results of operations. As a result of the economic, health and market turmoil brought about by COVID-19, the Agency MBS market experienced severe dislocations. This resulted in falling prices of our assets and increased margin calls from our repurchase agreement lenders. Further, as interest rates declined, we faced additional margin calls related to our various hedge positions. In order to maintain our leverage ratio at prudent levels, maintain sufficient cash and liquidity, reduce risk and satisfy margin calls, we sold assets at levels significantly below their carrying values and closed several hedge positions. The Agency MBS market largely stabilized after the Federal Reserve announced on March 23, 2020 that it would purchase Agency MBS and U.S. Treasuries in the amounts needed to support smooth market functioning. As of September 30, 2020, we had timely satisfied all margin calls. The following summarizes the impact COVID-19 has had on our financial position and results of operations through September 30, 2020.

We sold approximately $171.2 million of MBS during the three months ended March 31, 2020, realizing losses of approximately $5.8 million. Substantially all of the realized losses were a direct result of the adverse MBS market conditions associated with COVID-19. We had no additional sales of MBS during the six months ended September 30, 2020.
Our MBS portfolio had a fair market value of approximately $73.1 million as of September 30, 2020, compared to $52.8 million as of June 30, 2020, $54.4 million at March 31, 2020, and $217.8 million as of December 31, 2019.
Our outstanding balances under our repurchase agreement borrowings as of September 30, 2020 were approximately $70.7 million, compared to $51.6 million as of June 30, 2020, $52.4 million as of March 31, 2020 and $210.0 million as of December 31, 2019.
We recorded an additional valuation allowance against our deferred tax assets of approximately $11.2 million during the three months ended March 31, 2020. We have not adjusted the valuation allowance since March 31, 2020.
Our stockholders’ equity was $22.4 million as of September 30, 2020, compared to $21.1 million as of June 30, 2020, $17.6 million as of March 31, 2020 and $40.0 million as of December 31, 2019.

In response to the Shelter in Place order issued in Florida in March 2020, management has invoked the Company’s Disaster Recovery Plan and its employees are working remotely. Prior planning resulted in the successful implementation of this plan and key operational team members maintain daily communication.

In addition, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which has provided billions of dollars of relief to individuals, businesses, state and local governments, and the health care system suffering the impact of the pandemic, including mortgage loan forbearance and modification programs to qualifying borrowers who may have difficulty making their loan payments. On April 13, 2020, the Company received $152,000 through the Paycheck Protection Program of the CARES Act in the form of a low interest rate loan.  The application for these funds requires the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further requires the Company to take into account our current business activity and our ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on our future adherence to the forgiveness criteria.

-6-

The CARES Act also makes technical corrections to, or modifies on a temporary basis, certain provisions of the U.S. Income Tax Code. Significant income tax impacts of the CARES Act include the ability to carry back a net operating loss for 5 years and an increase in the interest expense disallowance limitations from 30% to 50% of adjusted taxable income.  Those changes did not significantly impact the consolidated financial statements or the Company’s 2019 income tax return.

The Company has evaluated the other provisions of the CARES Act and does not believe it will have a material effect on the Company’s business, results of operations and financial condition. The Federal Housing Financing Agency (the “FHFA”) has instructed the GSEs on how they will handle servicer advances for loans that back Agency RMBS that enter into forbearance, which should limit prepayments during the forbearance period that could have resulted otherwise. During the forbearance period the Company will continue to receive scheduled principal and interest each month on its Agency RMBS 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. To the extent the financial or mortgage markets do not respond favorably to any of these actions, or such actions do not function as intended, our business, results of operations and financial condition may continue to be materially adversely affected.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from
those estimates.
Significant estimates affecting the accompanying consolidated financial statements include
determining the fair
values of MBS, investment in Orchid common shares and derivatives, determining
the amounts of asset valuation allowances, the impairment for the real property held for sale, and the
computation of the income tax provision or benefit and the deferred tax asset allowances
recorded for each accounting period. Management believes the estimates and assumptions underlying the financial statements are reasonable based on the information available as of September 30, 2020, however uncertainty over the ultimate impact that COVID-19 will have on the global economy generally, and on our business in particular, makes any estimates and assumptions as of September 30, 2020 inherently less certain than they would be absent the current and potential impacts of COVID-19.

Segment Reporting

The Company’s operations are classified into two principal reportable segments: the asset
management segment and the
investment portfolio segment. These segments are evaluated by management in deciding
how to allocate resources and in assessing
performance.
The accounting policies of the operating segments are the same as the
Company’s accounting policies with the
exception that inter-segment revenues and expenses are included in the presentation
of segment results.
For further information see
Note 14.

Cash and Cash Equivalents and Restricted Cash

Cash and cash
equivalents
include cash
on deposit
with financial
institutions
and highly
liquid investments
with original
maturities
of
three months
or less at
the time
of purchase.
Restricted
cash includes
cash pledged
as collateral
for repurchase
agreements
and
derivative
instruments.
The following
table presents
the Company’s
cash, cash
equivalents
and restricted
cash as of
June 30,
2021 and
December 31,
2020.
June 30, 2021
December 31, 2020
Cash and cash equivalents include cash on deposit with financial institutions and highly liquid investments with original maturities of three months or less at the time of purchase.
$
7,275,488
$
7,558,342
Restricted cash includes cash pledged as collateral for repurchase agreements and derivative instruments.  The following table presents the Company’s
5,892,425
3,353,015
Total cash, cash equivalents
and restricted cash as of September 30, 2020 and December 31, 2019.

$
(in thousands)      
 September 30, 2020 December 31, 2019 
Cash and cash equivalents
 
$
5,837,067
  
$
8,070,067
 
Restricted cash
  
1,253,075
   
4,315,050
 
Total cash, cash equivalents and restricted cash 
$
7,090,142
  
$
12,385,117
 

13,167,913
$
10,911,357
-7-

The Company
maintains cash
balances at
several banks
and excess
margin with
an exchange
clearing member.
At times,
balances
- 7 -
may exceed
federally insured
limits. The
Company has
not experienced
any losses
related to
these balances.
The Federal
Deposit
Insurance
Corporation
insures eligible
accounts up
to $250,000
per depositor
at each financial
institution.
Restricted
cash balances
are
uninsured,
but are held
in separate
accounts that
are segregated
from the general
funds of the
counterparty.
The Company
limits
uninsured
balances to
only large,
well-known
banks
and exchange
clearing members
and believes
that it is
not exposed
to significant
credit risk
on cash and
cash equivalents
or restricted
cash balances.

Advisory Services

Orchid is externally
managed and
advised by
Bimini Advisors
pursuant to
the terms
of a management
agreement.
Under the terms
of
the management
agreement,
Orchid is
obligated to
pay Bimini
Advisors a
monthly management
fee and a
pro rata portion
of certain
overhead costs
and to reimburse
the Company
for any direct
expenses incurred
on its behalf.
Revenues from
management
fees are
recognized
over the period
of time in
which the
service is
performed.

Mortgage-Backed
Securities

The Company invests primarily in mortgage pass-through (“PT”) mortgage backed mortgage-backed
certificates issued by Freddie Mac, Fannie Mae
or Ginnie Mae (“MBS”), collateralized mortgage obligations (“CMOs”), interest-only
(“IO”) securities and inverse interest-only (“IIO”)
securities representing interest in or obligations backed by pools of mortgage-backed
loans. We refer to MBS and CMOs as PT MBS.
We refer to IO and IIO securities as structured MBS. The Company has elected to account for
its investment in MBS under the fair
value option.
Electing the fair value option requires the Company to record changes in
fair value in the consolidated statement of
operations, which, in management’s view, more appropriately reflects the results of our operations for a particular reporting period and
is consistent with the underlying economics and how the portfolio is managed.

The Company records MBS transactions on the trade date.
Security purchases that have not settled as of the balance sheet date
are included in the MBS balance with an offsetting liability recorded, whereas securities sold
that have not settled as of the balance
sheet date are removed from the MBS balance with an offsetting receivable recorded.

Fair value is defined as the price that would be received to sell the asset or paid to transfer
the liability in an orderly transaction
between market participants at the measurement date.
The fair value measurement assumes that the transaction to sell
the asset or
transfer the liability either occurs in the principal market for the asset or liability, or in the absence of a principal market, occurs in
the
most advantageous market for the asset or liability. Estimated fair values for MBS are based on independent pricing sources and/or
third-party broker quotes, when available.

Income on PT MBS is based on the stated interest rate of the security. Premiums or discounts present at the date of purchase
are
not amortized.
Premium lost and discount accretion resulting from monthly principal repayments
are reflected in unrealized gains and
losses on MBS in the consolidated statements of operations.
For IO securities,
the income
is accrued
based on the
carrying value
and
the effective
yield. The
difference
between income
accrued and
the interest
received on
the security
is characterized
as a return
of
investment
and serves
to reduce
the asset’s
carrying value.
At each reporting date, the effective yield is adjusted prospectively for future
reporting periods based on the new estimate of prepayments and the contractual
terms of the security.
For IIO securities, effective
yield and income recognition calculations also take into account the index
value applicable to the security.
Changes in fair value of
MBS during each reporting period are recorded in earnings and reported as unrealized
gains or losses on mortgage-backed securities
in the accompanying consolidated statements of operations.
The amount reported as unrealized gains or losses on mortgage backed mortgage-backed
securities thus captures the net effect of changes in the fair market value of securities caused by market
developments and any
premium or discount lost as a result of principal repayments during the period.
-8-

Orchid Island Capital, Inc. Common Stock

The Company has elected
accounts for
its investment
in Orchid common
shares at
fair value.
The change
in the fair
value and dividends
received
- 8 -
on this investment
are reflected
in the consolidated
statements
of operations.
We estimate
the fair value option for its
of our investment
in Orchid
on a
market approach
using “Level
1” inputs based
on the quoted
market price
of Orchid’s common shares. 
stock on a
national stock
exchange.
Retained
Interests
in Securitizations
The changeCompany
holds retained
interests in
the subordinated
tranches of
securities
created in
securitization
transactions.
These retained
interests currently
have a recorded
fair value
of this investment and dividendszero, as
the prospect
of future
cash flows
being received on this investment are
is uncertain.
Any cash
received
from the retained
interests is
reflected
in the consolidated
statements
of operations.  We estimate the fair value of our investment in Orchid on a market approach using “Level 1” inputs based on the quoted market price of Orchid’s common stock on a national stock exchange. Electing the fair value option requires the Company to record changes in fair value in the consolidated statements of operations, which, in management’s view, more appropriately reflects the results of our operations for a particular reporting period and is consistent with how the investment is managed.

Retained Interests in Securitizations

Derivative
Financial Instruments
The Company holds retained interests in the subordinated tranches of securities created in securitization transactions. These retained interests currently have a recorded fair value of zero, as the prospect of future cash flows being received is uncertain. Any cash received from the retained interests is reflected as a gain in the consolidated statements of operations.

Derivative Financial Instruments

The Company uses derivative
instruments
to manage
interest rate
risk, facilitate
asset/liability
strategies
and manage
other
exposures,
and it may
continue to
do so in the
future. The
principal instruments
that the Company
has used to
date are Treasury
Note (“T-Note”T-
Note”) and
Eurodollar
futures contracts,
and “to-be-announced”
(“TBA”) securities
transactions,
but it may
enter into
other derivative
instruments
in the future.

The Company
accounts for
TBA securities
as derivative
instruments.
Gains and losses
associated
with TBA
securities
transactions
are reported
in gain (loss)
on derivative
instruments
in the accompanying
consolidated
statements
of operations.

Derivative
instruments
are carried
at fair value,
and changes
in fair value
are recorded
in the consolidated
operations
for each period.
The Company’s
derivative
financial
instruments
are not designated
as hedge accounting
relationships,
but rather
are used as
economic
hedges of
its portfolio
assets and
liabilities.

Holding derivatives
creates exposure
to credit
risk related
to the potential
for failure
by counterparties
to honor their
commitments.
In addition, the Company may be required to post collateral based on any declines in the market value of the derivatives.  In
the event
of default
by a counterparty,
the Company
may have difficulty
recovering
its collateral
and may not
receive payments
provided
for under
the terms
of the agreement.  To
The Company’s
derivative
agreements
require it
to post or
receive collateral
to mitigate this risk,
such risk.
In
addition, the
Company uses
only registered
central clearing
exchanges
and well-established
commercial
banks as counterparties.counterparties,

monitors positions
with individual
counterparties
and adjusts
posted collateral
as required.
Financial
Instruments

The fair value of financial instruments for which it is practicable to estimate that
value is disclosed, either in the body of the
consolidated financial statements or in the accompanying notes. MBS, Orchid
common stock and derivative assets and liabilities are
accounted for at fair value in the consolidated balance sheets. The methods
and assumptions used to estimate fair value for these
instruments are presented in Note 13 of the consolidated financial statements.

The estimated fair value of cash and cash equivalents, restricted cash, accrued interest
receivable, other assets, repurchase
agreements, accrued interest payable and other liabilities generally approximates
their carrying value as of SeptemberJune 30, 20202021 and
December 31, 2019,2020, due to the short-term nature of these financial instruments.

It is impractical to estimate the fair value of the Company’s junior subordinated notes.
Currently, there is a limited market for these
types of instruments and the Company is unable to ascertain what interest rates would
be available to the Company for similar financial
instruments. Further information regarding these instruments is presented in Note
8 to the consolidated financial statements.

-9-
Property
and Equipment,
net

Property and equipment, net, consists of computer equipment with a depreciable
life of 3 years, office furniture and equipment with
depreciable lives of 8 to 20 years, land which has no depreciable life, and buildings and
improvements with depreciable lives of 30
- 9 -
years.
Property and equipment is recorded at acquisition cost and depreciated
using the straight-line method over the estimated useful
lives of the assets. Depreciation is included in administrative and other expenses
in the consolidated statement of operations.

Repurchase
Agreements

The Company
finances the
acquisition
of the majority
of its PT
MBS through
the use of
repurchase
agreements
under master
repurchase
agreements.
Repurchase
agreements
are accounted
for as collateralized
financing
transactions,
which are
carried at
their
contractual
amounts, including
accrued interest,
as specified
in the respective
agreements.

Share-Based Compensation

For stock and stock-based awards issued to employees, a compensation charge is recorded against earnings over the vesting period based on the fair value of the award.  The Company applies a zero forfeiture rate for its equity based awards, as such awards have been granted to a limited number of employees and historical forfeitures have been minimal.  A significant forfeiture, or an indication that significant forfeitures may occur, would result in a revised forfeiture rate which would be accounted for prospectively as a change in an estimate.

Earnings
Per Share

Basic EPS is calculated as income available to common stockholders divided
by the weighted average number of common shares
outstanding during the period. Diluted EPS is calculated using the treasury stock or two-class
method, as applicable for common stock
equivalents. However, the common stock equivalents are not included in computing diluted EPS if the result is anti-dilutive.

Outstanding shares of Class B Common Stock, participating and convertible into Class
A Common Stock, are entitled to receive
dividends in an amount equal to the dividends declared, if any, on each share of Class A Common Stock. Accordingly, shares of the
Class B Common Stock are included in the computation of basic EPS using the
two-class method and, consequently, are presented
separately from Class A Common Stock.

The shares of Class C Common Stock are not included in the basic EPS computation
as these shares do not have participation
rights. The outstanding shares of Class B and Class C Common Stock are not
included in the computation of diluted EPS for the Class
A Common Stock as the conditions for conversion into shares of Class A Common
Stock were not met.

Income Taxes

Income taxes are provided for using the asset and liability method. Deferred tax assets and
liabilities represent the differences
between the financial statement and income tax bases of assets and liabilities using enacted
tax rates. The measurement of net
deferred tax assets is adjusted by a valuation allowance if, based on the Company’s evaluation, it
is more likely than not that they will
not be realized.

-10-

The Company’s U.S. federal income tax returns for years ended on or after December 31, 2017 remain
open for examination.
Although management believes its calculations for tax returns are correct and the positions
taken thereon are reasonable, the final
outcome of tax audits could be materially different from the tax returns filed by the Company, and those differences could result in
significant costs or benefits to the Company. For tax filing purposes, Bimini Capital and its includable subsidiaries, and Royal Palm
and
its includable subsidiaries, file as separate tax paying entities.

The Company assesses the likelihood, based on their technical merit, that uncertain
tax positions will be sustained upon
examination based on the facts, circumstances and information available at the
end of each period.
The measurement of uncertain tax
positions is adjusted when new information is available, or when an event occurs
that requires a change. The Company recognizes tax
positions in the consolidated financial statements only when it is more likely than
not that the position will be sustained upon
examination by the relevant taxing authority based on the technical merits of the position.
A position that meets this standard is
measured at the largest amount of benefit that will more likely than not be realized upon
settlement. The difference between the benefit
recognized and the tax benefit claimed on a tax return is referred to as an unrecognized
tax benefit and is recorded as a liability in the
consolidated balance sheets. The Company records income tax-related interest and penalties,
if applicable, within the income tax
provision.

Recent Accounting
Pronouncements

On January 1, 2020, we adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss model). The Company’s adoption of this ASU did not have a material impact on its consolidated financial statements as its financial assets were already measured at fair value through earnings.

- 10 -
In March 2020, the FASB issued ASU 2020-04 “Reference Rate Reform (Topic 848):
Facilitation of the Effects of Reference Rate
Reform on Financial Reporting
.”
ASU 2020-04 provides optional expedients and exceptions to GAAP requirements for
modifications
on debt instruments, leases, derivatives, and other contracts, related to the expected market
transition from the London Interbank
Offered Rate (“LIBOR,”),
and certain other floating rate benchmark indices, or collectively, IBORs, to alternative reference rates. ASU
2020-04 generally considers contract modifications related to reference rate reform to
be an
event that does not require contract
remeasurement at the modification date nor a reassessment of a previous accounting
determination. The guidance in ASU 2020-04 is
optional and may be elected over time, through December 31, 2022, as reference
rate reform activities occur. The Company does not
believe the adoption of this ASU will have a material impact on its consolidated financial
statements.
In January 2021, the FASB issued ASU 2021-01 “Reference Rate Reform (Topic 848). ASU 2021-01 expands the scope of ASC
848 to include all affected derivatives and give market participants the ability to apply certain
aspects of the contract modification and
hedge accounting expedients to derivative contracts affected by the discounting transition. In
addition, ASU 2021-01 adds
implementation guidance to permit a company to apply certain optional expedients
to modifications of interest rate indexes used for
margining, discounting or contract price alignment of certain derivatives as a result
of reference rate reform initiatives and extends
optional expedients to account for a derivative contract modified as a continuation of
the existing contract and to continue hedge
accounting when certain critical terms of a hedging relationship change to modifications
made as part of the discounting transition. The
guidance in ASU 2021-01 is effective immediately and available generally through December
31, 2022, as reference rate reform
activities occur. The Company does not believe the adoption of this ASU will have a material impact on its consolidated
financial
statements.

NOTE 2. ADVISORY SERVICES

Bimini Advisors serves as the manager and advisor for Orchid pursuant to the
terms of a management agreement.
As Manager,
Bimini Advisors is responsible for administering Orchid's business activities and
day-to-day operations. Pursuant to the terms of the
management agreement, Bimini Advisors provides Orchid with its management
team, including its officers, along with appropriate
support personnel. Bimini Advisors is at all times subject to the supervision and
oversight of Orchid's board of directors and has only
such functions and authority as delegated to it. Bimini Advisors receives a monthly
management fee in the amount of:

●
One-twelfth of 1.5% of the first $250 million of Orchid’s month-end equity, as defined in the management agreement,
●
One-twelfth of 1.25% of Orchid’s month-end equity that is greater than $250 million and less
than or equal to $500 million, and
●
One-twelfth of 1.00% of Orchid’s month-end equity that is greater than $500 million.

-11-

Orchid is obligated to reimburse Bimini Advisors for any direct expenses incurred on its
behalf and to pay to Bimini Advisors an
amount equal to Orchid's pro rata portion of certain overhead costs set forth in
the management agreement. The management
agreement has been renewed through February 20, 2021 2022
and provides for automatic one-year extension options thereafter. Should
Orchid terminate the management agreement without cause, it will be obligated
to pay Bimini Advisors a termination fee equal to three
times the average annual management fee, as defined in the management agreement,
before or on the last day of the automatic
renewal term.

The following table summarizes the advisory services revenue from Orchid
for the ninesix and three months ended SeptemberJune 30, 20202021 and 2019.

2020.
(in thousands)            
  Nine Months Ended September 30,  Three Months Ended September 30, 
  2020  2019  2020  2019 
Management fee
 
$
3,897
  
$
4,051
  
$
1,252
  
$
1,440
 
Allocated overhead
  
1,072
   
1,001
   
377
   
351
 
Total
 
$
4,969
  
$
5,052
  
$
1,629
  
$
1,791
 

(in thousands)
Six Months Ended June 30,
Three Months Ended June 30,
2021
2020
2021
2020
Management fee
$
3,412
$
2,645
$
1,791
$
1,268
Allocated overhead
799
695
395
347
Total
$
4,211
$
3,340
$
2,186
$
1,615
- 11 -
At SeptemberJune 30, 20202021 and December 31, 2019,2020, the net amount due from Orchid was approximately $0.6 $
0.8
million and $0.6 $
0.6
million, respectively. These amounts are included in “other assets” in the consolidated balance sheets.

NOTE 3.
MORTGAGE-BACKED SECURITIES

The following
table presents
the Company’s
MBS portfolio
as of September June
30, 20202021 and
December 31,
2020:
(in thousands)
June 30, 2021
December 31, 2019:2020

Fixed-rate MBS
(in thousands)      
  September 30, 2020  December 31, 2019 
Fixed-rate MBS
 
$
72,782
  
$
216,231
 
Interest-Only MBS
  
334
   
1,024
 
Inverse Interest-Only MBS
  
29
   
586
 
Total
 
$
73,145
  
$
217,841
 

$
67,910
$
64,902
Interest-Only MBS
1,064
251
Inverse Interest-Only MBS
20
25
Total
$
68,994
$
65,178
NOTE 4.
REPURCHASE AGREEMENTS

The Company
pledges certain
of its MBS
as collateral
under repurchase
agreements
with financial
institutions.
Interest rates
are
generally fixed
based on prevailing
rates corresponding
to the terms
of the borrowings,
and interest
is generally
paid at the
termination
of a
borrowing.
If the fair
value of the
pledged securities
declines,
lenders will
typically require
the Company
to post additional
collateral
or pay
down borrowings
to re-establish
agreed upon
collateral
requirements,
referred to
as "margin
calls." Similarly,
if the fair
value of the
pledged
securities
increases,
lenders may
release collateral
back to the
Company. As of September June
30, 2020, 2021,
the Company
had met all
margin call
requirements.
-12-

As of September June
30, 2021 and
December 31,
2020,
the Company’s
repurchase
agreements
had remaining
maturities
as summarized
below:
($ in thousands)
OVERNIGHT
BETWEEN 2
BETWEEN 31
GREATER
(1 DAY OR
AND
AND
THAN
LESS)
30 DAYS
90 DAYS
90 DAYS
TOTAL
June 30, 2021
Fair value of securities pledged, including accrued
interest receivable
$
0
$
49,981
$
19,208
$
0
$
69,189
Repurchase agreement liabilities associated with
these securities
$
0
$
51,764
$
19,582
$
0
$
71,346
Net weighted average borrowing rate
-
0.16%
0.14%
-
0.16%
December 31, 2020
Fair value of securities pledged, including accrued
interest receivable
$
0
$
49,096
$
8,853
$
7,405
$
65,354
Repurchase agreement liabilities associated with
these securities
$
0
$
49,120
$
8,649
$
7,302
$
65,071
Net weighted average borrowing rate
-
0.25%
0.23%
0.30%
0.25%
In addition,
cash pledged
to counterparties
for repurchase
agreements
was approximately
$
5.9
million and
$
3.4
million as
of June 30,
2021 and December
31, 2019, the Company’s repurchase agreements had remaining maturities as summarized below:2020,

($ in thousands)               
   OVERNIGHT  BETWEEN 2  BETWEEN 31  GREATER    
   (1 DAY OR  AND  AND  THAN    
  LESS)  30 DAYS  90 DAYS  90 DAYS  TOTAL 
September 30, 2020               
Fair value of securities pledged, including accrued
               
interest receivable
 
$
-
  
$
34,229
  
$
5,182
  
$
33,938
  
$
73,349
 
Repurchase agreement liabilities associated with
                    
these securities
 
$
-
  
$
32,960
  
$
4,913
  
$
32,812
  
$
70,685
 
Net weighted average borrowing rate
  
-
   
0.26
%
  
0.22
%
  
0.27
%
  
0.26
%
December 31, 2019                    
Fair value of securities pledged, including accrued
                    
interest receivable
 
$
-
  
$
137,992
  
$
80,550
  
$
-
  
$
218,542
 
Repurchase agreement liabilities associated with
                    
these securities
 
$
-
  
$
132,573
  
$
77,381
  
$
-
  
$
209,954
 
Net weighted average borrowing rate
  
-
   
2.02
%
  
1.92
%
  
-
   
1.98
%

In addition, cash pledged to counterparties for repurchase agreements was approximately $1.3 million and $3.8 million as of September 30, 2020 and December 31, 2019, respectively.

If, during
the term of
a repurchase
agreement,
a lender files
for bankruptcy,
the Company
might experience
difficulty recovering
its
pledged assets,
which could
result in
an unsecured
claim against
the lender
for the difference
between the
amount loaned
to the Company
plus interest
due to the
counterparty
and the fair
value of the
collateral
pledged to
such lender,
including the accrued interest receivable,
and cash posted by the Company as collateral, if any.
At SeptemberJune 30, 2020
2021 and December
31, 2019, 2020,
the Company
had an aggregate
- 12 -
amount at
risk (the difference
between the
amount loaned
to the Company,
including interest
payable, and
the fair value
of securities
and
cash pledged (if
(if any),
including
accrued interest
on such securities)
with all counterparties
of approximately $3.9
$
3.7
million and $11.8
$
3.6
million,
respectively.  The
As of June
30, 2021
and December
31, 2020,
the Company
did not have
an amount
at risk with
any individual
counterparty
greater than
10% of the
Company’s equity at December 31, 2019. As of September 30, 2020, the Company had amounts at risk greater than 10% of the Company’s equity as follows:.equity.

($ in thousands)      
     % ofWeighted
    Stockholders'Average
 AmountEquityMaturity
Repurchase Agreement Counterpartiesat Riskat Risk(in Days)
September 30, 2020      
Mirae Asset Securities (USA) Inc.
$2,56211.4% 64

-13-

NOTE 5. DERIVATIVE
FINANCIAL INSTRUMENTS

Derivative Liabilities, at Fair Value

The table below summarizes fair value information about our derivative liabilities as of September 30, 2020 and December 31, 2019.

(in thousands)      
Derivative Instruments and Related AccountsBalance Sheet Location September 30, 2020  December 31, 2019 
Liabilities      
TBA Securities
Other liabilities
 
$
-
  
$
59
 
Total derivative liabilities, at fair value
  
$
-
  
$
59
 
          
Margin Balances Posted To (From) Counterparties         
Futures contracts
Restricted cash
 
$
1
  
$
537
 
Total margin balances on derivative contracts
  
$
1
  
$
537
 

Eurodollar
and T-Note futures
are cash settled
futures contracts
on an interest
rate, with
gains and losses
credited or
charged to the
Company’s cash
accounts on a
daily basis.
A minimum balance,
or “margin”,
is required
to be maintained
in the
account on a
daily basis.
The tables below
present information
related to the
Company’s Eurodollar
and T-note futures
positions at September
June 30, 2020 2021
and December
31, 2019.2020.

($ in thousands)            
As of September 30, 2020            
  Junior Subordinated Debt Funding Hedges 
  Average  Weighted  Weighted    
  Contract  Average  Average    
  Notional  Entry  Effective  Open 
Expiration Year Amount  Rate  Rate  
Equity(1)
 
2021
 
$
1,000
   
1.02
%
  
0.20
%
 
$
(8
)
Total / Weighted Average
 
$
1,000
   
1.02
%
  
0.20
%
 
$
(8
)

($ in thousands)            
As of December 31, 2019            
  Repurchase Agreement Funding Hedges 
  Average  Weighted  Weighted    
  Contract  Average  Average    
  Notional  Entry  Effective  Open 
Expiration Year Amount  Rate  Rate  
Equity(1)
 
2020
 
$
120,000
   
2.90
%
  
1.67
%
 
$
(1,480
)
2021
  
80,000
   
2.80
%
  
1.57
%
  
(984
)
Total / Weighted Average
 
$
100,000
   
2.86
%
  
1.63
%
 
$
(2,464
)
Treasury Note Futures Contracts
                
March 2020- 5-year T-Note futures(2)
                
(Mar 2020 - Mar 2025 Hedge Period)
 
$
20,000
   
1.96
%
  
2.06
%
 
$
88
 

-14-

($ in thousands)            
As of December 31, 2019            
  Junior Subordinated Debt Funding Hedges 
  Average  Weighted  Weighted    
  Contract  Average  Average    
  Notional  Entry  Effective  Open 
Expiration Year Amount  Rate  Rate  
Equity(1)
 
2020
 
$
19,500
   
1.92
%
  
1.68
%
 
$
(46
)
Total / Weighted Average
 
$
19,500
   
1.92
%
  
1.68
%
 
$
(46
)

(1)
Open equity represents the cumulative gains (losses) recorded on open futures positions from inception.
($ in thousands)
(2)
T-Note futures contracts were valued at a price of $118.61 at December 31, 2019.  The notional contract values of the short positions were $23.7 million.
As of June 30, 2021

Junior Subordinated Debt Funding Hedges
The following table summarizes our contracts to purchase and sell TBA securities asAverage
Weighted
Weighted
Contract
Average
Average
Notional
Entry
Effective
Open
Expiration Year
Amount
Rate
Rate
Equity
(1)
2021
$
1,000
1.00%
0.17%
$
(4)
($ in thousands)
As of December 31, 2019. There were no outstanding TBA securities at September 30, 2020.2020

($ in thousands)      
   Notional     Net
   Amount Cost Market Carrying
   
Long (Short)(1)
 
Basis(2)
 
Value(3)
 
Value(4)
December 31, 2019        
30-Year TBA Securities:        
 
3.5%
$
(50,000)
$
(51,414)
$
(51,438)
$
(24)
 
4.5%
 (50,000) (52,621) (52,656) (35)
  
$
(100,000)
$
(104,035)
$
(104,094)
$
(59)

Junior Subordinated Debt Funding Hedges
(1)
Notional amount represents the par value (or principal balance) of the underlying Agency MBS.
Average
(2)
Cost basis represents the forward price to be paid (received) for the underlying Agency MBS.
Weighted
(3)
Market value represents the current market value of the TBA securities (or of the underlying Agency MBS) as of period-end.
Weighted
(4)
Net carrying value represents the difference between the market value and the cost basis of the TBA securities as of period-end and is reported in derivative assets (liabilities), at fair value in our consolidated balance sheets.
Contract

Average
Average
Notional
Entry
Effective
Open
Expiration Year
Amount
Rate
Rate
Equity
(1)
2021
$
1,000
1.02%
0.18%
$
(8)
(1)
Open equity represents the cumulative gains (losses) recorded on open
futures positions from inception.
(Losses) Gains on Derivative Instruments

The table below presents the effect of the Company’s derivative financial instruments on the consolidated statements of
operations for the ninesix and three months ended SeptemberJune 30, 20202021 and 2019.2020

.
(in thousands)            
   Nine Months Ended September 30,  Three Months Ended September 30, 
  2020  2019  2020  2019 
Eurodollar futures contracts (short positions)
            
Repurchase agreement funding hedges
 
$
(2,328
)
 
$
(2,995
)
 
$
-
  
$
(164
)
Junior subordinated debt funding hedges
  
(517
)
  
(409
)
  
-
   
-
 
T-Note futures contracts (short positions)
                
Repurchase agreement funding hedges
  
(1,006
)
  
(696
)
  
-
   
(115
)
Net TBA securities
  
(1,441
)
  
(2,005
)
  
-
   
(204
)
(Losses) gains on derivative instruments
 
$
(5,292
)
 
$
(6,105
)
 
$
-
  
$
(483
)

-15-
(in thousands)
Six Months Ended June 30,
Three Months Ended June 30,
2021
2020
2021
2020
Eurodollar futures contracts (short positions)
Repurchase agreement funding hedges
$
0
$
(2,328)
$
0
$
0
Junior subordinated debt funding hedges
0
(517)
0
(2)
T-Note futures contracts (short positions)
Repurchase agreement funding hedges
0
(1,006)
0
0
Net TBA securities
0
(1,441)
0
0
Losses on derivative instruments
$
0
$
(5,292)
$
0
$
(2)

Credit Risk-Related Contingent Features

The use of derivatives creates exposure to credit risk relating to potential losses that could be recognized in the event
that the counterparties to these instruments fail to perform their obligations under the contracts. The Company attempts to
minimize this risk in several ways.
For instruments which are not centrally cleared on a registered exchange, the Company
- 13 -
limits its counterparties to major financial institutions with acceptable credit ratings, and by monitoring positions with
individual counterparties. In addition, the Company may be required to pledge assets as collateral for its derivatives, whose
amounts vary over time based on the market value, notional amount and remaining term of the derivative contract. In the
event of a default by a counterparty, the Company may not receive payments provided for under the terms of its derivative
agreements, and may have difficulty recovering its assets pledged as collateral for its derivatives. The cash and cash
equivalents pledged as collateral for the Company’s derivative instruments are included in restricted cash on the
consolidated balance sheets. It is the Company's policy not to offset assets and liabilities associated with open derivative
contracts. However, the Chicago Mercantile Exchange (“CME”) rules characterize variation margin transfers as settlement
payments, as opposed to adjustments to collateral. As a result, derivative assets and liabilities associated with centrally
cleared derivatives for which the CME serves as the central clearing party are presented as if these derivatives had been
settled as of the reporting date.

NOTE 6. PLEDGED ASSETS

Assets Pledged
to Counterparties
The table
below summarizes
Bimini’s assets
pledged as
collateral
under its repurchase
agreements
and derivative
agreements
as of
June 30, 2021
and December
31, 2020.
($ in thousands)
June 30, 2021
December 31, 2020
Repurchase
Derivative
Repurchase
Derivative
Assets Pledged to Counterparties

Agreements
Agreements
Total
Agreements
Agreements
Total
PT MBS - at fair value
$
67,910
$
0
$
67,910
$
64,902
$
0
$
64,902
Structured MBS - at fair value
1,064
0
1,064
251
0
251
Accrued interest on pledged securities
215
0
215
201
0
201
Restricted cash
5,892
0
5,892
3,352
1
3,353
Total
$
75,081
$
0
$
75,081
$
68,706
$
1
$
68,707
Assets Pledged
from Counterparties
The table
below summarizes Bimini’s assets
cash pledged as collateral
to Bimini from
counterparties
under its repurchase
agreements
and derivative
agreements
as
of SeptemberJune 30, 2020
2021 and December
31, 2019.2020.
Cash received
as margin is
recognized
in cash and
cash equivalents
with a corresponding

amount recognized
($ in thousands)                  
  September 30, 2020  December 31, 2019 
  Repurchase  Derivative     Repurchase  Derivative    
Assets Pledged to Counterparties Agreements  Agreements  Total  Agreements  Agreements  Total 
PT MBS - at fair value
 
$
72,782
  
$
-
  
$
72,782
  
$
216,231
  
$
-
  
$
216,231
 
Structured MBS - at fair value
  
333
   
-
   
333
   
1,562
   
-
   
1,562
 
Accrued interest on pledged securities
  
234
   
-
   
234
   
749
   
-
   
749
 
Restricted cash
  
1,252
   
1
   
1,253
   
3,778
   
537
   
4,315
 
Total
 
$
74,601
  
$
1
  
$
74,602
  
$
222,320
  
$
537
  
$
222,857
 
as an increase

in repurchase
agreements
or other liabilities
in the consolidated
balance sheets.
($ in thousands)
Assets Pledged from Counterparties

The table below summarizes cash pledged to Bimini from counterparties under repurchase agreements and derivative agreements as of September
June 30, 2020 and 2021
December 31, 2019. Cash received as margin is recognized in cash and cash equivalents with a corresponding amount recognized as an increase in repurchase2020
Repurchase agreements or other liabilities in the consolidated balance sheets.

$
($ in thousands)      
Assets Pledged to Bimini September 30, 2020  December 31, 2019 
Repurchase agreements
 
$
80
  
$
-
 
Total
 
$
80
  
$
-
 

187
$
80
Total
$
187
$
80
-16-


NOTE 7. OFFSETTING ASSETS AND LIABILITIES

The Company’s
derivatives
and repurchase
agreements
are subject
to underlying
agreements
with master
netting or
similar
arrangements,
which provide
for the right
of offset in
the event
of default
or in the
event of bankruptcy
of either
party to the
transactions.
The Company
reports its
assets and
liabilities
subject to
these arrangements
on a gross
basis.
The following
tables present
information
regarding
those assets
and liabilities
subject to
such arrangements
as if the Company
had presented
them on a
net basis as
of SeptemberJune 30, 2020
2021 and December
31, 2019.2020.

(in thousands)                  
Offsetting of Liabilities 
          Gross Amount Not Offset in the    
       Net Amount Consolidated Balance Sheet    
   Gross Amount of Liabilities Financial     
 Gross Amount Offset in the Presented in the Instruments Cash   
 of Recognized Consolidated Consolidated Posted as Posted as Net 
 Liabilities Balance Sheet Balance Sheet Collateral Collateral Amount 
September 30, 2020                  
Repurchase Agreements
 
$
70,685
  
$
-
  
$
70,685
  
$
(69,433
)
 
$
(1,252
)
 
$
-
 
  
$
70,685
  
$
-
  
$
70,685
  
$
(69,433
)
 
$
(1,252
)
 
$
-
 
December 31, 2019                        
Repurchase Agreements
 
$
209,954
  
$
-
  
$
209,954
  
$
(206,176
)
 
$
(3,778
)
 
$
-
 
TBA securities
  
59
   
-
   
59
   
-
   
-
   
59
 
  
$
210,013
  
$
-
  
$
210,013
  
$
(206,176
)
 
$
(3,778
)
 
$
59
 

(in thousands)
Offsetting of Liabilities
Gross Amount Not Offset in the
- 14 -
Net Amount
Consolidated Balance Sheet
Gross Amount
of Liabilities
Financial
Gross Amount
Offset in the
Presented in the
Instruments
Cash
of Recognized
Consolidated
Consolidated
Posted as
Posted as
Net
Liabilities
Balance Sheet
Balance Sheet
Collateral
Collateral
Amount
June 30, 2021
Repurchase Agreements
$
71,346
$
0
$
71,346
$
(65,454)
$
(5,892)
$
0
$
71,346
$
0
$
71,346
$
(65,454)
$
(5,892)
$
0
December 31, 2020
Repurchase Agreements
$
65,071
$
0
$
65,071
$
(61,719)
$
(3,352)
$
0
$
65,071
$
0
$
65,071
$
(61,719)
$
(3,352)
$
0
The amounts
disclosed for
collateral
received by
or posted
to the same
counterparty
are limited
to the amount
sufficient to
reduce the
asset or liability
presented
in the consolidated
balance sheet
to zero.
The fair value
of the actual
collateral
received by
or posted
to the
same counterparty
typically
exceeds the
amounts presented.
See Note
6 for a discussion
of collateral
posted for, or
received against,
repurchase
obligations
and derivative
instruments.

NOTE 8.
LONG-TERM DEBT

Long-term
debt at September June
30, 2021 and
December 31,
2020 and is summarized
as follows:
(in thousands)
June 30, 2021
December 31, 2019 is summarized as follows:2020

Junior subordinated debt
(in thousands)      
  September 30, 2020  December 31, 2019 
Junior subordinated debt
 
$
26,804
  
$
26,804
 
Note payable
  
662
   
677
 
Paycheck Protection Plan ("PPP") loan
  
152
   
-
 
Total
 
$
27,618
  
$
27,481
 

$
26,804
$
26,804
Note payable
646
657
Paycheck Protection Plan ("PPP") loan
(1)
0
152
Total
$
27,450
$
27,613
Junior Subordinated Debt

During 2005,
Bimini Capital
sponsored the
formation
of a statutory
trust, known
as Bimini Capital
Trust II (“BCTII”)
of which 100%
of
the common
equity is owned
by Bimini
Capital.
It was formed
for the purpose
of issuing
trust preferred
capital securities
to third-party
investors and
investing the
proceeds
from the sale
of such capital
securities
solely in
junior subordinated
debt securities
of Bimini
Capital.
The debt securities
held by BCTII
are the sole
assets of BCTII.

-17-

As of September June
30, 20202021 and
December 31, 2019,
2020,
the outstanding
principal balance
on the junior
subordinated
debt securities
owed to
BCTII was $26.8
$
26.8
million.
The BCTII
trust preferred
securities
and Bimini
Capital's BCTII
Junior Subordinated
Notes have
a rate of interest
that floats
at a spread
of 3.50%
3.50
% over the
prevailing
three-month
LIBOR rate.
As of September June
30, 2020,2021, the
interest rate
was 3.75%
3.62
%. The BCTII
trust preferred
securities
and Bimini
Capital's BCTII
Junior Subordinated
Notes require
quarterly interest
distributions
and are redeemable
at Bimini Capital's
option, in
whole or in
part and without
penalty. Bimini Capital's
BCTII Junior
Subordinated
Notes are
subordinate
and
junior in right
of payment
to all present
and future
senior indebtedness.

BCTII is a
VIE because
the holders
of the equity
investment
at risk do
not have substantive
decision-making
ability over
BCTII’s
activities.
Since Bimini
Capital's
investment
in BCTII’s
common equity
securities
was financed
directly by
BCTII as
a result of
its loan of
the
proceeds to
Bimini Capital,
that investment
is not considered
to be an equity
investment
at risk. Since
Bimini Capital's
common share
investment
in BCTII
is not a variable
interest,
Bimini Capital
is not the
primary beneficiary
of BCTII.
Therefore,
Bimini Capital
has not
consolidated
the financial
statements
of BCTII
into its consolidated
financial statements,
and this investment
is accounted
for on the
equity
method.

The accompanying
consolidated
financial statements
present Bimini
Capital's BCTII
Junior Subordinated
Notes issued
to BCTII
as a
- 15 -
liability and
Bimini Capital's
investment
in the common
equity securities
of BCTII
as an asset (included
(included in
other assets).
For financial
statement
purposes, Bimini
Capital records
payments of
interest
on the Junior
Subordinated
Notes issued
to BCTII
as interest
expense.

Note Payable

On October
30, 2019,
the Company
borrowed $680,000
$
680,000
from a bank.
The note is
payable in
equal monthly
principal and
interest
installments
of approximately $4,500
$
4,500
through October
30, 2039.
Interest accrues
at 4.89% through
October 30,
2024. Thereafter,
interest
accrues based
on the weekly
average yield
to the United
States Treasury
securities
adjusted to
a constant
maturity of
5 years,
plus 3.25%
3.25
%.
The note is
secured by
a mortgage
on the Company’s
office building.

Paycheck Protection
Plan Loan

On April 13,
2020, the
Company received
approximately $152,000
$
152,000
through the
Paycheck Protection
Program (“PPP”)
of the CARES
Act in the
form of a
low interest
loan.  As discussed in Note 1,
PPP loans may be
carry a fixed
rate of
1.00
% and a term
of two years,
if not forgiven,
in whole or in part, if the proceeds are used for payroll and other permitted purposes in accordance with the requirements of the PPP and if certain other requirements are met.  These loans carry a fixed rate of 1.00% and a term of two years, if not forgiven, in whole or
in part. Payments are deferred forThe
Small Business
Administration
notified the first ten months after the completion
Company that,
effective as
of the loan forgiveness covered period. The Company believes thatApril 22,
2021, all of the proceeds were used for eligible purposes and the outstanding principal
and accrued
interest will ultimately be forgiven.under
the PPP

loan has been
forgiven.
The table
below presents
the future
scheduled principal
payments on
the Company’s
long-term
debt.

(in thousands)   
Last three months of 2020
 
$
5
 
2021
  
22
 
2022
  
175
 
2023
  
24
 
2024
  
25
 
After 2024
  
27,367
 
Total
 
$
27,618
 

-18-

(in thousands)
Last six months of 2021
$
11
2022
23
2023
24
2024
25
2025
26
After 2025
27,341
Total
$
27,450
NOTE 9.
COMMON STOCK

There were
no issuances
of Bimini Capital's
Class A Common
Stock, Class
B Common Stock
or Class C
Common Stock
during the nine
six months
ended September June
30, 2020 2021
and 2019.2020.

Stock Repurchase
Plan

On March 26,
2018, the
Board of Directors
of Bimini Capital
Management,
Inc. (the “Company”
“Company”)
approved a
Stock Repurchase
Plan (“
(“Repurchase
Plan”).
Pursuant to
Repurchase
Plan, the
Company may
purchase up
to
500,000
shares of
its Class A
Common Stock
from
time to time,
subject to
certain limitations
imposed by
Rule 10b-18
of the Securities
Exchange Act
of 1934.
Share repurchases
may be
executed through
various means,
including,
without limitation,
open market
transactions.
The Repurchase
Plan does
not obligate
the
Company to
purchase any
shares.
The Repurchase
Plan was originally
set to expire
on November
15, 2018, but
it has been
extended by the
Board of Directors
and it is currently
set to expire
on
November 15, 2021
.

From the inception
of the Repurchase
Plan through September
June 30, 2020, 2021,
the Company
repurchased
a total of
70,404
shares at
an
aggregate
cost of approximately $166,945,
$
166,945
, including
commissions
and fees,
for a weighted
average price
of $2.37 $
2.37
per share.
There were
no shares
repurchased
during the nine
six months
ended September June
30, 2020.2021.

Tender Offer

In July 2019, 2021,
the Company
completed
a “modified
Dutch auction”
tender offer
and paid an
aggregate
of $2.2$1.5 million,
excluding
fees
- 16 -
and related
expenses, to
repurchase 1.1 million
812,879 shares
of Bimini
Capital’s Class
A common stock
at a price
of $2.00$1.85 per
share.

The financial
statement
impact of the
completion
of this tender
offer will
be reported
in our September
30, 2021 Form
10-Q filing.
NOTE 10.
COMMITMENTS AND CONTINGENCIES

From time to time, the Company may become involved in various claims and legal
actions arising in the ordinary course of business.

business.
On
April 22, 2020
, the Company received a demand for payment from Citigroup, Inc. in the amount
of $33.1 $
33.1
million related to the
indemnification provisions of various mortgage loan purchase agreements (“MLPA’s”) entered into between Citigroup Global Markets
Realty Corp and Royal Palm Capital, LLC (f/k/a Opteum Financial Services,
LLC) prior to the date Royal Palm’s mortgage origination
operations ceased in 2007.
The demand is based on Royal Palm’s alleged breaches of certain representations and warranties
in the
related MLPA’s.
The Company believes the demands are without merit and intends to defend
against the demand vigorously.
No
provision or accrual has been recorded as of SeptemberJune 30, 20202021 related to the Citigroup demand.

Management is not aware of any other significant reported or unreported contingencies
at SeptemberJune 30, 2020.2021.

NOTE 11.
INCOME TAXES

The total income tax provision recorded for the ninesix months ended June 30, 2021 and 2020
was $
0.2
million and $
8.7
million,
respectively, on consolidated pre-tax book income (loss) of $
0.5
million and $(
10.2
) million in the six and three months ended SeptemberJune 30,
2021 and 2020, respectively.
The total income tax (benefit) provision recorded for the three months ended June 30,
2021 and 2020
was $9.3$(
0.3
) million and $0.6 $
1.3
million, respectively, on consolidated pre-tax book (loss) income of $(8.3)$(
1.2
) million and $1.9 $
4.8
million in the nine and
three months ended SeptemberJune 30, 2021 and 2020, respectively. The total income tax provision (benefit) recorded for the nine and three months ended September 30, 2019 was $0.9 million and $0.5 million, respectively, on consolidated pre-tax book income (loss) of $1.3 million and $(0.2) million in the nine and three months ended September 30, 2019, respectively.

-19-

The Company’s tax provision is based on a projected effective rate based on annualized amounts applied
to actual income to date
and includes the expected realization of a portion of the tax benefits of federal and
state net operating losses carryforwards (“NOLs”).
In assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of capital loss
and NOL carryforwards is dependent upon the
generation of future capital gains and taxable income in periods prior to their expiration.
The Company currently provides a valuation
allowance against a portion of the NOLs since the Company believes that it is more likely
than not that some of the benefits will not be
realized in the future. The Company will continue to assess the need for a valuation
allowance at each reporting date.

As a result of adverse economic impacts of COVID-19 on its business, the Company performed
an assessment of the need for
additional valuation allowances against existing deferred tax assets as of March 31,
2020. Following the more-likely-than-not standard
that benefits will not be realized in the future, the Company determined an additional
valuation allowance of approximately $11.2 $
11.2
million
was necessary for the net operating loss carryforwards and capital loss carryforwards
during the three months ended March 31, 2020.
With the rapidly evolving and changing landscape caused by the pandemic, including the
potential for new government restrictions on
the economy in reaction to the Delta Variant, the Company will continue to closely monitor the impacts of COVID-19 on the Company’s
ability to realize its deferred tax assets, and it may increasere-evaluate valuation allowances
in the future as new information becomes
available.

NOTE 12.
EARNINGS PER SHARE

Shares of
Class B common
stock,
participating
and convertible
into Class
A common stock,
are entitled
to receive
dividends
in an
amount equal
to the dividends
declared on
each share
of Class A
common stock
if, and when,
authorized
and declared
by the Board
of
Directors.
The Class
B common stock
is included
in the computation
of basic EPS
using the two-class
method, and
consequently
is
presented
separately
from Class
A common stock.
Shares of
Class B common
stock are not
included in
the computation
of diluted
Class A
- 17 -
EPS as the
conditions
for conversion
to Class A
common stock
were not
met at June
30, 2021 and
2020.
Shares of
Class C common
stock are not
included in
the basic
EPS computation
as these shares
do not have
participation
rights.
Shares of
Class C common
stock are not
included in
the computation
of diluted
Class A EPS
as the conditions
for conversion
to Class A
common stock
were not
met at June
30, 2021 and
2020.
The table
below reconciles
the numerator
and denominator
of EPS for
the six and
three months
ended June
30, 2021 and
2020.
(in thousands, except per-share information)
Six Months Ended June 30,
Three Months Ended June 30,
2021
2020
2021
2020
Basic and diluted EPS per Class A common stock, are entitled to receive dividends in an amount equal to the dividends declared on each share of Class A common stock if, and when, authorized and declared by the Board of Directors. The Class B common stock is included in the computation of basic EPS using the two-class method, and consequently is presented separately from Class A common stock. Shares of Class B common stock are not included in the computation of diluted Class A EPS as the conditions for conversionshare:
Income (loss) attributable to Class A common stock were not met at September 30, 2020shares:
Basic and 2019.diluted

$
Shares of Class C370
$
(18,813)
$
(917)
$
3,458
Weighted average common stock are not included in the basic EPS computation as these shares do not have participation rights. Shares of Class C common stock are not included in the computation of diluted Class A EPS as the conditions for conversion to shares:
Class A common stock were not metshares outstanding at September 30, 2020the balance sheet date
11,609
11,609
11,609
11,609
Weighted average shares-basic and 2019.diluted

11,609
The table below reconciles the numerator11,609
11,609
11,609
Income (loss) per Class A common share:
Basic and denominator of EPS for the nine and three months ended September 30, 2020 and 2019.diluted

$
(in thousands, except per-share information)            
   Nine Months Ended September 30,  Three Months Ended September 30, 
  2020  2019  2020  2019 
Basic and diluted EPS per Class A common share:            
(Loss) income attributable to Class A common shares:
            
Basic and diluted
 
$
(17,499
)
 
$
344
  
$
1,314
  
$
(770
)
Weighted average common shares:
                
Class A common shares outstanding at the balance sheet date
  
11,609
   
11,609
   
11,609
   
11,609
 
Effect of weighting
  
-
   
761
   
-
   
95
 
Weighted average shares-basic and diluted
  
11,609
   
12,370
   
11,609
   
11,704
 
(Loss) income per Class A common share:
                
Basic and diluted
 
$
(1.51
)
 
$
0.03
  
$
0.11
  
$
(0.07
)

0.03
$
(1.62)
$
(0.08)
$
0.30
-20-
(in thousands, except per-share information)
Six Months Ended June 30,
Three Months Ended June 30,
2021
2020
2021
2020
Basic and diluted EPS per Class B common share:
Income (loss) attributable to Class B common shares:
Basic and diluted
$
1
$
(52)
$
(3)
$
10
Weighted average common shares:
Class B common shares outstanding at the balance sheet date
32
32
32
32
Weighted average shares-basic and diluted
32
32
32
32
Income (loss) per Class B common share:
Basic and diluted
$
0.03
$
(1.62)
$
(0.08)
$
0.30

(in thousands, except per-share information)            
   Nine Months Ended September 30,  Three Months Ended September 30, 
  2020  2019  2020  2019 
Basic and diluted EPS per Class B common share:            
(Loss) income attributable to Class B common shares:
            
Basic and diluted
 
$
(48
)
 
$
1
  
$
4
  
$
(2
)
Weighted average common shares:
                
Class B common shares outstanding at the balance sheet date
  
32
   
32
   
32
   
32
 
Weighted average shares-basic and diluted
  
32
   
32
   
32
   
32
 
(Loss) income per Class B common share:
                
Basic and diluted
 
$
(1.51
)
 
$
0.03
  
$
0.11
  
$
(0.07
)

NOTE 13.
FAIR VALUE

Fair value
is the price
that would
be received
to sell an
asset or
paid to transfer
a liability (an
(an exit price).
A fair value
measure should
reflect the
assumptions
that market
participants
would use
in pricing
the asset or
liability, including
the assumptions
about the
risk inherent
in a particular
valuation technique,
the effect of
a restriction
on the sale
or use of
an asset and
the risk of
non-performance.
Required
disclosures
include stratification
of balance
sheet amounts
measured
at fair value
based on inputs
the Company
uses to derive
fair value
measurements.
These stratifications
are:

●
Level 1 valuations,
where the
valuation
is based on
quoted market
prices for
identical assets
or liabilities
traded in
active markets (which
(which include
exchanges and
over-the-counter
markets with
sufficient volume),
●
Level 2 valuations,
where the
valuation
is based on
quoted market
prices for
similar instruments
traded in
active markets,
quoted
prices for
identical or
similar instruments
in markets
that are not
active and
model-based
valuation
techniques
for which
all
significant
assumptions
are observable
in the market,
and
●
Level 3 valuations,
where the
valuation
is generated
from model-based
techniques
that use significant
assumptions
not
observable
in the market,
but observable
based on Company-specific
data. These
unobservable
assumptions
reflect the
Company’s own
estimates for
assumptions
that market
participants
would use
in pricing
the asset or
liability. Valuation
techniques
typically
include option
pricing models,
discounted
cash flow models
and similar
techniques,
but may also
include the
use of market
prices of assets
or liabilities
that are not
directly comparable
to the subject
asset or
liability.
Level 2 valuations, where
- 18 -
MBS, Orchid
common stock,
retained
interests and
TBA securities
were all recorded
at fair value
on a recurring
basis during
the valuation is based on quoted six
and three
months ended
June 30, 2021
and 2020.
When determining
fair value
measurements,
the Company
considers the
principal or
most advantageous
market prices for similar instrumentsin which
it would transact
and considers
assumptions
that market
participants
would use
when pricing
the
asset. When
possible, the
Company looks
to active and
observable
markets to
price identical
assets.
When identical
assets are
not traded
in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market, and
Level 3 valuations, where the valuation is generated from model-based techniques that use significant assumptions not observable in the market, but observable based on Company-specific data. These unobservable assumptions reflect the Company’s own estimates for assumptions that market participants would use in pricing the asset or liability. Valuation techniques typically include option pricing models, discounted cash flow models and similar techniques, but may also include the use of market prices of assets or liabilities that are not directly comparable to the subject asset or liability.

MBS, Orchid common stock, retained interests and TBA securities were all recorded at fair value on a recurring basis during the nine and three months ended September 30, 2020 and 2019. When determining fair value measurements, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset. When possible, the Company looks to active and observable markets to price identical assets.  When identical assets are not traded in active markets, the Company
looks to market
observable
data for
similar assets.
Fair value
measurements
for the retained
interests are
generated
by a model
that requires
management
to make a
significant
number of
assumptions,
and this model
resulted in
a value of
zero
at both September June
30, 20202021 and
December 31, 2019.
2020.

-21-

The Company's
MBS and TBA
securities
are valued
using Level
2 valuations,
and such valuations
currently are
determined
by the
Company based
on independent
pricing sources
and/or third
party broker
quotes, when
available.
Because the
price estimates
may vary,
the Company
must make certain
judgments and
assumptions
about the
appropriate
price to use
to calculate
the fair values.
The Company
and the independent
pricing sources
use various
valuation techniques
to determine
the price
of the Company’s
securities.
These
techniques
include observing
the most
recent market
for like or
identical assets
(including
security coupon,
maturity, yield,
and prepayment
speeds),
spread pricing
techniques
to determine
market credit
spreads (option
adjusted spread,
zero volatility
spread, spread
to the U.S.
Treasury curve
or spread
to a benchmark
such as a TBA
security),
and model driven
approaches (the
(the discounted
cash flow
method, Black
Scholes and
SABR models
which rely
upon observable
market rates
such as the
term structure
of interest
rates and volatility).
The
appropriate
spread pricing
method used
is based on
market convention.
The pricing
source determines
the spread
of recently
observed
trade activity
or observable
markets for
assets similar
to those being
priced. The
spread is then
adjusted based
on variances
in certain
characteristics
between the
market observation
and the asset
being priced.
Those characteristics
include: type
of asset, the
expected life
of the asset,
the stability
and predictability
of the expected
future cash
flows of the
asset, whether
the coupon
of the asset
is fixed or
adjustable,
the guarantor
of the security
if applicable,
the coupon,
the maturity, the
issuer, size of
the underlying
loans, year
in which
the
underlying
loans were
originated,
loan to value
ratio, state
in which the
underlying loans were originated, loan to value ratio, state in which the underlying
loans reside,
credit score
of the underlying
borrowers
and other
variables if
appropriate.
The fair value
of the security
is determined
by using the
adjusted spread.

The Company’s
futures contracts
are Level
1 valuations,
as they
are exchange-traded
instruments
and quoted
market prices
are
readily available.
Futures contracts
are settled
daily. The Company’s
interest rate
swaps and
interest rate
swaptions
are Level 2
valuations.
The fair value
of interest
rate swaps
is determined
using a discounted
cash flow
approach
using forward
market interest
rates
and discount
rates, which
are observable
inputs. The
fair value
of interest
rate swaptions
is determined
using an option
pricing model.
The following
table presents
financial assets
and liabilities
measured
at fair value
on a recurring
basis as of September
June 30, 2020 2021
and
December 31,
2020:
(in thousands)
Quoted Prices
in Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
Fair Value
Assets
Inputs
Inputs
Measurements
(Level 1)
(Level 2)
(Level 3)
June 30, 2021
Mortgage-backed securities
$
68,994
$
0
$
68,994
$
0
Orchid Island Capital, Inc. common stock
13,470
13,470
0
0
December 31, 2019:2020

(in thousands)            
     Quoted Prices       
     in Active  Significant    
     Markets for  Other  Significant 
     Identical  Observable  Unobservable 
  Fair Value  Assets  Inputs  Inputs 
  Measurements  (Level 1)  (Level 2)  (Level 3) 
September 30, 2020            
Mortgage-backed securities
 
$
73,145
  
$
-
  
$
73,145
  
$
-
 
Orchid Island Capital, Inc. common stock
  
13,003
   
13,003
   
-
   
-
 
December 31, 2019                
Mortgage-backed securities
 
$
217,841
  
$
-
  
$
217,841
  
$
-
 
Orchid Island Capital, Inc. common stock
  
8,892
   
8,892
   
-
   
-
 
TBA securities
  
(59
)
  
-
   
(59
)
  
-
 

Mortgage-backed securities
The following table illustrates a roll forward for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2020 and 2019:$

65,178
(in thousands)      
  Retained Interests in Securitizations 
  Nine Months Ended September 30, 
  2020  2019 
Balances, January 1
 
$
-
  
$
-
 
Gain included in earnings
  
59
   
315
 
Collections
  
(59
)
  
(315
)
Balances, September 30
 
$
-
  
$
-
 

$
0
$
65,178
$
0
Orchid Island Capital, Inc. common stock
13,548
13,548
0
0
During the nine
six months
ended September June
30, 2021 and
2020, and 2019, there
were no transfers
of financial
assets or liabilities
between levels
1, 2 or 3.
-22-


NOTE 14.
SEGMENT INFORMATION

- 19 -
The Company’s operations are classified into two principal reportable segments: the asset
management segment and the
investment portfolio segment.

The asset management segment includes the investment advisory services provided by
Bimini Advisors to Orchid and Royal
Palm. As discussed in Note 2, the revenues of the asset management segment consist of
management fees and overhead
reimbursements received
pursuant to a management agreement with Orchid.
Total revenues received under this management
agreement for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, were approximately $5.0
$
4.2
million and $5.1 $
3.4
million, respectively,
accounting for approximately 53%
66
% and 42%
50
% of consolidated revenues, respectively.

The investment portfolio segment includes the investment activities conducted by
Royal Palm.
The investment portfolio segment
receives revenue in the form of interest and dividend income on its investments.

Segment information for the ninesix months ended SeptemberJune 30, 20202021 and 20192020 is as follows:

(in thousands)          
 AssetInvestment   
 ManagementPortfolioCorporateEliminationsTotal
2020          
Advisory services, external customers
$4,969$-$-$-$4,969
Advisory services, other operating segments(1)
 116 - - (116) -
Interest and dividend income
 - 4,414 - - 4,414
Interest expense
 - (1,030) 
 (893)(2)
 - (1,923)
Net revenues
 5,085 3,384 (893) (116) 7,460
Other
 - (10,238) 
 (466)(3)
 - (10,704)
Operating expenses(4)
 (2,632) (2,375) - - (5,007)
Intercompany expenses(1)
 - (116) - 116 -
Income (loss) before income taxes
$2,453$(9,345)$(1,359)$-$(8,251)
           
 AssetInvestment   
 ManagementPortfolioCorporateEliminationsTotal
2019          
Advisory services, external customers
$5,052$-$-$-$5,052
Advisory services, other operating segments(1)
 200 - - (200) -
Interest and dividend income
 - 7,064 1 - 7,065
Interest expense
 - (3,655) 
 (1,195)(2)
 - (4,850)
Net revenues
 5,252 3,409 (1,194) (200) 7,267
Other
 - (419) 
 (736)(3)
 - (1,155)
Operating expenses(4)
 (2,019) (2,806) - - (4,825)
Intercompany expenses(1)
 - (200) - 200 -
Income (loss) before income taxes
$3,233$(16)$(1,930)$-$1,287

-23-
(in thousands)
Asset
Investment
Management
Portfolio
Corporate
Eliminations
Total
2021
Advisory services, external customers
$
4,211
$
0
$
0
$
0
$
4,211
Advisory services, other operating segments
(1)
72
0
0
(72)
0
Interest and dividend income
0
2,201
0
0
2,201
Interest expense
0
(71)
(499)
(2)
0
(570)
Net revenues
4,283
2,130
(499)
(72)
5,842
Other income
0
(1,976)
154
(3)
0
(1,822)
Operating expenses
(4)
(2,230)
(1,251)
0
0
(3,481)
Intercompany expenses
(1)
0
(72)
0
72
0
Income (loss) before income taxes
$
2,053
$
(1,169)
$
(345)
$
0
$
539
Asset
Investment
Management
Portfolio
Corporate
Eliminations
Total
2020
Advisory services, external customers
$
3,340
$
0
$
0
$
0
$
3,340
Advisory services, other operating segments
(1)
84
0
0
(84)
0
Interest and dividend income
0
3,317
0
0
3,317
Interest expense
0
(988)
(632)
(2)
0
(1,620)
Net revenues
3,424
2,329
(632)
(84)
5,037
Other expenses
0
(11,307)
(516)
(3)
0
(11,823)
Operating expenses
(4)
(1,690)
(1,701)
0
0
(3,391)
Intercompany expenses
(1)
0
(84)
0
84
0
Income (loss) before income taxes
$
1,734
$
(10,763)
$
(1,148)
$
0
$
(10,177)

Segment information for the three months ended SeptemberJune 30, 20202021 and 20192020 is as follows:

(in thousands)          
 AssetInvestment   
 ManagementPortfolioCorporateEliminationsTotal
2020          
Advisory services, external customers
$1,629$-$-$-$1,629
Advisory services, other operating segments(1)
 32 - - (32) -
Interest and dividend income
 - 1,097 - - 1,097
Interest expense
 - (43) 
 (261)(2)
 - (304)
Net revenues
 1,661 1,054 (261) (32) 2,422
Other
 - 1,070 
 49 (3)
 - 1,119
Operating expenses(4)
 (956) (659) - - (1,615)
Intercompany expenses(1)
 - (32) - 32 -
Income (loss) before income taxes
$705$1,433$(212)$-$1,926
           
 AssetInvestment   
 ManagementPortfolioCorporateEliminationsTotal
2019          
Advisory services, external customers
$1,791$-$-$-$1,791
Advisory services, other operating segments(1)
 63 - - (63) -
Interest and dividend income
 - 2,011 - - 2,011
Interest expense
 - (1,002) 
 (389)(2)
 - (1,391)
Net revenues
 1,854 1,009 (389) (63) 2,411
Other
 - (438) 
 (601)(3)
 - (1,039)
Operating expenses(4)
 (754) (852) - - (1,606)
Intercompany expenses(1)
 - (63) - 63 -
Income (loss) before income taxes
$1,100$(344)$(990)$-$(234)

(1)
Includes fees paid by Royal Palm to Bimini Advisors for advisory services.
(2)
Includes interest on long-term debt.
(3)
Includes gains (losses) on Eurodollar futures contracts entered into as a hedge on junior subordinated notes and fair value adjustments on retained interests in securitizations.
(in thousands)
(4)
Corporate expenses are allocated based on each segment’s proportional share of total revenues.
Asset

Investment
Management
Portfolio
Corporate
Eliminations
Total
2021
Advisory services, external customers
$
2,186
$
0
$
0
$
0
$
2,186
Advisory services, other operating segments
(1)
37
0
0
(37)
0
Interest and dividend income
0
1,084
0
0
1,084
Interest expense
0
(31)
(250)
(2)
0
(281)
Net revenues
2,223
1,053
(250)
(37)
2,989
- 20 -
Other
0
(2,634)
154
(3)
0
(2,480)
Operating expenses
(4)
(1,125)
(599)
0
0
(1,724)
Intercompany expenses
(1)
0
(37)
0
37
0
Income (loss) before income taxes
$
1,098
$
(2,217)
$
(96)
$
0
$
(1,215)
Asset
Investment
Management
Portfolio
Corporate
Eliminations
Total
2020
Advisory services, external customers
$
1,615
$
0
$
0
$
0
$
1,615
Advisory services, other operating segments
(1)
26
0
0
(26)
0
Interest and dividend income
0
912
0
0
912
Interest expense
0
(60)
(282)
(2)
0
(342)
Net revenues
1,641
852
(282)
(26)
2,185
Other
0
4,256
(2)
(3)
0
4,254
Operating expenses
(4)
(1,067)
(618)
0
0
(1,685)
Intercompany expenses
(1)
0
(26)
0
26
0
Income (loss) before income taxes
$
574
$
4,464
$
(284)
$
0
$
4,754
(1)
Includes fees paid by Royal Palm to Bimini Advisors for advisory services
.
(2)
Includes interest on long-term debt.
(3)
Includes income recognized on the forgiveness of the PPP loan and
gains (losses) on Eurodollar futures contracts entered into as a hedge
on
junior subordinated notes.
(4)
Corporate expenses are allocated based on each segment’s proportional
share of total revenues.
Assets in each reportable segment as of SeptemberJune 30, 20202021 and December 31, 20192020 were as
follows:

(in thousands)            
 Asset Investment     
 Management Portfolio Corporate Total 
September 30, 2020
 
$
1,474
  
$
107,414
   
13,275
  
$
122,163
 
December 31, 2019
  
1,457
   
263,223
   
14,809
   
279,489
 

(in thousands)
Asset
Investment
Management
Portfolio
Corporate
Total
June 30, 2021
$
1,733
$
120,020
12,919
$
134,672
December 31, 2020
1,469
113,764
13,468
128,701
NOTE 15. RELATED PARTY TRANSACTIONS

Relationships with Orchid

At Septemberboth June 30, 20202021 and December 31, 2019,2020, the Company owned
2,595,357 and 1,520,036
shares of Orchid common stock, respectively, representing
approximately 3.8%
2.2
% and 2.4%
3.4
% of Orchid’s outstanding common stock on such dates.
The Company received dividends on this
common stock investment of approximately $1.2 $
1.0
million and $0.5 $
0.5
million during the ninesix and three months ended SeptemberJune 30, 2020, respectively,2021, and $1.1
approximately $
0.8
million and $0.4 $
0.4
million during the ninesix and three months ended SeptemberJune 30, 2019,2020, respectively.

-24-
Robert Cauley, the Chief Executive Officer and Chairman of the Board of Directors of the Company, also serves as Chief
Executive Officer and Chairman of the Board of Directors of Orchid, receives compensation
from Orchid, and owns shares of common
stock of Orchid.
In addition, Hunter Haas, the Chief Financial Officer, Chief Investment Officer and Treasurer of the Company, also
serves as Chief Financial Officer, Chief Investment Officer and Secretary of Orchid, is a member of Orchid’s Board of Directors,
receives compensation from Orchid, and owns shares of common stock of Orchid. Robert J.
Dwyer and Frank E. Jaumot, our
independent directors, each own shares of common stock of Orchid.

NOTE 16. SUBSEQUENT EVENT

Real Property Held For Sale

On October 15, 2020, the Company completed the sale of real property that was not used in the Company’s business. The Company received proceeds of approximately $462,000. The transaction resulted in a gain of approximately $12,000, which will be included in the consolidated statement of operations during the fourth quarter of 2020.
-25-
- 21 -
ITEM 2. MANAGEMENT’S
DISCUSSION
AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF
OPERATIONS.

The following
discussion of
our financial
condition and
results of
operations should
be read
in conjunction
with the
financial
statements and notes
to those statements
included in Item
1 of this
Form 10-Q. The
discussion may contain
certain forward-looking
statements that involve risks
and uncertainties. Forward-looking
statements are those that
are not historical in
nature. As a result
of many
factors, such as
those set forth
under “Risk Factors”
in our most
recent Annual Report
on Form 10-K
and any subsequent
Quarterly
Reports on Form 10-Q, our actual results may differ materially from those anticipated in such
forward-looking statements.

Overview

Bimini Capital Management, Inc. ("Bimini Capital" or the "Company") is a holding company
that was formed in September 2003.
The Company’s principal wholly-owned operating subsidiary is Royal Palm Capital, LLC.
We operate in two business segments: the
asset management segment, which includes (a) the investment advisory services provided
by Royal Palm’s wholly-owned subsidiary,
Bimini Advisors Holdings, LLC, to Orchid, and (b) the investment portfolio segment, which includes
the investment activities conducted
by Royal Palm.

Bimini Advisors Holdings, LLC and its wholly-owned subsidiary, Bimini Advisors, LLC (an investment advisor registered with
the
Securities and Exchange Commission), are collectively referred to as “Bimini
Advisors.”
Bimini Advisors serves as the external
manager of the portfolio of Orchid Island Capital, Inc. ("Orchid"). From this arrangement,
the Company receives management fees and
expense reimbursements.
As manager, Bimini Advisors is responsible for administering Orchid's business activities and day-to-day
operations.
Pursuant to the terms of the management agreement, Bimini Advisors
provides Orchid with its management team,
including its officers, along with appropriate support personnel. Bimini Advisors is at all times
subject to the supervision and oversight of
Orchid's board of directors and has only such functions and authority as delegated to
it.

Royal Palm Capital, LLC (collectively with its wholly-owned subsidiaries referred
to as “Royal Palm”) maintains an investment
portfolio, consisting primarily of residential mortgage-backed securities ("MBS") issued
and guaranteed by a federally chartered
corporation or agency ("Agency MBS"). Our investment strategy focuses on, and our
portfolio consists of, two categories of Agency
MBS: (i) traditional pass-through Agency MBS, such as mortgage pass-through
certificates issued by Fannie Mae, Freddie Mac or
Ginnie Mae (the “GSEs”) and collateralized mortgage obligations (“CMOs”) issued
by the GSEs (“PT MBS”) and (ii) structured Agency
MBS, such as interest only securities ("IOs"), inverse interest only securities
("IIOs") and principal only securities ("POs"), among other
types of structured Agency MBS. In addition, Royal Palm receives dividends from its
investment in Orchid common shares.

Impact of
the COVID-19
Pandemic

Beginning
in mid-MarchMarch 2020,
the global
pandemic associated
with the novel
coronavirus
COVID-19 (“COVID-19”)
and related
economic
conditions
began to impact
our financial
position and
results of
operations.
As a result
of the economic,
health and
market turmoil
brought
about by COVID-19,
the Agency
MBS market
experienced
severe dislocations.
This resulted
in falling
prices of our
assets and
increased
margin calls
from our repurchase
agreement lenders. Further, as interest rates declined, we faced additional margin calls related
lenders, resulting
in material
adverse effects
on our results
of operations
and to our various hedge positions.  In order to maintain our leverage ratio at prudent levels, maintain sufficient cash and liquidity, reduce risk and satisfy margin calls, we sold assets at levels significantly below their carrying values and closed several of our hedge positions.
financial
statements.
The Agency
MBS market
largely stabilized
after the
Federal Reserve (the
(the “Fed”)
announced
on March 23,
2020 that
it would purchase
Agency MBS
and U.S.
Treasuries in the
amounts needed
to support
smooth market
functioning.
As of September 30,March
31, 2020,
and at all
times
since then,
we hadhave timely
satisfied
all margin
calls. The following summarizes the impact COVID-19 has had on our financial position and results of operations through September 30, 2020.

-26-
We sold approximately $171.2 million of MBS during the three months ended March 31, 2020, realizing losses of approximately $5.8 million. Substantially all of the realized losses were a direct result of the adverse MBS market conditions associated with COVID-19. We had no additional sales of MBS during the six months ended September 30, 2020.
continues to
Our MBS portfolio had a fair market value of approximately $73.1 million as of September 30, 2020, compared to $52.8 million as of June 30, 2020, $54.4 million as of March 31, 2020, and $217.8 million as of December 31, 2019.
Our outstanding balances under our repurchase agreement borrowings as of September 30, 2020 were approximately $70.7 million, compared to $51.6 million as of June 30, 2020, $52.4 million as of March 31, 2020, and $210.0 million as of December 31, 2019.
We recorded an additional valuation allowance against our deferred tax assets of approximately $11.2 million during the three months ended March 31, 2020. We did not record any additional valuation allowance during the six months ended September 30, 2020.
Our stockholders’ equity was $22.4 million as of September 30, 2020, $21.1 million as of June 30, 2020, $17.6 million as of March 31, 2020, and $40.0 million as of December 31, 2019.

Largely as a result of actions taken by the Federal Reserve (the “Fed”) in late March, Agency MBS valuations have increased and the market for these assets has stabilized.

In responsereact to the Shelter in Place order issued in Florida in March 2020, management has invoked
pandemic and
the Company’s Disaster Recovery Plan and its employees are working remotely. Prior planning resulted various
measures put
in
place to stabilize
the successful implementation of this plan and key operational team members maintain daily communication.market.

In addition, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which will provide billions of dollars of relief to individuals, businesses, state and local governments, and the health care system suffering the impact of the pandemic, including mortgage loan forbearance and modification programs to qualifying borrowers who may have difficulty making their loan payments. On April 13, 2020, the Company received $152,000 through the Paycheck Protection Program of the CARES Act in the form of a low interest loan.  The Company has evaluated the other provisions of the CARES Act and does not believe it will have material effect on our financial statements. The Federal Housing Financing Agency (the “FHFA”) has instructed the GSEs on how they will handle servicer advances for loans that back Agency RMBS that enter into forbearance, which should limit prepayments during the forbearance period that could have resulted otherwise. During the forbearance period the Company will continue to receive scheduled principal and interest each month on its Agency RMBS 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. To the extent the
financial or
mortgage markets
do not respond
favorably to
any of these
actions, or
such
actions do
not function
as intended,
our business,
results of
operations
and financial
condition
may continue
to be materially
adversely affected.

affected. Although
the Company
cannot estimate
the length
or gravity
of the impact
of the COVID-19
pandemic at
this time,
it may continue
to have materially
adverse effects
on the Company’s
results of
future operations,
financial position,
and liquidity
during 2021.
Stock Repurchase
Plan

- 22 -
On March 26,
2018, the
Board of Directors
of the Company
approved a
Stock Repurchase
Plan (“Repurchase
Plan”).
Pursuant to
Repurchase
Plan, we
may purchase
up to 500,000
shares of
the Company’s
Class A Common
Stock from
time to time,
subject to
certain
limitations
imposed by
Rule 10b-18
of the Securities
Exchange Act
of 1934.
Share repurchases
may be executed
through various
means,
including,
without limitation,
open market
transactions.
The Repurchase
Plan does
not obligate
the
Company to
purchase any
shares. The
Repurchase
Plan was originally
set to expire
on November
15, 2018,
but it has
been extended
by the Board
of Directors
and it is currently
set to expire
on November
15, 2021.

Through SeptemberThe authorization
for the Share
Repurchase
Plan may be
terminated,
increased or
decreased by
the
Company’s Board
of Directors
in its discretion
at any time.
From commencement
of the Repurchase
Plan, through
June 30, 2020, 2021,
the Company
repurchased
a total of
70,404 shares
at an
aggregate
cost of approximately $166,945,
166,945,
including commissions
and fees, for
a weighted
average price
of $2.37 per
share.
Tender Offer
In July 2021,
we completed
a “modified
Dutch auction”
tender offer
and paid an
aggregate
of $1.5 million,
excluding fees
and related
expenses, to
repurchase
812,879 shares
of our Class
A common stock,
which were
retired, at
a price of
$1.85 per
share.

-27-

Factors that Affect our Results of Operations and Financial Condition

A variety
of industry and
economic factors (in
addition to those
related to the
COVID-19 pandemic) may
impact our results
of
operations and financial condition. These factors include:

• interest rate trends;
• the difference between Agency MBS yields and our funding and hedging costs;
• competition for,
and supply of, investments in Agency MBS;
• actions taken
by the
U.S. government, including
the presidential
administration, the Fed,
U.S. Federal
Reserve (the
“Fed”), the
Federal Open Market Committee (the “FOMC”), the Federal Housing Finance
Agency (the “FHFA”) and the U.S. Treasury;
• prepayment rates on mortgages underlying our Agency MBS, and credit trends insofar as they affect prepayment rates; and
• the equity markets and the ability of Orchid to raise additional capital; and
• other market developments.

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

• our degree of leverage;
• our access to funding and borrowing capacity;
• our borrowing costs;
• our hedging activities;
• the market value of our investments;
• the requirements to qualify for a registration exemption under the Investment Company Act;
• our ability to use net operating loss carryforwards and net capital loss carryforwards to reduce our taxable
income;
• the impact of possible future changes in tax laws or tax rates; and
• our ability to manage the portfolio of Orchid and maintain our role as manager.

Results of
Operations

Described
below are the Company’s
results of operations
for the ninesix and three months
ended SeptemberJune 30, 2020, 2021,
as compared to the nine six
and three
months ended September
June 30, 2019.2020.

- 23 -
Net Income
(Loss) Income Summary

Consolidated
net income
for the
six months
ended June
30, 2021
was $0.4
million, or
$0.03 basic
and diluted
income per
share of
Class
A Common Stock, as compared to consolidated net loss for the nine months ended September 30, 2020 was $17.5of $18.9 million,
or $1.51$1.62 basic and diluted loss per share of Class A Common
Stock,
for the six
months ended
June 30, 2020.
Consolidated
net loss for
the three months
ended June
30, 2021 was
$0.9 million,
or $0.08 basic
and diluted
loss per share
of Class A
Common Stock,
as compared
to consolidated
net income of $0.3
$3.5 million,
or $0.03$0.30 basic
and diluted
income per share
of Class A Common Stock, for the nine months ended September 30, 2019.

Stock,
Consolidated net income for the three
months ended September
June 30, 2020 was $1.3 million, or $0.11 basic and diluted income per share of Class A Common Stock, as compared to consolidated net loss of $0.8 million, or $0.07 basic and diluted loss per share of Class A Common Stock, for the three months ended September 30, 2019.
2020.

-28-

The components of net (loss) income (loss)
for the ninesix and three months ended SeptemberJune 30, 20202021 and 2019,2020, along with the changes in those
components
are presented
in the table
below:

(in thousands)                  
  Nine Months Ended September 30,  Three Months Ended September 30, 
  2020  2019  Change  2020  2019  Change 
Advisory services revenues
 
$
4,969
  
$
5,052
  
$
(83
)
 
$
1,629
  
$
1,791
  
$
(162
)
Interest and dividend income
  
4,414
   
7,065
   
(2,651
)
  
1,097
   
2,011
   
(914
)
Interest expense
  
(1,924
)
  
(4,850
)
  
2,926
   
(304
)
  
(1,391
)
  
1,087
 
Net revenues
  
7,459
   
7,267
   
192
   
2,422
   
2,411
   
11
 
Other (expense) income
  
(10,703
)
  
(1,155
)
  
(9,548
)
  
1,119
   
(1,039
)
  
2,158
 
Expenses
  
(5,007
)
  
(4,825
)
  
(182
)
  
(1,615
)
  
(1,606
)
  
(9
)
Net (loss) income before income tax provision
  
(8,251
)
  
1,287
   
(9,538
)
  
1,926
   
(234
)
  
2,160
 
Income tax provision
  
9,296
   
942
   
8,354
   
608
   
538
   
70
 
Net (loss) income
 
$
(17,547
)
 
$
345
  
$
(17,892
)
 
$
1,318
  
$
(772
)
 
$
2,090
 

(in thousands)
Six Months Ended June 30,
Three Months Ended June 30,
2021
2020
Change
2021
2020
Change
Advisory services revenues
$
4,211
$
3,340
$
871
$
2,186
$
1,615
$
571
Interest and dividend income
2,201
3,317
(1,116)
1,084
912
172
Interest expense
(570)
(1,620)
1,050
(281)
(342)
61
Net revenues
5,842
5,037
805
2,989
2,185
804
Other (expense) income
(1,822)
(11,823)
10,001
(2,480)
4,254
(6,734)
Expenses
(3,481)
(3,391)
(90)
(1,724)
(1,685)
(39)
Net income (loss) before income tax provision (benefit)
539
(10,177)
10,716
(1,215)
4,754
(5,969)
Income tax provision (benefit)
(168)
(8,688)
8,520
295
(1,286)
1,581
Net income (loss)
$
371
$
(18,865)
$
19,236
$
(920)
$
3,468
$
(4,388)
GAAP and Non-GAAP Reconciliation

Economic Interest Expense and Economic Net Interest Income

We use derivative instruments, specifically Eurodollar and Treasury Note (“T-Note”) futures contracts and TBA short positions to
hedge a portion of the interest rate risk on repurchase agreements in a rising rate environment.

We have not designated our derivative financial instruments as hedge accounting relationships,
but rather hold them for economic
hedging purposes. Changes in fair value of these instruments are presented in a
separate line item in our consolidated statements of
operations and not included in interest expense. As such, for financial reporting
purposes, interest expense and cost of funds are not
impacted by the fluctuation in value of the derivative instruments.

For the purpose of computing economic net interest income and ratios relating to cost
of funds measures, GAAP interest expense
has been adjusted to reflect the realized and unrealized gains or losses on certain
derivative instruments the Company uses that
pertain to each period presented. We believe that adjusting our interest expense for the periods
presented by the gains or losses on
these derivative instruments would not accurately reflect our economic interest
expense for these periods. The reason is that these
derivative instruments may cover periods that extend into the future, not just the current
period.
Any realized or unrealized gains or
losses on the instruments reflect the change in market value of the instrument caused
by changes in underlying interest rates
applicable to the term covered by the instrument, not just the
current period.

For each period presented, we have combined the effects of the derivative financial instruments
in place for the respective period
with the actual interest expense incurred on borrowings to reflect total economic interest
expense for the applicable period. Interest
expense, including the effect of derivative instruments for the period, is referred to as economic interest
expense. Net interest income,
- 24 -
when calculated to include the effect of derivative instruments for the period, is referred to
as economic net interest income. This
presentation includes gains or losses on all contracts in effect during the reporting period, covering
the current period as well as
periods in the future.

-29-

We believe that economic interest expense and economic net interest income provide meaningful
information to consider, in
addition to the respective amounts prepared in accordance with GAAP. The non-GAAP measures help management to evaluate its
financial position and performance without the effects of certain transactions and GAAP adjustments
that are not necessarily indicative
of our current investment portfolio or operations. The unrealized gains or losses on derivative
instruments presented in our
consolidated statements of operations are not necessarily representative of the total interest
rate expense that we will ultimately
realize. This is because as interest rates move up or down in the future, the gains
or losses we ultimately realize, and which will affect
our total interest rate expense in future periods, may differ from the unrealized gains or losses recognized
as of the reporting date.

Our presentation of the economic value of our hedging strategy has important limitations.
First, other market participants may
calculate economic interest expense and economic net interest income differently than the
way we calculate them. Second, while we
believe that the calculation of the economic value of our hedging strategy described
above helps to present our financial position and
performance, it may be of limited usefulness as an analytical tool. Therefore, the economic
value of our investment strategy should not
be viewed in isolation and is not a substitute for interest expense and net interest
income computed in accordance with GAAP.

The tables below present a reconciliation of the adjustments to interest expense shown for each period relative to our
derivative instruments, and the consolidated statements of operations line item, gains (losses) on derivative instruments,
calculated in accordance with GAAP for each quarter in 20202021 and 2019.  2020.
As a result of the market turmoil during the first quarter of 2020 several hedge positions where closed.
However, the
hedges closed were hedges that covered periods well beyond the first quarter of 2020.
Accordingly, the open equity at the
time these hedges were closed will result in adjustments to economic interest expense through the balance of their
respective original hedge periods.
Since the Company’s portfolio was significantly reduced during the first quarter of 2020,
the effect of applying the open equity at the time of closure of these hedge instruments to the current, and much smaller,
repurchase agreement interest expense amounts couldhas materially impactimpacted the economic interest amounts reported below.

Losses on Derivative Instruments - Recognized in Consolidated Statement of Operations (GAAP)

(in thousands)
Gains (Losses) on Derivative Instruments - Recognized in Consolidated Statement of Operations (GAAP) 
(in thousands)         
  Recognized in       
  Statement of  TBA    
  Operations  Securities  Futures 
Three Months Ended (GAAP)  Loss  Contracts 
September 30, 2020
 
$
-
  
$
-
  
$
-
 
June 30, 2020
  
(2
)
  
-
   
(2
)
March 31, 2020
  
(5,291
)
  
(1,441
)
  
(3,850
)
December 31, 2019
  
287
   
(192
)
  
479
 
September 30, 2019
  
(483
)
  
(204
)
  
(279
)
June 30, 2019
  
(3,364
)
  
(734
)
  
(2,630
)
March 31, 2019
  
(2,258
)
  
(1,067
)
  
(1,191
)
             
(in thousands)            
  Recognized in         
  Statement of  TBA     
  Operations  Securities  Futures 
Nine Months Ended (GAAP)  Loss  Contracts 
September 30, 2020
 
$
(5,292
)
 
$
(1,441
)
 
$
(3,851
)
September 30, 2019
  
(6,105
)
  
(2,005
)
  
(4,100
)

Recognized in
Statement of
TBA
Operations
Securities
Futures
Three Months Ended
(GAAP)
Loss
Contracts
June 30, 2021
$
-
$
-
$
-
March 31, 2021
-
-
-
December 31, 2020
-
-
-
September 30, 2020
-
-
-
June 30, 2020
(2)
-
(2)
March 31, 2020
(5,291)
(1,441)
(3,850)
Six Months Ended
June 30, 2021
$
-
$
-
$
-
June 30, 2020
(5,292)
(1,441)
(3,851)
Gains (Losses) on Derivative Instruments - Attributed to Current Period (Non-GAAP)
(in thousands)
Attributed to Current Period (Non-GAAP)
Attributed to Future Periods (Non-GAAP)
Repurchase
Long-Term
Repurchase
Long-Term
Statement of
Three Months Ended
Agreements
Debt
Total
Agreements
Debt
Total
Operations
June 30, 2021
$
(708)
$
(58)
$
(766)
$
708
$
58
$
766
$
-
March 31, 2021
(708)
(58)
(766)
708
58
766
-
-30-

Gains (Losses) on Derivative Instruments - Attributed to Current Period (Non-GAAP) 
(in thousands)                     
  Attributed to Current Period (Non-GAAP)  Attributed to Future Periods (Non-GAAP)    
  Repurchase  Long-Term     Repurchase  Long-Term     Statement of 
Three Months Ended Agreements  Debt  Total  Agreements  Debt  Total  Operations 
September 30, 2020
 
$
(1,065
)
 
$
(40
)
 
$
(1,105
)
 
$
1,065
  
$
40
  
$
1,105
  
$
-
 
June 30, 2020
  
(456
)
  
(40
)
  
(496
)
  
456
   
38
   
494
   
(2
)
March 31, 2020
  
(456
)
  
(40
)
  
(496
)
  
(2,879
)
  
(475
)
  
(3,354
)
  
(3,850
)
December 31, 2019
  
510
   
56
   
566
   
(50
)
  
(37
)
  
(87
)
  
479
 
September 30, 2019
  
(124
)
  
61
   
(63
)
  
(155
)
  
(61
)
  
(216
)
  
(279
)
June 30, 2019
  
(226
)
  
43
   
(183
)
  
(2,215
)
  
(232
)
  
(2,447
)
  
(2,630
)
March 31, 2019
  
5
   
65
   
70
   
(976
)
  
(285
)
  
(1,261
)
  
(1,191
)
(in thousands)                            
      Junior          Junior         
  Repurchase  Subordinated      Repurchase  Subordinated      Statement of 
Nine Months Ended Agreements  Debt  Total  Agreements  Debt  Total  Operations 
September 30, 2020
 
$
(1,977
)
 
$
(120
)
 
$
(2,097
)
 
$
(1,358
)
 
$
(396
)
 
$
(1,754
)
 
$
(3,851
)
September 30, 2019
  
(345
)
  
169
   
(176
)
  
(3,346
)
  
(578
)
  
(3,924
)
 
$
(4,100
)

Economic Net Portfolio Interest Income 
(in thousands) 
     Interest Expense on Repurchase Agreements  Net Portfolio 
        Effect of     Interest Income 
  Interest  GAAP  Non-GAAP  Economic  GAAP  Economic 
Three Months Ended Income  Basis  
Hedges(1)
  
Basis(2)
  Basis  
Basis(3)
 
September 30, 2020
 
$
604
  
$
43
  
$
(1,065
)
 
$
1,108
  
$
561
  
$
(504
)
June 30, 2020
  
523
   
60
   
(456
)
  
516
   
463
   
7
 
March 31, 2020
  
2,040
   
928
   
(456
)
  
1,384
   
1,112
   
656
 
December 31, 2019
  
1,899
   
948
   
510
   
438
   
951
   
1,461
 
September 30, 2019
  
1,646
   
1,002
   
(124
)
  
1,126
   
644
   
520
 
June 30, 2019
  
2,134
   
1,340
   
(226
)
  
1,566
   
794
   
568
 
March 31, 2019
  
2,190
   
1,313
   
5
   
1,308
   
877
   
882
 
                         
(in thousands) 
      Interest Expense on Repurchase Agreements  Net Portfolio 
          Effect of      Interest Income 
  Interest  GAAP  Non-GAAP  Economic  GAAP  Economic 
Nine Months Ended Income  Basis  
Hedges(1)
  
Basis(2)
  Basis  
Basis(3)
 
September 30, 2020
 
$
3,167
  
$
1,030
  
$
(1,978
)
 
$
3,008
  
$
2,137
  
$
159
 
September 30, 2019
  
5,970
   
3,655
   
(345
)
  
4,000
   
2,315
   
1,970
 

(1)
Reflects the effect of derivative instrument hedges for only the period presented.
(2)
Calculated by subtracting the effect of derivative instrument hedges attributed to the period presented from GAAP interest expense.
(3)
Calculated by adding the effect of derivative instrument hedges attributed to the period presented to GAAP net portfolio interest income.

-31-

Economic Net Interest Income 
(in thousands) 
  Net Portfolio  Interest Expense on Long-Term Debt       
  Interest Income     Effect of     Net Interest Income (Loss) 
  GAAP  Economic  GAAP  Non-GAAP  Economic  GAAP  Economic 
Three Months Ended Basis  
Basis(1)
  Basis  
Hedges(2)
  
Basis(3)
  Basis  
Basis(4)
 
September 30, 2020
 
$
561
  
$
(504
)
 
$
261
  
$
(40
)
 
$
301
  
$
300
  
$
(805
)
June 30, 2020
  
463
   
7
   
282
   
(40
)
  
322
   
181
   
(315
)
March 31, 2020
  
1,112
   
656
   
350
   
(40
)
  
390
   
762
   
266
 
December 31, 2019
  
951
   
1,461
   
376
   
56
   
320
   
575
   
1,141
 
September 30, 2019
  
644
   
520
   
390
   
61
   
329
   
254
   
191
 
June 30, 2019
  
794
   
568
   
400
   
43
   
357
   
394
   
211
 
March 31, 2019
  
877
   
882
   
406
   
65
   
341
   
471
   
541
 
                             
(in thousands) 
  Net Portfolio  Interest Expense on Junior Subordinated Notes         
  Interest Income      Effect of      Net Interest Income (Loss) 
  GAAP  Economic  GAAP  Non-GAAP  Economic  GAAP  Economic 
Nine Months Ended Basis  
Basis(1)
  Basis  
Hedges(2)
  
Basis(3)
  Basis  
Basis(4)
 
September 30, 2020
 
$
2,137
  
$
159
  
$
893
  
$
(120
)
 
$
1,013
  
$
1,244
  
$
(854
)
September 30, 2019
  
2,315
   
1,970
   
1,196
   
169
   
1,027
   
1,119
   
943
 

(1)
Calculated by adding the effect of derivative instrument hedges attributed to the period presented to GAAP net portfolio interest income.
(2)
Reflects the effect of derivative instrument hedges for only the period presented.
(3)
Calculated by subtracting the effect of derivative instrument hedges attributed to the period presented from GAAP interest expense.
(4)
Calculated by adding the effect of derivative instrument hedges attributed to the period presented to GAAP net interest income.

- 25 -
December 31, 2020
(615)
(40)
(655)
615
40
655
-
September 30, 2020
(1,065)
(40)
(1,105)
1,065
40
1,105
-
June 30, 2020
(456)
(40)
(496)
456
38
494
(2)
March 31, 2020
(456)
(40)
(496)
(2,879)
(475)
(3,354)
(3,850)
Six Months Ended
June 30, 2021
$
(1,416)
$
(116)
$
(1,532)
$
1,416
$
116
$
1,532
$
-
June 30, 2020
(912)
(80)
(992)
(2,423)
(437)
(2,860)
$
(3,852)
Economic Net Portfolio Interest Income
(in thousands)
Interest Expense on Repurchase Agreements
Net Portfolio
Effect of
Interest Income
Interest
GAAP
Non-GAAP
Economic
GAAP
Economic
Three Months Ended
Income
Basis
Hedges
(1)
Basis
(2)
Basis
Basis
(3)
June 30, 2021
$
578
$
31
$
(708)
$
739
$
547
$
(161)
March 31, 2021
611
40
(708)
748
571
(137)
December 31, 2020
597
43
(615)
658
554
(61)
September 30, 2020
604
43
(1,065)
1,108
561
(504)
June 30, 2020
523
60
(456)
516
463
7
March 31, 2020
2,040
928
(456)
1,384
1,112
656
Six Months Ended
June 30, 2021
$
1,189
$
71
$
(1,416)
$
1,487
$
1,118
$
(298)
June 30, 2020
2,563
988
(912)
1,900
1,575
663
(1)
Reflects the effect of derivative instrument hedges for only the
period presented.
(2)
Calculated by subtracting the effect of derivative instrument hedges
attributed to the period presented from GAAP interest expense.
(3)
Calculated by adding the effect of derivative instrument hedges
attributed to the period presented to GAAP net portfolio interest
income.
Economic Net Interest Income
(in thousands)
Net Portfolio
Interest Expense on Long-Term Debt
Interest Income
Effect of
Net Interest Income (Loss)
GAAP
Economic
GAAP
Non-GAAP
Economic
GAAP
Economic
Three Months Ended
Basis
Basis
(1)
Basis
Hedges
(2)
Basis
(3)
Basis
Basis
(4)
June 30, 2021
$
547
$
(161)
$
250
$
(58)
$
308
$
297
(469)
March 31, 2021
571
(137)
250
(58)
308
321
(445)
December 31, 2020
554
(61)
257
(40)
297
297
(358)
September 30, 2020
561
(504)
261
(40)
301
300
(805)
June 30, 2020
463
7
282
(40)
322
181
(315)
March 31, 2020
1,112
656
350
(40)
390
762
266
Six Months Ended
June 30, 2021
$
1,118
$
(298)
$
500
$
(116)
$
616
$
618
$
(914)
June 30, 2020
1,575
663
632
(80)
712
943
(49)
(1)
Calculated by adding the effect of derivative instrument hedges
attributed to the period presented to GAAP net portfolio interest
income.
(2)
Reflects the effect of derivative instrument hedges for only
the period presented.
(3)
Calculated by subtracting the effect of derivative instrument hedges
attributed to the period presented from GAAP interest expense.
(4)
Calculated by adding the effect of derivative instrument hedges
attributed to the period presented to GAAP net interest income.
Segment Information

- 26 -
We have two operating segments. The asset management segment includes the investment
advisory services provided by Bimini
Advisors to Orchid and Royal Palm. The investment portfolio segment includes the
investment activities conducted by Royal Palm.
Segment information for the ninesix months ended SeptemberJune 30, 20202021 and 20192020 is as follows:

(in thousands)               
  Asset  Investment          
  Management  Portfolio  Corporate  Eliminations  Total 
2020               
Advisory services, external customers
 
$
4,969
  
$
-
  
$
-
  
$
-
  
$
4,969
 
Advisory services, other operating segments(1)
  
116
   
-
   
-
   
(116
)
  
-
 
Interest and dividend income
  
-
   
4,414
   
-
   
-
   
4,414
 
Interest expense
  
-
   
(1,030
)
  
(893
)(2)
  
-
   
(1,923
)
Net revenues
  
5,085
   
3,384
   
(893
)
  
(116
)
  
7,460
 
Other
  
-
   
(10,238
)
  
(466
)(3)
  
-
   
(10,704
)
Operating expenses(4)
  
(2,632
)
  
(2,375
)
  
-
   
-
   
(5,007
)
Intercompany expenses(1)
  
-
   
(116
)
  
-
   
116
   
-
 
Income (loss) before income taxes
 
$
2,453
  
$
(9,345
)
 
$
(1,359
)
 
$
-
  
$
(8,251
)
(in thousands)
Asset
Investment
Management
Portfolio
Corporate
Eliminations
Total
2021
Advisory services, external customers
$
4,211
$
-
$
-
$
-
$
4,211
Advisory services, other operating segments
(1)
72
-
-
(72)
-
Interest and dividend income
-
2,201
-
-
2,201
Interest expense
-
(71)
-32-
(499)
(2)

-
                
  Asset  Investment          
  Management  Portfolio  Corporate  Eliminations  Total 
2019               
Advisory services, external customers
 
$
5,052
  
$
-
  
$
-
  
$
-
  
$
5,052
 
Advisory services, other operating segments(1)
  
200
   
-
   
-
   
(200
)
  
-
 
Interest and dividend income
  
-
   
7,064
   
1
   
-
   
7,065
 
Interest expense
  
-
   
(3,655
)
  
(1,195
)(2)
  
-
   
(4,850
)
Net revenues
  
5,252
   
3,409
   
(1,194
)
  
(200
)
  
7,267
 
Other
  
-
   
(419
)
  
(736
)(3)
  
-
   
(1,155
)
Operating expenses(4)
  
(2,019
)
  
(2,806
)
  
-
   
-
   
(4,825
)
Intercompany expenses(1)
  
-
   
(200
)
  
-
   
200
   
-
 
Income (loss) before income taxes
 
$
3,233
  
$
(16
)
 
$
(1,930
)
 
$
-
  
$
1,287
 

(570)
Net revenues
4,283
2,130
(499)
(72)
5,842
Other income
-
(1,976)
154
(3)
-
(1,822)
Operating expenses
(4)
(2,230)
(1,251)
-
-
(3,481)
Intercompany expenses
(1)
-
(72)
-
72
-
Income (loss) before income taxes
$
2,053
$
(1,169)
$
(345)
$
-
$
539
Asset
Investment
Management
Portfolio
Corporate
Eliminations
Total
2020
Advisory services, external customers
$
3,340
$
-
$
-
$
-
$
3,340
Advisory services, other operating segments
(1)
84
-
-
(84)
-
Interest and dividend income
-
3,317
-
-
3,317
Interest expense
-
(988)
(632)
(2)
-
(1,620)
Net revenues
3,424
2,329
(632)
(84)
5,037
Other expenses
-
(11,307)
(516)
(3)
-
(11,823)
Operating expenses
(4)
(1,690)
(1,701)
-
-
(3,391)
Intercompany expenses
(1)
-
(84)
-
84
-
Income (loss) before income taxes
$
1,734
$
(10,763)
$
(1,148)
$
-
$
(10,177)
Segment information for the three months ended SeptemberJune 30, 20202021 and 20192020 is as follows:

(in thousands)          
 AssetInvestment   
 ManagementPortfolioCorporateEliminationsTotal
2020          
Advisory services, external customers
$1,629$-$-$-$1,629
Advisory services, other operating segments(1)
 32 - - (32) -
Interest and dividend income
 - 1,097 - - 1,097
Interest expense
 - (43) 
 (261)(2)
 - (304)
Net revenues
 1,661 1,054 (261) (32) 2,422
Other
 - 1,070 
 49 (3)
 - 1,119
Operating expenses(4)
 (956) (659) - - (1,615)
Intercompany expenses(1)
 - (32) - 32 -
Income (loss) before income taxes
$705$1,433$(212)$-$1,926
           
 AssetInvestment   
 ManagementPortfolioCorporateEliminationsTotal
2019          
Advisory services, external customers
$1,791$-$-$-$1,791
Advisory services, other operating segments(1)
 63 - - (63) -
Interest and dividend income
 - 2,011 - - 2,011
Interest expense
 - (1,002) 
 (389)(2)
 - (1,391)
Net revenues
 1,854 1,009 (389) (63) 2,411
Other
 - (438) 
 (601)(3)
 - (1,039)
Operating expenses(4)
 (754) (852) - - (1,606)
Intercompany expenses(1)
 - (63) - 63 -
Income (loss) before income taxes
$1,100$(344)$(990)$-$(234)

(1)
Includes advisory services revenue received by Bimini Advisors from Royal Palm.
(2)
Includes interest on long-term debt.
(in thousands)
(3)
Includes gains (losses) on Eurodollar futures contracts entered into as a hedge on junior subordinated notes and fair value adjustments on retained interests in securitizations.
Asset
(4)
Corporate expenses are allocated based on each segment’s proportional share of total revenues.
Investment

Management
Portfolio
Corporate
Eliminations
Total
2021
Advisory services, external customers
$
2,186
$
-
$
-
$
-
$
2,186
Advisory services, other operating segments
(1)
37
-
-
(37)
-
Interest and dividend income
-
1,084
-
-
1,084
Interest expense
-
(31)
-33-
(250)
(2)
-
(281)
Net revenues
2,223
1,053
(250)
(37)
2,989
Other
-
(2,634)
154
(3)
-
(2,480)
Operating expenses
(4)
(1,125)
(599)
-
-
(1,724)
Intercompany expenses
(1)
-
(37)
-
37
-
Income (loss) before income taxes
$
1,098
$
(2,217)
$
(96)
$
-
$
(1,215)
Asset
Investment
Management
Portfolio
Corporate
Eliminations
Total
2020
Advisory services, external customers
$
1,615
$
-
$
-
$
-
$
1,615
Advisory services, other operating segments
(1)
26
-
-
(26)
-
Interest and dividend income
-
912
-
-
912
Interest expense
-
(60)
(282)
(2)
-
(342)

- 27 -
Net revenues
1,641
852
(282)
(26)
2,185
Other
-
4,256
(2)
(3)
-
4,254
Operating expenses
(4)
(1,067)
(618)
-
-
(1,685)
Intercompany expenses
(1)
-
(26)
-
26
-
Income (loss) before income taxes
$
574
$
4,464
$
(284)
$
-
$
4,754
(1)
Includes advisory services revenue received by Bimini Advisors from
Royal Palm.
(2)
Includes interest on long-term debt.
(3)
Includes income recognized on the forgiveness of the PPP loan and
gains (losses) on Eurodollar futures contracts entered into as a hedge
on
junior subordinated notes.
(4)
Corporate expenses are allocated based on each segment’s proportional
share of total revenues.
Assets in each reportable segment were as follows:

(in thousands)            
 Asset Investment     
 Management Portfolio Corporate Total 
September 30, 2020
 
$
1,474
  
$
107,414
  
$
13,275
  
$
122,163
 
December 31, 2019
  
1,457
   
263,223
   
14,809
   
279,489
 

(in thousands)
Asset
Investment
Management
Portfolio
Corporate
Total
June 30, 2021
$
1,733
$
120,020
$
12,919
$
134,672
December 31, 2020
1,469
113,764
13,468
128,701
Asset Management
Segment

Advisory Services
Revenue

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

●
One-twelfth of 1.5% of the first $250 million of Orchid’s month-end equity, as defined in the management agreement,
●
One-twelfth of 1.25% of Orchid’s month-end equity that is greater than $250 million and less
than or equal to $500 million, and
●
One-twelfth of 1.00% of Orchid’s month-end equity that is greater than $500 million.

In addition, Orchid is obligated to reimburse us for any direct expenses incurred
on its behalf and to pay to us an amount equal to
Orchid's pro rata portion of certain overhead costs set forth in the management
agreement. The management agreement has been
renewed through February 20212022 and provides for automatic one-year extension
options. Should Orchid terminate the management
agreement without cause, it will be obligated to pay to us a termination fee equal
to three times the average annual management fee,
as defined in the management agreement, before or on the last day of the automatic
renewal term.

Orchid has reported its September 30, 2020 stockholders’ equity to be approximately $376.7 million, a decrease of approximately 5% from December 31, 2019.  Because of this decrease, Bimini expects to receive a proportional decrease in its management fee revenue going forward until Orchid is able to grow its equity base.

The following table summarizes the advisory services revenue received from
Orchid in each quarter during 20202021 and 2019 and 2020.
(in the nine months ended thousands)
Average
Average
Advisory Services
Orchid
Orchid
Management
Overhead
Three Months Ended
MBS
Equity
Fee
Allocation
Total
June 30, 2021
$
4,504,887
$
542,679
$
1,791
$
395
$
2,186
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 and 2019.

3,422,564
(in thousands)               
  Average  Average Advisory Services 
  Orchid  Orchid  Management  Overhead    
Three Months Ended MBS  Equity  Fee  Allocation  Total 
September 30, 2020
 
$
3,422,564
  
$
368,588
  
$
1,252
  
$
377
  
$
1,629
 
June 30, 2020
  
3,126,779
   
361,093
   
1,268
   
347
   
1,615
 
March 31, 2020
  
3,269,859
   
376,673
   
1,377
   
348
   
1,725
 
December 31, 2019
  
3,705,920
   
414,018
   
1,477
   
379
   
1,856
 
September 30, 2019
  
3,674,087
   
394,788
   
1,440
   
351
   
1,791
 
June 30, 2019
  
3,307,885
   
363,961
   
1,326
   
328
   
1,654
 
March 31, 2019
  
3,051,509
   
363,204
   
1,285
   
322
   
1,607
 
(in thousands)                    
  Average  Average Advisory Services 
  Orchid  Orchid  Management  Overhead     
Nine Months Ended MBS  Equity  Fee  Allocation  Total 
September 30, 2020
 
$
3,273,068
  
$
368,785
  
$
3,897
  
$
1,072
  
$
4,969
 
September 30, 2019
  
3,344,494
   
373,984
   
4,051
   
1,001
   
5,052
 

368,588
1,252
377
1,629
June 30, 2020
3,126,779
361,093
1,268
347
1,615
March 31, 2020
3,269,859
376,673
1,377
348
1,725
Six Months Ended
June 30, 2021
$
4,268,801
$
499,683
$
3,412
$
799
$
4,211
-34-

- 28 -
June 30, 2020
3,198,319
368,883
2,645
695
3,340
Investment Portfolio Segment

Net Portfolio Interest Income

We define net
portfolio
interest income
as interest
income on
MBS less interest
expense on
repurchase
agreement
funding.
During the nine
six months
ended September June
30, 2020, 2021,
we generated $2.1
$1.1 million
of net portfolio
interest income,
consisting
of $3.2 $1.2
million of
interest income
from
MBS assets offset by $1.0
$0.1 million of interest
expense on repurchase liabilities.
For the comparable period ended September
June 30, 2019, 2020,
we
generated $2.3
$1.6 million
of net portfolio
interest income,
consisting
of $6.0$2.6 million
of interest
income from
MBS assets
offset by $3.7
$1.0 million
of
interest expense
on repurchase
liabilities.
The $2.8$1.4 million
decrease
in interest
income for
the ninesix months
ended September June
30, 2020 2021
was due to
a $119.2$24.9 million
decrease
in average
MBS balances, partially offset by
combined
with a 110200 basis
point ("bp") increase
decrease
in yields earned
on the portfolio.
The $2.6
$0.9 million
decrease in
interest
expense for the nine
six months
ended September June
30, 20202021 was
due to a combination
of a $111.0$20.9 million
decrease in
average repurchase
liabilities
and an 84 a 196
bp decrease
in cost of
funds.

Our economic interest
expense on repurchase
liabilities
for the ninesix months ended September
June 30, 20202021 and 2019 2020
was $3.0$1.5 million
and $4.0 $1.9
million, respectively,
resulting in $0.2
($0.3) million
and $2.0$0.7 million
of economic
net portfolio
interest
income, respectively.

During the three months ended SeptemberJune 30, 2020,2021, we generated $0.6 millionapproximately $547,000 of net portfolio interest income, consisting
of $0.6 million
approximately
$578,000 of
interest
income from MBS
assets offset
by approximately
$31,000 of
interest expense
on repurchase
liabilities.
For the
three months
ended June
30, 2020,
we generated
approximately
$523,000 of
net portfolio
interest income, consisting
of
approximately
$463,000 of
interest
income from
MBS assets
offset by approximately $43,000
$60,000 of
interest expense
on repurchase
liabilities.  For the three months ended September 30, 2019, we generated $0.6 million of net portfolio interest income, consisting of $1.6 million of interest income from MBS assets offset by $1.0 million of
Our economic
interest expense
on repurchase liabilities.  The $1.0 million decrease in interest income
liabilities
for the three
months ended
June 30,
2021 and
2020 was $0.7
million and
$0.5
million, respectively,
resulting in
($0.2) million
and approximately
$7,000 of
economic net
portfolio
interest income,
respectively.
The tables
below provide
information
on our
portfolio
average balances,
interest income,
yield on
assets, average
repurchase
agreement
balances, interest
expense, cost
of funds,
net interest
income and
net interest
rate spread
for the six
months ended
June 30,
2021 and
2020
and each quarter
in 2021 and
2020 on both
a GAAP and
economic basis.
($ in thousands)
Average
Yield on
Average
Interest Expense
Average Cost of Funds
MBS
Interest
Average
Repurchase
GAAP
Economic
GAAP
Economic
Three Months Ended
Held
(1)
Income
(2)
MBS
Agreements
(1)
Basis
Basis
(2)
Basis
Basis
(3)
June 30, 2021
$
70,925
$
578
3.26%
$
72,241
$
31
$
739
0.17%
4.09%
March 31, 2021
69,017
611
3.54%
69,104
40
748
0.23%
4.33%
December 31, 2020
69,161
597
3.45%
67,878
43
658
0.25%
3.88%
September 30, 2020 was due to a $124.2 million decrease
62,981
604
3.84%
61,151
43
1,108
0.28%
7.25%
June 30, 2020
53,630
523
3.90%
51,987
60
516
0.46%
3.97%
March 31, 2020
136,142
2,040
5.99%
131,156
928
1,384
2.83%
4.22%
Six Months Ended
June 30, 2021
$
69,971
$
1,189
3.40%
$
70,672
$
71
$
1,487
0.20%
4.21%
June 30, 2020
94,886
2,563
5.40%
91,571
988
1,900
2.16%
4.15%
($ in average MBS balances, partially offset by a 32 bp increase in yields earned on the portfolio. The $1 million decrease in interest expense for the nine months ended thousands)
Net Portfolio
Net Portfolio
Interest Income
Interest Spread
GAAP
Economic
GAAP
Economic
Three Months Ended
Basis
Basis
(2)
Basis
Basis
(4)
June 30, 2021
$
547
$
(161)
3.09%
(0.83)%
March 31, 2021
571
(137)
3.31%
(0.79)%
- 29 -
December 31, 2020
554
(61)
3.20%
(0.42)%
September 30, 2020 was due to a combination
561
(504)
3.56%
(3.40)%
June 30, 2020
463
7
3.44%
(0.07)%
March 31, 2020
1,112
656
3.16%
1.77%
Six Months Ended
June 30, 2021
$
1,118
$
(298)
3.20%
(0.81)%
June 30, 2020
1,575
663
3.24%
1.25%
(1)
Portfolio yields and
costs of a $116.4 million decreaseborrowings
presented in the
tables
above and the
tables on pages
29 and 30
are calculated based
on the
average balances of
the underlying investment
portfolio/repurchase liabilities agreement balances
and a 198 bp decrease in cost of funds.are annualized

Our economic interest expense on repurchase liabilities for the three months ended September 30, 2020periods
presented.
Average balances for quarterly periods are calculated using two data
points, the beginning and 2019 was $1.1 million and $1.1 million, respectively, resulting in $0.5 million of economic net portfolioending balances.
(2)
Economic interest expense and $0.5 million of economic net portfolio interest income respectively.

Thepresented in the tables below provide informationabove and the tables on page
30 include the effect
of derivative instrument hedges for only the period presented.
(3)
Represents interest
cost of
our portfolioborrowings
and the
effect of
derivative instrument
hedges attributed
to the
period related
to hedging
activities divided by average balances,MBS.
(4)
Economic net interest income, yield on assets,spread is calculated by subtracting average repurchase agreement balances, interest expense, economic
cost of funds net interest income and net interest rate spread for the nine months ended September 30, 2020 and 2019 and each quarter in 2020 and 2019from yield on both a GAAP and economic basis.average MBS.

($ in thousands)                        
  Average     Yield on  Average  Interest Expense  Average Cost of Funds 
  MBS  Interest  Average  Repurchase  GAAP  Economic  GAAP  Economic 
Three Months Ended 
Held(1)
  
Income(2)
  MBS  
Agreements(1)
  Basis  
Basis(2)
  Basis  
Basis(3)
 
September 30, 2020
 
$
62,981
  
$
604
   
3.84
%
 
$
61,151
  
$
43
  
$
1,108
   
0.28
%
  
7.24
%
June 30, 2020
  
53,630
   
523
   
3.90
%
  
51,987
   
60
   
516
   
0.46
%
  
3.97
%
March 31, 2020
  
136,142
   
2,040
   
5.99
%
  
131,156
   
928
   
1,384
   
2.83
%
  
4.22
%
December 31, 2019
  
190,534
   
1,898
   
3.99
%
  
182,215
   
948
   
438
   
2.08
%
  
0.96
%
September 30, 2019
  
187,199
   
1,646
   
3.52
%
  
177,566
   
1,002
   
1,126
   
2.26
%
  
2.54
%
June 30, 2019
  
211,406
   
2,134
   
4.04
%
  
199,901
   
1,340
   
1,566
   
2.68
%
  
3.13
%
March 31, 2019
  
212,033
   
2,190
   
4.13
%
  
199,771
   
1,313
   
1,308
   
2.63
%
  
2.62
%
                                 
($ in thousands)                                
  Average      Yield on  Average  Interest Expense  Average Cost of Funds 
  MBS  Interest  Average  Repurchase  GAAP  Economic  GAAP  Economic 
Nine Months Ended 
Held(1)
  
Income(2)
  MBS  
Agreements(1)
  Basis  
Basis(2)
  Basis  
Basis(3)
 
September 30, 2020
 
$
84,251
  
$
3,167
   
5.01
%
 
$
81,431
  
$
1,030
  
$
3,008
   
1.69
%
  
4.92
%
September 30, 2019
  
203,546
   
5,970
   
3.91
%
  
192,413
   
3,655
   
4,000
   
2.53
%
  
2.77
%

-35-
($ in thousands)            
  Net Portfolio  Net Portfolio 
  Interest Income  Interest Spread 
  GAAP  Economic  GAAP  Economic 
Three Months Ended Basis  
Basis(2)
  Basis  
Basis(4)
 
September 30, 2020
 
$
561
  
$
(504
)
  
3.56
%
  
(3.40
)%
June 30, 2020
  
463
   
7
   
3.44
%
  
3.44
%
March 31, 2020
  
1,112
   
656
   
3.16
%
  
1.77
%
December 31, 2019
  
951
   
1,461
   
1.91
%
  
3.03
%
September 30, 2019
  
644
   
520
   
1.26
%
  
0.98
%
June 30, 2019
  
794
   
568
   
1.36
%
  
0.91
%
March 31, 2019
  
877
   
882
   
1.50
%
  
1.51
%
                 
($ in thousands)                
  Net Portfolio  Net Portfolio 
  Interest Income  Interest Spread 
  GAAP  Economic  GAAP  Economic 
Nine Months Ended Basis  
Basis(2)
  Basis  
Basis(4)
 
September 30, 2020
 
$
2,137
  
$
159
   
3.32
%
  
0.09
%
September 30, 2019
  
2,315
   
1,970
   
1.38
%
  
1.14
%

(1)
Portfolio yields and costs of borrowings presented in the tables above and the tables on pages 37 and 38 are calculated based on the average balances of the underlying investment portfolio/repurchase agreement balances and are annualized for the periods presented. Average balances for quarterly periods are calculated using two data points, the beginning and ending balances.
(2)
Economic interest expense and economic net interest income presented in the tables above and the tables on page 38 include the effect of derivative instrument hedges for only the period presented.
(3)
Represents interest cost of our borrowings and the effect of derivative instrument hedges attributed to the period related to hedging activities divided by average MBS.
(4)
Economic net interest spread is calculated by subtracting average economic cost of funds from yield on average MBS.

Interest Income and Average Earning Asset Yield

Our interest
income was
$1.2 million
for the six
months ended
June 30, 2021
and $2.6 million
for the six
months ended
June 30,
2020.
Average MBS
holdings were
$70.0 million
and $94.9
million for
the six months
ended June
30, 2021
and 2020,
respectively. The
$1.4 million
decrease in
interest income
was due to
a $24.9 million
decrease
in average
MBS holdings,
combined with
a 200 bp decrease
in yields.
Our interest
income was $3.2 $0.6
million for the nine
three months
ended September June
30, 20202021 and $6.0 $0.5
million for
the ninethree months
ended September June
30, 2019. 
2020.
Average MBS holdings
were $84.3$70.9 million
and $203.5$53.6 million
for the nine three
months ended September
June 30, 2021
and 2020, and 2019, respectively.
The $2.8
$0.1 million decrease
increase in
interest income
was due to
a $119.2$17.3 million decrease
increase in
average MBS
holdings,
partially offset
by a 11064 bp increase
decrease in
yields.

Our interest income was $0.6 million for the three months ended September 30, 2020 and $1.6 million for the three months ended September 30, 2019.  Average MBS holdings were $63.0 million and $187.2 million for the three months ended September 30, 2020 and 2019, respectively. The $1.0 million decrease in interest income was due to a $124.2 million decrease in average MBS holdings, partially offset by a 32 bp increase in yields.

-36-

The tables below present
the average portfolio
size, income and yields
of our respective
sub-portfolios,
consisting
of structured
MBS
and PT MBS,
for the nine six
months ended
June 30, 2021
and 2020,
and for each
quarter during
2021 and 2020.
($ in thousands)
Average MBS Held
Interest Income
Realized Yield on Average MBS
PT
Structured
PT
Structured
PT
Structured
Three Months Ended
MBS
MBS
Total
MBS
MBS
Total
MBS
MBS
Total
June 30, 2021
$
70,207
$
718
$
70,925
$
579
$
(1)
$
578
3.30%
(0.11)%
3.26%
March 31, 2021
68,703
314
69,017
605
6
611
3.53%
6.54%
3.54%
December 31, 2020
68,842
319
69,161
598
(1)
597
3.47%
(1.20)%
3.45%
September 30, 2020 and 2019, and for each quarter during
62,564
417
62,981
588
16
604
3.76%
15.35%
3.84%
June 30, 2020 and 2019.

53,101
($ in thousands)                           
  Average MBS Held  Interest Income  Realized Yield on Average MBS 
  PT  Structured     PT  Structured     PT  Structured    
Three Months Ended MBS  MBS  Total  MBS  MBS  Total  MBS  MBS  Total 
September 30, 2020
 
$
62,564
  
$
417
  
$
62,981
  
$
588
  
$
16
  
$
604
   
3.76
%
  
15.35
%
  
3.84
%
June 30, 2020
  
53,101
   
529
   
53,630
   
502
   
21
   
523
   
3.78
%
  
16.12
%
  
3.90
%
March 31, 2020
  
135,044
   
1,098
   
136,142
   
2,029
   
11
   
2,040
   
6.01
%
  
3.93
%
  
5.99
%
December 31, 2019
  
188,884
   
1,650
   
190,534
   
1,870
   
28
   
1,898
   
3.96
%
  
6.90
%
  
3.99
%
September 30, 2019
  
185,309
   
1,890
   
187,199
   
1,652
   
(6
)
  
1,646
   
3.57
%
  
(1.15
)%
  
3.52
%
June 30, 2019
  
209,171
   
2,235
   
211,406
   
2,111
   
23
   
2,134
   
4.04
%
  
4.01
%
  
4.04
%
March 31, 2019
  
209,469
   
2,564
   
212,033
   
2,143
   
47
   
2,190
   
4.09
%
  
7.42
%
  
4.13
%
                                     
($ in thousands)                                    
  Average MBS Held  Interest Income  Realized Yield on Average MBS 
  PT  Structured      PT  Structured      PT  Structured     
Nine Months Ended MBS  MBS  Total  MBS  MBS  Total  MBS  MBS  Total 
September 30, 2020
 
$
83,570
  
$
681
  
$
84,251
  
$
3,119
  
$
48
  
$
3,167
   
4.98
%
  
9.42
%
  
5.01
%
September 30, 2019
  
201,316
   
2,230
   
203,546
   
5,906
   
64
   
5,970
   
3.91
%
  
3.86
%
  
3.91
%

529
53,630
502
21
523
3.78%
16.12%
3.90%
March 31, 2020
135,044
1,098
136,142
2,029
11
2,040
6.01%
3.93%
5.99%
Six Months Ended
June 30, 2021
$
69,455
$
516
$
69,971
$
1,184
$
5
$
1,189
3.41%
1.92%
3.40%
June 30, 2020
94,073
813
94,886
2,531
32
2,563
5.38%
7.89%
5.40%
Interest Expense on Repurchase Agreements and the Cost of Funds

Our average
outstanding
balances
under repurchase
agreements
were $81.4$70.7
million and
$91.6 million,
generating
interest expense
of
$0.1 million and $192.4 million, generating interest expense of $1.0 million and $3.7 million for the ninesix months ended SeptemberJune 30, 2021 and 2020, and 2019, respectively.
Our average cost of funds was 1.69%0.20% and 2.53%
2.16% for nine
six months
ended September June
30, 2021 and
2020, and 2019,
respectively.
There was an 84
a 196 bp
decrease
in the average
cost of funds
and a $111.0 $20.9
million decrease
in average outstanding
repurchase
agreements
during the ninesix months
ended SeptemberJune 30, 2020,
2021, compared
to the nine six months
ended June
30, 2020.
- 30 -
Our economic
interest expense
was $1.5
million and
$1.9 million
for the
six months
ended June
30, 2021
and 2020,
respectively. There
was a 6
bp increase
in the average
economic cost
of funds
to 4.21%
for the six
months ended September
June 30, 2019.
 
2021 from

4.15% for
the six months
ended June
30, 2020.
The $0.4
million decrease
in economic
interest
expense was
due to
the $20.9
million decrease
in average
outstanding
repurchase
agreements
during the
six months
ended June
30, 2021.
Our average
outstanding
balances
under repurchase
agreements
were $72.2
million and
$52.0 million,
generating
interest expense
of
approximately
$31,000 and
60,000 for
the three
months ended
June 30,
2021 and
2020, respectively.
Our average
cost of
funds was
0.17%
and 0.46% for
three months
ended June
30, 2021 and
2020, respectively.
There was a
29 bp decrease
in the average
cost of funds
and a
$20.3 million
increase in
average outstanding
repurchase
agreements
during the
three months
ended June
30, 2021,
compared to
the three
months ended
June 30, 2020.
Our economic interest
expense was $3.0$0.7 million
and $4.0 million for the nine months ended September 30, 2020 and 2019, respectively. There was a 215 bp increase in the average economic cost of funds to 4.92% for the nine months ended September 30, 2020 from 2.77% for the nine months ended September 30, 2019.  The $1.0 million decrease in economic interest expense was due to the $111.0 million decrease in average outstanding repurchase agreements during the nine months ended September 30, 2020, combined with the negative performance of our derivative holdings attributed to the current period.

Our average outstanding balances under repurchase agreements were $61.2 million and $177.6 million, generating interest expense of approximately $43,000 and $1.0$0.5 million for the three months ended SeptemberJune 30, 2021 and 2020, and 2019, respectively.  Our average cost of funds was 0.28% and 2.26% for three months ended September 30, 2020 and 2019, respectively.  
There was a 198
12 bp decrease increase
in the average
economic cost
of funds and a $116.4 million decrease in average outstanding repurchase agreements during
to 4.09% for
the three months
ended September June
30, 2020, compared to2021 from
3.97% for the
three months
ended September June
30, 2019.  2020.

Our economic interest expense was $1.1 million and $1.1 million for the three months ended September 30, 2020 and 2019, respectively. There was a 470 bp increase in the average economic cost of funds to 7.24% for the three months ended September 30, 2020 from 2.54% for the three months ended September 30, 2019.

Because 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 117 bps above the average one-month LIBOR and 71
bp below the
average six-month
LIBOR for
the quarter
ended June
30, 2021.
Our average
economic cost
of funds was
399 bps below above
the average
one-
month LIBOR
and 391 bps above
the average
six-month LIBOR
for the quarter
ended SeptemberJune 30, 2020. Our
2021. The average
term to maturity
of the
outstanding
repurchase
agreements
decreased from
33 days at
December 31,
2020 to 25
days at June
30, 2021.
The tables
below present
the average
outstanding
balances under
our repurchase
agreements,
interest expense
and average
economic
cost of funds, was 707 bps above the
and average
one-month
and six-month
LIBOR and 689 bps above the average six-month LIBOR rates
for the quarter six months
ended September June
30, 2020. The average term to maturity2021 and
2020, and for
each quarter
in 2021 and
2020, on both
a GAAP and
economic basis.
($ in thousands)
Average
Balance of the outstanding repurchase agreements increased from 24 days at
Interest Expense
Average Cost of Funds
Repurchase
GAAP
Economic
GAAP
Economic
Three Months Ended
Agreements
Basis
Basis
Basis
Basis
June 30, 2021
$
72,241
$
31
$
739
0.17%
4.09%
March 31, 2021
69,104
40
748
0.23%
4.33%
December 31, 2019 to 73 days at September 30, 2020.2020

67,878
-37-43
658
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 LIBOR rates for the nine months ended 0.25%
3.88%
September 30, 2020 and 2019, and for each quarter in
61,151
43
1,108
0.28%
7.25%
June 30, 2020 and 2019, on both a
51,987
60
516
0.46%
3.97%
March 31, 2020
131,156
928
1,384
2.83%
4.22%
Six Months Ended
June 30, 2021
$
70,672
$
71
$
1,487
0.20%
4.21%
June 30, 2020
91,571
988
1,900
2.16%
4.15%
Average GAAP and economic basis.Cost of Funds

Average Economic Cost of Funds
($ in thousands)               
  Average             
  Balance of  Interest Expense  Average Cost of Funds 
  Repurchase  GAAP  Economic  GAAP  Economic 
Three Months Ended Agreements  Basis  Basis  Basis  Basis 
September 30, 2020
 
$
61,151
  
$
43
  
$
1,108
   
0.28
%
  
7.24
%
June 30, 2020
  
51,987
   
60
   
516
   
0.46
%
  
3.97
%
March 31, 2020
  
131,156
   
928
   
1,384
   
2.83
%
  
4.22
%
December 31, 2019
  
182,215
   
948
   
438
   
2.08
%
  
0.96
%
September 30, 2019
  
177,566
   
1,002
   
1,126
   
2.26
%
  
2.54
%
June 30, 2019
  
199,901
   
1,340
   
1,566
   
2.68
%
  
3.13
%
March 31, 2019
  
199,771
   
1,313
   
1,308
   
2.63
%
  
2.62
%
                     
($ in thousands)                    
  Average                 
  Balance of  Interest Expense  Average Cost of Funds 
  Repurchase  GAAP  Economic  GAAP  Economic 
Nine Months Ended Agreements  Basis  Basis  Basis  Basis 
September 30, 2020
 
$
81,431
  
$
1,030
  
$
3,008
   
1.69
%
  
4.92
%
September 30, 2019
  
192,413
   
3,655
   
4,000
   
2.53
%
  
2.77
%

Relative to Average
        Average GAAP Cost of Funds  Average Economic Cost of Funds 
        Relative to Average  Relative to Average 
  Average LIBOR  One-Month  Six-Month  One-Month  Six-Month 
Three Months Ended One-Month  Six-Month  LIBOR  LIBOR  LIBOR  LIBOR 
September 30, 2020
  
0.17
%
  
0.35
%
  
0.11
%
  
(0.07
)%
  
7.07
%
  
6.89
%
June 30, 2020
  
0.55
%
  
0.70
%
  
(0.09
)%
  
(0.24
)%
  
3.42
)%
  
3.27
%
March 31, 2020
  
1.34
%
  
1.43
%
  
1.49
%
  
1.40
%
  
2.88
%
  
2.79
%
December 31, 2019
  
1.90
%
  
1.98
%
  
0.18
%
  
0.10
%
  
(0.94
)%
  
(1.02
)%
September 30, 2019
  
2.22
%
  
2.18
%
  
0.04
%
  
0.08
%
  
0.32
%
  
0.36
%
June 30, 2019
  
2.45
%
  
2.49
%
  
0.23
%
  
0.19
%
  
0.68
%
  
0.64
%
March 31, 2019
  
2.50
%
  
2.77
%
  
0.13
%
  
(0.14
)%
  
0.12
%
  
(0.15
)%
                         
                         
          Average GAAP Cost of Funds  Average Economic Cost of Funds 
          Relative to Average  Relative to Average 
  Average LIBOR  One-Month  Six-Month  One-Month  Six-Month 
Nine Months Ended One-Month  Six-Month  LIBOR  LIBOR  LIBOR  LIBOR 
September 30, 2020
  
0.68
%
  
0.83
%
  
1.01
%
  
0.86
%
  
4.24
%
  
4.09
%
September 30, 2019
  
2.39
%
  
2.48
%
  
0.14
%
  
0.05
%
  
0.38
%
  
0.29
%

Relative to Average
Average LIBOR
One-Month
Six-Month
One-Month
Six-Month
Three Months Ended
One-Month
Six-Month
LIBOR
LIBOR
LIBOR
LIBOR
June 30, 2021
0.10%
0.18%
0.07%
(0.01)%
3.99%
3.91%
March 31, 2021
0.13%
0.23%
0.10%
0.00%
4.20%
4.10%
December 31, 2020
0.15%
0.27%
0.10%
(0.02)%
3.73%
3.61%
September 30, 2020
0.17%
0.35%
0.11%
(0.07)%
7.08%
6.90%
June 30, 2020
0.55%
0.70%
(0.09)%
(0.24)%
3.42%
3.27%
March 31, 2020
1.34%
1.43%
1.49%
1.40%
2.88%
2.79%
Six Months Ended
-38-

- 31 -
June 30, 2021
0.11%
0.20%
0.09%
0.00%
4.10%
4.01%
June 30, 2020
0.94%
1.06%
1.22%
1.10%
3.21%
3.09%
Dividend Income

We owned 1,520,036
shares of Orchid
common stock
as of March 31, 2020.
We acquired 975,321
additional
shares during
the three
months ended June 30, 2020, and an additional 100,000 shares during the three months ended September 30, 2020, bringing our total
ownership
to 2,595,357
shares. Orchid
paid total
dividends of $0.595
$0.39 per
share and
$0.195 per
share during
the six and
three months
ended
June 30,
2021, respectively,
and $0.405
per share
and $0.19 $0.165
per share
during the nine
six and
three months
ended September June
30, 2020, respectively,
respectively.
During the
six and $0.72 per share and $0.24 per share during the nine and
three months
ended September June
30, 2019, respectively.  During 2021,
we received
dividends
on this
common stock
investment
of approximately
$1.0 million
and $0.5
million, respectively,
compared
to $0.8 million
and $0.4
million during
the ninesix and
three months
ended September June
30, 2020, we received dividends on this common stock investment of approximately $1.2 million and $0.5 million, respectively, compared to $1.1 million and $0.4 million during the nine and three months ended September 30, 2019,
respectively.

Long-Term Debt

Junior Subordinated Notes

Interest expense
on our junior subordinated
debt securities
was $0.9$0.5 million
and $1.2$0.6 million
for the ninesix months ended September
June 30, 2020 2021
and 2019, 2020,
respectively.
The average
rate of interest
paid for the ninesix months
ended SeptemberJune 30, 2020 2021
was 4.38%3.69% compared
to 6.06%4.68% for the
comparable
period in 2019.
2020.

Interest expense
on our junior subordinated
debt securities
was $0.2 million
and $0.3 million and $0.4 million
for the three month
periods ended September June
30, 2021 and 2020, and 2019, respectively.
The average rate of interest paid for the three months ended SeptemberJune 30, 2020
2021 was 3.80%3.67% compared to 5.86%
4.17% for
the comparable
period in 2019.
2020.

The junior
subordinated
debt securities
pay interest
at a floating
rate.
The rate is
adjusted quarterly
and set at
a spread of
3.50% over
the prevailing
three-month
LIBOR rate
on the determination
date.
As of September June
30, 2020, 2021,
the interest
rate was 3.75%3.62%.

Note Payable

On October 30, 2019,
the Company borrowed $680,000 from a
bank. The note is
payable in equal monthly principal and
interest
installments
of approximately
$4,500 through
October 30, 2039.
Interest accrues
at 4.89% through
October 30, 2024. Thereafter,
interest
accrues based
on the weekly
average yield
to the United
States Treasury
securities
adjusted to
a constant maturity
of 5 years, plus
3.25%.
The note is
secured by
a mortgage
on the Company’s
office building.
Paycheck Protection Plan Loan
On April 13, 2020, the Company received
approximately
$152,000
through the Paycheck
Protection
Program (“PPP”)
of the CARES
Act in
the form
of a low
interest loan.
The Small
Business Administration
notified the
Company that,
effective as
of April
22, 2021,all
principal
and accrued
interest under
the PPP loan
has been forgiven.
Gains or Losses and Other Income
The table
below presents
our gains
or losses and
other income
for the six
and three
months ended
June 30, 2021
and 2020.
(in thousands)
Six Months Ended June 30,
Three Months Ended June 30,
2021
2020
Change
2021
2020
Change
Realized losses on sales of MBS
$
-
$
(5,805)
$
5,805
$
-
$
-
$
-
Unrealized (losses) gains on MBS
(1,898)
28
(1,926)
(506)
602
(1,108)
- 32 -
Total (losses)
gains on MBS
(1,898)
(5,777)
3,879
(506)
602
(1,108)
Losses on derivative instruments
-
(5,292)
5,292
-
(2)
2
Unrealized (losses) gains on
Orchid Island Capital, Inc. common stock
(78)
(755)
677
(2,128)
3,653
(5,781)
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 continue to sell,
existing assets to
acquire new assets,
which our management believes
might have high
er 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,
2020, we received
proceeds of
$171.2 million
from the sales
of
MBS.
Most of
these sales
occurred
during the
second half
of March
2020 as
we sold
assets in
order to
maintain our
leverage ratio
at prudent
levels, maintain
sufficient cash
and liquidity
and reduce
risk associated
with the market
turmoil brought
about by COVID-19.
We did not
sell
any MBS during
the six months
ended June
30, 2021.
The fair value of
our MBS portfolio and derivative instruments, and
the gains (losses) reported on
those financial instruments, are
sensitive to
changes in
interest rates.
The table
below presents
historical
interest rate
data for each
quarter end
during 2021
and 2020.
5 Year
10 Year
15 Year
30 Year
Three
U.S. Treasury
U.S. Treasury
Fixed-Rate
Fixed-Rate
Month
Rate
(1)
Rate
(1)
Mortgage Rate
(2)
Mortgage Rate
(2)
Libor
(3)
June 30, 2021
0.87%
1.44%
2.27%
2.98%
0.13%
March 31, 2021
0.94%
1.75%
2.39%
3.08%
0.19%
December 31, 2020
0.36%
0.92%
2.22%
2.68%
0.23%
September 30, 2020
0.27%
0.68%
2.39%
2.89%
0.24%
June 30, 2020
0.29%
0.65%
2.60%
3.16%
0.31%
March 31, 2020
0.38%
0.70%
2.89%
3.45%
1.10%
(1)
Historical 5 Year and
10 Year U.S. Treasury
Rates are obtained from quoted end of day prices on the Chicago Board
Options Exchange.
(2)
Historical 15 Year and
30 Year Fixed
Rate Mortgage Rates are obtained from Freddie Mac’s
Primary Mortgage Market Survey.
(3)
Historical LIBOR are obtained from the Intercontinental Exchange Benchmark
Administration Ltd.
Operating Expenses
For the six and three months
ended June 30, 2021, our total operating expenses were approximately $3.5 million and $1.7 million,
respectively, compared
to approximately
$3.4 million
and $1.7
million for
the six and
three months
ended June
30, 2020,
respectively.
The
table below
presents a
breakdown
of operating
expenses for
the six and
three months
ended June
30, 2021 and
2020.
(in thousands)
Six Months Ended June 30,
Three Months Ended June 30,
2021
2020
Change
2021
2020
Change
Compensation and related benefits
$
2,190
$
2,147
$
43
$
1,067
$
1,047
$
20
Legal fees
77
95
(18)
32
75
(43)
Accounting, auditing and other professional fees
195
251
(56)
102
112
(10)
Directors’ fees and liability insurance
378
346
32
190
181
9
Administrative and other expenses
641
552
89
333
270
63
$
3,481
$
3,391
$
90
$
1,724
$
1,685
$
39
Income Tax Provision
We recorded an income tax provision (benefit) for the six and three months ended June 30,
2021 of approximately $0.2 million and
$(0.3) million, respectively, on consolidated pre-tax book income (loss) of $0.5 million and $(1.2) million, respectively.
We recorded an
- 33 -
income tax provision for the six and three months ended June 30, 2020 of approximately $8.7
million and $1.3 million, respectively, on
consolidated pre-tax book (loss) income of $(10.2) million and $4.8 million.
As a result
of adverse
economic impacts
of COVID-19
on our business,
management
performed
an assessment
of the need
for
additional
valuation allowances
against existing
deferred tax
assets. Following
the more-likely-than-not
standard that
benefits will
not be
realized in
the future,
we determined
an additional
valuation allowance
of approximately
$11.2 million was
necessary during
the three
months ended
March 31,
2020 for
the net operating
loss carryforwards
and capital
loss carryforwards.
With the evolving
and changing
landscape caused
by the pandemic,
we will continue
to closely
monitor the
impacts of
COVID-19
on the Company’s
ability to
realize its
deferred tax
assets and
may increase
valuation allowances
in the future
as new information
becomes available.
Financial
Condition:
Mortgage-Backed Securities
As of June
30, 2021,
our MBS portfolio
consisted of
$69.0 million
of agency or
government
MBS at fair
value and had
a weighted
average coupon
of 3.33%.
During the
six months
ended June
30, 2021,
we received
principal repayments
of $7.4 million
compared
to
$8.9 million
for the comparable
period ended
June 30, 2020.
The average
prepayment
speeds for
the quarters
ended June
30, 2021 and
2020 were
21.9% and
15.3%,
respectively.
The following
table presents
the 3-month
constant prepayment
rate (“CPR”)
experienced
on our structured
and PT MBS
sub-
portfolios,
on an annualized
basis, for
the quarterly
periods presented.
CPR is a
method of
expressing the
prepayment
rate for
a mortgage
pool that assumes
that a constant
fraction of
the remaining
principal is
prepaid each
month or
year. Specifically, the
CPR in the
chart
below represents
the three-month
prepayment
rate of the
securities
in the respective
asset category.
Structured
PT MBS
MBS
Total
Three Months Ended
Portfolio (%)
Portfolio (%)
Portfolio (%)
June 30, 2021
21.0
31.3
21.9
March 31, 2021
18.5
16.4
18.3
December 31, 2020
12.8
24.5
14.4
September 30, 2020
13.0
32.0
15.8
June 30, 2020
12.4
25.0
15.3
March 31, 2020
11.6
18.1
13.7
The following
tables summarize
certain characteristics
of our PT
MBS and structured
MBS as of June
30, 2021 and
December 31,
2020:
($ in thousands)
Weighted
Percentage
Average
of
Weighted
Maturity
Fair
Entire
Average
in
Longest
Asset Category
Value
Portfolio
Coupon
Months
Maturity
June 30, 2021
Fixed Rate MBS
$
67,910
98.4%
3.62%
333
1-Jan-51
Interest-Only MBS
1,064
1.6%
2.16%
346
1-May-51
Inverse Interest-Only MBS
20
0.0%
5.93%
215
15-May-39
Total MBS Portfolio
$
68,994
100.0%
3.33%
333
1-May-51
December 31, 2020
Fixed Rate MBS
$
64,902
99.6%
3.89%
333
1-Aug-50
Interest-Only MBS
251
0.4%
3.56%
299
15-Jul-48
- 34 -
Inverse Interest-Only MBS
25
0.0%
5.84%
221
15-May-39
Total MBS Portfolio
$
65,178
100.0%
3.89%
333
1-Aug-50
($ in thousands)
June 30, 2021
December 31, 2020
Percentage of
Percentage of
Agency
Fair Value
Entire Portfolio
Fair Value
Entire Portfolio
Fannie Mae
$
45,707
66.2%
$
38,946
59.8%
Freddie Mac
23,287
33.8%
26,232
40.2%
Total Portfolio
$
68,994
100.0%
$
65,178
100.0%
June 30, 2021
December 31, 2020
Weighted Average Pass-through Purchase Price
$
108.84
$
109.51
Weighted Average Structured Purchase Price
$
4.48
$
4.28
Weighted Average Pass-through Current Price
$
109.40
$
112.67
Weighted Average Structured Current Price
$
6.82
$
3.20
Effective Duration
(1)
3.562
3.309
(1)
Effective duration is the approximate percentage change
in price for a 100 basis point change in rates.
An effective duration of 3.562 indicates
that an interest rate increase of 1.0% would be expected to cause a 3.562% decrease
in the value of the MBS in our investment portfolio
at
June 30, 2021.
An effective duration of 3.309 indicates that an interest rate
increase of 1.0% would be expected to cause a 3.309% decrease
in the value of the MBS in our investment portfolio at December 31,
2020. These figures include the structured securities in the portfolio
but do
include the effect of our hedges.
Effective duration quotes for individual investments are obtained
from The Yield Book, Inc.
The following
table presents
a summary of
our portfolio
assets acquired
during the
six months
ended June
30, 2021 and
2020.
($ in thousands)
Six Months Ended June 30,
2021
2020
Total Cost
Average
Price
Weighted
Average
Yield
Total Cost
Average
Price
Weighted
Average
Yield
PT MBS
$
12,368
$
104.84
1.19%
$
20,823
$
110.83
2.64%
Structured MBS
772
7.72
3.33%
-
-
-
Our portfolio
of PT MBS
is typically
comprised of
adjustable-rate
MBS, fixed-rate
MBS and hybrid
adjustable-rate
MBS. We generally
seek to acquire
low duration
assets that
offer high levels
of protection
from mortgage
prepayments
provided that
they are reasonably
priced by the
market.
The stated
contractual
final maturity
of the mortgage
loans underlying
our portfolio
of PT MBS
generally ranges
up
to 30 years.
However, the effect
of prepayments
of the underlying
mortgage loans
tends to shorten
the resulting
cash flows
from our
investments
substantially. Prepayments
occur for
various reasons,
including refinancing
of underlying
mortgages,
loan payoffs
in
connection
with home
sales, and
borrowers
paying more
than their
scheduled loan
payments,
which accelerates
the amortization
of the
loans.
The duration
of our IO
and IIO portfolio
will vary greatly
depending
on the structural
features of
the securities.
While prepayment
activity will
always affect
the cash flows
associated
with the securities,
the interest
only nature
of IO’s may cause
their durations
to become
extremely negative
when prepayments
are high,
and less negative
when prepayments
are low. Prepayments
affect the duration
of IIO’s
similarly, but the
floating rate
nature of
the coupon
of IIOs (which
is inversely
related to
the level
of one month
LIBOR) causes
their price
movements -
and model duration
- to be affected
by changes
in both prepayments
and one month
LIBOR - both
current and
anticipated
levels.
As a result,
the duration
of IIO securities
will also vary
greatly.
Prepayments
on the loans
underlying
our MBS can
alter the
timing of the
cash flows
received by
us. As a result,
we gauge the
interest
rate sensitivity
of its assets
by measuring
their effective
duration.
While modified
duration measures
the price
sensitivity
of a bond
to
- 35 -
movements in
interest rates,
effective duration
captures both
the movement
in interest
rates and
the fact that
cash flows
to a mortgage
related security
are altered
when interest
rates move.
Accordingly, when
the contract
interest rate
on a mortgage
loan is substantially
above prevailing
interest rates
in the market,
the effective
duration of
securities
collateralized
by such loans
can be quite
low because
of
expected prepayments.
We face
the risk that
the market
value of our
PT MBS assets
will increase
or decrease
at different
rates than
that of our
structured
MBS 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.
We generally
calculate duration
and effective
duration using
various third-party
models or obtain
these
quotes from
third parties.
However, empirical
results and
various third-party
models may
produce different
duration numbers
for the same
securities.
The following
sensitivity
analysis
shows the
estimated impact
on the fair
value of our
interest rate-sensitive
investments
and hedge
positions as
of June 30,
2021, assuming
rates instantaneously
fall 100 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 MBS’
effective duration
to movements
in interest
rates.
($ in thousands)
Fair
$ Change in Fair Value
% Change in Fair Value
MBS Portfolio
Value
-100BPS
+100BPS
+200BPS
-100BPS
+100BPS
+200BPS
Fixed Rate MBS
$
67,910
$
2,287
$
(3,172)
$
(6,909)
3.37%
(4.67)%
(10.17)%
Interest-Only MBS
1,064
(274)
194
289
(25.79)%
18.29%
27.21%
Inverse Interest-Only MBS
20
1
(3)
(6)
5.01%
(14.81)%
(30.23)%
Total MBS Portfolio
$
68,994
$
2,014
$
(2,981)
$
(6,626)
2.92%
(4.32)%
(9.60)%
($ in thousands)
Notional
$ Change in Fair Value
% Change in Fair Value
Amount
(1)
-100BPS
+100BPS
+200BPS
-100BPS
+100BPS
+200BPS
Eurodollar Futures Contracts
Junior Subordinated Debt Hedges
$
1,000
$
(5)
$
5
$
10
(1.00)%
1.00%
2.00%
$
1,000
$
(5)
$
5
$
10
Gross Totals
$
2,009
$
(2,976)
$
(6,616)
(1)
Represents the
average contract/notional
amount of Eurodollar
futures contracts.
In addition
to changes
in interest
rates, other
factors impact
the fair value
of our interest
rate-sensitive
investments
and hedging
instruments,
such as the
shape of
the yield curve,
market expectations
as to future
interest rate
changes and
other market
conditions.
Accordingly, in the
event of changes
in actual interest
rates, the
change in the
fair value
of our assets
would likely
differ from
that shown
above and
such difference
might be
material and
adverse to
our stockholders.
Repurchase Agreements
As of June
30, 2021,
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
five of these
counterparties.
We
believe these
facilities
provide
borrowing
capacity in
excess of
our needs.
None of these
lenders are
affiliated with
us.
These borrowings
are secured
by our MBS.
As of June
30, 2021,
we had obligations
outstanding
under the
repurchase
agreements
of approximately
$71.3 million
with a net
weighted average
borrowing
cost of 0.16%.
The remaining
maturity of
our outstanding
repurchase
agreement
obligations
ranged from
6 to
51 days, with
a weighted
average maturity
of 25 days.
Securing the
repurchase
agreement
obligation
as of June
30, 2021 are
MBS with
an estimated
fair value,
including
accrued interest,
of $69.2 million
and a weighted
average maturity
of 332 months.
Through August
13,
- 36 -
2021, we have
been able
to maintain
our repurchase
facilities
with comparable
terms to those
that existed
at June 30,
2021 with
maturities
through October
19, 2021.
The table below presents information about our period-end, maximum and average
repurchase agreement obligations for each
quarter in 2021 and 2020.
($ in thousands)
Ending
Maximum
Average
Difference Between Ending
Balance
Balance
Balance
Repurchase Agreements and
of Repurchase
of Repurchase
of Repurchase
Average Repurchase Agreements
Three Months Ended
Agreements
Agreements
Agreements
Amount
Percent
June 30, 2021
$
71,346
$
72,372
$
72,241
$
(895)
(1.24)%
March 31, 2021
73,136
76,004
69,104
4,032
5.83%
December 31, 2020
65,071
70,684
67,878
(2,807)
(4.14)%
September 30, 2020
70,685
70,794
61,151
9,534
15.59%
(1)
June 30, 2020
51,617
52,068
51,987
(370)
(0.71)%
March 31, 2020
52,357
214,921
131,156
(78,799)
(60.08)%
(2)
(1)
The higher ending balance relative to the average balance during the
quarter ended September 30, 2020 reflects the increase in the portfolio.
During that quarter, the Company's investment
in PT MBS increased $20.4 million.
(2)
The lower ending balance relative to the average balance during the quarter
ended March 31, 2020 reflects the Company’s response to
the
COVID-19 pandemic. During that quarter,
the Company's investment in PT MBS decreased $162.4 million.
Liquidity and Capital Resources
Liquidity is
our ability
to turn non-cash
assets into
cash, purchase
additional
investments,
repay principal
and interest
on borrowings,
fund overhead
and fulfill
margin calls.
Our primary
immediate
sources of
liquidity include
cash balances,
unencumbered
assets, the
availability
to borrow
under repurchase
agreements,
and fees and
dividends received
from Orchid.
Our borrowing
capacity will
vary over
time as the
market value
of our interest
earning assets
varies.
Our investments
also generate
liquidity on
an on-going
basis through
payments of
principal and
interest
we receive
on our MBS
portfolio.
The COVID-19
pandemic has
adversely affected
our liquidity,
assets under
management
and operating
results.
During March
2020,
we significantly
reduced our
MBS assets
to meet margin
calls and
repay debts.
As described
elsewhere
in this report,
since March
2020
Bimini’s operating
results have
stabilized,
liquidity
has improved
and our investments
in MBS and
Orchid shares
have increased.
Our hedging
strategy typically
involves taking
short positions
in Eurodollar
futures, T-Note
futures, TBAs
or other instruments.
Currently, our
hedge positions
are limited
to short positions
in Eurodollar
futures.
When the market
causes these
short positions
to decline
in value we
are required
to meet margin
calls with
cash.
This can reduce
our liquidity
position to
the extent
other securities
in our portfolio
move in price
in such a way
that we do
not receive
enough cash
through margin
calls to offset
the Eurodollar
related margin
calls. If this
were to occur
in sufficient
magnitude,
the loss of
liquidity might
force us to
reduce the
size of the
levered portfolio,
pledge additional
structured
securities
to raise funds
or risk operating
the portfolio
with less liquidity.
Our master
repurchase
agreements
have no stated
expiration,
but can be
terminated
at any time
at our option
or at the
option of
the
counterparty. However,
once a definitive
repurchase
agreement
under a master
repurchase
agreement
has been entered
into, it generally
may not be
terminated
by either
party.
A negotiated
termination
can occur, but
may involve
a fee to
be paid by
the party
seeking to
terminate
the repurchase
agreement
transaction.
Under our
repurchase
agreement funding
arrangements,
we are required
to post margin
at the initiation
of the borrowing.
The margin
posted represents
the haircut,
which is a
percentage
of the market
value of the
collateral
pledged.
To the extent the market
value of the
asset collateralizing
the financing
transaction
declines, the
market value
of our posted
margin will
be insufficient
and we will
be required
to
- 37 -
post additional
collateral.
Conversely, if
the market
value of the
asset pledged
increases in
value, we
would be over
collateralized
and we
would be entitled
to have excess
margin returned
to us by the
counterparty.
Our lenders
typically
value our
pledged securities
daily to
ensure the
adequacy of
our margin
and make margin
calls as needed,
as do we.
Typically, but not always,
the parties
agree to a
minimum
threshold
amount for
margin calls
so as to avoid
the need for
nuisance margin
calls on a
daily basis.
As discussed
above, we
invest a portion
of our capital
in structured
MBS.
We generally
do not apply
leverage to
this portion
of our
portfolio.
The leverage
inherent in
the structured
securities
replaces the
leverage obtained
by acquiring
PT securities
and funding
them in
the repurchase
market.
This structured
MBS strategy
has been a
core element
of the Company’s
overall investment
strategy
since 2008.
However, we have
and may continue
to pledge
a portion
of our structured
MBS in order
to raise our
cash levels,
but generally
will not
pledge these
securities
in order
to acquire
additional
assets.
In future
periods we
expect to continue
to finance
our activities
through repurchase
agreements.
As of June
30, 2021,
we had cash
and cash equivalents
of $7.3 million.
We generated
cash flows
of $8.6 million
from principal
and interest
payments on
our MBS portfolio
and had average
repurchase
agreements
outstanding
of $70.7 million
during the
six months
ended June
30, 2021.
In addition,
during the
six months
ended June
30, 2021,
we received
approximately
$4.1 million
in management
fees and
expense reimbursements
as manager
of Orchid and
approximately
$1.0 million
in dividends
from our investment
in Orchid common
stock.
In order to generate additional cash to be invested in our MBS portfolio, on October
30, 2019, we obtained a $680,000 loan
secured by a mortgage on the Company’s office property.
The loan is payable in equal monthly principal and interest installments of
approximately $4,500 through October 30, 2039. Interest accrues at 4.89%, through October
30, 2024. Thereafter, interest accrues accrued
based on the weekly average yield to the United States Treasury securities adjusted to a constant maturity of 5 years, plus 3.25%. The note is secured by a mortgage on the Company’s office building.

Paycheck Protection Plan Loan

On April 13, 2020, the Company received approximately $152,000 through the Paycheck Protection Program (“PPP”) of the CARES Act in the form of a low interest loan.  PPP loans may be forgiven, in whole or in part, if the proceeds are  used for payroll and other permitted purposes in accordance with the requirements of the PPP and if certain other requirements are met.  These loans carry a fixed rate of 1.00% and a term of two years, if not forgiven, in whole or in part.  Payments are deferred for the first ten months after the completion of the loan forgiveness covered period.

-39-

Gains or Losses and Other Income

The table below presents our gains or losses and other income for the nine and three months ended September 30, 2020 and 2019.

(in thousands)                  
  Nine Months Ended September 30,  Three Months Ended September 30, 
  2020  2019  Change  2020  2019  Change 
Realized (losses) gains on sales of MBS
 
$
(5,805
)
 
$
23
  
$
(5,828
)
 
$
-
  
$
23
  
$
(23
)
Unrealized gains on MBS
  
304
   
6,227
   
(5,923
)
  
276
   
950
   
(674
)
Total (losses) gains on MBS
  
(5,501
)
  
6,250
   
(11,751
)
  
276
   
973
   
(697
)
(Losses) gains on derivative instruments
  
(5,292
)
  
(6,105
)
  
813
   
-
   
(483
)
  
483
 
Gains on retained interests in securitizations
  
59
   
315
   
(256
)
  
59
   
40
   
19
 
Unrealized gains (losses) on
                        
Orchid Island Capital, Inc. common stock
  
39
   
(973
)
  
1,012
   
794
   
(927
)
  
1,721
 

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 continue to sell, existing assets to acquire new assets, which our management believes might have higher risk-adjusted returns in light of current or anticipated interest rates, federal government programs or general economic conditions or to manage our balance sheet as part of our asset/liability management strategy. During the nine months ended September 30, 2020, we received proceeds of $171.2 million from the sales of MBS. Most of these sales occurred during the second half of March 2020 as we sold assets in order to maintain our leverage ratio at prudent levels, maintain sufficient cash and liquidity and reduce risk associated with the market turmoil brought about by COVID-19. During the nine months ended September 30, 2019, we received proceeds of $44.0 million from the sales of MBS.

The fair value of our MBS portfolio and derivative instruments, and the gains (losses) reported on those financial instruments, are sensitive to changes in interest rates.  The table below presents historical interest rate data for each quarter end during 2020 and 2019.

  5 Year  10 Year  15 Year  30 Year  Three 
  U.S. Treasury  U.S. Treasury  Fixed-Rate  Fixed-Rate  Month 
  
Rate(1)
  
Rate(1)
  
Mortgage Rate(2)
  
Mortgage Rate(2)
  
Libor(3)
 
September 30, 2020
  
0.27
%
  
0.68
%
  
2.39
%
  
2.89
%
  
0.24
%
June 30, 2020
  
0.29
%
  
0.65
%
  
2.60
%
  
3.16
%
  
0.31
%
March 31, 2020
  
0.38
%
  
0.70
%
  
2.89
%
  
3.45
%
  
1.10
%
December 31, 2019
  
1.69
%
  
1.92
%
  
3.18
%
  
3.72
%
  
1.91
%
September 30, 2019
  
1.55
%
  
1.68
%
  
3.12
%
  
3.61
%
  
2.13
%
June 30, 2019
  
1.76
%
  
2.00
%
  
3.24
%
  
3.80
%
  
2.40
%
March 31, 2019
  
2.24
%
  
2.41
%
  
3.72
%
  
4.27
%
  
2.61
%

(1)Historical 5 Year and 10 Year U.S. Treasury Rates are obtained from quoted end of day prices on the Chicago Board Options Exchange.
(2)Historical 15 Year and 30 Year Fixed Rate Mortgage Rates are obtained from Freddie Mac’s Primary Mortgage Market Survey.
(3)Historical LIBOR are obtained from the Intercontinental Exchange Benchmark Administration Ltd.

-40-

Operating Expenses

For the nine and three months ended September 30, 2020, our total operating expenses were approximately $5.0 million and $1.6 million, respectively, compared to approximately $4.8 million and $1.6 million for the nine and three months ended September 30, 2019, respectively.   The table below presents a breakdown of operating expenses for the nine and three months ended September 30, 2020 and 2019.

(in thousands)                  
  Nine Months Ended September 30,  Three Months Ended September 30, 
  2020  2019  Change  2020  2019  Change 
Compensation and related benefits
 
$
3,157
  
$
3,075
  
$
82
  
$
1,010
  
$
987
  
$
23
 
Legal fees
  
122
   
120
   
2
   
27
   
24
   
3
 
Accounting, auditing and other professional fees
  
345
   
261
   
84
   
94
   
73
   
21
 
Directors’ fees and liability insurance
  
512
   
491
   
21
   
166
   
169
   
(3
)
Administrative and other expenses
  
871
   
878
   
(7
)
  
319
   
353
   
(34
)
  
$
5,007
  
$
4,825
  
$
182
  
$
1,616
  
$
1,606
  
$
10
 

Income Tax Provision

We recorded an income tax provision for the nine and three months ended September 30, 2020 of approximately $9.3 million and $0.6 million, respectively, on consolidated pre-tax book (loss) income of $(8.3) million and $1.9 million in the nine and three months ended September 30, 2020, respectively. We recorded an income tax provision (benefit) for the nine and three months ended September 30, 2019 of approximately $0.9 million and $0.5 million, respectively, on consolidated pre-tax book income (loss) of $1.3 million and $(0.2) million in the nine and three months ended September 30, 2019, respectively.

As a result of adverse economic impacts of COVID-19 on our business, management performed an assessment of the need for additional valuation allowances against existing deferred tax assets. Following the more-likely-than-not standard that benefits will not be realized in the future, we determined an additional valuation allowance of approximately $11.2 million was necessary during the three months ended March 31, 2020 for the net operating loss carryforwards and capital loss carryforwards. With the rapidly evolving and changing landscape caused by the pandemic, we will continue to closely monitor the impacts of COVID-19 on the Company’s ability to realize its deferred tax assets and may increase valuation allowances in the future as new information becomes available.

Financial Condition:

Mortgage-Backed Securities

As of September 30, 2020, our MBS portfolio consisted of $73.1 million of agency or government MBS at fair value and had a weighted average coupon of 3.97%.  During the nine months ended September 30, 2020, we received principal repayments of $11.2 million compared to $14.8 million for the comparable period ended September 30, 2019.  The average prepayment speeds for the quarters ended September 30, 2020 and 2019 were 15.8% and 10.5%, respectively.

-41-

The following table presents the 3-month constant prepayment rate (“CPR”) experienced on our structured and PT MBS sub-portfolios, on an annualized basis, for the quarterly periods presented.  CPR is a method of expressing the prepayment rate for a mortgage pool that assumes that a constant fraction of the remaining principal is prepaid each month or year. Specifically, the CPR in the chart below represents the three month prepayment rate of the securities in the respective asset category.  Assets that were not owned for the entire quarter have been excluded from the calculation.  The exclusion of certain assets during periods of high trading activity can create a very high, and often volatile, reliance on a small sample of underlying loans.

     Structured    
  PT MBS  MBS  Total 
Three Months Ended Portfolio (%)  Portfolio (%)  Portfolio (%) 
September 30, 2020
  
13.0
   
32.0
   
15.8
 
June 30, 2020
  
12.4
   
25.0
   
15.3
 
March 31, 2020
  
11.6
   
18.1
   
13.7
 
December 31, 2019
  
15.6
   
15.6
   
15.6
 
September 30, 2019
  
9.5
   
16.2
   
10.5
 
June 30, 2019
  
9.9
   
14.6
   
10.5
 
March 31, 2019
  
5.7
   
13.4
   
6.8
 

The following tables summarize certain characteristics of our PT MBS and structured MBS as of September 30, 2020 and December 31, 2019:

($ in thousands)      
     Weighted 
   Percentage Average 
   ofWeightedMaturity 
  FairEntireAverageinLongest
Asset Category ValuePortfolioCouponMonthsMaturity
September 30, 2020      
Fixed Rate MBS
$
72,78299.5%3.97%33715-Aug-50
Interest-Only MBS
 3340.5%3.54%28915-Jul-48
Inverse Interest-Only MBS
 290.0%5.85%22415-May-39
Total MBS Portfolio
$
73,145100.0%3.97%33715-Aug-50
December 31, 2019      
Fixed Rate MBS
$
216,23199.3%4.25%3161-Nov-49
Interest-Only MBS
 1,0240.4%3.65%28115-Jul-48
Inverse Interest-Only MBS
 5860.3%4.77%25425-Apr-41
Total MBS Portfolio
$
217,841100.0%4.25%3161-Nov-49

($ in thousands)            
  September 30, 2020  December 31, 2019 
     Percentage of     Percentage of 
Agency Fair Value  Entire Portfolio  Fair Value  Entire Portfolio 
Fannie Mae
 
$
40,579
   
55.5
%
 
$
203,321
   
93.3
%
Freddie Mac
  
32,566
   
44.5
%
  
14,499
   
6.7
%
Ginnie Mae
  
-
   
0.0
%
  
21
   
0.0
%
Total Portfolio
 
$
73,145
   
100.0
%
 
$
217,841
   
100.0
%

-42-


  September 30, 2020  December 31, 2019 
Weighted Average Pass-through Purchase Price
 
$
109.74
  
$
107.12
 
Weighted Average Structured Purchase Price
 
$
4.96
  
$
6.39
 
Weighted Average Pass-through Current Price
 
$
112.59
  
$
108.77
 
Weighted Average Structured Current Price
 
$
3.50
  
$
6.91
 
Effective Duration (1)
  
3.184
   
3.196
 

(1)
Effective duration is the approximate percentage change in price for a 100 basis point change in rates.  An effective duration of 3.184 indicates that an interest rate increase of 1.0% would be expected to cause a 3.184% decrease in the value of the MBS in our investment portfolio at September 30, 2020.  An effective duration of 3.196 indicates that an interest rate increase of 1.0% would be expected to cause a 3.196% decrease in the value of the MBS in our investment portfolio at December 31, 2019. These figures include the structured securities in the portfolio but do include the effect of our hedges. Effective duration quotes for individual investments are obtained from The Yield Book, Inc.

The following table presents a summary of our portfolio assets acquired during the nine months ended September 30, 2020 and 2019.

($ in thousands)                  
 Nine Months Ended September 30, 
 2020 2019 
  Total Cost  Average Price  Weighted Average Yield  Total Cost  Average Price  Weighted Average Yield 
PT MBS
 
$
43,130
  
$
111.44
   
1.99
%
 
$
3,285
  
$
104.12
   
3.35
%

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

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

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

We face the risk that the market value of our PT MBS assets will increase or decrease at different rates than that of our structured MBS 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. We generally calculate duration and effective duration using various third-party models or obtain these quotes from third parties.  However, empirical results and various third-party models may produce different duration numbers for the same securities.

-43-
The following sensitivity analysis shows the estimated impact on the fair value of our interest rate-sensitive investments and hedge positions as of September 30, 2020, assuming rates instantaneously fall 100 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 MBS’ effective duration to movements in interest rates.

($ in thousands)                     
  Fair  $ Change in Fair Value  % Change in Fair Value 
MBS Portfolio Value  -100BPS  +100BPS  +200BPS  -100BPS  +100BPS  +200BPS 
Fixed Rate MBS
 
$
72,782
  
$
2,205
  
$
(2,767
)
 
$
(6,264
)
  
3.03
%
  
(3.80
)%
  
(8.61
)%
Interest-Only MBS
  
334
   
(60
)
  
142
   
257
   
(18.00
)%
  
42.58
%
  
76.95
%
Inverse Interest-Only MBS
  
29
   
1
   
(4
)
  
(8
)
  
3.20
%
  
(13.46
)%
  
(28.63
)%
Total MBS Portfolio
 
$
73,145
  
$
2,146
  
$
(2,629
)
 
$
(6,015
)
  
2.93
%
  
(3.59
)%
  
(8.22
)%

($ in thousands)                     
  Notional  $ Change in Fair Value  % Change in Fair Value 
  
Amount(1)
  -100BPS  +100BPS  +200BPS  -100BPS  +100BPS  +200BPS 
Eurodollar Futures Contracts                     
Junior Subordinated Debt Hedges
 
$
1,000
  
$
(10
)
 
$
10
  
$
20
   
(1.00
)%
  
1.00
%
  
2.00
%
  
$
1,000
  
$
(10
)
 
$
10
  
$
20
             
                             
Gross Totals
     
$
2,136
  
$
(2,619
)
 
$
(5,995
)
            

(1)
Represents the average contract/notional amount of Eurodollar futures contracts.

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

Repurchase Agreements

As of September 30, 2020, 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 five of these counterparties.  We believe these facilities provide borrowing capacity in excess of our needs.  None of these lenders are affiliated with us. These borrowings are secured by our MBS.

As of September 30, 2020, we had obligations outstanding under the repurchase agreements of approximately $70.7 million with a net weighted average borrowing cost of 0.26%. The remaining maturity of our outstanding repurchase agreement obligations ranged from 5 to 225 days, with a weighted average maturity of 73 days.  Securing the repurchase agreement obligation as of September 30, 2020 are MBS with an estimated fair value, including accrued interest, of $73.3 million and a weighted average maturity of 338 months.  Through November 6, 2020, we have been able to maintain our repurchase facilities with comparable terms to those that existed at September 30, 2020 with maturities through May 13, 2021.

-44-

The table below presents information about our period-end, maximum and average repurchase agreement obligations for each quarter in 2020 and 2019.

($ in thousands) 
  Ending  Maximum  Average  Difference Between Ending 
  Balance  Balance  Balance  Repurchase Agreements and 
  of Repurchase  of Repurchase  of Repurchase  Average Repurchase Agreements 
Three Months Ended Agreements  Agreements  Agreements  Amount  Percent 
September 30, 2020
 
$
70,685
  
$
70,794
  
$
61,151
  
$
9,534
   
15.59
%(1)
June 30, 2020
  
51,617
   
52,068
   
51,987
   
(370
)
  
(0.71
)%
March 31, 2020
  
52,357
   
214,921
   
131,156
   
(78,799
)
  
(60.08
)%(2)
December 31, 2019
  
209,954
   
239,243
   
182,215
   
27,739
   
15.22
%(3)
September 30, 2019
  
154,475
   
200,552
   
177,566
   
(23,091
)
  
(13.00
)%(4)
June 30, 2019
  
200,656
   
200,776
   
199,901
   
755
   
0.38
%
March 31, 2019
  
199,146
   
200,113
   
199,771
   
(625
)
  
(0.31
)%

(1)
The higher ending balance relative to the average balance during the quarter ended September 30, 2020 reflects the increase in the portfolio. During the quarter ended September 30, 2020, the Company's investment in PT MBS increased $20.4 million
(2)
The lower ending balance relative to the average balance during the quarter ended March 31, 2020 reflects the Company’s response to the COVID-19 pandemic. During the quarter ended March 31, 2020, the Company's investment in PT MBS decreased $162.4 million.
(3)
The higher ending balance relative to the average balance during the quarter ended December 31, 2019 reflects the reinvestment of the portfolio. During the quarter ended December 31, 2019, the Company's investment in PT MBS increased $54.7 million.
(4)
The lower ending balance relative to the average balance during the quarter ended September 31, 2019 reflects the decrease in the portfolio to fund the July 2019 Tender Offer. During the quarter ended September 31, 2019, the Company's investment in PT MBS decreased $47.5 million.

Liquidity and Capital Resources

Liquidity is our ability to turn non-cash assets into cash, purchase additional investments, repay principal and interest on borrowings, fund overhead and fulfill margin calls.  Our primary immediate sources of liquidity include cash balances, unencumbered assets, the availability to borrow under repurchase agreements, and fees and dividends received from Orchid.  Our borrowing capacity will vary over time as the market value of our interest earning assets varies.  Our investments also generate liquidity on an on-going basis through payments of principal and interest we receive on our MBS portfolio. In addition, in the three months ended September 30, 2020, we received U.S. Federal income tax refunds of approximately $1.4 million related to the 2018 tax year and approximately $0.2 million related to the 2019 tax year.

The COVID-19 pandemic has adversely affected our liquidity, assets under management and operating results.  As disclosed in detail elsewhere in this report, during March 2020, we significantly reduced our MBS assets to meet margin calls and repay debts.  This reduction in our investment portfolio will impact our ability to generate income in the future.  In addition, for the foreseeable future we may receive reduced income from our management of the Orchid portfolio.  However, management believes that we currently have sufficient liquidity and capital resources available for at least one year from the date of issuance of this Form 10-Q for (a) the management of our existing MBS portfolio, (b) to service our management agreement to Orchid, (c) to make all scheduled payments on borrowings, (d) for the payment of overhead and operating expenses, and (e) the payment of other accrued obligations.

Our hedging strategy typically involves taking short positions in Eurodollar futures, T-Note futures, TBAs or other instruments. Since inception we have primarily used short positions in Eurodollar futures.  When the market causes these short positions to decline in value we are required to meet margin calls with cash.  This can reduce our liquidity position to the extent other securities in our portfolio move in price in such a way that we do not receive enough cash through margin calls to offset the Eurodollar related margin calls. If this were to occur in sufficient magnitude, the loss of liquidity might force us to reduce the size of the levered portfolio, pledge additional structured securities to raise funds or risk operating the portfolio with less liquidity.

-45-

Our master repurchase agreements have no stated expiration, but can be terminated at any time at our option or at the option of the counterparty. However, once a definitive repurchase agreement under a master repurchase agreement has been entered into, it generally may not be terminated by either party.  A negotiated termination can occur, but may involve a fee to be paid by the party seeking to terminate the repurchase agreement transaction.

Under our repurchase agreement funding arrangements, we are required to post margin at the initiation of the borrowing.  The margin posted represents the haircut, which is a percentage of the market value of the collateral pledged. To the extent the market value of the asset collateralizing the financing transaction declines, the market value of our posted margin will be insufficient and we will be required to post additional collateral.  Conversely, if the market value of the asset pledged increases in value, we would be over collateralized and we would be entitled to have excess margin returned to us by the counterparty.  Our lenders typically value our pledged securities daily to ensure the adequacy of our margin and make margin calls as needed, as do we.  Typically, but not always, the parties agree to a minimum threshold amount for margin calls so as to avoid the need for nuisance margin calls on a daily basis.

As discussed above, we invest a portion of our capital in structured MBS.  We generally do not apply leverage to this portion of our portfolio. The leverage inherent in the structured securities replaces the leverage obtained by acquiring PT securities and funding them in the repurchase market.  This structured MBS strategy has been a core element of the Company’s overall investment strategy since 2008.  However, we have and may continue to pledge a portion of our structured MBS in order to raise our cash levels, but generally will not pledge these securities in order to acquire additional assets.

In future periods we expect to continue to finance our activities through repurchase agreements.  As of September 30, 2020, we had cash and cash equivalents of $5.8 million.  We generated cash flows of $14.9 million from principal and interest payments on our MBS portfolio and had average repurchase agreements outstanding of $81.4 million during the nine months ended September 30, 2020.  In addition, during the nine months ended September 30, 2020, we received approximately $5.0 million in management fees and expense reimbursements as manager of Orchid and approximately $1.2 million in dividends from our investment in Orchid common stock.

In order to generate additional cash to be invested in our MBS portfolio, on October 30, 2019, we obtained a $680,000 loan secured by a mortgage on the Company’s office property.  The loan is payable in equal monthly principal and interest installments of approximately $4,500 through October 30, 2039. Interest accrues at 4.89%, through October 30, 2024. Thereafter, interest accrued based on the weekly average yield to the United States Treasury securities adjusted to a constant maturity of five years, plus 3.25%.
Net loan proceeds were approximately $651,000.
In addition, subsequent to September 30,
during 2020, we completed the sale of real property that was
not used in
the Company’s business.
The proceeds from this sale were approximately $462,000 and we intend to invest these proceedswere
invested in our MBS portfolio.

On April 13, 2020, we received approximately $152,000 through the Paycheck Protection Program (“PPP”) of the CARES Act in the form of a low interest loan.  PPP loans may be forgiven, in whole or in part, if the proceeds are used for payroll and other permitted purposes in accordance with the requirements of the PPP and if certain other requirements are met.  These loans carry a fixed rate of 1.00% and a term of two years, if not forgiven, in whole or in part.  Payments are deferred for the first six months of the loan. The Company believes that all of the proceeds were used for eligible purposes and the outstanding principal and accrued interest will ultimately be forgiven.

-46-

The table below summarizes the effect that certain future contractual obligations existing as of September June
30, 20202021 will have on our
liquidity and cash flows. The figures below assume reflect forgiveness of all principal and interest under
the PPP loan.
(in thousands)
Obligations Maturing
Within One
Year
One to Three
Years
Three to Five
Years
More than
Five Years
Total
Repurchase agreements
$
71,346
$
-
$
-
$
-
$
71,346
Interest expense on repurchase agreements
(1)
43
-
-
-
43
Junior subordinated notes
(2)
-
-
-
26,000
26,000
Interest expense on junior subordinated notes
(1)
996
1,911
1,908
9,030
13,845
Principal and interest on mortgage loan
(1)
54
107
108
717
986
Totals
$
72,439
$
2,018
$
2,016
$
35,747
$
112,220
(1)
Interest expense
on repurchase
agreements,
junior subordinated
notes and mortgage
loan are based
on current interest
rates as of June
30, 2021
and the remaining
term of liabilities
existing at
that the entire PPP loan will be forgiven.date.

(in thousands)               
  Obligations Maturing 
  Within One Year  One to Three Years  Three to Five Years  More than Five Years  Total 
Repurchase agreements
 
$
70,684
  
$
-
  
$
-
  
$
-
  
$
70,684
 
Interest expense on repurchase agreements(1)
  
77
   
-
   
-
   
-
   
77
 
Junior subordinated notes(2)
  
-
   
-
   
-
   
26,000
   
26,000
 
Interest expense on junior subordinated notes(1)
  
1,032
   
1,977
   
1,980
   
10,098
   
15,087
 
Principal and interest on mortgage loan(1)
  
54
   
107
   
107
   
757
   
1,025
 
Totals
 
$
71,847
  
$
2,084
  
$
2,087
  
$
36,855
  
$
112,873
 

(2)
(1)
Interest expense on repurchase agreements, junior subordinated notes and mortgage loan are based on current interest rates as of September 30, 2020 and the remaining term of liabilities existing at that date.
(2)We hold a common
equity interest
in Bimini Capital
Trust II.
The amount presented
represents our net
We hold a common equity interest in Bimini Capital Trust II.  The amount presented represents our net cash outlay.

Outlook

Orchid Island
Capital Inc.
Orchid Island Capital Inc.had another strong quarter growing its capital base.
Orchid raised net proceeds of approximately $124.7

million through its “at the market” program. As for Orchid’s financial performance, while the
economy continued its strong recovery from
the COVID-19 pandemic, the interest rate market in the U.S. reversed course during the
second quarter as rates rallied throughout the
- 38 -
quarter and even more so into the third quarter.
Orchid had positioned its portfolio and hedges quite defensively as the second
quarter
unfolded, and Orchid’s MBS portfolio underperformed its hedge positions, resulting in a GAAP
loss of $0.17 per share or $16.9 million.
The COVID-19 pandemic discussed above impacted Orchid Island Capital as well.  Recently Orchid reported a stockholders’ equitynet effect of approximately $376.7 million as of September 30, 2020, up from $346 million as of June 30, 2020the new shares issued, the net loss and $308 million as of March 31, 2020, but down from approximately $396 million at December 31, 2019. In the near term the management fees we receive from Orchid will be proportionately reduced. However, to the extent Orchid is able to increase itsdividends paid resulted in Orchid’s capital base increasing
$87.6 million, or
19% for during the second quarter.
Year to date Orchid has increased it capital base by approximately $138.5 million, or 33%.
As a
result, Bimini Advisor’s advisory services revenue increased 8% over time, wethe
first quarter and, as the increased capital base at Orchid was
not in place for the entire quarter, the run rate entering the third quarter is higher still.
Orchid’s financial performance and dividend
activity will benefit via increased management fees.  In addition, also continue to impact the size of the capital base going forward.
Orchid is obligated to reimburse us for direct expenses paid on its behalf and to pay
to us Orchid’s pro rata share of overhead as
defined in the management agreement.
As a stockholder of Orchid, we will also continue to share in distributions, if any, paid by
Orchid to its stockholders.
Our operating results are also impacted by changes in the market value of
our holdings of Orchid common
shares, although these market value changes do not impact our cash flows from Orchid.
The Company has acquired an additional 1,075,321 sharesincreased its holdings of Orchid since March 31,
during the second quarter of 2020, as the shares of Orchid were trading at a significant
discount to Orchid’s reported book value as of
March 31, 2020.
The Company currently owns approximately 2.6 million shares of Orchid.

The independent Board of Directors of Orchid has the ability to terminate the
management agreement and thus end our ability to
collect management fees and share overhead costs.
Should Orchid terminate the management agreement without cause,
it will be
obligated to pay us a termination fee equal to three times the average annual management
fee, as defined in the management
agreement, before or on the last day of the current automatic renewal term.

Economic Summary

The economy
continued its
strong recovery
from the COVID-19 coronavirus that emerged
pandemic during
the second
quarter of
2021.
The surge
in China in late 2019 and spread COVID-19
cases that
occurred during
the first
quarter of
2021 abated
quickly as inoculations
of the new
vaccines were
widely distributed
throughout
the
population
– especially
to those
most susceptible
to the U.S. duringvirus.
New COVID-19
cases, hospitalizations
and deaths
from the first quarter
virus
decreased dramatically,
allowing
the economy
to reopen
and substantial
pent-up demand
on the part
of 2020 continues consumers
to be unleashed.
Additional
fiscal policy
steps taken
by the driving force behindBiden
administration,
as described
below, added to
the surge
in economic activity both
activity.
The economic
data released
throughout
the second
quarter provided
evidence of
the recovery.
Retail sales,
especially
car sales,
air
travel and
hotel demand,
surged.
Home sales
grew at a
pace that
exceeded the
early 2000s.
Home price
increases exceeded
levels
seen in the U.S.
early 2000s
as well,
eventually
leading to
a slow down
in home sales
and abroad.  As reported in our second quarter earnings release, cases of COVID-19 were starting to surge price
appreciation
in the U.S. startingearly
days of the
third
quarter as
elevated home
prices became
an impediment
to new sales.
As the demand
for many goods
and services
surged, the
lingering
effects of the
pandemic acted
to retard
supply, leading to
price increases.
For example,
the supply
of computer
chips in mid-June.  This surge lasted into July the
case of autos
and August, particularly consumer
electronics
could not
keep up with
demand.
Shortages
of commodities
like lumber
in the southern case
of housing,
and warmer states.  By late summer labor
generally, constrained
the surge subsided and economic optimism rebounded economy’s
ability to
meet demand.
Labor remained
constrained
as evidenced by most measures workers
either were
content to
collect
supplemental
unemployment
insurance
available initially
under COVID-19
related legislation,
were fearful
of economic activity.  As the weather turns colder excess exposure
to COVID-
19 (especially
in the fall case
of leisure
and people spend morehospitality
workers) or
affected by
the lack of
access to
childcare,
and thus unable
to return
to
work.
Gross domestic
product,
or GDP, expanded at
an 6.5% annualized
rate during
the second
quarter of
2021.
Importantly, the
supply/demand
imbalance
mentioned
above, coupled
with an expansion
in the monetary
base driven
by both fiscal
and monetary
policy
(the Fed’s monthly
asset purchases),
have driven
inflation higher.
The consumer
price index,
or CPI, has
accelerated
to over 5%
on a
year over year
basis for the
first time indoors, cases could start to increase again. This appears to be happening
since 2008.
The lone disappointment
over the period
has been job
growth, as
mentioned above.
As
we enter the fourth
third quarter especially in northern states across
of 2021 job
growth has
accelerated,
but the U.S. and Europe.  To date governments have not responded with such drastic measures such as shelter in place orders like we saw in the spring.  In contrast with the spring and summer, hospitalizations and serious cases appear to be occurring less frequently, and the medical community appears more adept at dealing with the more severe cases.rapid
emergence

-47-
The economic recovery from the severe contraction that occurred in the spring continues.  However, the “V” shaped days of the recovery are over, at least on a broad basis. Growth is very uneven with certain sectors approaching levelsdelta
variant of activity last seen before the onset of the pandemic, while others remain far short of such levels.  A few sectors have surpassed pre-pandemic levels – importantly housing among them, as well as retail sales.  However, the leisure and hospitality sectors remain far below pre-pandemic activity levels and are not expected to fully recover in the near term.  The consequence of the unbalanced recovery is a labor market that still has a long way to go to get back to February 2020 levels, as the unemployment rate was reported at 7.9% in early October.  While progress towards finding a vaccine continues, with many efforts showing considerable promise, widespread access to a viable vaccine appears to be months away.  Progress has also been made on the treatment and testing side of the pandemic, especially with respect to the latter.  The lower death and hospitalization rates
COVID-19
during July
may be a result of the former.

negatively
impact job
growth.
Legislative
Response and
the Federal
Reserve

Congress passed
the CARES
Act (described below) quickly
in response
to the pandemic’s
emergence this
last spring
and followed
with additional
legislation
over the ensuing
months.
However, as certain
provisions
of the CARES
Act have expired,
such as supplemental
unemployment
insurance at the end of
last
- 39 -
July, there appears appeared
to be a need
for additional
stimulus for
the economy
to deal with
the uneven recoverysurge
in the pandemic
that occurred
as cold
weather set
in, particularly
over the Christmas
holiday.
As mentioned
above, the
Federal government
eventually
passed an additional
stimulus package
in late December
of 2020 and still high level
again in March
of unemployment.  However,2021. In
addition, the government has been unable to reach an agreement on additional measures. The
Fed on the other hand has provided,
and continues
to provide,
as
much support
to the markets
and the economy
as it can within
the
constraints
of its mandate.
During the
third quarter
of 2020, the
Fed
unveiled a
new monetary
policy framework
focused on
average inflation
rate targeting
that will allow allows
the Fed Funds
rate to remain
quite low,
even if inflation
is expected
to temporarily
surpass the
2% target
level. Further,
the Fed will
look past the
presence of
very tight
labor
markets, should
they exist.  be present
at the time.
This marks
a significant
shift from
their prior
policy framework,
which was
focused on
the
unemployment
rate as a
key indicator
of impending
inflation.
Adherence
to this policy
could steepen
the U.S.
Treasury curve
as short term short-term
rates could
remain low
for a considerable
period but longer term
longer-term
rates could
rise given
the Fed’s intention
to let inflation
potentially
run
above 2% in
the future
as the economy
more fully
recovers.
The response
of U.S. Treasury
rates appeared
to follow
this pattern
precisely

during the
first quarter
of 2021 but
it has since
reversed since
early in the
second quarter
2021.
Interest Rates

InterestAs economic
activity and
inflation
accelerated
during the
second quarter
of 2021, market
participants
anticipated
interest rates remained
would
continue to
rise as they
had done
during the
first quarter
of the year.
This was most
evident in a tight range throughout
the third open interest
in the various
U.S.
Treasury futures
– namely the
level of contracts
shorted.
However, interest
rates did
not continue
to rise in
the second
quarter of 2020
2021. In
fact, over
the course
of the quarter,
longer term
interest rates
declined slowly
– by 27.2
bps in the
case of the
10-year U.S.
Treasury note
and seem 32.5 bps
in the case
of the 30-year
U.S. Treasury
bond.
Since quarter
end, rates
have accelerated
their decline,
especially
so as the
delta variant
of COVID-19
has appeared
to spread
at an accelerating
rate across
both the U.S.
and the globe.
The driver
of the counter-
intuitive movement
in rates was
likely to dothe result
of technical
factors,
as market positioning
was so for the short to medium term, especially given the change skewed
to the short
side and there
simply were
few if any
additional
sellers.
The disappointing
job growth
figures during
the second
quarter were
also cited
as evidence
the
market may
have been
overly optimistic
about the
magnitude of
the economic
recovery.
More recently,
the rapid
spread of
the delta
variant of
COVID-19
is causing
market participants
to lower their
near-term
growth estimates
– both for
the U.S.
and globally.
The Fed has
played a role
in the evolution
of interest
rates over
the course
of the quarter
as well. The
most significant
development
has been the
Fed’s monetary policy framework. With realized insistence,
at least from
the FOMC leadership,
that the inflationary
pressures
evident in
the economy
will be transitory.
The Fed argues
that COVID-19
related supply
constraints
are driving
most price
pressures,
and that
activity related
to the opening
of the
economy – such
as travel,
dining out
and housing
– is causing
price pressures
related to
excessive demand,
which should
subside as
the
economy returns
to normal
levels of volatility low, implied volatility is
activity.
Substantial
fiscal stimulus
also very lowplayed
a role in
the Fed’s view
in that direct
payments to
consumers related
to the various
relief measures
passed by historical norms.  MortgageCongress
were one time
in nature
and their
effect will
fade.
Market pricing,
or
the level of
interest rates, continue
especially
long-term
rates, seems
to slowly decline, however,indicate
the market
agrees with
this point
of view.
However, at the
conclusion of
the FOMC meeting
in June, the
market was
surprised to
learn that
while the
leadership
of the Fed
maintained
this view, not
all members
of the FOMC
did.
Certain members
of the committee
believed that
inflation may
not be transitory,
and that as originators slowly add capacity
a result the
Fed
would have
to raise interest
rates begin
to taper their
asset purchases
sooner than
previously
thought.
The market
interpreted
these
developments
as a hawkish
shift on
the part of
the Fed, although
the leadership
of the Fed
– especially
Chairman Powell
- has pushed
back against
this interpretation
and can handle ever increasing levels of production volume.  The spread between rates available to borrowers and insists
the implied yield on a current coupon mortgage, known as the Primary/Secondary spread, Fed’s stance
has continued to compress.  The spread is still above long-term average levels so further compression is possible, meaning either rates available to borrowers can remain at current levels should U.S. Treasury rates increase, or they could move lower if U.S. Treasury rates remain stable.  In either case, prepayment levels on MBS securities are likely to remain high for the foreseeable future.not changed.

The Agency MBS
RMBS Market

Performance
for the Agency
RMBS market
for the second
quarter trailed
most other
asset classes,
especially
so in June.
The total
return for
the Agency
RMBS sub-index
was 0.33%
for the quarter.
As mentioned
above, at
the conclusion
of the June
FOMC meeting
it
was evident
that not all
committee
members shared
the view of
the Fed leadership
that the removal
of accommodation
was still far
off – or
that the recovery
was far from
complete.
Certain members
thought the
Fed would
have to taper
their asset
purchases and
eventually
raise
short-term
interest rates
much sooner.
For the Agency
RMBS market,
this meant
Fed purchases
of $40 billion
per month
might be
ending
sooner than
most market
participants
expected.
The extremely
strong housing
market added
credence to
the notion
that the Fed
did not
need to continue
to provide
support to
the market
any longer
as well.
Given the length
of time the
Fed has been
supporting
the Agency
RMBS market,
coupled with
banks that are
flush with
deposits that
need to be
invested, price
levels in
the Agency
RMBS market
were
quite rich
prior to this
development.
While all sectors
of the financial
markets appear
to be priced
at the high
end of long-term
price ranges,
- 40 -
the removal
of such a large
buyer of
Agency RMBS
likely would
have a negative
effect on their
valuations.
The market
has reacted
to the
potential of
lower Fed
purchases of
Agency RMBS,
leading to
the relative
under-performance
of the Agency
RMBS market
during the
second quarter
of 2021.
The second
driver of
Agency MBSRMBS
performance,
both for the
second quarter
of 2021 and
beyond, is,
as always,
the level of
prepayments.
As the market continues
has rallied
– especially
long-term
rates – rates
available to be essentially bifurcated with two separate
borrowers
are now back
to levels seen
last
summer, and distinct sub-markets.  Lower burn-out
in higher
coupon, fixed rate mortgages; with coupons more
seasoned mortgages
has
been modest.
This has been
supportive
of 1.5% through 2.5% are, or will be soon inspecified
pool
premiums, a
core holding
of the case Company.
Going forward,
prepayment activity
could accelerate
as a result
of 1.5% coupons, the focus FHFA’s recent decision
to remove the
Adverse Market
Refinance
Fee effective
August 1,
2021, earlier
than
had been anticipated.
The fee was
paid by originators
to the GSE’s
as a form
of daily purchases compensation
to the GSE’s
to cover the
higher default
rates that
were anticipated.
Originators
generally
passed
the fee on
to borrowers,
so its removal
effectively lowers
available
mortgage rates
by the Fed.  Fed purchase activity maintains substantial price pressure under these coupons, and they benefit from attractive TBA dollar roll drops.  Higher coupons in the TBA market do not have the benefit of Fed purchases and trade poorly.  Importantly, the Fed tends to take the worst performing collateral out amount
of the market.  The absence of Fed purchases in the higher coupon sub-market means the market is left to absorb very high prepayment speeds on these securities.  For these coupons, specified pools are in very high demand and trade at very high premiums.  These premiums continue to rise as prepayment activity remains very elevated and is likely to do so for some time. This dynamic has existed since March and is likely to continue.fee,
or 50 basis
points.

-48-

Recent Legislative
and Regulatory
Developments

The Fed conducted
large scale
overnight repo
operations
from late
2019 until
July
2020 to address
disruptions
in the U.S.
Treasury,
Agency debt
and Agency
MBS financing
markets. These
operations
ceased in July
2020 after
the central
bank successfully
tamed volatile
funding costs
that had threatened
to cause disruption
across the
financial system.

The Fed has
taken a number
of other actions
to stabilize
markets as
a result of
the impacts
of the COVID-19 pandemic, including the following:
pandemic. In
March of

On March 15, 2020, the
Fed announced
a $700 billion
asset purchase
program to
provide liquidity
to the U.S.
Treasury and
Agency MBS RMBS
markets. Specifically, the Fed announced that it would purchase at least $500 billion of U.S. Treasuries and at least $200 billion of Agency MBS. The
Fed also lowered
the Fed Funds
rate to a
range of 0.0%
– 0.25%, after
having already
lowered the
Fed Funds
rate by 50
bps on March 3, 2020.earlier
in the

month. Later
that same
month the
Fed announced
a program
to acquire
U.S. Treasuries
and Agency
RMBS in the
amounts needed
to
support smooth
market functioning.
Notwithstanding
With these
purchases,
market conditions
improved substantially.
Currently, the Fed actions described above, markets for
is committed
to
purchasing
$80 billion
of U.S. Treasuries
and $40 billion
of Agency MBS
RMBS each
month. Chairman
Powell and other mortgage and fixed income securities deteriorated as investors liquidated investments in response to the economic crisis resulting from actions to contain and minimize the COVID-19 pandemic.  In response, on March 23, 2020,
the Fed announced a program have
reiterated
their
commitment
to acquire U.S. Treasuries and Agency MBS inthis level
of asset purchases
at every meeting
since their
meeting on
June 30,
2020. At the amounts needed to support smooth market functioning. With these purchases, market conditions improved substantially, and in early April,
July 2021 meeting,
the Fed began
indicated they
had begun
their discussions
for adjusting
the path
and composition
of asset purchases,
but reiterated
the intention
to
provide notice
well in advance
of an announcement
to gradually reduce
the pace of these
such purchases.
Chairman
Powell has
also maintained
that the
Fed expects
to maintain
interest
rates at this
level until
the Fed is
confident that
the economy
has weathered
the pandemic
and its impact
on economic
activity and
is on track
to achieve
its maximum
employment
and price
stability
goals. The
Fed has taken
various other
steps
to support
certain other
fixed income
markets, to
support mortgage
servicers and
to implement
various portions
of the Coronavirus
Aid,
Relief, and
Economic Security
(“CARES”)
Act.
The CARES
Act was passed
by Congress
and signed
into law on
March 27, 2020.
This over $2
trillion COVID-19
relief bill,
among
other things,
provided for
direct payments
to each American
making up
to $75,000
a year, increased
unemployment
benefits for
up to four
months (on
top of state
benefits),
funding to
hospitals and
health providers,
loans and investments
to businesses,
states
and municipalities
and grants
to the airline
industry. On April
24, 2020,
an additional
funding bill
was signed
into law
that provided
an additional
$484 billion
of
funding to
individuals,
small businesses,
hospitals,
health care
providers and
additional
coronavirus
testing efforts.
Various provisions
of
the CARES
Act began
to expire in
July 2020,
including a
moratorium
on evictions,
expanded
unemployment
benefits, and
a moratorium
on
foreclosures.
On August
8, 2020,
Executive Order
13945 was
issued,
directing the
Department
of Health
and Human
Services, the
Centers for
Disease Control
and Prevention
(“CDC”),
the Department
of Housing
and Urban
Development,
and Department
of the
Treasury to take
measures to
temporarily
halt residential
evictions
and foreclosures,
including
through temporary
financial assistance.

On December
27, 2020,
an additional
$900 billion
coronavirus
aid package
was signed
into law
as part of
the Consolidated
Appropriations
Act of 2021,
providing for
extensions
of many of
the CARES
Act policies
and programs
as well as
additional
relief. The
package provided
for, among other
things, direct
payments to
most Americans
with a gross
income of
less than $75,000
a year, extension
of unemployment
benefits through
March 14, 2021,
funding for
procurement
of vaccines
and health
providers,
loans to qualified
businesses,
funding for
rental assistance
and funding
for schools.
On January
29, 2021,
the CDC
issued guidance
extending eviction
moratoriums
for covered
persons through
March 31,
2021, which
was subsequently
extended
to July 31,
2021. In addition,
on February
9,
 
- 41 -
2021, the
FHFA announced
that the foreclosure
moratorium
begun under
the CARES
Act for loans
backed by Fannie
Mae and Freddie
Mac and the
eviction moratorium
for real estate
owned by Fannie
Mae and Freddie
Mac were extended
until March
31, 2021,
which was
extended to
July 31, 2021.
On February
16, 2021,
the U.S.
Housing and
Urban Development
Department
announced
the extension
of the
FHA eviction
and foreclosure
moratorium
to June 30,
2021, which
was extended
to July 31,
2021 and again
in July, although
the
moratorium
no longer
applies to
all geographic
areas.
On March 11, 2021,
the $1.9 trillion
American Rescue
Plan Act of
2021 was signed
into law.
This stimulus
program furthered
the
Federal government’s
efforts to stabilize
the economy
and provide
assistance
to sectors
of the population
still suffering
from the
various
physical and
economic effects
of the pandemic.
In January
2019, the
Trump administration
made statements
of its plans
to work with
Congress to
overhaul Fannie
Mae and Freddie
Mac and expectations
to announce
a framework
for the development
of a policy
for comprehensive
housing finance
reform soon.
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 Fannie
Mae and Freddie
Mac being
privatized
and represents
the first
concrete step
on the road
to GSE reform.
On June 30, 2020, Fed Chairman Powell announced expectations to maintain interest rates in a range of 0.0% - 0.25% until the Fed is confident that the economy has weathered recent events and is on track to achieve maximum employment and price stability goals. On September 16,
2020, the Federal Open Market Committee (“FOMC”) reaffirmed this commitment, as well as an intention to allow inflation to climb modestly above their 2% target and maintain that level for a period sufficient for inflation to average 2% long term.

On June 30, 2020, Chairman Powell also announced the Fed’s intention to increase its holdings of U.S. Treasury securities and Agency MBS over the coming months, at least at the then existing pace, to sustain smooth market functioning and thereby foster the effective transmission of monetary policy to broader financial conditions. On September 16, 2020, the FOMC reaffirmed this commitment. Since March, the Fed has taken various other steps to support certain other fixed income markets, to support mortgage servicers and to implement various portions of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.

Since March, the Fed has taken various other steps to support certain other fixed income markets, to support mortgage servicers and to implement various portions of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.

Congress and President Trump have adopted several pieces of legislation in response to the public health and economic impacts resulting from the COVID-19 pandemic. The first two pieces of legislation provided, among other things, emergency funding to develop a vaccine for COVID-19, medical supplies, grants for public health agencies, small business loans, assistance for health systems in other countries, expanded coronavirus testing, paid leave, enhanced unemployment insurance, expanded food security initiatives and increased federal Medicaid funding.

-49-

The CARES Act was passed by Congress and signed into law by President Trump on March 27, 2020.  The CARES Act provides many forms of direct support to individuals and small businesses in order to stem the steep decline in economic activity.  This over $2 trillion COVID-19 relief bill, among other things, provided for direct payments to each American making up to $75,000 a year, increased unemployment benefits for up to four months (on top of state benefits), funding to hospitals and health providers, loans and investments to businesses, states and municipalities and grants to the airline industry. On April 24, 2020, President Trump signed an additional funding bill into law that provides an additional $484 billion of funding to individuals, small businesses, hospitals, health care providers and additional coronavirus testing efforts. Various provisions of the CARES Act began to expire in July 2020, including a moratorium on evictions (July 25, 2020), expanded unemployment benefits (July 31, 2020), and a moratorium on foreclosures (August 31, 2020).  On August 8, 2020, President Trump issued Executive Order 13945, directing the Department of Health and Human Services, the Centers for Disease Control and Prevention (“CDC”), the Department of Housing and Urban Development, and Department of the Treasury to take measures to temporarily halt residential evictions and foreclosures, including through temporary financial assistance. On September 4, 2020, the CDC issued guidance extending eviction moratoriums for covered persons through the end of 2020.

In January 2019, the Trump administration made statements of its plans to work with Congress to overhaul Fannie Mae and Freddie Mac and expectations to announce a framework for the development of a policy for comprehensive housing finance reform soon. 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 Fannie Mae and Freddie Mac being privatized and represents the first concrete step on the road to GSE reform.  On June 30, 2020, the FHFA released
a proposed
rule on a
new regulatory
framework
for the GSEs
which seeks
to implement
both a risk-based
capital framework
and minimum
leverage
capital
requirements. On September 25, 2020,
The final
rule on the
new capital
framework
for the Financial Stability Oversight Council released a statement on the proposed rule cautioning that, in its opinion, the credit risk requirements were too low relative to other credit providers and would maintain a significant concentration of risk GSEs
was published
in the GSEs. At this time, however,federal
register in
December 2020.
On
January 14,
2021, the
U.S. Treasury
and the FHFA executed
letter agreements
allowing the
GSEs to continue
to retain
capital up
to their
regulatory
minimums, including
buffers, as
prescribed
in the December
rule.
These letter
agreements
provide, in
part, (i)
there will
be no decisions
exit from conservatorship
until all
material litigation
is settled
and the GSE
has common
equity Tier
1 capital of
at least 3%
of its assets,
(ii)
the GSEs 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. Treasury
and the FHFA
will establish
a timeline
and process
for future
GSE reform.
However, no definitive
proposals or
legislation
have been made on any additional steps
released or
enacted with
respect to be taken as part
ending the
conservatorship,
unwinding
the GSEs,
or materially
reducing the
roles of the
GSEs in the
U.S. mortgage
market. On
June 23, 2021,
President
Biden removed
the director
of the GSE reform plan FHFA and
appointed an
acting director.
With the leadership
change at
FHFA, some observers
anticipate
that the Biden
administration
will be less
likely to focus
on ending
the GSEs’
conservatorship
and that the
January 14,
2021, letter
agreements
between the
U.S. Treasury
and the economic impact of COVID-19
FHFA may delay GSE reform plans further. Although the Trump administration has made statements of its intentions to reform housing finance and tax policy, many of these potential policy changes will require congressional action.be renegotiated.

In 2017, policymakers
announced
that LIBOR
will be replaced
by December
31, 2021.
The directive
was spurred
by the fact
that
banks are uncomfortable
contributing
to the LIBOR
panel given
the shortage
of underlying
transactions
on which to
base levels
and the
liability associated
with submitting
an unfounded
level. The
ICE Benchmark
Administration,
in its capacity
as administrator
of USD LIBOR,
has confirmed
that it will
cease publication
of (i) the
one-week and
two-month
USD LIBOR
settings immediately
following
the LIBOR
publication
on December
31, 2021,
and (ii) the
overnight
and one, three,
six and 12-month
USD LIBOR
settings immediately
following
the
LIBOR will be replaced publication
on June 30,
2023.
A joint statement
by key regulatory
authorities
calls on banks
to cease entering
into new
contracts
that use USD
LIBOR as a
reference rate
by no later
than December
31, 2021.
The Alternative
Reference
Rates Committee,
a steering
committee comprised
of large U.S.
financial institutions,
has proposed
replacing USD-LIBOR
with a new
SOFR, a rate
based on U.S.
repo
trading. The new benchmark rate will be based on overnight Treasury General Collateral repo rates. The rate-setting process will be managed and published by the Fed and the Treasury’s Office of Financial Research. Many
banks believe
that it may
take four
to five years
to complete
the transition
to SOFR,
for certain,
despite the
2021 deadline.
We will monitor
the emergence
of this new
rate carefully
as it will likely
potentially
become the
new benchmark
for hedges
and a range
of
interest rate
investments.
At this time,
however, no consensus
exists as to
what rate
or rates may
become accepted
alternatives
to LIBOR.

Effective January
1, 2021, Fannie
Mae, in alignment
with Freddie
Mac, will extend
the timeframe
for its delinquent
loan buyout
policy
for Single-Family
Uniform Mortgage-Backed
Securities
(UMBS) and
Mortgage-Backed
Securities
(MBS) from
four consecutively
missed
monthly payments
to twenty-four
consecutively
missed monthly payments to twenty-four consecutively missed monthly
payments (i.e.,
24 months past
due). This
new timeframe
will apply
to
outstanding
single-family
pools and
newly issued
single-family
pools and newly issued single-family pools and will was
first be reflected
when January
2021 factors are
were released
on
the fourth
business day
in February
2021.

For Agency MBS
RMBS investors,
when a delinquent
loan is bought
out of a pool
of mortgage
loans, the
removal of
the loan from
the pool
is the same
as a total
prepayment
of the loan.
The respective GSE’s
GSEs currently
anticipate,
however, that
delinquent
loans will
be
- 42 -
repurchased
in most cases
before the
24-month deadline
under one
of the following
exceptions
listed below. Exceptions include:

• Aa loan that is paid
in full, or
where the
related lien
is released
and/or the
note debt
is satisfied
or forgiven;
• Aa loan repurchased by
a seller/servicer
under applicable
selling and
servicing requirements;
• Aa loan entering a permanent
modification,
which generally
requires
it to be removed
from the MBS.
During any
modification
trial
period, the
loan will
remain in the
MBS until
the trial
period ends;
• Aa loan subject to a
short sale
or deed-in-lieu
of foreclosure; and
or
• Aa loan referred to
foreclosure.

-50-
Because of
these exceptions,
the GSE’s GSEs
currently believe
based on prevailing
assumptions
and market
conditions
this change
will
have only a
marginal impact
on prepayment
speeds, in
aggregate.
Cohort level
impacts may
vary. For example,
more than
half of loans
referred to
foreclosure
are historically
referred within
six months
of delinquency. The
degree to
which speeds
are affected
depends on
delinquency
levels, borrower
response, and
referral to
foreclosure
timelines.

The scope and
nature of
the actions
the U.S.
government
or the Fed
will ultimately
undertake
are unknown
and will continue
to
evolve, especially
in light of
the COVID-19
pandemic, President
Biden’s new
administration
and the results of this week’s presidential and Congressional electionsnew
Congress in
the
United States.

Effect on Us

Regulatory
developments,
movements
in interest
rates and
prepayment
rates affect
us in many
ways, including
the following:

Effects on our
Assets

A change in
or elimination
of the guarantee
structure
of Agency MBS
RMBS may increase
our costs (if,
for example,
guarantee
fees
increase) or
require us
to change
our investment
strategy altogether.
For example,
the elimination
of the guarantee
structure
of Agency
RMBS may cause
us to change
our investment strategy altogether. For example, the elimination of the guarantee structure of Agency MBS may cause us to change our investment
strategy to
focus on non-Agency MBS,
RMBS, which
in turn would
require us
to significantly
increase our
monitoring
of the credit
risks of our
investments
in addition
to interest
rate and prepayment
risks.

Lower long-term
interest rates
can affect the
value of our
Agency MBS RMBS
in a number
of
ways. If prepayment
rates are
relatively
low (due,
(due, in part,
to the refinancing
problems described
above), lower
long-term
interest rates
can increase
the value of
higher-coupon
Agency MBS.
RMBS. This
is because
investors
typically place
a premium
on assets
with yields
that are higher
than market
yields. Although
lower long-
term interest
rates may increase
asset values
in our portfolio,
we may not
be able to
invest new
funds in similarly-yielding
assets.
If prepayment
levels increase,
the value
of our Agency
RMBS affected
by such prepayments
may decline.
This is because investors typically place
a premiumprincipal
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 assets with yields that are
the prepaid
asset is higher
than market yields. Although lower long-term interest rates
yields). Also,
prepayment
proceeds may increase asset values in our portfolio, we may
not be able to invest new funds in similarly-yielding assets.

If prepayment levels increase, the value of our Agency MBS affected by such prepayments may decline. This is because a principal prepayment accelerates the effective term of an Agency MBS, 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 MBS
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. IOs
and IIOs, however,
may be the
types
of Agency MBS
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.

-51-

Higher long-term
rates can
also affect
the value of
our Agency MBS. 
RMBS.
As long-term
rates rise,
rates available
to borrowers
also rise.
This tends
to cause prepayment
activity to
slow and extend
the expected
average life
of mortgage
cash flows.
As the expected
average
- 43 -
life of the
mortgage cash
flows increases,
coupled with
higher discount
rates, the
value of Agency
RMBS declines.
Some of the
instruments
the Company
uses to hedge
our Agency
RMBS assets,
such as interest
rate futures,
swaps and
swaptions,
are stable
average life
instruments.
This means
that to the
extent we
use such instruments
to hedge our
Agency RMBS
assets, our
hedges may not
adequately
protect us
from price
declines, and
therefore
may negatively
impact our
book value.
It is for
this reason
we use interest
only
securities
in our portfolio.
As interest
rates rise,
the expected
average life
of these securities
increases,
causing generally
positive price
movements as
the number
and size of
the cash flows
increase the
longer the
underlying
mortgages
remain outstanding.
This makes
interest only
securities
desirable
hedge instruments
for pass-through
Agency RMBS.
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.
In March of
2020, the
Fed announced
that it would
purchase Agency
RMBS and
U.S. Treasuries
in the amounts
needed to
support smooth
market functioning,
which largely
stabilized the
Agency RMBS
market, a commitment
it reaffirmed
at all subsequent
Fed meetings.
At the July
2021 meeting,
the Fed began
to discuss
plans for
adjusting
the path and
composition
of asset purchases,
but reiterated
its intention
to provide
notice well
in advance
of an announcement
to reduce
the pace of
such purchases.
If the Fed
modifies, reduces
or suspends
its purchases
of Agency
RMBS, our
investment
portfolio
could be
negatively
impacted. Further,
the moratoriums
on foreclosures
and evictions
described
above will
likely delay
potential defaults
on loans
that would
otherwise
be bought out
of Agency MBS
pools as described
above.
Depending
on the ultimate
resolution
of the foreclosure
or
evictions,
when and if
it occurs,
these loans
may be removed
from the
pool into which
they were
securitized.
If this were
to occur, it would
have the effect
of delaying
a prepayment
on the Company’s
securities
until such
time. As the
majority of
the Company’s
Agency RMBS
assets were
acquired at
a premium
to par, this will
tend to increase
the realized
yield on the
asset in question.
Because we
base our investment
decisions on
risk management
principles
rather than
anticipated
movements in
interest rates,
in a
volatile interest
rate environment
we may allocate
more capital
to structured
Agency RMBS
with shorter
durations.
We believe these
securities
have a lower
sensitivity
to changes
in long-term
interest
rates than
other asset
classes. We
may attempt
to mitigate
our
exposure to
changes in
long-term
interest rates
by investing
in IOs and
IIOs, which
typically
have different
sensitivities
to changes
in long-
term interest
rates than
PT RMBS, particularly
PT RMBS backed
by fixed-rate
mortgages.
Effects on our
borrowing
costs
We leverage
our PT RMBS
portfolio and
a portion
of our structured
Agency RMBS
with principal
balances through
the use of
short-
term repurchase
agreement
transactions.
The interest
rates on
our debt are
determined
by the short
term interest
rate markets.
An
increase in
the Fed Funds
rate or LIBOR
would 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.
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.
In order to
protect our
net interest
margin against
increases in
short-term
interest rates,
we may enter
into interest
rate swaps,
which
economically
convert our
floating-rate
repurchase
agreement
debt to fixed-rate
debt, or utilize
other hedging
instruments
such as
Eurodollar, Fed
Funds and
T-Note futures
contracts or
interest rate
swaptions.
Summary
In contrast
to the twelve
months that
preceded the
second quarter
of 2021, COVID-19
did not suppress
the performance
of the
markets and
economy in
the second
quarter. The recovery
has been driven
by many factors
– the emergence
and widespread
distribution
of a very effective
vaccine, substantial
government
stimulus and
accommodative
monetary
policy. The economy
recovered
rapidly as
an
effective vaccine
allowed pent-up
demand to lead
to a surge
in demand for
goods and
services,
fueled further
by multiple
rounds of
stimulus checks
and numerous
other means
of financial
support provided
by the government.
Financial markets
are benefiting
from
extremely loose
financial
conditions,
abundant liquidity,
high risk
tolerance and
an insatiable
demand for
returns.
The constraint
that both
limits the
level of activity
and is a driver
of price pressures
is the lingering
effect of the
pandemic on
labor force
participation
– or lack
thereof.
A significant
part of the
price pressure
observed during
the second
quarter was
driven by
supply shortages,
which are
in turn
- 44 -
driven by under-staffed
producers
of various
goods and
services.
This constraint
should be slowly
removed over
the balance
of 2021
barring a
resurgence
of the pandemic.
The economic
data released
during the
second quarter
tells the story
quite well.
GDP expanded
at a 6.50%
annualized
rate.
The
housing market
is stronger
than in the
days before
the financial
crisis in the
late 2000s
– both in
terms of the
number of
homes sold
and
average prices
– which in
the
case of existing
home sales
are up over
23% year over
year in June
2021 versus
June 2020.
Price
pressures are
evident, due
to the combination
of constrained
supply channels
and robust
demand –
driven by a
strong combination
of
pent-up demand
and government
stimulus.
The CPI increased
by well over
5% year over
year in June
as well.
The Fed has
insisted
these price
pressures are
temporary, and
the market
appears to
agree based
on the level
of long-term
U.S. Treasury
rates.
However, not
all members
of the
FOMC or market
participants
agree.
Since the
disagreement
stems from
the length
of time the
price pressures
are
present in
the market,
it will be
resolved by
the mere passage
of time.
Returns for the Agency RMBS market trailed most other sectors of the financial markets,
including fixed income and equities or
high-yield.
The driver was the prospect the Fed would begin to taper their asset purchases
as the economy fully recovers.
This was
especially the case in June, after the Fed concluded their FOMC meeting and revealed
there was divergence in views of committee
members regarding the timing of this step.
While Fed leadership maintains this step is still well into the future, the robustness
of the
housing market coupled with the growing divergence of views within the Fed was enough
for the markets to begin to price in a
reduction in Fed asset purchases.
A second factor hurting the sector was the rally in long-term interest rates
that confounded many
market participants.
Rates available to borrowers also rise.  This tendsare back to cause prepayment activity to slow and extendlevels prevalent during the expected average lifesummer of mortgage cash flows.  As the expected average life of the mortgage cash flows increases, coupled with higher discount rates, the value of Agency MBS declines.  Some of the instruments the Company uses to hedge our Agency MBS assets, such as interest rate futures, swaps and swaptions, are stable average life instruments.  This means that to the extent we use such instruments to hedge our Agency MBS assets, our hedges may not adequately protect us from price declines, and therefore may negatively impact our book value.  It is for this reason we use interest only securities in our portfolio. As interest rates rise, the expected average life of these securities increases, causing generally positive price movements as the number and size of the cash flows increase the longer the underlying mortgages remain outstanding. This makes interest only securities desirable hedge instruments for pass-through Agency MBS.

As described above, the Agency MBS 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 MBS and U.S. Treasuries in the amounts needed to support smooth market functioning, which largely stabilized the Agency MBS market, a commitment it reaffirmed on June 30, 2020 and September 16, 2020. If the Fed modifies, reduces or suspends its purchases of Agency MBS, our investment portfolio could be negatively impacted.refinancing activity has

Because we base our investment decisions on risk management principles rather than anticipated movements in interest rates, in a volatile interest rate environment we may allocatere-accelerated, delaying once more capital to structured Agency MBS with shorter durations. We believe these securities have a lower sensitivity to changes in long-term interest rates than other asset classes. We may attempt to mitigate our exposure to changes in long-term interest rates by investing in IOs and IIOs, which typically have different sensitivities to changes in long-term interest rates than PT MBS, particularly PT MBS backed by fixed-rate mortgages.

Effects on our borrowing costs

We leverage our PT MBS portfolio and a portion of our structured Agency MBS with principal balances through the use of short-term repurchase agreement transactions. The interest rates on our debt are determined by the short term interest rate markets. An increase in the Fed Funds rate or LIBOR would 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. This would be most prevalent with respect to our Agency MBS backed by fixed rate mortgage loans because the interest rate on a fixed-rate mortgage loan does not change even though market rates may change.

In order to protect our net interest margin against increases in short-term interest rates, we may enter into interest rate swaps, which economically convert our floating-rate repurchase agreement debt to fixed-rate debt, or utilize other hedging instruments such as Eurodollar, Fed Funds and T-Note futures contracts or interest rate swaptions.

Summary

COVID-19 continues to dominate the performance of the markets and economy.  While both have recovered from the depths of March, especially the financial markets, the economy continues to languish.  The recovery has proven to be very uneven, with some sectors back to or near pre-pandemic levels of activity while others remain far below with little prospect for getting back to those levels soon.  The unemployment rate remains elevated – with the most recent read at 7.9% - as millions of Americans remain out of work.

The Fed has taken, and continues to take, steps to support markets and the economy.  However, much needed additional stimulus from Washington and the federal government has been absent since the end of the second quarter.  The federal government appears hopelessly caught up in partisan politics and unable to agree on another round of stimulus.  Interest rates continue to trade in a narrow range and at extremely low levels.  The market expects the Fed Funds rate to remain at the effective lower bound near zero for an extended period of time, even more so after the Fed altered its monetary policy framework during the third quarter.  Henceforth, the Fed appears to be willing to let inflation run above the 2% target level, even when unemployment is very low, before removing accommodation.

-52-
The Agency MBS market continues to be bifurcated between the production coupons – the target of Fed asset purchases – and higher coupons in specified pool form.  The TBA marketburn-out for higher coupons remains weak as the sector lacks support form the Fed coupon, more seasoned loans
and prepayment speeds are extremely high, resulting in poor expected returnsdriving premiums for investors.  This leads investors to look to the specified pool market – with lower expected prepayment speeds – for attractive returns.

Since the economy cannot fully recover absent the containment of the COVID-19 pandemic, which is not expected to occur in the near term, current market conditions are likely to persist. As a result, we expect prepayment speeds will remain elevated, the Fed will be active in the Agency MBS market with asset purchases, funding levels will remain low and the most attractive returns available will be either in the TBA dollar roll market with lower coupons or with specified pools in higher coupons.slightly

higher.
As of the date of this report, the only funding acquired by the Company under the CARES Act or other legislation adopted by Congress has been a $152,000 low interest loan made under the Paycheck Protection Program (“PPP”) of the CARES Act.

Critical Accounting Estimates

Our consolidated
financial
statements
are prepared
in accordance
with GAAP.
GAAP requires
our management
to make some
complex and
subjective
decisions
and assessments.
Our most critical
accounting
policies involve
decisions and
assessments
which could
significantly
affect reported
assets,
liabilities,
revenues and
expenses,
and these
decisions
and assessments
can change
significantly
each reporting
period.
There have
been no changes
to the processes
used to determine
our critical
accounting
estimates
as discussed
in
our annual
report on
Form 10-K for
the year ended
December 31, 2019.
2020.

Capital Expenditures

At SeptemberJune 30, 2020,2021, we had no material commitments for capital expenditures.

Off-Balance Sheet Arrangements

At SeptemberJune 30, 2020,2021, we did not have any off-balance sheet arrangements.

Inflation

Virtually all of our assets and liabilities are interest rate sensitive in nature. As a result,
interest rates and other factors influence
our performance far more so than does inflation. Changes in interest rates do not
necessarily correlate with inflation rates or changes in
inflation rates. Our activities and balance sheet are measured with reference to historical
cost and/or fair market value without
considering inflation.

-53-

ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET
RISK.

Not Applicable.

- 45 -
ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report (the “evaluation date”), we carried
out an evaluation, under the supervision and
with the participation of our management, including our Chief Executive Officer (the “CEO”)
and Chief Financial Officer (the “CFO”), of
the effectiveness of the design and operation of our disclosure controls and procedures,
as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934 (the “Exchange Act”). Based on this evaluation, the
CEO and CFO concluded our disclosure controls
and procedures, as designed and implemented, were effective as of the evaluation date (1)
in ensuring that information regarding the
Company and its subsidiaries is accumulated and communicated to our management, including
our CEO and CFO, by our employees,
as appropriate to allow timely decisions regarding required disclosure and (2) in
providing reasonable assurance that information we
must disclose in our periodic reports under the Exchange Act is recorded, processed,
summarized and reported within the time periods
prescribed by the SEC’s rules and forms.

Changes in Internal Controls over Financial Reporting

There were no material changes in the Company’s internal control over financial reporting that
occurred during the Company’s
most recent fiscal quarter that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over
financial reporting.
-54-
- 46 -
PART II.
OTHER INFORMATION

ITEM 1.
LEGAL PROCEEDINGS

On April 22, 2020, the Company received a demand for payment from Citigroup, Inc. in
the amount of $33.1 million related to the
indemnification provisions of various mortgage loan purchase agreements (“MLPA’s”) entered into between Citigroup Global Markets
Realty Corp and Royal Palm Capital, LLC (f/k/a Opteum Financial Services,
LLC) prior to the date Royal Palm’s mortgage origination
operations ceased in 2007.
The demand is based on Royal Palm’s alleged breaches of certain representations and warranties
in the
related MLPA’s.
The Company believes the demands are without merit and intends to defend
against the demand vigorously.
No
provision or accrual has been recorded as of June 30, 20202021 related to the Citigroup demand.

We are not party to any other material pending legal proceedings as described
in Item 103 of Regulation S-K.

ITEM 1A.
RISK FACTORS.

There have been
no material
changes to the
risk factors
disclosed in
our Annual Report
on Form 10-K
for the year
ended
December 31, 2019,
2020, filed
with the SEC
on March 27, 2020, as updated by our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, filed with the SEC on May 15, 2020.
2021.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On March 26,
2018, the Company's
Board of Directors
authorized the
repurchase of
up to 500,000
shares of the
Company's Class
A common stock.
The maximum
remaining number
of shares that
may be repurchased
under this
authorization
is 429,596 shares.
The authorization,
as currently
extended, expires
on November
15, 2021.. 2021.
The Company
did
not repurchase
any of its common
stock during
the three months
ended June 30,
2021.
The Company
did not have
any unregistered
sales of its
equity securities
during the three
months ended September
June 30, 2020.2021.

The Company did not have any unregistered sales of its equity securities during the three months ended September 30, 2020.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.
MINE SAFETY
DISCLOSURES.

Not Applicable.

ITEM 5.
OTHER INFORMATION

None.

-55-

ITEM 6. EXHIBITS

Exhibit No

3.2
3.3



*
Filed herewith.

**
Furnished herewith

***
Submitted electronically herewith.
- 48 -
Signatures
Pursuant to the requirements of
Section 13 or 15(d) of
the Securities Exchange Act of
1934, as amended, the registrant
has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BIMINI CAPITAL MANAGEMENT,
INC.


Date: November 6, 2020
By:
 /s/ Robert E. Cauley
Robert E. Cauley
Chairman and Chief Executive Officer


Date:
August 13, 2021

Date: November 6, 2020
By:
 /s/ G. Hunter Haas, IV
G. Hunter Haas, IV
President, Chief Financial Officer, Chief Investment Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)
-57-/s/ Robert E. Cauley
Robert E. Cauley
Chairman and Chief Executive Officer
Date:
August 13, 2021
By:
/s/ G. Hunter Haas, IV
G. Hunter Haas,
IV
President, Chief Financial Officer, Chief
Investment Officer and Treasurer (Principal
Financial Officer and Principal Accounting Officer)