Orchid Island Capital 10K 2021 Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-K

☒

ANNUAL REPORT PURSUANT TO SECTION

13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended

December 31, 2021

☐

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

001-35236

Orchid Island Capital, Inc.

(Exact name of registrant as specified in its charter)

Maryland

27-3269228

(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

)

231-1400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol:

Name of Each Exchange on Which

Registered

Common Stock, $0.01 par value

ORC

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes

☐

☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes

☐

☒

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

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

☒

☐

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 for such shorter period that the registrant was

required to submit such

files).

Yes

☒

☐

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 filer,” “smaller reporting company,” and “emerging growth

company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

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 has filed

a report on and

attestation to its

management's assessment of

the effectiveness of

its internal

control over

financial reporting

under Section

404(b) of

the Sarbanes-Oxley

Act (15

U.S.C. 7262(b))

by the

registered public

accounting firm

that

prepared or issued its audit report.

☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes

☐

☒

As of June 30, 2021 the aggregate market value of the common stock held by nonaffiliates was $

595,104,430

Number of shares outstanding at February 25, 2022:

176,993,049

DOCUMENTS INCORPORATED

BY REFERENCE:

Portions of the Registrant's

definitive Proxy Statement, to be

issued in connection with

the 2022 Annual Meeting

of Stockholders

of the Registrant, are incorporated by reference

into Part III of this Annual Report on Form 10-K (this “Report”).

ORCHID ISLAND

CAPITAL, INC.

TABLE OF CONTENTS

INDEX

Page

PART I

ITEM 1. Business

ITEM 1A.

Risk Factors

ITEM 1B.

Unresolved

Staff Comments

ITEM 2. Properties

ITEM 3. Legal

Proceedings

ITEM 4. Mine

Safety Disclosures

PART II

ITEM 5. Market

for Registrant's

Common Equity,

Related Stockholder

Matters and

Issuer Purchases

of Equity

Securities

ITEM 6. [Reserved]

ITEM 7. Management's

Discussion

and Analysis

of Financial

Condition

and Results

of Operations

ITEM 7A.

Quantitative

and Qualitative

Disclosures

About Market

Risk

ITEM 8. Financial

Statements

and Supplementary

Data

ITEM 9. Changes

in and Disagreements

with Accountants

on Accounting

and Financial

Disclosure

105

ITEM 9A.

Controls

and Procedures

105

ITEM 9B.

Other Information

109

ITEM 9C.

Disclosure

Regarding

Foreign Jurisdictions

that Prevent

Inspections

109

PART III

ITEM 10.

Directors,

Executive

Officers and

Corporate

Governance

110

ITEM 11. Executive

Compensation

110

ITEM 12.

Security

Ownership

of Certain

Beneficial

Owners and

Management

and Related

Stockholder

Matters

110

ITEM 13.

Certain Relationships

and Related

Transactions,

and Director

Independence

110

ITEM 14.

Principal

Accountant

Fees and

Services

110

PART IV

ITEM 15.

Exhibits,

Financial

Statement

Schedules

111

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

We make forward-looking statements in this Report that are subject to risks and uncertainties.

These forward-looking statements

include information about possible or assumed future results of our business, financial

condition, liquidity, results of operations, plans

and objectives. When we use the words “believe,” “expect,” “anticipate,” “estimate,”

“intend,” “should,” “may,” “plans,” “projects,” “will,”

or similar expressions, or the negative of these words, we intend to identify forward-looking

statements. Statements regarding the

following subjects are forward-looking by their nature:

●

our business and investment strategy;

●

our expected operating results;

●

our ability to acquire investments on attractive terms;

●

the effect of U.S. government actions on interest rates, fiscal policy and the housing and

credit markets;

●

the effect of rising interest rates on inflation, unemployment, and mortgage supply and

demand;

●

the effect of prepayment rates on the value of our assets;

●

our ability to access the capital markets;

●

our ability to obtain future financing arrangements;

●

our ability to successfully hedge the interest rate risk and prepayment risk associated

with our portfolio;

●

the federal conservatorship of the Federal National Mortgage Association

(“Fannie Mae”) and the Federal Home Loan

Mortgage Corporation (“Freddie Mac”) and related efforts, along with any changes in

laws and regulations affecting the

relationship between Fannie Mae and Freddie Mac and the U.S. government;

●

market trends;

●

our ability to make distributions to our stockholders in the future;

●

our understanding of our competition and our ability to compete effectively;

●

our ability to quantify risk based on historical experience;

●

our ability to maintain our qualification as a real estate investment trust (“REIT”) for U.S.

federal income tax purposes;

●

our ability to maintain our exemption from registration under the Investment Company

Act of 1940, as amended, or the

Investment Company Act;

●

our ability to maintain the listing of our common stock on the New

York Stock Exchange, or NYSE;

●

the effect of actual or proposed actions of the U.S. Federal Reserve (the “Fed”), the Federal

Housing Finance Agency (the

“FHFA”), the Federal Open Market Committee (the “FOMC”) and the U.S. Treasury with respect to monetary policy or interest

rates;

●

the ongoing effect of the coronavirus (COVID-19) pandemic and the potential future outbreak

of other highly infectious or

contagious diseases on the Agency RMBS market and on our results of future operations,

financial position, and liquidity;

●

geo-political events, such as the crisis in Ukraine, government responses

to such events and the related impact on the

economy both nationally and internationally;

●

expected capital expenditures;

●

the impact of technology on our operations and business; and

●

the eventual phase-out of the London Interbank Offered Rate (“LIBOR”) index, transition from LIBOR

to an alternative

reference rate and the impact on our LIBOR sensitive assets, liabilities and funding

hedges.

The forward-looking statements are based on our beliefs, assumptions

and expectations of our future performance, taking into

account all information currently available to us. You should not place undue reliance on these forward-looking statements.

These

beliefs, assumptions and expectations can change as a result of many possible events

or factors, not all of which are known to us.

Some of these factors are described under the caption ‘‘Risk Factors’’ in this Report and any subsequent Quarterly

Reports on Form

10-Q.

If a change occurs, our business, financial condition, liquidity and results

of operations may vary materially from those

expressed in our forward-looking statements. Any forward-looking statement speaks only

as of the date on which it is made. New risks

and uncertainties arise from time to time, and it is impossible for us to predict those

events or how they may affect us. Except as

required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as

a result of

new information, future events or otherwise.

PART I

ITEM 1. BUSINESS

Our Company

Orchid Island Capital, Inc., a Maryland corporation (“Orchid,” the “Company,” “we” or “us”), is a specialty finance

company that

invests in residential mortgage-backed securities (“RMBS”). The principal and

interest payments of these RMBS are guaranteed by

Fannie Mae, Freddie Mac or the Government National Mortgage Association (“Ginnie

Mae” and, collectively with Fannie Mae and

Freddie Mac, “GSEs”) and are backed primarily by single-family residential mortgage

loans. We refer to these types of RMBS as

Agency RMBS. Our investment strategy focuses on, and our portfolio consists of, two

categories of Agency RMBS: (i) traditional

pass-

through Agency

RMBS, such as mortgage pass through certificates and collateralized mortgage

obligations (“CMOs”) issued by the

GSEs and (ii) structured Agency RMBS, such as interest only securities (“IOs”), inverse

interest only securities (“IIOs”) and principal

only securities (“POs”), among other types of structured Agency RMBS.

Our website is located at

http://ir.orchidislandcapital.com

Information on our website is not part of this Report. Our common stock is

listed on the New York Stock Exchange (“NYSE”) and trades

under the symbol “ORC.”

We are organized and conduct our operations to qualify to be taxed as a REIT for U.S.

federal income tax purposes.

As such,

we are required to distribute 90% of our REIT taxable income,

determined without regard to the deductions

for dividends paid and

excluding any net capital gain, annually. We generally will not be subject to U.S. federal income tax on our REIT taxable income to the

extent we currently distribute our net taxable income to our stockholders

and maintain our REIT qualification.

It is our intention to

distribute 100% of our taxable income, after application of available tax attributes, within

the limits prescribed by the Internal Revenue

Code of 1986, as amended (the “Code”), which may extend into the subsequent

taxable year.

Our Manager

Bimini Capital Management, Inc. (sometimes referred to herein as “Bimini”) managed

our portfolio from our inception through the

completion of our initial public offering on February 20, 2013.

Upon completion of the offering, we became externally managed by

Bimini Advisors, LLC (“Bimini Advisors,” or our “Manager”) pursuant to a management

agreement. Our Manager is an investment

advisor registered with the Securities and Exchange Commission (“SEC”).

Additionally, our Manager is a Maryland limited liability

company that is a wholly-owned subsidiary of Bimini, which has a long track record

of managing investments in Agency RMBS. Bimini

commenced active investment management operations in 2003, and self-manages its

own portfolio.

We believe our relationship with

our Manager enables us to leverage our Manager’s established

portfolio management resources for each of our targeted asset classes

and its infrastructure supporting those resources.

Additionally, we have benefitted and expect to continue to benefit from our

Manager’s finance and administration functions, which address legal,

compliance, investor relations and operational matters, including

portfolio management, trade allocation and execution, securities valuation, repurchase

agreement trading and clearing, risk

management, cybersecurity, information technologies and environmental, social and governance considerations in connection with the

performance of its duties.

Our Manager is responsible for administering our business activities and day-to-day

operations.

Pursuant to the terms of the

management agreement, our Manager provides us with our management team,

including our officers, along with appropriate support

personnel.

Our Manager is at all times subject to the supervision and oversight of our board

of directors (the “Board of Directors”) and

has only such functions and authority as we delegate to it.

Our Investment and Capital Allocation Strategy

Investment Strategy

Our business objective is to provide attractive risk-adjusted total returns to our investors

over the long term through a

combination of capital appreciation and the payment of regular monthly distributions. We intend

to achieve this objective by investing in

and strategically allocating capital between pass-through Agency RMBS and structured

Agency RMBS. We seek to generate income

from (i) the net interest margin on our leveraged pass-through Agency RMBS

portfolio and the leveraged portion of our structured

Agency RMBS portfolio, and (ii) the interest income we generate from the unleveraged

portion of our structured Agency RMBS

portfolio. We also seek to minimize the volatility of both the net asset value of, and

income from, our portfolio through a process which

emphasizes capital allocation, asset selection, liquidity and active interest rate

risk management.

We fund our pass-through Agency RMBS and certain of our structured Agency RMBS through

repurchase agreements.

However, we generally do not employ leverage on our structured Agency RMBS that have no principal

balance, such as IOs and IIOs,

because those securities contain structural leverage. We may pledge a portion of these assets to

increase our cash balance, but we do

not intend to invest the cash derived from pledging the assets.

Our target asset categories and principal assets in which we intend to

invest are as follows:

Pass-through Agency RMBS

We invest in pass-through securities, which are securities secured by residential real property

in which payments of both interest

and principal on the securities are generally made monthly. In effect, these securities pass through the monthly payments

made by the

individual borrowers on the mortgage loans that underlie the securities, net of fees

paid to the loan servicer and the guarantor of the

securities. Pass-through certificates can be divided into various categories

based on the characteristics of the underlying mortgages,

such as the term or whether the interest rate is fixed or variable.

The payment of principal and interest on mortgage pass-through securities

issued by Ginnie Mae, but not the market value, is

guaranteed by the full faith and credit of the federal government. Payment of

principal and interest on mortgage pass-through

certificates issued by Fannie Mae and Freddie Mac, but not the market value,

is guaranteed by the respective agency issuing the

security.

A key feature of most mortgage loans is the ability of the borrower to repay principal

earlier than scheduled. This is called a

prepayment. Prepayments arise primarily due to sale of the underlying property, refinancing, foreclosure, or accelerated

amortization

by the borrower. Prepayments result in a return of principal to pass-through certificate holders. This may result

in a lower or higher rate

of return upon reinvestment of principal. This is generally referred to as

prepayment uncertainty. If a security purchased at a premium

prepays at a higher-than-expected rate, then the value of the premium would

be eroded at a faster-than-expected rate. Similarly, if a

discount mortgage prepays at a lower-than-expected rate, the amortization towards

par would be accumulated at a slower-than-

expected rate. The possibility of these undesirable effects is sometimes referred to as “prepayment

risk.”

In general, declining interest rates tend to increase prepayments, and

rising interest rates tend to slow prepayments. Like other

fixed-income securities, when interest rates rise, the value of Agency RMBS

generally declines. The rate of prepayments on underlying

mortgages will affect the price and volatility of Agency RMBS and may shorten or

extend the effective maturity of the security beyond

what was anticipated at the time of purchase. If interest rates rise, our holdings

of Agency RMBS may experience reduced spreads

over our funding costs if the borrowers of the underlying mortgages pay off their mortgages

later than anticipated. This is generally

referred to as “extension risk.”

We may also invest in To-Be-Announced Forward Contracts ("TBAs"). A TBA security is a forward contract for the purchase or

sale of Agency RMBS at a predetermined price, face amount, issuer, coupon and stated maturity on an agreed-upon future

date. The

specific Agency RMBS to be delivered into the contract are not known until

shortly before the settlement date. We may choose, prior to

settlement, to move the settlement of these securities out to a later date by

entering into an offsetting TBA position, net settling the

offsetting positions for cash, and simultaneously purchasing or selling a similar TBA

contract for a later settlement date (together

referred to as a "dollar roll transaction"). The Agency RMBS purchased or sold

for a forward settlement date are typically priced at a

discount to equivalent securities settling in the current month. This difference, or

"price drop," is the economic equivalent of interest

income on the underlying Agency RMBS, less an implied funding cost, over the forward

settlement period (referred to as "dollar roll

income"). Consequently, forward purchases of Agency RMBS and dollar roll transactions represent a form of off-balance sheet

financing. These TBAs are accounted for as derivatives and marked to market

through the income statement and are not included in

interest income.

The mortgage loans underlying pass-through certificates can generally be classified

into the following categories:

●

Fixed-Rate Mortgages

Fixed-rate mortgages are those where the borrower pays an interest rate that

is constant throughout

the term of the loan. Traditionally, most fixed-rate mortgages have an original term of 30 years. However, shorter terms (also

referred to as “final maturity dates”) are also common. Because the interest rate

on the loan never changes, even when

market interest rates change, there can be a divergence between the interest rate on

the loan and current market interest

rates over time. This in turn can make fixed-rate mortgages price-sensitive to market

fluctuations in interest rates. In general,

the longer the remaining term on the mortgage loan, the greater the price

sensitivity to movements in interest rates and,

therefore, the likelihood for greater price variability.

●

ARMs

. Adjustable-Rate Mortgages (“ARMs”) are mortgages for which the borrower

pays an interest rate that varies over the

term of the loan. The interest rate usually resets based on market interest rates,

although the adjustment of such an interest

rate may be subject to certain limitations. Traditionally, interest rate resets occur at regular intervals (for example, once per

year). We refer to such ARMs as “traditional” ARMs. Because the interest rates

on ARMs fluctuate based on market

conditions, ARMs tend to have interest rates that do not deviate from current market

rates by a large amount. This in turn can

mean that ARMs have less price sensitivity to interest rates and, consequently, are less likely to experience significant

price

volatility.

●

Hybrid Adjustable-Rate Mortgages

Hybrid ARMs have a fixed-rate for the first few years of the loan, often

three, five, seven

or ten years, and thereafter reset periodically like a traditional ARM. Effectively, such mortgages are hybrids, combining the

features of a pure fixed-rate mortgage and a traditional ARM. Hybrid ARMs have

price sensitivity to interest rates similar to

that of a fixed-rate mortgage during the period when the interest rate is fixed

and similar to that of an ARM when the interest

rate is in its periodic reset stage. However, because many hybrid ARMs are structured with a relatively

short initial time span

during which the interest rate is fixed, even during that segment of its existence,

the price sensitivity may be high.

Collateral Mortgage Obligation RMBS

CMOs are a type of RMBS, the principal and interest of which are paid,

in most cases, on a monthly basis. CMOs may be

collateralized by whole mortgage loans, but are more typically collateralized

by pools of mortgage pass-through securities issued

directly by or under the auspices of Ginnie Mae, Freddie Mac or Fannie Mae.

CMOs are structured into multiple classes, with each

class bearing a different stated maturity. Monthly payments of principal, including prepayments, are first returned to investors holding

the shortest maturity class. Investors holding the longer maturity classes receive

principal only after the first class has been retired.

Generally, fixed-rate RMBS are used to collateralize CMOs. However, the CMO tranches need not all have fixed-rate coupons. Some

CMO tranches have floating rate coupons that adjust based on market interest rates,

subject to some limitations. Such tranches, often

called “CMO floaters,” can have relatively low price sensitivity to interest rates.

Structured Agency RMBS

We also invest in structured Agency RMBS, which include IOs, IIOs and POs. The payment

of principal and interest, as

appropriate, on structured Agency RMBS issued by Ginnie Mae, but not the

market value, is guaranteed by the full faith and credit of

the federal government. Payment of principal and interest, as appropriate,

on structured Agency RMBS issued by Fannie Mae and

Freddie Mac, but not the market value, is guaranteed by the respective

agency issuing the security. The types of structured Agency

RMBS in which we invest are described below.

●

IOs

. IOs represent the stream of interest payments on a pool of mortgages,

either fixed-rate mortgages or hybrid ARMs.

Holders of IOs have no claim to any principal payments. The value of IOs depends

primarily on two factors, which are

prepayments and interest rates. Prepayments on the underlying pool of mortgages

reduce the stream of interest payments

going forward, hence IOs are highly sensitive to prepayment rates. IOs are

also sensitive to changes in interest rates. An

increase in interest rates reduces the present value of future interest payments

on a pool of mortgages. On the other hand, an

increase in interest rates has a tendency to reduce prepayments, which increases

the expected absolute amount of future

interest payments.

●

IIOs

. IIOs represent the stream of interest payments on a pool of mortgages that

underlie RMBS, either fixed-rate mortgages

or hybrid ARMs. Holders of IIOs have no claim to any principal payments. The

value of IIOs depends primarily on three

factors, which are prepayments, the coupon interest rate (i.e. LIBOR), and term interest

rates. Prepayments on the underlying

pool of mortgages reduce the stream of interest payments, making IIOs highly sensitive

to prepayment rates. The coupon on

IIOs is derived from both the coupon interest rate on the underlying pool

of mortgages and 30-day LIBOR. IIOs are typically

created in conjunction with a floating rate CMO that has a principal balance

and which is entitled to receive all of the principal

payments on the underlying pool of mortgages. The coupon on the floating

rate CMO is also based on 30-day LIBOR.

Typically,

the coupon on the floating rate CMO and the IIO, when combined, equal

the coupon on the pool of underlying

mortgages. The coupon on the pool of underlying mortgages typically represents

a cap or ceiling on the combined coupons of

the floating rate CMO and the IIO. Accordingly, when the value of 30-day LIBOR increases, the coupon of the floating rate

CMO will increase and the coupon on the IIO will decrease. When the value of 30-day LIBOR

falls, the opposite is true.

Accordingly, the value of IIOs are sensitive to the level of 30-day LIBOR and expectations by market participants of future

movements in the level of 30-day LIBOR. IIOs are also sensitive to changes in

interest rates. An increase in interest rates

reduces the present value of future interest payments on a pool of mortgages.

On the other hand, an increase in interest rates

has a tendency to reduce prepayments, which increases the expected absolute

amount of future interest payments.

●

POs

. POs represent the stream of principal payments on a pool of mortgages.

Holders of POs have no claim to any interest

payments, although the ultimate amount of principal to be received over time

is known, equaling the principal balance of the

underlying pool of mortgages. The timing of the receipt of the principal payments

is not known. The value of POs depends

primarily on two factors, which are prepayments and interest rates. Prepayments on

the underlying pool of mortgages

accelerate the stream of principal repayments, making POs highly sensitive to

the rate at which the mortgages in the pool are

prepaid. POs are also sensitive to changes in interest rates. An increase in

interest rates reduces the present value of future

principal payments on a pool of mortgages. Further, an increase in interest rates has a tendency to reduce prepayments,

which decelerates, or pushes further out in time, the ultimate receipt of the principal payments.

The opposite is true when

interest rates decline.

Our investment strategy consists of the following components:

●

investing in pass-through Agency RMBS and certain structured Agency RMBS on a leveraged

basis to increase returns on the

capital allocated to this portfolio;

●

investing in certain structured Agency RMBS, such as IOs and IIOs, generally

on an unleveraged basis in order to (i) increase

returns due to the structural leverage contained in such securities, (ii) enhance liquidity

due to the fact that these securities will

be unencumbered or, when encumbered, retain the cash from such borrowings and (iii) diversify portfolio interest

rate risk due

to the different interest rate sensitivity these securities have compared to pass-through Agency

RMBS;

●

investing in TBAs;

●

investing in Agency RMBS in order to minimize credit risk;

●

investing in assets that will cause us to maintain our exclusion from regulation

as an investment company under the

Investment Company Act; and

●

investing in assets that will allow us to qualify and maintain our qualification as a REIT.

We rely on our Manager’s expertise in identifying assets within our target

asset class.

Our Manager makes investment

decisions based on various factors, including, but not limited to, relative value,

expected cash yield, supply and demand, costs of

hedging, costs of financing, liquidity requirements, expected future interest rate

volatility and the overall shape of the U.S. Treasury and

interest rate swap yield curves. We do not attribute any particular quantitative significance

to any of these factors, and the weight we

give to these factors depends on market conditions and economic trends.

Over time, we will modify our investment strategy as market conditions

change to seek to maximize the returns from our

investment portfolio.

We believe that this strategy, combined with our Manager’s experience, will enable us to provide attractive long-

term returns to our stockholders.

Capital Allocation Strategy

The percentage of capital invested in our two asset categories will vary

and will be managed in an effort to maintain the level of

income generated by the combined portfolios, the stability of that income

stream and the stability of the value of the combined

portfolios. Long positions in TBAs are considered a component of the pass-through

Agency RMBS category. Typically,

pass-through

Agency RMBS and structured Agency RMBS exhibit materially different sensitivities

to movements in interest rates. Declines in the

value of one portfolio may be offset by appreciation in the other, although we cannot assure you that this will be the

case. Additionally,

our Manager will seek to maintain adequate liquidity as it allocates capital.

We allocate our capital to assist our interest rate risk management efforts. The unleveraged portfolio does

not require

unencumbered cash or cash equivalents to be maintained in anticipation of possible

margin calls. To the extent more capital is

deployed in the unleveraged portfolio, our liquidity needs will generally be

less.

During periods of rising interest rates, refinancing opportunities available to borrowers typically

decrease because borrowers are

not able to refinance their current mortgage loans with new mortgage loans at

lower interest rates. In such instances, securities that are

highly sensitive to refinancing activity, such as IOs and IIOs, typically increase in value. Our capital allocation strategy allows us to

redeploy our capital into such securities when and if we believe interest rates will be

higher in the future, thereby allowing us to hold

securities, the value of which we believe is likely to increase as interest rates rise.

Also, by being able to re-allocate capital into

structured Agency RMBS, such as IOs, during periods of rising interest rates, we may

be able to offset the likely decline in the value of

our pass-through Agency RMBS, which are negatively impacted by rising interest

rates.

We intend to operate in a manner that will not subject us to regulation under the Investment

Company Act. In order to rely on the

exemption provided by Section 3(c)(5)(C) under the Investment Company

Act, we must maintain at least 55% of our assets in

qualifying real estate assets. For purposes of this test, structured Agency RMBS are

non-qualifying real estate assets. Accordingly,

while we have no explicit limitation on the amount of our capital that we will

deploy to the unleveraged structured Agency RMBS

portfolio, we will deploy our capital in such a way so as to maintain our exemption

from registration under the Investment Company Act.

Financing Strategy

We borrow against our Agency RMBS using short term repurchase agreements. A

repurchase (or "repo") agreement transaction

acts as a financing arrangement under which we effectively pledge our investment

securities as collateral to secure a loan. Our

borrowings through repurchase transactions are generally short-term and have maturities

ranging from one day to one year but may

have maturities up to five or more years. Our financing rates are typically impacted

by the U.S. Federal Funds rate and other short-term

benchmark rates and liquidity in the Agency RMBS repo and other short-term funding

markets.

The terms of our master repurchase

agreements generally conform to the terms in the standard master repurchase

agreement as published by the Securities Industry and

Financial Markets Association ("SIFMA") as to repayment, margin requirements

and the segregation of all securities sold under the

repurchase transaction. In addition, each lender may require that we include

supplemental terms and conditions to the standard master

repurchase agreement to address such matters as additional margin

maintenance requirements, cross default and other provisions.

The specific provisions may differ for each lender and certain terms may not be determined

until we engage in individual repurchase

transactions.

We may use other sources of leverage, such as secured or unsecured debt or issuances

of preferred stock. We do not have a

policy limiting the amount of leverage we may incur. However, we generally expect that the ratio of our total liabilities compared to our

equity, which we refer to as our leverage ratio, will be less than 12 to 1. Our amount of leverage may vary depending on

market

conditions and other factors that we deem relevant.

We allocate our capital between two sub-portfolios. The pass-through Agency RMBS

portfolio will be leveraged generally through

repurchase agreement funding. The structured Agency RMBS portfolio generally

will not be leveraged. The leverage ratio is calculated

by dividing our total liabilities by total stockholders’ equity at the end of each

period. Long positions in TBAs are considered a

component of the pass-through Agency RMBS category. While there is no explicit leverage applied to TBAs via repurchase

agreement

borrowings, as is the case with pass-through securities, to accurately reflect

our reported leverage ratio, we calculate our leverage both

with and without the market value of the net futures contract as a component

of our total leverage exposure for purposes of reporting

our leverage ratio and other risk metrics. We include our net TBA position in our measure

of leverage because a forward contract to

acquire Agency RMBS in the TBA market carries similar risks to Agency RMBS

purchased in the cash market and funded with on-

balance sheet liabilities. Similarly, a TBA contract for the forward sale of Agency RMBS has substantially the same effect as selling the

underlying Agency RMBS and reducing our on-balance sheet funding commitments.

The amount of leverage typically will be a function of the capital allocated to the

pass-through Agency RMBS portfolio and the

amount of haircuts required by our lenders on our borrowings. When the capital allocation

to the pass-through Agency RMBS portfolio

is high, we expect that the leverage ratio will be high because more capital is

being explicitly leveraged and less capital is un-

leveraged. If the haircuts, which are a percentage of the market value of the collateral

pledged, required by our lenders on our

borrowings are higher, all else being equal, our leverage will be lower because our lenders will lend less against the

value of the capital

deployed to the pass-through Agency RMBS portfolio. The allocation of capital

between the two portfolios will be a function of several

factors:

●

The relative durations of the respective portfolios — We generally seek to have a combined

hedged duration at or near zero. If

our pass-through securities have a longer duration, we will allocate more

capital to the structured security portfolio or hedges

to achieve a combined duration close to zero.

●

The relative attractiveness of pass-through securities versus structured securities — To the extent we believe the expected

returns of one type of security are higher than the other, we will allocate more capital to the more attractive

securities, subject

to the caveat that its combined duration remains at or near zero and subject to

maintaining our qualification for exemption

under the Investment Company Act.

●

Liquidity — We seek to maintain adequate cash and unencumbered securities relative

to our repurchase agreement

borrowings to ensure we can meet any price or prepayment related margin calls from

our lenders. To the extent we feel price

or prepayment related margin calls will be higher/lower, we will typically allocate less/more capital to the

pass-through Agency

RMBS portfolio. Our pass-through Agency RMBS portfolio likely will be our

only source of price or prepayment related margin

calls because we generally will not apply leverage to our structured Agency RMBS

portfolio. From time to time we may pledge

a portion of our structured securities and retain the cash derived so it can be

used to enhance our liquidity.

Risk Management

We invest in Agency RMBS to mitigate credit risk. Additionally, our Agency RMBS are backed by a diversified base of mortgage

loans to mitigate geographic, loan originator and other types of concentration risks.

Interest Rate Risk Management

We believe that the risk of adverse interest rate movements represents the most significant

risk to our portfolio. This risk arises

because (i) the interest rate indices used to calculate the interest rates on the

mortgages underlying our assets may be different from

the interest rate indices used to calculate the interest rates on the related borrowings

and (ii) interest rate movements affecting our

borrowings may not be reasonably correlated with interest rate movements affecting our assets.

We attempt to mitigate our interest

rate risk by using the techniques described below:

Agency RMBS Backed by ARMs

. We seek to minimize the differences between interest rate indices and interest rate adjustment

periods of our Agency RMBS backed by ARMs and related borrowings.

At the time of funding, we typically align (i) the underlying

interest rate index used to calculate interest rates for our Agency RMBS backed

by ARMs and the related borrowings and (ii) the

interest rate adjustment periods for our Agency RMBS backed by ARMs and the

interest rate adjustment periods for our related

borrowings. As our borrowings mature or are renewed, we may adjust the index

used to calculate interest expense, the duration of the

reset periods and the maturities of our borrowings.

Agency RMBS Backed by Fixed-Rate Mortgages

. As interest rates rise, our borrowing costs increase; however, the income on our

Agency RMBS backed by fixed-rate mortgages remains unchanged. Subject

to qualifying and maintaining our qualification as a REIT,

we may seek to limit increases to our borrowing costs through the use of interest rate

swap or cap agreements, options, put or call

agreements, futures contracts, forward rate agreements or similar financial instruments

to economically convert our floating-rate

borrowings into fixed-rate borrowings.

Agency RMBS Backed by Hybrid ARMs

. During the fixed-rate period of our Agency RMBS backed by

hybrid ARMs, the security is

similar to Agency RMBS backed by fixed-rate mortgages. During this period,

subject to qualifying and maintaining our qualification as a

REIT, we may employ the same hedging strategy that we employ for our Agency RMBS backed by fixed-rate mortgages. Once our

Agency RMBS backed by hybrid ARMs convert to floating rate securities, we may employ

the same hedging strategy as we employ for

our Agency RMBS backed by ARMs.

Derivative Instruments.

We enter into derivative instruments to economically hedge against

the possibility that rising rates may

adversely impact the cost of our repurchase agreement liabilities.

The principal

instruments

that the

Company has

used to date

are

Treasury Note

(“T-Note”),

Fed Funds

and Eurodollar

futures contracts,

interest rate

swaps, options

to enter

in interest

rate swaps

(“interest

rate swaptions”)

and TBA

securities

transactions,

but the Company

may enter

into other

derivatives

in the future.

A futures contract is a legally binding agreement to buy or sell a financial instrument

in a designated future month at a price agreed

upon at the

initiation of the contract by the buyer and seller.

A futures contract differs from an option in that an option gives one of the

counterparties a right, but not the obligation, to buy or sell, while a futures contract represents

an obligation of both counterparties to

buy or sell a financial instrument at a specified price.

We engage in interest rate swaps as a means of managing our interest rate risk on forecasted

interest expense associated with

repurchase agreement borrowings for the term of the swap contract.

An interest rate swap is a contractual agreement entered into

two counterparties, under which each agrees to make periodic interest payments to

the other (one pays a fixed rate of interest, while

the other pays a floating rate of interest) for an agreed period of time based upon

a notional amount of principal.

Interest rate swaptions provide us the option to enter into an interest rate

swap agreement for a predetermined notional amount,

stated term and pay and receive interest rates in the future. We may enter into swaption agreements

that provide us the option to enter

into a pay fixed rate interest rate swap ("payer swaptions"), or swaption

agreements that provide us the option to enter into a receive

fixed interest rate swap ("receiver swaptions").

Additionally, our structured Agency RMBS generally exhibit sensitivities to movements in interest rates different than our pass-

through Agency RMBS. To the extent they do so, our structured Agency RMBS may protect us against declines in the market value of

our combined portfolio that result from adverse interest rate movements, although we

cannot assure you that this will be the case.

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

statements

of operations.

Prepayment Risk Management

The risk of mortgage prepayments is another significant risk to our portfolio.

When prevailing interest rates fall below the current

interest rate of a mortgage, mortgage prepayments are likely to increase.

Conversely, when prevailing interest rates increase above the

coupon rate of a mortgage, mortgage prepayments are likely to decrease.

When prepayment rates increase, we may not be able to reinvest the money received

from prepayments at yields comparable to

those of the securities prepaid. Additionally, some of our structured Agency RMBS, such as IOs and IIOs, may be negatively

affected

by an increase in prepayment rates because their value is wholly contingent

on the underlying mortgage loans having an outstanding

principal balance.

A decrease in prepayment rates may also have an adverse effect on our portfolio. For example,

if we invest in POs, the purchase

price of such securities will be based, in part, on an assumed level of prepayments

on the underlying mortgage loan. Because the

returns on POs decrease the longer it takes the principal payments on the underlying

loans to be paid, a decrease in prepayment rates

could decrease our returns on these securities.

Prepayment risk also affects our hedging activities. When an Agency RMBS backed by

a fixed-rate mortgage or hybrid ARM is

acquired with borrowings, we may cap or fix our borrowing costs for a period

close to the anticipated average life of the fixed-rate

portion of the related Agency RMBS. If prepayment rates are different than our projections,

the term of the related hedging instrument

may not match the fixed-rate portion of the security, which could cause us to incur losses.

Because our business may be adversely affected if prepayment rates are different than our

projections, we seek to invest in

Agency RMBS backed by mortgages with well-documented and predictable prepayment

histories. To protect against increases in

prepayment rates, we invest in Agency RMBS backed by mortgages that we believe

are less likely to be prepaid. For example, we

invest in Agency RMBS backed by mortgages (i) with loan balances low enough

such that a borrower would likely have little incentive

to refinance, (ii) extended to borrowers with credit histories weak enough to not

be eligible to refinance their mortgage loans, (iii) that

are newly originated fixed-rate or hybrid ARMs or (iv) that have interest rates low

enough such that a borrower would likely have little

incentive to refinance. To protect against decreases in prepayment rates, we may also invest in Agency RMBS backed by mortgages

with characteristics opposite to those described above, which would typically

be more likely to be refinanced. We may also invest in

certain types of structured Agency RMBS as a means of mitigating our portfolio-wide

prepayment risks. For example, certain tranches

of CMOs are less sensitive to increases in prepayment rates, and we

may invest in those tranches as a means of hedging against

increases in prepayment rates.

Liquidity Management Strategy

Because of our use of leverage, we manage liquidity to meet our lenders’ margin

calls by maintaining cash balances or

unencumbered assets well in excess of anticipated margin calls and making

margin calls on our lenders when we have an excess of

collateral pledged against our borrowings.

We also attempt to minimize the number of margin calls we receive by:

●

Deploying capital from our leveraged Agency RMBS portfolio to our unleveraged

Agency RMBS portfolio;

●

Investing in TBAs in lieu of leveraged Agency RMBS to reduce margin calls from

our lenders associated with monthly

prepayments;

●

Investing in Agency RMBS backed by mortgages that we believe are less likely to

be prepaid to decrease the risk of excessive

margin calls when monthly prepayments are announced. Prepayments are

declared, and the market value of the related

security declines, before the receipt of the related cash flows. Prepayment

declarations give rise to a temporary collateral

deficiency and generally result in margin calls by lenders; and

●

Reducing our overall amount of leverage.

To the

extent we are unable to adequately manage our interest rate exposure and

are subjected to substantial margin calls, we

may be forced to sell assets at an inopportune time, which in turn could impair

our liquidity and reduce our borrowing capacity and book

value.

Tax Structure

We have elected to be taxed as a REIT for U.S. federal income tax purposes. Our qualification

as a REIT, and the maintenance

of such qualification, will depend upon our ability to meet, on a continuing basis,

various complex requirements under the Code relating

to, among other things, the sources of our gross income, the composition and

values of our assets, our distribution levels and the

concentration of ownership of our capital stock. We believe that we have been organized

and have operated in conformity with the

requirements for qualification and taxation as a REIT under the Code, and

we intend to continue to operate in a manner that will enable

us to continue to meet the requirements for qualification and taxation as a REIT.

As a REIT, we generally will not be subject to U.S. federal income tax on the REIT taxable income that we currently distribute to

our stockholders.

Taxable income generated by any taxable REIT subsidiary (“TRS”) that we may form or acquire will be subject to

U.S. federal, state and local income tax. Under the Code, REITs are subject to numerous organizational and operational requirements,

including a requirement that they distribute annually at least 90% of their REIT

taxable income, determined without regard to the

deductions for dividends paid and excluding any net capital gains. If we fail to qualify

as a REIT in any calendar year and do not qualify

for certain statutory relief provisions, our income would be subject to U.S.

federal income tax, and we would likely be precluded from

qualifying for treatment as a REIT until the fifth calendar year following the

year in which we failed to qualify. Even if we continue to

qualify as a REIT, we may still be subject to certain U.S. federal, state and local taxes on our income and assets and to U.S. federal

income and excise taxes on our undistributed income.

Investment Company Act Exemption

We operate our business so that we are exempt from registration under the Investment Company

Act. We rely on the exemption

provided by Section 3(c)(5)(C) of the Investment Company Act, which applies

to companies in the business of purchasing or otherwise

acquiring mortgages and other liens on, and interests in, real estate. In order to

rely on the exemption provided by Section 3(c)(5)(C),

we must maintain at least 55% of our assets in qualifying real estate assets. For

the purposes of this test, structured Agency RMBS are

non-qualifying real estate assets. We monitor our portfolio continuously and prior to each

investment to confirm that we continue to

qualify for the exemption. To qualify for the exemption, we make investments so that at least 55% of the assets we own consist of

qualifying mortgages and other liens on and interests in real estate, which we

refer to as qualifying real estate assets, and so that at

least 80% of the assets we own consist of real estate-related assets, including

our qualifying real estate assets.

We treat whole-pool pass-through Agency RMBS as qualifying real estate assets based

on no-action letters issued by the staff of

the SEC. In August 2011, the SEC, through a concept release, requested comments on interpretations of Section 3(c)(5)(C).

To the

extent that the SEC or its staff publishes new or different guidance with respect to these matters, we may

fail to qualify for this

exemption. Our Manager manages our pass-through Agency RMBS portfolio such that

we have sufficient whole-pool pass-through

Agency RMBS to ensure we maintain our exemption from registration under the

Investment Company Act. At present, we generally do

not expect that our investments in structured Agency RMBS will constitute qualifying

real estate assets,

but will constitute real estate-

related assets for purposes of the Investment Company Act.

Employees and Human Capital Resources

We have no employees.

We are externally managed and advised by our Manager pursuant to a management

agreement as

discussed below.

Competition

Our net income largely depends on our ability to acquire Agency RMBS at favorable

spreads over our borrowing costs.

When we

invest in Agency RMBS and other investment assets, we compete with a variety

of institutional investors, including other REITs,

insurance companies, mutual funds, pension funds, investment banking firms, banks

and other financial institutions that invest in the

same types of assets, the Federal Reserve Bank and other governmental entities

or government-sponsored entities. Many of these

investors have greater financial resources and access to lower costs of capital

than we do. The existence of these competitive entities,

as well as the possibility of additional entities forming in the future, may increase

the competition for the acquisition of mortgage related

securities, resulting in higher prices and lower yields on assets.

Distributions

To maintain our qualification as a REIT,

we must distribute at least 90% of our REIT taxable income, determined without

regard to

the deductions for dividends paid and excluding net capital gains, to our stockholders each

year.

We plan to continue to declare and

pay regular monthly dividends to our stockholders.

Available Information

Our investor relations website is www.orchidislandcapital.com.

We make available on the website under “Financials/SEC filings,"

free of charge, our annual report on Form 10-K, our quarterly reports on Form 10-Q,

our current reports on Form 8-K and any other

reports (including any amendments to such reports) as soon as reasonably practicable

after we electronically file or furnish such

materials to the SEC. Information on our website, however, is not part of this Report.

In addition, all of our filed reports can be obtained

at the SEC’s website at http://www.sec.gov.

ITEM 1A.

RISK FACTORS

Summary of Risk Factors

Below is a summary of the principal factors that make an investment in our common

stock speculative or risky. This summary

does not address all of the risks that we face. Additional discussion of the risks

summarized in this risk factor summary, and

other risks

that we face, can be found below under the heading “Risk Factors” and should

be carefully considered, together with other information

in this Report and our other filings with the SEC, before making an investment

decision regarding our common stock.

●

Increases in interest rates may negatively affect the value of our investments and increase

the cost of our borrowings, which could

result in reduced earnings or losses and materially adversely affect our ability to

pay distributions to our stockholders.

●

An increase in interest rates may also cause a decrease in the volume of

newly issued, or investor demand for, Agency RMBS,

which could materially adversely affect our ability to acquire assets that satisfy our investment

objectives and our business,

financial condition and results of operations and our ability to pay distributions

to our stockholders.

●

Interest rate mismatches between our Agency RMBS and our borrowings may

reduce our net interest margin during periods of

changing interest rates, which could materially adversely affect our business, financial condition

and results of operations and our

ability to pay distributions to our stockholders.

●

Although structured Agency RMBS are generally subject to the same risks

as our pass-through Agency RMBS, certain types of

risks may be enhanced depending on the type of structured Agency RMBS

in which we invest.

●

Differences in the stated maturity of our fixed rate assets, or in the timing of interest

rate adjustments on our adjustable-rate

assets, and our borrowings may adversely affect our profitability.

●

Changes in the levels of prepayments on the mortgages underlying our Agency RMBS

might decrease net interest income or

result in a net loss, which could materially adversely affect our business, financial condition

and results of operations and our

ability to pay distributions to our stockholders.

●

Interest rate caps on the ARMs and hybrid ARMs backing our Agency RMBS

may reduce our net interest margin during periods of

rising interest rates, which could materially adversely affect our business, financial condition

and results of operations and our

ability to pay distributions to our stockholders.

●

Volatile market conditions for mortgages and mortgage-related assets as well as the broader financial markets

can result in a

significant contraction in liquidity for mortgages and mortgage-related assets, which

may adversely affect the value of the assets in

which we invest.

●

Failure to procure adequate repurchase agreement financing, or to renew

or replace existing repurchase agreement financing as it

matures, could materially adversely affect our business, financial condition and results of operations

and our ability to make

distributions to our stockholders.

●

Adverse market developments could cause our lenders to require us to pledge

additional assets as collateral. If our assets were

insufficient to meet these collateral requirements, we might be compelled to liquidate particular

assets at inopportune times and at

unfavorable prices, which could materially adversely affect our business, financial condition

and results of operations and our

ability to pay distributions to our stockholders.

●

Hedging against interest rate exposure may not completely insulate us from

interest rate risk and could materially adversely affect

our business, financial condition and results of operations and our ability to pay distributions

to our stockholders.

●

Our use of leverage could materially adversely affect our business, financial condition

and results of operations and our ability to

pay distributions to our stockholders.

●

It may be uneconomical to "roll" our TBA dollar roll transactions or we may be

unable to meet margin calls on our TBA contracts,

which could negatively affect our financial condition and results of operations.

●

Our forward settling transactions, including TBA transactions, subject us to

certain risks, including price risks and counterparty

risks.

●

We rely on analytical models and other data to analyze potential asset acquisition and disposition

opportunities and to manage our

portfolio. Such models and other data may be incorrect, misleading or incomplete, which

could cause us to purchase assets that

do not meet our expectations or to make asset management decisions that are not

in line with our strategy.

●

Valuations of some of our assets are inherently uncertain, may be based on estimates, may fluctuate over short periods

of time

and may differ from the values that would have been used if a ready market for these assets

existed. As a result, the values of

some of our assets are uncertain.

●

If our lenders default on their obligations to resell the Agency RMBS back to us at

the end of the repurchase transaction term, if the

value of the Agency RMBS has declined by the end of the repurchase transaction

term or if we default on our obligations under the

repurchase transaction, we will lose money on these transactions, which,

in turn, may materially adversely affect our business,

financial condition and results of operations and our ability to pay distributions

to our stockholders.

●

Clearing facilities or exchanges upon which some of our hedging instruments

are traded may increase margin requirements on our

hedging instruments in the event of adverse economic developments.

●

We may change our investment strategy, investment guidelines and asset allocation without notice or stockholder consent, which

may result in riskier investments.

●

A prolonged economic slowdown, a lengthy or severe recession or declining real estate

values could impair our investments and

harm our operations.

●

New laws may be passed affecting the relationship between Fannie Mae and Freddie Mac,

on the one hand, and the federal

government, on the other, which could adversely affect the price of, or our ability to invest in and finance, Agency RMBS.

●

The management agreement with our Manager was not negotiated on an

arm’s-length basis and the terms, including fees payable

and our inability to terminate, or our election not to renew, the management agreement based on our Manager’s

poor performance

without paying our Manager a significant termination fee, except for a termination

of the Manager with cause, may not be as

favorable to us as if it were negotiated with an unaffiliated third party.

●

We have no employees, and our Manager is responsible for making all of our investment decisions.

None of our or our Manager’s

officers are required to devote any specific amount of time to our business, and each of them

may provide their services to Bimini,

which could result in conflicts of interest.

●

We are completely dependent upon our Manager and certain key personnel of Bimini who provide

services to us through the

management agreement, and we may not find suitable replacements for our

Manager and these personnel if the management

agreement is terminated or such key personnel are no longer available to us.

●

If we elect to not renew the management agreement without cause, we would

be required to pay our Manager a substantial

termination fee. These and other provisions in our management agreement

make non-renewal of our management agreement

difficult and costly.

●

We have not established a minimum distribution payment level, and we cannot assure

you of our ability to make distributions to

our stockholders in the future.

●

Loss of our exemption from regulation under the Investment Company Act would negatively

affect the value of shares of our

common stock and our ability to pay distributions to our stockholders.

●

Failure to obtain and maintain an exemption from being regulated as a commodity

pool operator could subject us to additional

regulation and compliance requirements and may result in fines and other penalties

which could materially adversely affect our

business and financial condition.

●

Our ownership limitations and certain other provisions of applicable law

and our charter and bylaws may restrict business

combination opportunities that would otherwise be favorable to our stockholders.

●

Our failure to maintain our qualification as a REIT would subject us to U.S. federal

income tax, which could adversely affect the

value of the shares of our common stock and would substantially reduce the

cash available for distribution to our stockholders.

●

We cannot predict the effect that government policies, laws and plans adopted in response

to the COVID-19 pandemic and the

global recessionary economic conditions will have on us.

Risk Factors

You should carefully consider the risks described below and all other information contained in this Report, including our annual

financial statements and related notes thereto, before making an investment decision

regarding our common stock. Our business,

financial condition or results of operations could be harmed by any of these risks.

Similarly, these risks could cause the market price of

our common stock to decline and you might lose all or part of your investment.

Our forward-looking statements in this Report are

subject to the following risks and uncertainties. Our actual results could differ materially from

those anticipated by our forward-looking

statements as a result of the risk factors below.

Risks Related to Our Business

Increases in interest rates may negatively affect the value of our investments and increase

the cost of our borrowings, which

could result in reduced earnings or losses and materially adversely affect our ability to pay

distributions to our stockholders.

Under normal market conditions,

an investment in Agency RMBS will decline in value if interest rates increase.

In addition, net

interest income could decrease if the yield curve becomes inverted or flat. While

Fannie Mae, Freddie Mac or Ginnie Mae guarantee

the principal and interest payments related to the Agency RMBS we

own, this guarantee does not protect us from declines in market

value caused by changes in interest rates. Declines in the market value of our investments

may ultimately result in losses to us, which

may reduce earnings and negatively affect our ability to pay distributions to our stockholders.

Significant increases in both long-term and short-term interest rates pose a substantial

risk associated with our investment in

Agency RMBS. If long-term rates were to increase significantly, the market value of our Agency RMBS would decline, and

the duration

and weighted average life of the investments would increase. We could realize a loss

if the securities were sold. At the same time, an

increase in short-term interest rates would increase the amount of interest

owed on our repurchase agreements used to finance the

purchase of Agency RMBS, which would decrease cash available for distribution

to our stockholders. Using this business model, we

are particularly susceptible to the effects of an inverted yield curve, where short-term rates

are higher than long-term rates. Although

rare in a historical context, the U.S. and many countries in Europe have experienced

inverted yield curves. Given the volatile nature of

the U.S. economy and potential future increases in short-term interest rates, there can

be no guarantee that the yield curve will not

become and/or remain inverted. If this occurs, it could result in a decline in the

value of our Agency RMBS, our business, financial

position and results of operations and our ability to pay distributions to our stockholders

could be materially adversely affected.

An increase in interest rates may also cause a decrease in the volume of

newly issued, or investor demand for, Agency RMBS,

which could materially adversely affect our ability to acquire assets that satisfy our investment

objectives and our business,

financial condition and results of operations and our ability to pay distributions

to our stockholders.

Rising interest rates generally reduce the demand for consumer credit, including

mortgage loans, due to the higher cost of

borrowing. A reduction in the volume of mortgage loans may affect the volume

of Agency RMBS available to us, which could affect our

ability to acquire assets that satisfy our investment objectives. Rising interest rates

may also cause Agency RMBS that were issued

prior to an interest rate increase to provide yields that exceed prevailing market interest

rates. If rising interest rates cause us to be

unable to acquire a sufficient volume of Agency RMBS or Agency RMBS with a yield that exceeds

our borrowing costs, our ability to

satisfy our investment objectives and to generate income and pay dividends,

our business, financial condition and results of operations,

and our ability to pay distributions to our stockholders may be materially adversely affected.

Interest rate mismatches between our Agency RMBS and our borrowings may

reduce our net interest margin during periods of

changing interest rates, which could materially adversely affect our business, financial condition

and results of operations and our

ability to pay distributions to our stockholders.

Our portfolio includes Agency RMBS backed by ARMs, hybrid ARMs and

fixed-rate mortgages, and the mix of these securities in

the portfolio may be increased or decreased over time. Additionally, the interest rates on ARMs and hybrid ARMs may vary

over time

based on changes in a short-term interest rate index, of which there are many.

We finance our acquisitions of pass-through Agency RMBS with short-term financing. During

periods of rising short-term interest

rates, the income we earn on these securities will not change (with respect to Agency

RMBS backed by fixed-rate mortgage loans) or

will not increase at the same rate (with respect to Agency RMBS backed by ARMs and

hybrid ARMs) as our related financing costs,

which may reduce our net interest margin or result in losses.

We invest in structured Agency RMBS, including IOs, IIOs and POs. Although structured Agency RMBS

are generally subject to

the same risks as our pass-through Agency RMBS, certain types of risks

may be enhanced depending on the type of structured

Agency RMBS in which we invest.

The structured Agency RMBS in which we invest are securitizations (i)

issued by Fannie Mae, Freddie Mac or Ginnie Mae, (ii)

collateralized by Agency RMBS and (iii) divided into various tranches that have

different characteristics (such as different maturities or

different coupon payments). These securities may carry greater risk than an investment

in pass-through Agency RMBS. For example,

certain types of structured Agency RMBS, such as IOs, IIOs and POs, are more sensitive

to prepayment risks than pass-through

Agency RMBS. If we were to invest in structured Agency RMBS that were

more sensitive to prepayment risks relative to other types of

structured Agency RMBS or pass-through Agency RMBS, we may increase our

portfolio-wide prepayment risk.

Differences in the stated maturity of our fixed rate assets, or in the timing of interest rate adjustments

on our adjustable-rate

assets, and our borrowings may adversely affect our profitability.

We rely primarily on short-term and/or variable rate borrowings to acquire fixed-rate securities with

long-term maturities. In

addition, we may have adjustable-rate assets with interest rates that vary

over time based upon changes in an objective index, such as

LIBOR, the U.S. Treasury rate or the Secured Overnight Financing Rate (“SOFR”).

These indices generally reflect short-term interest

rates but these assets may not reset in a manner that matches our borrowings.

The relationship between short-term and longer-term interest rates is often

referred to as the "yield curve." Ordinarily, short-term

interest rates are lower than longer-term interest rates. If short-term interest rates rise

disproportionately relative to longer-term interest

rates (a "flattening" of the yield curve), our borrowing costs may increase more rapidly

than the interest income earned on our assets.

Because our investments generally bear interest at longer-term rates than we pay on

our borrowings, a flattening of the yield curve

would tend to decrease our net interest income and the market value

of our investment portfolio. Additionally, to the extent cash flows

from investments that return scheduled and unscheduled principal are reinvested,

the spread between the yields on the new

investments and available borrowing rates may decline, which would likely decrease

our net income. It is also possible that short-term

interest rates may exceed longer-term interest rates (a yield curve "inversion"),

in which event our borrowing costs may exceed our

interest income and result in operating losses.

Purchases and sales of Agency RMBS by the Fed may adversely affect the price and return associated

with Agency RMBS.

The Fed owns approximately $2.6 trillion of Agency RMBS as of December 31,

2021. Although the Fed’s Agency RMBS holdings

nearly doubled as a result of its COVID-19 policy response, growing from $1.4 trillion

in March of 2020 to $2.6 trillion in December of

2021, the minutes of the FOMC meeting in December of 2021 indicate that the

Fed likely intends to begin reducing its Agency RMBS

holdings shortly after it begins to raise the federal funds rate.

On January 26, 2022, the FOMC reaffirmed its intention to phase out its

net asset purchases by early March of 2022 and indicated that it would soon be

appropriate to begin raising the federal funds rate.

While it is very difficult to predict the impact of the Fed portfolio runoff on the prices and liquidity of Agency

RMBS, returns on Agency

RMBS may be adversely affected.

Increased levels of prepayments on the mortgages underlying our Agency RMBS

might decrease net interest income or result in

a net loss, which could materially adversely affect our business, financial condition and results

of operations and our ability to pay

distributions to our stockholders.

In the case of residential mortgages, there are seldom any restrictions on borrowers’

ability to prepay their loans. Prepayment

rates generally increase when interest rates fall and decrease when interest rates

rise. Prepayment rates also may be affected by other

factors, including, without limitation, conditions in the housing and financial markets,

governmental action, general economic conditions

and the relative interest rates on ARMs, hybrid ARMs and fixed-rate mortgage loans. With

respect to pass-through Agency RMBS,

faster-than-expected prepayments could also materially adversely affect our business,

financial condition and results of operations and

our ability to pay distributions to our stockholders in various ways, including the

following:

●

A portion of our pass-through Agency RMBS backed by ARMs and hybrid ARMs

may initially bear interest at rates that are

lower than their fully indexed rates, which are equivalent to the applicable index rate

plus a margin. If a pass-through Agency

RMBS backed by ARMs or hybrid ARMs is prepaid prior to or soon after

the time of adjustment to a fully-indexed rate, we will

have held that Agency RMBS while it was less profitable and lost the opportunity

to receive interest at the fully-indexed rate

over the remainder of its expected life.

●

If we are unable to acquire new Agency RMBS to replace the prepaid Agency RMBS,

our returns on capital may be lower than

if we were able to quickly acquire new Agency RMBS.

When we acquire structured Agency RMBS, we anticipate that the underlying

mortgages will prepay at a projected rate,

generating an expected yield. When the prepayment rates on the mortgages

underlying our structured Agency RMBS are higher than

expected, our returns on those securities may be materially adversely affected. For example,

the value of our IOs and IIOs are

extremely sensitive to prepayments because holders of these securities do

not have the right to receive any principal payments on the

underlying mortgages. Therefore, if the mortgage loans underlying our IOs and

IIOs are prepaid, such securities would cease to have

any value, which, in turn, could materially adversely affect our business, financial condition

and results of operations and our ability to

pay distributions to our stockholders.

While we seek to minimize prepayment risk, we must balance prepayment risk

against other risks and the potential returns of

each investment. No strategy can completely insulate us from prepayment

or other such risks.

A decrease in prepayment rates on the mortgages underlying our Agency

RMBS might decrease net interest income or result in

a net loss, which could materially adversely affect our business, financial condition

and results of operations and our ability to pay

distributions to our stockholders.

Certain of our structured Agency RMBS may be adversely affected by a decrease in prepayment

rates. For example, because

POs are similar to zero-coupon bonds, our expected returns on such securities

will be contingent on our receiving the principal

payments of the underlying mortgage loans at expected intervals that assume

a certain prepayment rate. If prepayment rates are lower

than expected, we will not receive principal payments as quickly as we

anticipated and, therefore, our expected returns on these

securities will be adversely affected, which, in turn, could materially adversely affect our business, financial

condition and results of

operations and our ability to pay distributions to our stockholders.

While we seek to minimize prepayment risk, we must balance prepayment risk

against other risks and the potential returns of

each investment. No strategy can completely insulate us from prepayment

or other such risks.

Failure to procure adequate repurchase agreement financing, or to renew

or replace existing repurchase agreement financing as

it matures, could materially adversely affect our business, financial condition and results of

operations and our ability to make

distributions to our stockholders.

We intend to maintain master repurchase agreements with several counterparties. We cannot assure you

that any, or sufficient,

repurchase agreement financing will be available to us in the future on terms that are

acceptable to us. Any decline in the value of

Agency RMBS, or perceived market uncertainty about their value, would make

it more difficult for us to obtain financing on favorable

terms or at all, or maintain our compliance with the terms of any financing arrangements

already in place. We may be unable to

diversify the credit risk associated with our lenders. In the event that we

cannot obtain sufficient funding on acceptable terms, our

business, financial condition and results of operations and our ability to pay distributions

to our stockholders may be materially

adversely affected.

Furthermore, because we intend to rely primarily on short-term borrowings to fund

our acquisition of Agency RMBS, our ability to

achieve our investment objectives

will depend not only on our ability to borrow money in sufficient amounts and on

favorable terms, but

also on our ability to renew or replace on a continuous basis our maturing short-term

borrowings. If we are not able to renew or replace

maturing borrowings, we will have to sell some or all of our assets, possibly under

adverse market conditions. In addition, if the

regulatory capital requirements imposed on our lenders change, they may be required

to significantly increase the cost of the financing

that they provide to us. Our lenders also may revise their eligibility requirements

for the types of assets they are willing to finance or the

terms of such financings,

based on, among other factors, the regulatory environment and their management

of perceived risk.

Adverse market developments could cause our lenders to require us to pledge

additional assets as collateral. If our assets were

insufficient to meet these collateral requirements, we might be compelled to liquidate particular

assets at inopportune times and

at unfavorable prices, which could materially adversely affect our business, financial

condition and results of operations and our

ability to pay distributions to our stockholders.

Adverse market developments, including a sharp or prolonged rise

in interest rates, a change in prepayment rates or increasing

market concern about the value or liquidity of one or more types of Agency

RMBS, might reduce the market value of our portfolio,

which might cause our lenders to initiate margin calls. A margin call means

that the lender requires us to pledge additional collateral to

re-establish the ratio of the value of the collateral to the amount of the borrowing.

The specific collateral value to borrowing ratio that

would trigger a margin call is not set in the master repurchase agreements

and not determined until we engage in a repurchase

transaction under these agreements. Our fixed-rate Agency RMBS generally are more

susceptible to margin calls as increases in

interest rates tend to more negatively affect the market value of fixed-rate securities. If we

are unable to satisfy margin calls, our

lenders may foreclose on our collateral. The threat or occurrence of a margin call

could force us to sell, either directly or through a

foreclosure, our Agency RMBS under adverse market conditions. Because of the

significant leverage we expect to have, we may incur

substantial losses upon the threat or occurrence of a margin call, which could materially

adversely affect our business, financial

condition and results of operations and our ability to pay distributions to our stockholders.

Additionally, the liquidation of collateral may

jeopardize our ability to maintain our qualification as a REIT, as we must comply with requirements regarding our assets and our

sources of gross income. Our failure to maintain our qualification as a REIT would

cause us to be subject to U.S. federal income tax

(and any applicable state and local taxes) on all of our net taxable income.

Hedging against interest rate exposure may not completely insulate us from

interest rate risk and could materially adversely

affect our business, financial condition and results of operations and our ability to pay distributions

to our stockholders.

To the

extent consistent with maintaining our qualification as a REIT, we may enter into interest rate cap or swap agreements or

pursue other hedging strategies, including the purchase of puts, calls or other

options and futures contracts in order to hedge the

interest rate risk of our portfolio. In general, our hedging strategy depends on our

view of our entire portfolio consisting of assets,

liabilities and derivative instruments, in light of prevailing market conditions. We could

misjudge the condition of our investment portfolio

or the market. Our hedging activity will vary in scope based on the level and volatility

of interest rates and principal prepayments, the

type of Agency RMBS we hold and other changing market conditions. Hedging

may fail to protect or could adversely affect us because,

among other things:

●

hedging can be expensive, particularly during periods of rising and volatile interest

rates;

●

available interest rate hedging may not correspond directly with the interest rate risk

for which protection is sought;

●

the duration of the hedge may not match the duration of the related liability;

●

certain types of hedges may expose us to risk of loss beyond the fee

paid to initiate the hedge;

●

the amount of gross income that a REIT may earn from hedging transactions,

other than hedging transactions that satisfy

certain requirements of the Code, is limited by the U.S. federal income tax provisions

governing REITs;

●

the credit quality of the counterparty on the hedge may be downgraded to

such an extent that it impairs our ability to sell or

assign our side of the hedging transaction; and

●

the counterparty in the hedging transaction may default on its obligation to pay.

There are no perfect hedging strategies, and interest rate hedging may fail to protect

us from loss. Alternatively, we may fail to

properly assess a risk to our investment portfolio or may fail to recognize a risk entirely, leaving us exposed to losses without the

benefit of any offsetting hedging activities. The derivative financial instruments we

select may not have the effect of reducing our

interest rate risk. The nature and timing of hedging transactions may influence

the effectiveness of these strategies. Poorly designed

strategies or improperly executed transactions could actually increase our risk

and losses. In addition, hedging activities could result in

losses if the event against which we hedge does not occur.

Because of the foregoing risks, our hedging activity could materially adversely affect our business,

financial condition and results

of operations and our ability to pay distributions to our stockholders.

Our use of certain hedging techniques may expose us to counterparty risks.

To the

extent that our hedging instruments are not traded on regulated exchanges,

guaranteed by an exchange or its

clearinghouse, or regulated by any U.S. or foreign governmental authorities,

there may not be requirements with respect to record

keeping, financial responsibility or segregation of customer funds and positions. Furthermore,

the enforceability of agreements

underlying hedging transactions may depend on compliance with applicable statutory,

exchange and other regulatory requirements

and, depending on the domicile of the counterparty, applicable international requirements. Consequently, if any of these issues causes

a counterparty to fail to perform under a derivative agreement we could incur a

significant loss.

For example, if a swap exchange utilized in an interest rate swap agreement that

we enter into as part of our hedging strategy

cannot perform under the terms of the interest rate swap agreement, we

may not receive payments due under that agreement, and,

thus, we may lose any potential benefit associated with the interest rate swap. Additionally, we may also risk the loss of any collateral

we have pledged to secure our obligations under these swap agreements if

the exchange becomes insolvent or files for bankruptcy.

Similarly, if an interest rate swaption counterparty fails to perform under the terms of the interest rate swaption agreement,

in addition

to not being able to exercise or otherwise cash settle the agreement, we

could also incur a loss for the premium paid for that

swaption.

Our use of leverage could materially adversely affect our business, financial condition

and results of operations and our ability to

pay distributions to our stockholders.

We calculate our leverage ratio by dividing our total liabilities by total equity at the end of each period.

Under normal market

conditions, we generally expect our leverage ratio to be less than 12 to

1, although at times our borrowings may be above or below this

level. We incur this indebtedness by borrowing against a substantial portion of the market

value of our pass-through Agency RMBS and

a portion of our structured Agency RMBS. Our total indebtedness, however, is not expressly limited by our policies and

will depend on

our prospective lenders’ estimates of the stability of our portfolio’s cash flow. As a result, there is no limit on the amount of

leverage that

we may incur. We face the risk that we might not be able to meet our debt service obligations or a lender’s

margin requirements from

our income and, to the extent we cannot, we might be forced to liquidate some of our

Agency RMBS at unfavorable prices. Our use of

leverage could materially adversely affect our business, financial condition and results

of operations and our ability to pay distributions

to our stockholders. For example:

●

our borrowings are secured by our pass-through Agency RMBS and a portion of

our structured Agency RMBS under

repurchase agreements. A decline in the market value of the pass-through Agency

RMBS or structured Agency RMBS used to

secure these debt obligations could limit our ability to borrow or result in

lenders requiring us to pledge additional collateral to

secure our borrowings. In that situation, we could be required to sell Agency

RMBS under adverse market conditions in order

to obtain the additional collateral required by the lender. If these sales are made at prices lower than the carrying value

of the

Agency RMBS, we would experience losses.

●

to the extent we are compelled to liquidate qualifying real estate assets

to repay debts, our compliance with the REIT rules

regarding our assets and our sources of gross income could be negatively affected, which

could jeopardize our qualification as

a REIT. Losing our REIT qualification would cause us to be subject to U.S. federal income tax (and any applicable state and

local taxes) on all of our income and would decrease profitability and

cash available for distributions to stockholders.

If we experience losses as a result of our use of leverage, such losses

could materially adversely affect our business, results of

operations and financial condition and our ability to make distributions to our stockholders.

It may be uneconomical to "roll" our TBA dollar roll transactions or we may be

unable to meet margin calls on our TBA contracts,

which could negatively affect our financial condition and results of operations.

We may utilize TBA dollar roll transactions as a means of investing in and financing Agency

RMBS. TBA contracts enable us to

purchase or sell, for future delivery, Agency RMBS with certain principal and interest terms and certain types of collateral,

but the

particular Agency RMBS to be delivered are not identified until shortly

before the TBA settlement date. Prior to settlement of the TBA

contract we may choose to move the settlement of the securities out to a later date

by entering into an offsetting position (referred to as

a "pair off"), net settling the paired off positions for cash, and simultaneously purchasing a similar

TBA contract for a later settlement

date, collectively referred to as a "dollar roll." The Agency RMBS purchased for a

forward settlement date under the TBA contract are

typically priced at a discount to Agency RMBS for settlement in the current

month. This difference (or discount) is referred to as the

"price drop." The price drop is the economic equivalent of net interest income

earned from carrying the underlying Agency RMBS over

the roll period (interest income less implied financing cost). Consequently, dollar roll transactions and such forward purchases of

Agency RMBS represent a form of off-balance sheet financing and increase our "at risk" leverage.

Under certain market conditions, TBA dollar roll transactions may result in negative

carry income whereby the Agency RMBS

purchased for a forward settlement date under the TBA contract are priced at a premium

to Agency RMBS for settlement in the current

month. Additionally, sales of some or all of the Fed's holdings of Agency RMBS, or declines in purchases of Agency RMBS

by the Fed

could adversely impact the dollar roll market. Under such conditions, it may

be uneconomical to roll our TBA positions prior to the

settlement date and we could have to take physical delivery of the underlying

securities and settle our obligations for cash. We may not

have sufficient funds or alternative financing sources available to settle such obligations.

In addition, pursuant to the margin provisions

established by the Mortgage-Backed Securities Division ("MBSD") of the Fixed Income

Clearing Corporation, we are subject to margin

calls on our TBA contracts. Further, our clearing and custody agreements may require us to post additional margin above

the levels

established by the MBSD. Negative carry income on TBA dollar roll transactions

or failure to procure adequate financing to settle our

obligations or meet margin calls under our TBA contracts could result in

defaults or force us to sell assets under adverse market

conditions and adversely affect our financial condition and results of operations.

Interest rate caps on the ARMs and hybrid ARMs backing our Agency RMBS may reduce

our net interest margin during periods

of rising interest rates, which could materially adversely affect our business, financial

condition and results of operations and our

ability to pay distributions to our stockholders.

ARMs and hybrid ARMs are typically subject to periodic and lifetime interest rate

caps. Periodic interest rate caps limit the

amount an interest rate can increase during any given period. Lifetime interest

rate caps limit the amount an interest rate can increase

through the maturity of the loan. Our borrowings typically are not subject

to similar restrictions. Accordingly, in a period of rapidly

increasing interest rates, our financing costs could increase without limitation

while caps could limit the interest we earn on the ARMs

and hybrid ARMs backing our Agency RMBS. This problem is magnified for ARMs

and hybrid ARMs that are not fully indexed because

such periodic interest rate caps prevent the coupon on the security from fully reaching

the specified rate in one reset. Further, some

ARMs and hybrid ARMs may be subject to periodic payment caps that result

in a portion of the interest being deferred and added to the

principal outstanding. As a result, we may receive less cash income

on Agency RMBS backed by ARMs and hybrid ARMs than

necessary to pay interest on our related borrowings. Interest rate caps on Agency

RMBS backed by ARMs and hybrid ARMs could

reduce our net interest margin if interest rates were to increase beyond the

level of the caps, which could materially adversely affect

our business, financial condition and results of operations and our ability to pay distributions

to our stockholders.

Volatile market conditions for mortgages and mortgage-related assets as well as the broader financial markets

can result in a

significant contraction in liquidity for mortgages and mortgage-related assets, which

may adversely affect the value of the assets

in which we invest.

Our results of operations are materially affected by conditions in the markets for mortgages

and mortgage-related assets,

including Agency RMBS, as well as the broader financial markets and the

economy generally.

Significant adverse changes in financial market conditions can result in a

deleveraging of the global financial system and the

forced sale of large quantities of mortgage-related and other financial assets.

Concerns over economic recession, geopolitical issues

including events such as the COVID-19 pandemic, policy priorities of a new U.S. presidential

administration, trade wars,

unemployment, the availability and cost of financing, the mortgage market and

a declining real estate market or prolonged government

shutdown may contribute to increased volatility and diminished expectations for

the economy and markets.

Increased volatility and deterioration in the markets for mortgages and mortgage-related

assets as well as the broader financial

markets may adversely affect the performance and market value of our Agency RMBS.

If these conditions exist, institutions from which

we seek financing for our investments may tighten their lending standards, increase

margin calls or become insolvent, which could

make it more difficult for us to obtain financing on favorable terms or at all.

Our profitability and financial condition may be adversely

affected if we are unable to obtain cost-effective financing for our investments.

Our forward settling transactions, including TBA transactions, subject us to

certain risks, including price risks and counterparty

risks.

We purchase some of our Agency RMBS through forward settling transactions, including

TBAs. In a forward settling transaction,

we enter into a forward purchase agreement with a counterparty to purchase

either (i) an identified Agency RMBS, or (ii) a TBA, or to-

be-issued, Agency RMBS with certain terms. As with any forward purchase

contract, the value of the underlying Agency RMBS may

decrease between the trade date and the settlement date. Furthermore, a transaction

counterparty may fail to deliver the underlying

Agency RMBS at the settlement date. If any of these risks were to occur, our financial condition and results of operations

may be

materially adversely affected.

The implementation of the Single Security Initiative may adversely affect our results and financial

condition.

The Single Security Initiative is a joint initiative of Fannie Mae and Freddie

Mac (the “Enterprises”), under the direction of the

FHFA, the Enterprises’ regulator and conservator, to develop a common, single mortgage-backed security issued by the Enterprises.

On June 3, 2019, with the implementation of Release 2 of the common

securitization platform, Freddie Mac and Fannie Mae

commenced use of a common, single mortgage-backed security, known as the Uniform Mortgage-Backed Security (“UMBS”).

Fannie

Mae pools are now eligible for conversion into UMBS pools and Freddie Mac

pools can be exchanged for UMBS pools. The conversion

is not mandatory. UMBS is intended to enhance liquidity in the TBA market as the two GSEs’ floats are combined, eliminating or

reducing the market pricing subsidy that Freddie Mac currently provides

to lenders to pool their loans with Freddie Mac instead of

Fannie Mae, and pave the way for future GSE reform by allowing new entrants

to enter the MBS guarantee market.

The current float of Gold Participation Certificates (“Gold PCs”) issued by

Freddie Mac is materially smaller than the float of

Fannie Mae securities.

To the extent Gold PCs are converted into UMBS, the float will contract further. A further decline could impact

the liquidity of Gold PCs not converted into UMBS. Secondly, the TBA deliverable has appeared to deteriorate as the Fannie

Mae and

Freddie Mac pools with the worst prepayment characteristics are delivered

into new TBA securities, concentrating the poorest pools

into the TBA deliverable, which has negatively impacted their performance.

To the extent investors recognize the relative performance

of Fannie Mae or Freddie Mac pools over the other, they may stipulate that they only wish to be delivered TBA securities

with pools

from the better performing GSE.

By bifurcating the TBA deliverable, liquidity in the TBA market could be negatively

impacted.

Our liquidity is typically reduced each month when we receive margin calls related

to factor changes, and typically increased

each month when we receive payment of principal and interest on Fannie

Mae and Freddie Mac securities. Legacy Freddie Mac

securities pay principal and interest earlier in the month than Fannie Mae and

UMBS, meaning that legacy Freddie Mac positions

reduce the period of time between meeting factor-related margin calls and receiving

principal and interest. The percentage of legacy

Freddie Mac positions in the market and in our portfolio will likely decrease over time

as those securities are converted to UMBS or

paid off.

We rely on analytical models and other data to analyze potential asset acquisition and disposition

opportunities and to manage

our portfolio. Such models and other data may be incorrect, misleading or incomplete,

which could cause us to purchase assets

that do not meet our expectations or to make asset management decisions that are

not in line with our strategy.

We rely on analytical models, and information and other data supplied by third parties.

These models and data may be used to

value assets or potential asset acquisitions and dispositions and in connection

with our asset management activities. If our models and

data prove to be incorrect, misleading or incomplete, any decisions made in

reliance thereon could expose us to potential risks.

Our reliance on models and data may induce us to purchase certain assets

at prices that are too high, to sell certain other assets

at prices that are too low or to miss favorable opportunities altogether. Similarly, any hedging activities that are based on faulty models

and data may prove to be unsuccessful.

Some models, such as prepayment models, may be predictive in nature. The

use of predictive models has inherent risks. For

example, such models may incorrectly forecast future behavior, leading to potential losses. In addition, the

predictive models used by

us may differ substantially from those models used by other market participants, resulting in

valuations based on these predictive

models that may be substantially higher or lower for certain assets than actual market

prices. Furthermore, because predictive models

are usually constructed based on historical data supplied by third parties, the

success of relying on such models may depend heavily

on the accuracy and reliability of the supplied historical data, and, in the case of

predicting performance in scenarios with little or no

historical precedent (such as extreme broad-based declines in home prices, or deep

economic recessions or depressions), such

models must employ greater degrees of extrapolation and are therefore

more speculative and less reliable.

All valuation models rely on correct market data input. If incorrect market data

is entered into even a well-founded valuation

model, the resulting valuations will be incorrect. However, even if market data is inputted correctly, “model prices” will often differ

substantially from market prices, especially for securities with complex characteristics

or whose values are particularly sensitive to

various factors. If our market data inputs are incorrect or our model prices

differ substantially from market prices, our business, financial

condition and results of operations and our ability to make distributions to our

stockholders could be materially adversely affected.

Valuations of some of our assets are inherently uncertain, may be based on estimates, may fluctuate over short periods of time

and may differ from the values that would have been used if a ready market for these assets

existed. As a result, the values of

some of our assets are uncertain.

While in many cases our determination of the fair value of our assets is

based on valuations provided by third-party dealers and

pricing services, we can and do value assets based upon our judgment, and

such valuations may differ from those provided by third-

party dealers and pricing services. Valuations of certain assets are often difficult to obtain or are unreliable. In general, dealers and

pricing services heavily disclaim their valuations. Additionally, dealers may claim to furnish valuations only as an accommodation

and

without special compensation, and so they may disclaim any and all liability for

any direct, incidental or consequential damages arising

out of any inaccuracy or incompleteness in valuations, including any act of negligence

or breach of any warranty. Depending on the

complexity and illiquidity of an asset, valuations of the same asset can vary substantially

from one dealer or pricing service to another.

The valuation process during times of market distress can be particularly difficult and unpredictable

and during such time the disparity

of valuations provided by third-party dealers can widen.

Our business, financial condition and results of operations and our ability to

make distributions to our stockholders could be

materially adversely affected if our fair value determinations of these assets were

materially higher than the values that would exist if a

ready market existed for these assets.

Because the assets that we acquire might experience periods of illiquidity, we might be prevented from selling our Agency RMBS

at favorable times and prices, which could materially adversely affect our business, financial

condition and results of operations

and our ability to pay distributions to our stockholders.

Agency RMBS might experience periods of illiquidity. Such conditions are more likely to occur for structured Agency RMBS

because such securities are generally traded in markets much less liquid than

the pass-through Agency RMBS market. As a result, we

may be unable to dispose of our Agency RMBS at advantageous times

and prices or in a timely manner. The lack of liquidity might

result from the absence of a willing buyer or an established market for these

assets as well as legal or contractual restrictions on

resale. The illiquidity of Agency RMBS could materially adversely affect our business, financial

condition and results of operations and

our ability to pay distributions to our stockholders.

Our use of repurchase agreements may give our lenders greater rights in

the event that either we or any of our lenders file for

bankruptcy, which may make it difficult for us to recover our collateral in the event of a bankruptcy filing.

Our borrowings under repurchase agreements may qualify for special treatment

under the bankruptcy code, giving our lenders

the ability to avoid the automatic stay provisions of the bankruptcy code

and to take possession of and liquidate our collateral under the

repurchase agreements without delay if we file for bankruptcy. Furthermore, the special treatment of repurchase agreements under

the

bankruptcy code may make it difficult for us to recover our pledged assets in the event that

any of our lenders files for bankruptcy.

Thus, the use of repurchase agreements exposes our pledged assets to risk in the

event of a bankruptcy filing by either our lenders or

us. In addition, if the lender is a broker or dealer subject to the Securities Investor

Protection Act of 1970, or an insured depository

institution subject to the Federal Deposit Insurance Act, our ability to exercise

our rights to recover our investment under a repurchase

agreement or to be compensated for any damages resulting from the

lender’s insolvency may be further limited by those

statutes.

If our lenders default on their obligations to resell the Agency RMBS back to us at

the end of the repurchase transaction term, or

if the value of the Agency RMBS has declined by the end of the repurchase

transaction term or if we default on our obligations

under the repurchase transaction, we will lose money on these transactions, which,

in turn, may materially adversely affect our

business, financial condition and results of operations and our ability to pay distributions

to our stockholders.

When we engage in a repurchase transaction, we initially sell securities to the

financial institution under one of our master

repurchase agreements in exchange for cash, and our counterparty is obligated

to resell the securities to us at the end of the term of

the transaction, which is typically from 24 to 90 days but may be up to 364 days

or more. The cash we receive when we initially sell the

securities is less than the value of those securities, which is referred to as the

haircut. Many financial institutions from which we may

obtain repurchase agreement financing have increased their haircuts in the past

and may do so again in the future. If these haircuts are

increased, we will be required to post additional cash or securities as collateral for

our Agency RMBS. If our counterparty defaults on its

obligation to resell the securities to us, we would incur a loss on the transaction

equal to the amount of the haircut (assuming there was

no change in the value of the securities). We would also lose money on a repurchase transaction

if the value of the underlying

securities had declined as of the end of the transaction term, as we would have

to repurchase the securities for their initial value but

would receive securities worth less than that amount. Any losses we incur on our repurchase

transactions could materially adversely

affect our business, financial condition and results of operations and our ability to pay

distributions to our stockholders.

If we default on one of our obligations under a repurchase transaction, the

counterparty can terminate the transaction and cease

entering into any other repurchase transactions with us. In that case, we would

likely need to establish a replacement repurchase

facility with another financial institution in order to continue to leverage our portfolio

and carry out our investment strategy. There is no

assurance we would be able to establish a suitable replacement facility on

acceptable terms or at all.

Clearing facilities or exchanges upon which some of our hedging instruments

are traded may increase margin requirements on

our hedging instruments in the event of adverse economic developments.

In response to events having or expected to have adverse economic consequences

or which create market uncertainty, clearing

facilities or exchanges upon which some of our hedging instruments, such as

T-Note, Fed Funds and Eurodollar futures contracts and

interest rate swaps, are traded may require us to post additional collateral

against our hedging instruments. In the event that future

adverse economic developments or market uncertainty result in increased margin

requirements for our hedging instruments, it could

materially adversely affect our liquidity position, business, financial condition and results of

operations.

We may change our investment strategy, investment guidelines and asset allocation without notice or stockholder consent, which

may result in riskier investments. In addition, our charter provides that our Board

of Directors may revoke or otherwise terminate

our REIT election, without the approval of our stockholders.

Our Board of Directors has the authority to change our investment strategy

or asset allocation at any time without notice to or

consent from our stockholders. To the extent that our investment strategy changes in the future, we may make investments that are

different from, and possibly riskier than, the investments described in this Report. A change

in our investment strategy may increase

our exposure to interest rate and real estate market fluctuations. Furthermore,

a change in our asset allocation could result in our

allocating assets in a different manner than as described in this Report.

In addition, our charter provides that our Board of Directors may revoke or otherwise

terminate our REIT election, without the

approval of our stockholders, if it determines that it is no longer in our best

interests to qualify as a REIT. These changes could

materially adversely affect our business, financial condition, results of operations, the market

value of our common stock and our ability

to make distributions to our stockholders.

A prolonged economic slowdown, a lengthy or severe recession or declining real estate

values could impair our investments and

harm our operations.

We believe the risks associated with our business will be more severe during periods

of economic slowdown or recession,

especially if these periods are accompanied by declining real estate

values. Declining real estate values will likely reduce the level of

new mortgage and other real estate-related loan originations since borrowers often

use appreciation in the value of their existing

properties to support the purchase of or investment in additional properties. Borrowers

may also be less able to pay principal and

interest on our loans if the value of real estate weakens. Further, declining real estate values significantly increase

the likelihood that

we will incur losses on our loans in the event of default because the

value of our collateral may be insufficient to cover its cost on the

loan. Any sustained period of increased payment delinquencies, foreclosures

or losses could adversely affect our Manager’s ability to

invest in, sell and securitize loans, which would materially and adversely affect our results

of operations, financial condition, liquidity

and business and our ability to pay dividends to stockholders.

Market disruptions in a single country could cause a worsening of conditions

on a regional and even global level, and economic

problems in a single country are increasingly affecting other markets and economies. A continuation

of this trend could result in

problems in one country adversely affecting regional and even global economic conditions

and markets. For example, concerns about

the fiscal stability and growth prospects of certain European countries in the

last economic downturn had a negative impact on most

economies of the Eurozone and global markets. The occurrence of similar crises in

the future could cause increased volatility in the

economies and financial markets of countries throughout a region, or even globally.

Additionally, global trade disruption, significant introductions of trade barriers and bilateral trade frictions, together with any

future

downturns in the global economy resulting therefrom, could adversely affect our performance.

Competition might prevent us from acquiring Agency RMBS at favorable yields, which

could materially adversely affect our

business, financial condition and results of operations and our ability to pay distributions

to our stockholders.

We operate in a highly competitive market for investment opportunities. Our net income

largely depends on our ability to acquire

Agency RMBS at favorable spreads over our borrowing costs. In acquiring

Agency RMBS, we compete with a variety of institutional

investors, including other REITs, investment banking firms, savings and loan associations, banks, insurance companies, mutual funds,

other lenders, other entities that purchase Agency RMBS, the Federal Reserve,

other governmental entities and government-

sponsored entities, many of which have greater financial, technical, marketing and

other resources than we do. Some competitors may

have a lower cost of funds and access to funding sources that may not be available

to us, such as funding from the U.S. government.

Additionally, many of our competitors are not subject to REIT tax compliance or required to maintain an exemption from

the Investment

Company Act. In addition, some of our competitors may have higher risk tolerances

or different risk assessments, which could allow

them to consider a wider variety of investments. Furthermore, competition for investments

in Agency RMBS may lead the price of such

investments to increase, which may further limit our ability to generate desired returns.

As a result, we may not be able to acquire

sufficient Agency RMBS at favorable spreads over our borrowing costs, which would

materially adversely affect our business, financial

condition and results of operations and our ability to pay distributions to our stockholders.

We are highly dependent on communications and information systems operated by third

parties, and systems failures could

significantly disrupt our business, which may, in turn, adversely affect our business, financial condition and results of operations

and our ability to pay distributions to our stockholders.

Our business is highly dependent on communications and information systems

that allow us to monitor, value, buy, sell, finance

and hedge our investments. These systems are operated by third parties and, as

a result, we have limited ability to ensure their

continued operation. In the event of a systems failure or interruption, we will have

limited ability to affect the timing and success of

systems restoration. Any failure or interruption of our systems could cause delays or

other problems in our securities trading activities,

including Agency RMBS trading activities, which could have a material

adverse effect on our business, financial condition and results of

operations and our ability to pay distributions to our stockholders.

Computer malware, ransomware, viruses, and computer hacking and

phishing attacks have become more prevalent in the

financial services industry and may occur on our or certain of our third party

service providers' systems in the future. We rely heavily on

our Manager’s financial, accounting and other data processing systems.

Although we have not detected a breach to date, financial

services institutions have reported breaches of their systems, some of which

have been significant. During the COVID-19 pandemic, a

portion of our Manager’s employees have worked remotely, which has caused us to rely more on virtual communication

and may

increase our exposure to cybersecurity risks. Even with all reasonable security

efforts, not every breach can be prevented or even

detected. It is possible that we, our Manager or certain of our third-party

service providers have experienced an undetected breach,

and it is likely that other financial institutions have experienced more

breaches than have been detected and reported. There is no

assurance that we, our Manager, or certain of the third parties that facilitate our and our Manager’s

business activities, have not or will

not experience a breach. It is difficult to determine what, if any, negative impact may directly result from any specific interruption or

cyber-attacks or security breaches of our networks or systems (or the networks

or systems of certain third parties that facilitate our

business activities) or any failure to maintain performance, reliability and security of

our or our certain third-party service providers'

technical infrastructure, but such computer malware, ransomware, viruses,

and computer hacking and phishing attacks may negatively

affect our operations.

Changes in banks’ inter-bank lending rate reporting practices or the method pursuant

to which LIBOR is determined may

adversely affect the value of the financial obligations to be held or issued by us that are linked

to LIBOR.

LIBOR and other indices which are deemed “benchmarks” are the subject

of national, international, and other regulatory

guidance and proposals for reform. Some of these reforms are already effective while others are still

to be implemented. These reforms

may cause such benchmarks to perform differently than in the past, or have other consequences

which cannot be predicted. In

particular, regulators and law enforcement agencies in the U.K. and elsewhere are conducting criminal and civil

investigations into

whether the banks that contributed information to the British Bankers’ Association

(“BBA”) in connection with the daily calculation of

LIBOR may have been under-reporting or otherwise manipulating or attempting to

manipulate LIBOR. A number of BBA member banks

have entered into settlements with their regulators and law enforcement agencies

with respect to this alleged manipulation of LIBOR.

Actions by the regulators or law enforcement agencies, as well as ICE Benchmark

Administration (the current administrator of LIBOR),

may result in changes to the manner in which LIBOR is determined

or the establishment of alternative reference rates.

The development of alternative reference rates is complex.

In the United States,

a committee was formed in 2014 to study the

process and come up with an alternative reference rate. The Alternative Reference

Rate Committee (the “ARRC”) selected the SOFR,

an overnight secured U.S. Treasury repo rate, as the new rate and adopted a Paced Transition Plan (“PTP”),

which provides a

framework for the transition from LIBOR to SOFR. SOFR is published daily at 8:00

a.m. Eastern Time by the NY Federal Reserve Bank

for the previous business day’s trades. However, since SOFR is an overnight rate and many forms of loans or instruments used

for

hedging have much longer terms, there is a need for a term structure for the new

reference rate. Various central banks, including the

Fed, as well as the ARRC are in the process of developing term rates to support

cash markets that currently use LIBOR. Examples of

the cash market would be floating rate notes, syndicated and bilateral corporate

loans, securitizations, secured funding transactions

and various mortgage and consumer loans – including many of the securities

the Company owns from time to time such as IIOs.

The

Company also uses derivative securities tied to LIBOR to hedge its funding costs.

Development of term rates for derivatives is being

conducted by the International Swaps and Derivatives Association (“ISDA”).

However, ARRC and ISDA may utilize different

mechanisms to develop term rates which may cause potential mismatches

between cash products or assets of the Company and

hedge instruments.

The process for determining term rates by both ARRC and ISDA is not

finalized at this time.

On December 31, 2021, the one week and two month USD LIBOR tenors phased

out, and on June 30, 2023 all other USD

LIBOR tenors will phase out. On November 30, 2020, the United States Federal Reserve

concurrently issued a statement advising

banks to stop new USD LIBOR issuances by the end of 2021, and on October 20, 2021,

the Office of the Comptroller of the Currency,

Board of Governors of the Federal Reserve System, Federal Deposit Insurance

Corporation, Consumer Financial Protection Bureau

(the “CFPB”) and National Credit Union Administration advised banks that entering

into new contracts that use LIBOR as a reference

rate after December 31, 2021 would create safety and soundness risks. In

light of these recent announcements, the future of LIBOR at

this time is uncertain and any changes in the methods by which LIBOR is determined or

regulatory activity related to LIBOR’s phaseout

could cause LIBOR to perform differently than in the past or cease to exist. Although regulators

and IBA have clarified that the recent

announcements should not be read to say that LIBOR has ceased or will

cease, in the event LIBOR does cease to exist, the risks

associated with the transition to an alternative reference rate will be accelerated

and magnified.

As of December 31, 2020, Fannie Mae and Freddie Mac stopped issuing most LIBOR-indexed

products and stopped purchasing

LIBOR-based loans. On August 3, 2020, Fannie Mae started accepting whole loan and

MBS deliveries of ARMs indexed to SOFR, and

Freddie Mac announced that it priced its first SOFR linked offering on October 16, 2020. On

October 19, 2021, Fannie Mae priced its

first credit risk transfer transaction linked to SOFR, and on January 19, 2022

it priced its first multifamily real estate mortgage

investment conduit using SOFR.

More generally, any of the above changes or any other consequential changes to LIBOR or any other “benchmark” as

a result of

international, national or other proposals for reform or other initiatives or investigations,

or any further uncertainty in relation to the

timing and manner of implementation of such changes, could have a material adverse

effect on the value of and return on any

securities based on or linked to a “benchmark.”

New laws may be passed affecting the relationship between Fannie Mae and Freddie Mac,

on the one hand, and the federal

government, on the other, which could adversely affect the price of, or our ability to invest in and finance, Agency RMBS.

The interest and principal payments we expect to receive on the Agency RMBS

in which we invest are guaranteed by Fannie

Mae, Freddie Mac or Ginnie Mae. Principal and interest payments on Ginnie

Mae certificates are directly guaranteed by the U.S.

government. Principal and interest payments relating to the securities issued by

Fannie Mae and Freddie Mac are only guaranteed by

each respective GSE.

In September 2008, Fannie Mae and Freddie Mac were placed into the conservatorship

of the FHFA, their federal regulator,

pursuant to its powers under The Federal Housing Finance Regulatory Reform

Act of 2008, a part of the Housing and Economic

Recovery Act of 2008 (the “Recovery Act”). In addition to the FHFA becoming the conservator of Fannie Mae

and Freddie Mac, the

U.S. Treasury entered into Preferred Stock Purchase Agreements (“PSPAs”) with the FHFA and have taken various actions intended to

provide Fannie Mae and Freddie Mac with additional liquidity in an effort to ensure their

financial stability. In September 2019, the

FHFA and the U.S. Treasury agreed to modifications to the PSPAs that will permit Fannie Mae and Freddie Mac to maintain capital

reserves of $25 billion and $20 billion, respectively. As of September 30, 2020, Fannie Mae and Freddie Mac had retained

equity

capital of approximately $21 billion and $14 billion, respectively.

In December 2020, a final rule was published in the federal register

regarding GSE capital framework (the “December rule”), which requires Tier 1 capital in

excess of 4% (approximately $265 billion) and

a risk-weight floor of 20% for residential mortgages.

On January 14, 2021, the U.S. Treasury and the FHFA executed letter

agreements (the “January agreement”) 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 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.

On September 14, 2021, the U.S.

Treasury and the FHFA suspended certain policy provisions in the January agreement, including limits on loans acquired for cash

consideration, multifamily loans, loans with higher risk characteristics and

second homes and investment properties.

On September

15, 2021, the FHFA announced a notice of proposed rulemaking for the purpose of amending the December rule to,

among other

things, reduce the Tier 1 capital and risk-weight floor requirements.

Shortly after Fannie Mae and Freddie Mac were placed in federal conservatorship,

the Secretary of the U.S. Treasury suggested

that the guarantee payment structure of Fannie Mae and Freddie Mac in

the U.S. housing finance market should be re-examined. The

future roles of Fannie Mae and Freddie Mac could be significantly reduced and

the nature of their guarantees could be eliminated or

considerably limited relative to historical measurements. The U.S. Treasury could also stop

providing credit support to Fannie Mae and

Freddie Mac in the future. Any changes to the nature of the guarantees provided

by Fannie Mae and Freddie Mac could redefine what

constitutes an Agency RMBS and could have broad adverse market implications. If Fannie

Mae or Freddie Mac was eliminated, or their

structures were to change in a material manner that is not compatible with

our business model, we would not be able to acquire

Agency RMBS from these entities, which could adversely affect our business operations.

On June 23, 2021, the Supreme Court ruled in Collins v. Mnuchin, a case presenting a question of the constitutionality

of the

FHFA and its director’s protection from being replaced at will by the President.

The Supreme Court held that the FHFA did not exceed

its powers or functions as a conservator under the Recovery Act, and that

the President may replace the director at will. On June 23,

2021, President Biden appointed Sandra Thompson as acting director of the

FHFA.

Risks Related to Conflicts of Interest in Our Relationship with Our

Manager and Bimini

The management agreement with our Manager was not negotiated

on an arm’s-length basis and the terms, including fees

payable and our inability to terminate, or our election not to renew, the management agreement based on our Manager’s

poor

performance without paying our Manager a significant termination fee, except

for a termination of the Manager with cause, may

not be as favorable to us as if it were negotiated with an unaffiliated third party.

The management agreement with our Manager was negotiated between related

parties, and we did not have the benefit of

arm’s-length negotiations of the type normally conducted with an unaffiliated third party. The terms of the management agreement with

our Manager, including fees payable and our inability to terminate, or our election not to renew, the management agreement based on

our Manager’s poor performance without paying our Manager

a significant termination fee, except for a termination of the Manager with

cause, may not reflect the terms we may have received if it was negotiated with

an unrelated third party. In addition, as a result of the

relationship with our Manager, we may choose not to enforce, or to enforce less vigorously, our rights under the management

agreement because of our desire to maintain our ongoing relationship with our Manager.

We have no employees and our Manager is responsible for making all of our investment decisions.

None of our or our Manager’s

officers are required to devote any specific amount of time to our business, and each of them

may provide their services to

Bimini, which could result in conflicts of interest.

Our Manager is responsible for making all of our investments. We do not have any employees,

and we are completely reliant on

our Manager to provide us with investment advisory services. Each

of our and our Manager’s officers is an employee of Bimini and

none of them will devote their time to us exclusively. Each of Messrs. Cauley and Haas, who are the members of our Manager’s

investment committee, is an officer of Bimini and has significant responsibilities

to Bimini. Due to the fact that each of our officers is

responsible for providing services to Bimini, they may not devote sufficient time to the

management of our business operations. At

times when there are turbulent conditions in the mortgage markets

or distress in the credit markets or other times when we will need

focused support and assistance from our executive officers and our Manager, Bimini and its affiliates will likewise require greater focus

and attention from them. In such situations, we may not receive the level of

support and assistance that we otherwise would likely have

received if we were internally managed or if such executives were not otherwise

committed to provide support to Bimini.

Our Board of Directors has adopted investment guidelines that require that any investment

transaction between us and Bimini or

any affiliate of Bimini receive the prior approval of a majority of our independent directors.

However, this policy will not eliminate the

conflicts of interest that our officers will face in making investment decisions on behalf of Bimini

and us. Further, we do not have any

agreement or understanding with Bimini that would give us any priority over Bimini

or any of its affiliates. Accordingly, we may compete

for access to the benefits that we expect our relationship with our Manager and

Bimini to provide.

We are completely dependent upon our Manager and certain key personnel of Bimini who provide

services to us through the

management agreement, and we may not find suitable replacements for our

Manager and these personnel if the management

agreement is terminated or such key personnel are no longer available to us.

We are completely dependent on our Manager to conduct our operations pursuant to the

management agreement. Because we

do not have any employees or separate facilities, we are reliant on our

Manager to provide us with the personnel, services and

resources necessary to carry out our day-to-day operations. Our management

agreement does not require our Manager to dedicate

specific personnel to our operations or a specific amount of time to our business.

Additionally, because we are affiliated with Bimini, we

may be negatively impacted by an event or factors that negatively impacts or

could negatively impact Bimini’s business or financial

condition.

Our management agreement is automatically renewed in accordance with the

terms of the agreement, each year, on February

20.

Upon the expiration of any automatic renewal term, our Manager

may elect not to renew the management agreement without

cause, and without penalty, on 180-days’ prior written notice to us. If we elect not to renew the management agreement without

cause,

we would have to pay a termination fee equal to three times the average annual

management fee earned by our Manager during the

prior 24-month period immediately preceding the most recently completed

calendar quarter prior to the effective date of termination.

During the term of the management agreement and for two years after its expiration

or termination, we may not, without the consent of

our Manager, employ any employee of the Manager or any of its affiliates or any person who has been employed by our

Manager or

any of its affiliates at any time within the two-year period immediately preceding the

date on which the person commences employment

with us. We do not have retention agreements with any of our officers. We believe that the successful implementation

of our investment

and financing strategies depends to a significant extent upon the experience of

Bimini’s executive officers. None of these individuals’

continued service is guaranteed. If the management agreement is terminated or

these individuals leave Bimini, we may be unable to

execute our business plan.

We, Bimini and other accounts managed by our Manager may compete for opportunities to

acquire assets, which are allocated in

accordance with the Investment Allocation Agreement by and among Bimini, our

Manager and us.

From time to time Bimini may seek to purchase for itself the same or similar

assets that our Manager seeks to purchase for us, or

our Manager may seek to purchase the same or similar assets for us as it does for other

accounts that may be managed by our

Manager in the future. In such an instance, our Manager has no duty to allocate

such opportunities in a manner that preferentially

favors us. Bimini and our Manager make available to us opportunities to acquire

assets that they determine, in their reasonable and

good faith judgment, based on our objectives, policies and strategies, and other relevant

factors, are appropriate for us in accordance

with the Investment Allocation Agreement.

Because many of our targeted assets are typically available only in specified quantities

and because many of our targeted assets

are also targeted assets for Bimini and may be targeted assets for other accounts

our Manager may manage in the future, neither

Bimini nor our Manager may be able to buy as much of any given asset as required

to satisfy the needs of Bimini, us and any other

account our Manager may manage in the future. In these cases, the Investment Allocation

Agreement will require the allocation of such

assets to multiple accounts in proportion to their needs and available capital. The

Investment Allocation Agreement will permit

departure from such proportional allocation when (i) allocating purchases of whole-pool

Agency RMBS, because those securities

cannot be divided into multiple parts to be allocated among various

accounts, and (ii) such allocation would result in an inefficiently

small amount of the security being purchased for an account. In that case, the Investment

Allocation Agreement allows for a protocol of

allocating assets so that, on an overall basis, each account is treated equitably.

There are conflicts of interest in our relationships with our Manager and Bimini, which

could result in decisions that are not in the

best interests of our stockholders.

We are subject to conflicts of interest arising out of our relationships with Bimini and our Manager. All of our executive officers are

employees of Bimini. As a result, our officers may have conflicts between their duties

to us and their duties to Bimini or our Manager.

We may acquire or sell assets in which Bimini or its affiliates have or may have an interest. Similarly, Bimini or its affiliates may

acquire or sell assets in which we have or may have an interest. Although

such acquisitions or dispositions may present conflicts of

interest, we nonetheless may pursue and consummate such transactions. Additionally, we may engage in transactions directly with

Bimini or its affiliates, including the purchase and sale of all or a portion of a portfolio asset.

The officers of Bimini and our Manager devote as much time to us as our Manager deems

appropriate. However, these officers

may have conflicts in allocating their time and services among us, Bimini and

our Manager. During turbulent conditions in the mortgage

industry, distress in the credit markets or other times when we will need focused support and assistance from our Manager’s

officers

and Bimini’s employees, Bimini and other entities for which our Manager may serve as a manager

in the future will likewise require

greater focus and attention, placing our Manager’s and Bimini’s resources in high

demand. In such situations, we may not receive the

necessary support and assistance we require or would otherwise receive if we were

internally managed.

Mr. Cauley,

our Chief Executive Officer and Chairman of our Board of Directors, also

serves as Chief Executive Officer and

Chairman of the Board of Directors of Bimini and owns shares of common stock

of Bimini. Mr. Haas, our Chief Financial Officer, Chief

Investment Officer, Secretary and a member of our Board of Directors, also serves as the President, Chief Financial Officer, Chief

Investment Officer and Treasurer of Bimini and owns shares of common stock of Bimini. Accordingly, Messrs. Cauley and Haas may

have a conflict of interest with respect to actions by our Board of Directors that

relate to Bimini or our Manager.

As of February 25, 2022, Bimini owned approximately 1.5% of our outstanding

shares of common stock. In evaluating

opportunities for us and other management strategies, this may lead our

Manager to emphasize certain asset acquisition, disposition or

management objectives over others, such as balancing risk or capital preservation

objectives against return objectives. This could

increase the risks or decrease the returns of your investment.

If we elect to not renew the management agreement without cause, we would

be required to pay our Manager a substantial

termination fee. These and other provisions in our management agreement

make non-renewal of our management agreement

difficult and costly.

Electing not to renew the management agreement without cause would be difficult

and costly for us. Our management

agreement is automatically renewed in accordance with the terms of the agreement,

each year, on February 20. However, with the

consent of the majority of our independent directors, we may elect not to renew

our management agreement in subsequent years upon

180-days’ prior written notice. If we elect to not renew the agreement because of

a decision by our Board of Directors that the

management fee is unfair, our Manager has the right to renegotiate a mutually agreeable management fee. If we

elect to not renew the

management agreement without cause, we are required to pay our Manager

a termination fee equal to three times the average annual

management fee earned by our Manager during the prior 24-month period immediately

preceding the most recently completed

calendar quarter prior to the effective date of termination. These provisions may increase

the effective cost to us of electing to not

renew the management agreement, thereby adversely affecting our inclination to end our

relationship with our Manager even if we

believe our Manager’s performance is unsatisfactory.

Our Manager’s management fee is payable regardless of our

performance.

Our Manager is entitled to receive a management fee from us that is based on

the amount of our equity (as defined in the

management agreement), regardless of the performance of our investment portfolio.

For example, we would pay our Manager a

management fee for a specific period even if we experienced a net loss

during the same period. Our Manager’s entitlement to

substantial non-performance-based compensation may reduce its incentive to

devote sufficient time and effort to seeking investments

that provide attractive risk-adjusted returns for our investment portfolio. This in

turn could materially adversely affect our business,

financial condition and results of operations and our ability to make distributions

to our stockholders.

Our Manager will not be liable to us for any acts or omissions performed

in accordance with the management agreement,

including with respect to the performance of our investments.

Our Manager has not assumed any responsibility other than to render the services

called for under the management agreement

in good faith and is not responsible for any action of our Board of Directors in

following or declining to follow its advice or

recommendations, including as set forth in the investment guidelines. Our

Manager and its affiliates, and the directors, officers,

employees, members and stockholders of our Manager and its affiliates, will not be liable

to us, our Board of Directors or our

stockholders for any acts or omissions performed in accordance with and pursuant

to the management agreement, except by reason of

acts constituting bad faith, willful misconduct, gross negligence or reckless

disregard of their respective duties under the management

agreement. We have agreed to indemnify our Manager and its affiliates, and the directors, officers, employees, members

and

stockholders of our Manager and its affiliates, with respect to all expenses, losses, damages,

liabilities, demands, charges and claims

in respect of or arising from any acts or omissions of our Manager, its affiliates, and the directors, officers, employees, members and

stockholders of our Manager and its affiliates, performed in good faith under the management

agreement and not constituting bad faith,

willful misconduct, gross negligence, or reckless disregard of their respective

duties. Therefore, our stockholders have no recourse

against our Manager with respect to the performance of investments made in

accordance with the management agreement.

Risks Related to Our Common Stock

Investing in our common stock may involve a high degree of risk.

The investments we make in accordance with our investment objectives

may result in a high amount of risk when compared to

alternative investment options and volatility or loss of principal. Our investments

may be highly speculative and aggressive, and

therefore an investment in our common stock may not be suitable for someone

with lower risk tolerance.

We have not established a minimum distribution payment level, and we cannot assure you

of our ability to make distributions to

our stockholders in the future.

We intend to continue to make monthly distributions to our stockholders in amounts such that

we distribute all or substantially all

of our REIT taxable income in each year, subject to certain adjustments. We have not established a minimum distribution

payment

level, and our ability to make distributions might be harmed by the risk factors

described herein. All distributions will be made at the

discretion of our Board of Directors out of funds legally available therefor and

will depend on our earnings, our financial condition,

maintaining our qualification as a REIT and such other factors as our Board of

Directors may deem relevant from time to time. We

cannot assure you that we will have the ability to make distributions to our

stockholders in the future. To the extent that we decide to

pay distributions from the proceeds of a securities offering, such distributions would generally

be considered a return of capital for U.S.

federal income tax purposes. A return of capital reduces the basis of a stockholder’s

investment in our common stock to the extent of

such basis and is treated as capital gain thereafter.

Shares of our common stock eligible for future sale may harm our share price.

We cannot predict the effect, if any, of future sales of shares of our common stock, or the availability of shares for future sales,

on the market price of our common stock. Sales of substantial amounts of these

shares of our common stock, or the perception that

these sales could occur, may harm prevailing market prices for our common stock. The 2021 Equity Incentive Plan

provides for grants

of up to an aggregate of 10% of the issued and outstanding shares of our

common stock (on a fully diluted basis) at the time of the

award, subject to a maximum aggregate number of shares of common stock

that may be issued under the 2021 Equity Incentive Plan

of 4,000,000 shares of common stock plus 3,366,623 shares of our common stock that

remained available for issuance under the 2012

Equity Incentive Plan as of the date of the Board’s adoption of the 2021 Equity Incentive Plan.

As of February 25, 2022, Bimini owns

2,595,357 shares of our common stock. If Bimini sells a large number of our

securities in the public market, the sale could reduce the

market price of our common stock and could impede our ability to raise future capital.

We may be subject to adverse legislative or regulatory changes that could reduce the market

price of our common stock.

At any time, laws or regulations, or the administrative interpretations of those

laws or regulations, which impact our business and

Maryland corporations may be amended. In addition, the markets for RMBS

and derivatives, including interest rate swaps, have been

the subject of intense scrutiny in recent years. We cannot predict when or if any

new law, regulation or administrative interpretation, or

any amendment to any existing law, regulation or administrative interpretation, will be adopted or promulgated or will become

effective.

Additionally, revisions to these laws, regulations or administrative interpretations could cause us to change our investments.

We could

be materially adversely affected by any such change to any existing, or any new, law, regulation or administrative interpretation, which

could reduce the market price of our common stock.

In addition, at any time, the U.S. federal income tax laws or regulations

governing REITs or the administrative interpretations of

those laws or regulations may be amended. We cannot predict when or if any new U.S.

federal income tax law, regulation or

administrative interpretation, or any amendment to any existing U.S. federal

income tax law, regulation or administrative interpretation,

will be adopted, promulgated or become effective and any such law, regulation or interpretation may take effect retroactively. We and

our stockholders could be adversely affected by any such change in, or any new, U.S. federal income tax law, regulation or

administrative interpretation. Prospective stockholders are urged to consult with their

tax advisors with respect to any legislative,

regulatory or administrative developments and proposals and their potential

effect on investment in our common stock.

Risks Related to Our Organization and Structure

Loss of our exemption from regulation under the Investment Company Act would

negatively affect the value of shares of our

common stock and our ability to pay distributions to our stockholders.

We have operated and intend to continue to operate our business so as to be exempt from

registration under the Investment

Company Act, because we are “primarily engaged in the business of purchasing

or otherwise acquiring mortgages and other liens on

and interests in real estate.” Specifically, we invest and intend to continue to invest so that at least 55% of the assets that

we own on

an unconsolidated basis consist of qualifying mortgages and other liens

and interests in real estate, which are collectively referred to as

“qualifying real estate assets,” and so that at least 80% of the assets we own on an unconsolidated

basis consist of real estate-related

assets (including our qualifying real estate assets). We treat Fannie Mae, Freddie Mac

and Ginnie Mae whole-pool residential

mortgage pass-through securities issued with respect to an underlying pool of

mortgage loans in which we hold all of the certificates

issued by the pool as qualifying real estate assets based on no-action letters issued

by the SEC. To the extent that the SEC publishes

new or different guidance with respect to these matters, we may fail to qualify for this exemption.

If we fail to qualify for this exemption, we could be required to restructure

our activities in a manner that, or at a time when, we

would not otherwise choose to do so, which could negatively affect the value of shares of

our common stock and our ability to distribute

dividends. For example, if the market value of our investments in CMOs or

structured Agency RMBS, neither of which are qualifying

real estate assets for Investment Company Act purposes, were to increase by

an amount that resulted in less than 55% of our assets

being invested in pass-through Agency RMBS, we might have to sell CMOs

or structured Agency RMBS in order to maintain our

exemption from the Investment Company Act. The sale could occur during

adverse market conditions, and we could be forced to

accept a price below that which we believe is acceptable.

Alternatively, if we fail to qualify for this exemption, we may have to register under the Investment Company Act and we

could

become subject to substantial regulation with respect to our capital structure

(including our ability to use leverage), management,

operations, transactions with affiliated persons (as defined in the Investment Company Act),

portfolio composition, including restrictions

with respect to diversification and industry concentration, and other matters.

We may be required at times to adopt less efficient methods of financing certain of our securities, and we

may be precluded from

acquiring certain types of higher yielding securities. The net effect of these factors would be

to lower our net interest income. If we fail

to qualify for an exemption from registration as an investment company or an exclusion

from the definition of an investment company,

our ability to use leverage would be substantially reduced, and we would not be able to

conduct our business as described herein. Our

business will be materially and adversely affected if we fail to qualify for and maintain

an exemption from regulation pursuant to the

Investment Company Act.

Failure to obtain and maintain an exemption from being regulated as a commodity

pool operator could subject us to additional

regulation and compliance requirements and may result in fines and other penalties

which could materially adversely affect our

business and financial condition.

The Dodd-Frank Act established a comprehensive new regulatory framework

for derivative contracts commonly referred to as

“swaps.” As a result, any investment fund that trades in swaps may be considered

a “commodity pool,” which would cause its operators

(in some cases the fund’s directors) to be regulated as “commodity pool operators” (“CPOs”).

Under new rules adopted by the U.S.

Commodity Futures Trading Commission (the “CFTC”), those funds that become commodity pools solely

because of their use of swaps

must register with the National Futures Association (the “NFA”). Registration requires compliance with the CFTC’s regulations and the

NFA’s

rules with respect to capital raising, disclosure, reporting, recordkeeping

and other business conduct. However, the CFTC’s

Division of Swap Dealer and Intermediary Oversight issued a no-action letter saying,

although it believes that mortgage REITs are

properly considered commodity pools, it would not recommend that the CFTC take

enforcement action against the operator of a

mortgage REIT who does not register as a CPO if, among other things, the

mortgage REIT limits the initial margin and premiums

required to establish its swaps, futures and other commodity interest positions to not

more than five percent (5%) of its total assets, the

mortgage REIT limits the net income derived annually from those commodity

interest positions which are not qualifying hedging

transactions to less than five percent (5%) of its gross income and interests

in the mortgage REIT are not marketed to the public as or

in a commodity pool or otherwise as or in a vehicle for trading in the commodity futures,

commodity options or swaps markets.

We use hedging instruments in conjunction with our investment portfolio and related borrowings

to reduce or mitigate risks

associated with changes in interest rates, mortgage spreads, yield curve shapes

and market volatility. These hedging instruments may

include interest rate swaps, interest rate futures and options on interest rate

futures. We do not currently engage in any speculative

derivatives activities or other non-hedging transactions using swaps, futures

or options on futures. We do not use these instruments for

the purpose of trading in commodity interests, and we do not consider the Company

or its operations to be a commodity pool as to

which CPO registration or compliance is required. We have claimed the relief afforded by the

above-described no-action letter.

Consequently, we will be restricted to operating within the parameters discussed in the no-action letter and will not enter into

hedging

transactions covered by the no-action letter if they would cause us to exceed

the limits set forth in the no-action letter. However, there

can be no assurance that the CFTC will agree that we are entitled to the no-action

letter relief claimed.

The CFTC has substantial enforcement power with respect to violations of the laws

over which it has jurisdiction, including their

anti-fraud and anti-manipulation provisions. For example, the CFTC may suspend

or revoke the registration of or the no-action relief

afforded to a person who fails to comply with commodities laws and regulations, prohibit

such a person from trading or doing business

with registered entities, impose civil money penalties, require restitution

and seek fines or imprisonment for criminal violations. In the

event that the CFTC asserts that we are not entitled to the no-action letter relief

claimed, we may be obligated to furnish additional

disclosures and reports, among other things. Further, a private right of action exists against those who

violate the laws over which the

CFTC has jurisdiction or who willfully aid, abet, counsel, induce or procure

a violation of those laws. In the event that we fail to comply

with statutory requirements relating to derivatives or with the CFTC’s rules thereunder, including the no-action letter described

above,

we may be subject to significant fines, penalties and other civil or governmental

actions or proceedings, any of which could have a

materially adverse effect on our business, financial condition and results of operations

and our ability to pay distributions to our

stockholders.

Our ownership limitations and certain other provisions of applicable law

and our charter and bylaws may restrict business

combination opportunities that would otherwise be favorable to our stockholders.

Our charter and bylaws and Maryland law contain provisions that may delay, defer or prevent a change in control or other

transaction that might involve a premium price for our common stock or otherwise

be in the best interests of our stockholders, including

business combination provisions, supermajority vote and cause requirements for

removal of directors, provisions that vacancies on our

Board of Directors may be filled only by the remaining directors for the full

term of the directorship in which the vacancy occurred, the

power of our Board of Directors to increase or decrease the aggregate number

of authorized shares of stock or the number of shares of

any class or series of stock, to cause us to issue additional shares of stock

of any class or series and to fix the terms of one or more

classes or series of stock without stockholder approval, the restrictions

on ownership and transfer of our stock and advance notice

requirements for director nominations and stockholder proposals.

To assist

us in qualifying as a REIT, among other purposes, ownership of our stock by any person will generally be limited to

9.8% in value or number of shares, whichever is more restrictive, of any

class or series of our stock. Additionally, our charter will

prohibit beneficial or constructive ownership of our stock that would otherwise

result in our failure to qualify as a REIT. The ownership

rules in our charter are complex and may cause the outstanding stock owned by

a group of related individuals or entities to be deemed

to be owned by one individual or entity. As a result, these ownership rules could cause an individual or entity to unintentionally own

shares beneficially or constructively in excess of our ownership limits. Any

attempt to own or transfer shares of our common stock or

preferred stock in excess of our ownership limits without the consent of our

Board of Directors will result in such shares being

transferred to a charitable trust. These provisions may inhibit market activity

and the resulting opportunity for our stockholders to

receive a premium for their stock that might otherwise exist if any person were

to attempt to assemble a block of shares of our stock in

excess of the number of shares permitted under our charter and that

may be in the best interests of our security holders.

Our Board of Directors may, without stockholder approval, amend our charter to increase or decrease the aggregate number

our shares or the number of shares of any class or series that we have the authority

to issue and to classify or reclassify any unissued

shares of common stock or preferred stock, and set the preferences, rights

and other terms of the classified or reclassified shares. As a

result, our Board of Directors may take actions with respect to our common

stock or preferred stock that may have the effect of

delaying or preventing a change in control, including transactions at a premium

over the market price of our shares, even if

stockholders believe that a change in control is in their interest. These provisions,

along with the restrictions on ownership and transfer

contained in our charter and certain provisions of Maryland law described below, could discourage unsolicited acquisition

proposals or

make it more difficult for a third party to gain control of us, which could adversely affect the

market price of our securities.

Our rights and the rights of our stockholders to take action against our directors

and officers are limited, which could limit your

recourse in the event of actions not in your best interests.

Our charter limits the liability of our directors and officers to us and our stockholders for money

damages, except for liability

resulting from:

●

actual receipt of an improper benefit or profit in money, property or services; or

●

a final judgment based upon a finding of active and deliberate dishonesty by

the director or officer that was material to the

cause of action adjudicated.

We have entered into indemnification agreements with our directors and executive officers that obligate

us to indemnify them to

the maximum extent permitted by Maryland law. In addition, our charter authorizes the Company to obligate itself to indemnify

our

present and former directors and officers for actions taken by them in those and other

capacities to the maximum extent permitted by

Maryland law. Our bylaws require us, to the maximum extent permitted by Maryland law, to indemnify each present and former director

or officer in the defense of any proceeding to which he or she is made, or threatened to

be made, a party by reason of his or her

service to us. In addition, we may be obligated to advance the defense costs

incurred by our directors and officers. As a result, we and

our stockholders may have more limited rights against our directors and officers than

might otherwise exist absent the provisions in our

charter, bylaws and indemnification agreements or that might exist with other companies.

Certain provisions of Maryland law could inhibit changes in control.

Certain provisions of the Maryland General Corporation Law (the “MGCL”),

may have the effect of inhibiting a third party from

making a proposal to acquire us or impeding a change of control under

circumstances that otherwise could provide our stockholders

with the opportunity to realize a premium over the then-prevailing market price of

our common stock, including:

●

“business combination” provisions that, subject to limitations, prohibit certain

business combinations between us and an

“interested stockholder” (defined generally as any person who beneficially owns 10%

or more of the voting power of our

outstanding voting stock or an affiliate or associate of ours who, at any time within the

two-year period immediately prior to the

date in question, was the beneficial owner of 10% or more of the voting power

of our then-outstanding stock) or an affiliate of

an interested stockholder for five years after the most recent date on which the

stockholder became an interested stockholder,

and thereafter require two supermajority stockholder votes to approve any such

combination; and

●

“control share” provisions that provide that a holder of “control shares” of the

Company (defined as voting shares of stock

which, when aggregated with all other shares of stock owned by the acquiror or

in respect of which the acquiror is able to

exercise or direct the exercise of voting power (except solely by virtue of

a revocable proxy), entitle the acquiror to exercise

one of three increasing ranges of voting power in electing directors) acquired in a “control

share acquisition” (defined as the

direct or indirect acquisition of ownership or control of issued and outstanding

“control shares,” subject to certain exceptions)

generally has no voting rights with respect to the control shares except to the extent

approved by our stockholders by the

affirmative vote of two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.

We have elected to opt-out of these provisions of the MGCL, in the case of the business

combination provisions, by resolution of

our Board of Directors (provided that such business combination is first approved

by our Board of Directors, including a majority of our

directors who are not affiliates or associates of such person), and in the case of the control

share provisions, pursuant to a provision in

our bylaws. However, our Board of Directors may by resolution elect to repeal the foregoing opt-out from the business combination

provisions of the MGCL, and we may, by amendment to our bylaws, opt-in to the control share provisions of the MGCL in the future.

Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain types of actions

and proceedings that may be initiated by our stockholders, which could

limit stockholders' ability to obtain a favorable judicial

forum for disputes with us or our directors or officers and could discourage lawsuits

against us and our directors and officers.

Our bylaws provide that, unless we consent in writing to the selection

of an alternative forum, the Circuit Court for Baltimore City,

Maryland, or, if that court does not have jurisdiction, the United States District Court for the District of Maryland,

Baltimore Division, will

be the sole and exclusive forum for (a) any Internal Corporate Claim, as such term

is defined in the MGCL, (b) any derivative action or

proceeding brought on our behalf, (c) any action asserting a claim of breach

of any duty owed by any of our directors or officers to us or

to our stockholders, (d) any action asserting a claim against us or any of our

directors or officers arising pursuant to any provision of the

MGCL or our charter or bylaws or (e) any other action asserting a claim against

us or any of our directors or officers that is governed by

the internal affairs doctrine.

This exclusive forum provision may limit the ability of our stockholders to

bring a claim in a judicial forum that such stockholders

find favorable for disputes with us or our directors or officers, which may discourage such lawsuits against

us and our directors and

officers. Alternatively, if a court were to find the choice of forum provisions contained in our bylaws to be inapplicable or unenforceable

in an action, we may incur additional costs associated with resolving such action

in other jurisdictions, which could materially adversely

affect our business, financial condition, and operating results.

U.S. Federal Income Tax Risks

Your investment has various U.S. federal income tax risks.

This summary of certain tax risks is limited to the U.S. federal income tax risks

addressed below. Additional risks or issues may

exist that are not addressed in this Form 10-K and that could affect the U.S. federal income

tax treatment of us or our stockholders.

This summary is not intended to be used and cannot be used by any stockholder

to avoid penalties that may be imposed on

stockholders under the Code. We strongly urge you to seek advice based on your particular

circumstances from your tax advisor

concerning the effects of U.S. federal, state and local income tax law on an investment

in our common stock and on your individual tax

situation.

Our failure to maintain our qualification as a REIT would subject us to U.S. federal income

tax, which could adversely affect the

value of the shares of our common stock and would substantially reduce

the cash available for distribution to our stockholders.

We believe that commencing with our short taxable year ended December 31, 2013,

we have been organized and have operated

in conformity with the requirements for qualification as a REIT under the Code, and

we intend to operate in a manner that will enable us

to continue to meet the requirements for qualification and taxation as a REIT.

However, we cannot assure you that we will remain

qualified as a REIT.

Moreover, our qualification and taxation as a REIT will depend upon our ability to meet on a continuing

basis,

through actual annual operating results, certain qualification tests set forth

in the U.S. federal tax laws. Accordingly, given the complex

nature of the rules governing REITs, the ongoing importance of factual determinations, including the potential tax treatment of

investments we make, and the possibility of future changes in our circumstances,

no assurance can be given that our actual results of

operations for any particular taxable year will satisfy such requirements.

If we fail to qualify as a REIT in any calendar year, we would be required to pay U.S. federal income tax

(and any applicable state

and local tax) on our taxable income at regular corporate rates, and dividends

paid to our stockholders would not be deductible by us in

computing our taxable income. Further, if we fail to qualify as a REIT, we might need to borrow money or sell assets in order to pay any

resulting tax. Our payment of income tax would decrease the amount of our

income available for distribution to our stockholders.

Furthermore, if we fail to maintain our qualification as a REIT, we no longer would be required under U.S. federal tax laws to distribute

substantially all of our REIT taxable income to our stockholders. Unless our failure

to qualify as a REIT was subject to relief under U.S.

federal tax laws, we could not re-elect to qualify as a REIT until the fifth

calendar year following the year in which we failed to qualify.

Complying with REIT requirements may cause us to forego or liquidate otherwise

attractive investments.

continue to qualify as a REIT, we must satisfy various tests regarding the sources of our income, the nature and diversification

of our assets, the amounts we distribute to our stockholders and the ownership

of our stock. In order to meet these tests, we may be

required to forego investments we might otherwise make. Thus, compliance with the

REIT requirements may hinder our investment

performance.

In particular, we must ensure that at the end of each calendar quarter, at least 75% of the value of our total assets consists of

cash, cash items, government securities and qualified REIT real estate assets, including

Agency RMBS. The remainder of our

investment in securities (other than government securities and qualified real estate

assets) generally cannot include more than 10% of

the outstanding voting securities of any one issuer or more than 10% of the total

value of the outstanding securities of any one issuer.

In addition, in general, no more than 5% of the value of our total assets (other than

government securities, TRS securities, and qualified

real estate assets) can consist of the securities of any one issuer, no more than 20% of the value of our total

assets can be

represented by securities of one or more TRSs and no more than 25%

of the value of our assets can be represented by debt of

“publicly offered REITs” (i.e., REITs

that are required to file annual and period reports with the SEC under the

Exchange Act) that is not

secured by real property or interests in real property. Generally, if we fail to comply with these requirements at the end of any calendar

quarter, we must correct the failure within 30 days after the end of such calendar quarter or qualify for certain statutory relief

provisions

to avoid losing our REIT qualification and becoming subject to U.S. federal income tax (and

any applicable state and local taxes) on all

of our income. As a result, we may be required to liquidate from our portfolio

otherwise attractive investments or contribute such

investments to a TRS. These actions could have the effect of reducing our income and amounts

available for distribution to our

stockholders.

Failure to make required distributions would subject us to tax, which

would reduce the cash available for distribution to our

stockholders.

To continue to qualify as a REIT,

we must distribute to our stockholders each calendar year at least 90%

of our REIT taxable

income (including certain items of non-cash income), determined without

regard to the deductions for dividends paid and excluding net

capital gain. To the extent that we satisfy the 90% distribution requirement but distribute less than 100% of our taxable income, we will

be subject to U.S. federal corporate income tax on our undistributed

income. In addition, we will incur a 4% nondeductible excise tax on

the amount, if any, by which our distributions in any calendar year are less than the sum of:

●

85% of our REIT ordinary income for that year;

●

95% of our REIT capital gain net income for that year; and

●

any undistributed taxable income from prior years

We intend to distribute our REIT taxable income to our stockholders in a manner intended to

satisfy the 90% distribution

requirement and to avoid both U.S. federal corporate income tax and the 4% nondeductible

excise tax.

Our taxable income may be substantially different than our net income as determined based

on generally accepted accounting

principles in the United States (“GAAP”), because, for example, realized capital

losses will be deducted in determining our GAAP net

income but may not be deductible in computing our taxable income. In addition,

unrealized portfolio gains and losses are included in

GAAP net income, but are not included in REIT taxable income.

Also, we may invest in assets that generate taxable income in excess

of economic income or in advance of the corresponding cash flow from the assets.

As a result of the foregoing, we may generate less

cash flow than taxable income in a particular year. To the extent that we generate such non-cash taxable income in a taxable year, we

may incur U.S. federal corporate income tax and the 4% nondeductible excise tax on

that income if we do not distribute such income to

stockholders in that year. In that event, we may be required to use cash reserves, incur debt, sell assets,

make taxable distributions of

our stock or debt securities or liquidate non-cash assets at rates or at times that

we regard as unfavorable to satisfy the distribution

requirement and to avoid U.S. federal corporate income tax and the 4% nondeductible

excise tax in that year.

Even if we qualify as a REIT, we may face other tax liabilities that reduce our cash flows.

Even if we qualify for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income and

assets, including taxes on any undistributed income, tax on income from

some activities conducted as a result of a foreclosure, and

state or local income, property and transfer taxes. In addition, any TRSs we form

will be subject to regular corporate U.S. federal, state

and local taxes. Any of these taxes would decrease cash available for distributions

to stockholders.

The failure of Agency RMBS subject to a repurchase agreement to qualify as real

estate assets would adversely affect our ability

to continue to qualify as a REIT.

We have entered and intend to continue to enter into repurchase agreements under which

we nominally sell certain of our

Agency RMBS to a counterparty and simultaneously enter into an agreement

to repurchase the sold assets. We believe that for U.S.

federal income tax purposes these transactions will be treated as

secured debt and we will be treated as the owner of the Agency

RMBS that are the subject of any such agreement,

notwithstanding that such agreements

may transfer record ownership of such

assets to the counterparty during the term of the agreement. It is possible,

however, that the IRS could successfully assert that we do

not own the Agency RMBS during the term of the repurchase agreement, in

which case we could fail to qualify as a REIT.

Our ability to invest in and dispose of forward settling contracts, including

TBA securities, could be limited by the requirements

necessary to continue to qualify as a REIT, and we could fail to qualify as a REIT as a result of these investments.

We may purchase Agency RMBS through forward settling contracts, including TBA

securities transactions. We may recognize

income or gains on the disposition of forward settling contracts. For example, rather

than take delivery of the Agency RMBS subject to

a TBA, we may dispose of the TBA through a “roll” transaction in which we agree

to purchase similar securities in the future at a

predetermined price or otherwise, which may result in the recognition of income

or gains. The law is unclear regarding whether forward

settling contracts will be qualifying assets for the 75% asset test and whether

income and gains from dispositions of forward settling

contracts will be qualifying income for the 75% gross income test.

Until we receive a favorable private letter ruling from the IRS or we

are advised by counsel that forward settling contracts should

be treated as qualifying assets for purposes of the 75% asset test, we will limit

our investment in forward settling contracts and any

non-qualifying assets to no more than 25% of our total gross assets at the end

of any calendar quarter and will limit the forward settling

contracts issued by any one issuer to no more than 5% of our total gross assets

at the end of any calendar quarter. Further, until we

receive a favorable private letter ruling from the IRS or we are advised by counsel

that income and gains from the disposition of forward

settling contracts should be treated as qualifying income for purposes of the 75% gross

income test, we will limit our income and gains

from dispositions of forward settling contracts and any non-qualifying income to

no more than 25% of our gross income for each

calendar year. Accordingly, our ability to purchase Agency RMBS through forward settling contracts and to dispose of forward settling

contracts through

roll transactions or otherwise, could be limited.

Moreover, even if we are advised by counsel that forward settling contracts should be treated as qualifying assets

or that income

and gains from dispositions of forward settling contracts should be treated as qualifying

income, it is possible that the IRS could

successfully take the position that such assets are not qualifying assets and such

income is not qualifying income. In that event, we

could be subject to a penalty tax or we could fail to qualify as a REIT if (i) the value

of our forward settling contracts, together with our

other non-qualifying assets for purposes of the 75% asset test, exceeded 25%

of our total gross assets at the end of any calendar

quarter, (ii) the value of our forward settling contracts, including TBAs, issued by any one issuer exceeded 5%

of our total assets at the

end of any calendar quarter, or (iii) our income and gains from the disposition of forward settling contracts, together

with our other non-

qualifying income for purposes of the 75% gross income test, exceeded 25%

of our gross income for any taxable year.

Complying with REIT requirements may limit our ability to hedge effectively.

The REIT provisions of the Code substantially limit our ability to hedge.

Our aggregate gross income from non-qualifying hedges,

fees, and certain other non-qualifying sources cannot exceed 5% of our

annual gross income. As a result, we might have to limit our

use of advantageous hedging techniques or implement those hedges through

a TRS. Any hedging income earned by a TRS would be

subject to U.S. federal, state and local income tax at regular corporate rates.

This could increase the cost of our hedging activities or

expose us to greater risks associated with changes in interest rates than we would otherwise

want to bear.

Our ownership of and relationship with any TRSs that we form will be

limited and a failure to comply with the limits would

jeopardize our REIT qualification and may result in the application of a 100%

excise tax.

A REIT may own up to 100% of the stock of one or more TRSs. A

TRS may earn income that would not be qualifying income if

earned directly by the parent REIT. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation

(other than a REIT) of which a TRS directly or indirectly owns more than 35%

of the voting power or value of the stock will

automatically be treated as a TRS. Overall, no more than 20% of the value of a REIT’s total

assets may consist of stock or securities of

one or more TRSs. A domestic TRS will pay U.S. federal, state and

local income tax at regular corporate rates on any income that it

earns. In addition, the Code limits the deductibility of interest paid or accrued

by a TRS to its parent REIT to ensure that the TRS is

subject to an appropriate level of corporate taxation. The rules also impose

a 100% excise tax on certain transactions between a TRS

and its parent REIT that are not conducted on an arm’s length basis. Any domestic TRS

that we may form will pay U.S. federal, state

and local income tax on its taxable income, and its after-tax net income will be

available for distribution to us (but is not required to be

distributed to us unless necessary to maintain our REIT qualification).

We may pay taxable dividends in cash and our common stock, in which case stockholders

may sell shares of our common stock

to pay tax on such dividends, placing downward pressure on the market price of

our common stock.

We may make taxable dividends that are payable partly in cash and partly in our common

stock. The IRS has issued Revenue

Procedure 2017-45 authorizing elective cash/stock dividends to be made

by publicly offered REITs. Pursuant to Revenue Procedure

2017-45 the IRS will treat the distribution of stock pursuant to an elective cash/stock

dividend as a distribution of property under

Section 301 of the Code (i.e., a dividend), as long as at least 20% of the total dividend

is available in cash and certain other parameters

detailed in the Revenue Procedure are satisfied. On November 30, 2021, the IRS issued

Revenue Procedure 2021-53, which

temporarily reduces (through June 30, 2022) the minimum amount of the total distribution

that must be available in cash to 10%.

Although we have no current intention of paying dividends in our own stock, if in

the future we choose to pay dividends in our own

stock, our stockholders may be required to pay tax in excess of the cash that they

receive. If a U.S. stockholder sells the shares that it

receives as a dividend in order to pay this tax, the sales proceeds may be less than

the amount included in income with respect to the

dividend, depending on the market price of our common stock at the time of the

sale. Furthermore, with respect to certain non-U.S.

stockholders, we may be required to withhold U.S. federal income tax with respect

to such dividends, including in respect of all or a

portion of such dividend that is payable in common stock. If we pay dividends

in our common stock and a significant number of our

stockholders determine to sell shares of our common stock in order to pay taxes

owed on dividends, it may put downward pressure on

the trading price of our common stock.

Our ownership limitations may restrict change of control or business combination opportunities

in which our stockholders might

receive a premium for their stock.

In order for us to qualify as a REIT for each taxable year after 2013, no more

than 50% in value of our outstanding stock may be

owned, directly or indirectly, by five or fewer individuals during the last half of any calendar year. “Individuals” for this purpose include

natural persons, private foundations, some employee benefit plans and trusts,

and some charitable trusts. In order to assist us in

qualifying as a REIT, among other purposes, ownership of our stock by any person is generally limited to 9.8% in value or number of

shares, whichever is more restrictive, of any class or series of our stock.

These ownership limitations could have the effect of discouraging a takeover or other transaction

in which holders of our common

stock might receive a premium for their common stock over the then-prevailing

market price or which holders might believe to be

otherwise in their best interests.

Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.

The maximum tax rate applicable to “qualified dividend income” payable to U.S.

stockholders that are taxed at individual rates

may be lower than ordinary income tax rates. Dividends payable by REITs, however, are generally not eligible for the reduced rates on

qualified dividend income. Rather, ordinary REIT dividends constitute “qualified business income” and thus

a 20% deduction is

available to individual taxpayers with respect to such dividends.

To qualify for this deduction, the U.S. stockholder receiving such

dividends must hold the dividend-paying REIT stock for at least 46 days

(taking into account certain special holding periods) of the 91-

day period beginning 45 days before the stock becomes ex-dividend and

cannot be under an obligation to make related payments with

respect to a position in substantially similar or related property. The 20% deduction results in a 29.6% maximum U.S. federal

income

tax rate (plus the 3.8% surtax on net investment income, if applicable) for individual U.S.

stockholders. Without further legislative

action, the 20% deduction applicable to ordinary REIT dividends will expire on January 1,

2026. The more favorable rates applicable to

regular corporate qualified dividends could cause investors who are taxed at

individual rates to perceive investments in REITs to be

relatively less attractive than investments in the stock of non-REIT corporations that

pay dividends, which could adversely affect the

value of the shares of REITs, including our common stock.

Certain financing activities may subject us to U.S. federal income tax and could have

negative tax consequences for our

stockholders.

We currently do not intend to enter into any transactions that could result in all, or a portion,

of our assets being treated as a

taxable mortgage pool for U.S. federal income tax purposes. If we enter into such

a transaction in the future, we will be taxable at the

highest corporate income tax rate on a portion of the income arising from

a taxable mortgage pool, referred to as “excess inclusion

income,” that is allocable to the percentage of our stock held in record name by

disqualified organizations (generally tax-exempt entities

that are exempt from the tax on unrelated business taxable income, such as

state pension plans, charitable remainder trusts and

government entities). In that case, under our charter, we will reduce distributions to such stockholders by the amount of

tax paid by us

that is attributable to such stockholder’s ownership.

If we were to realize excess inclusion income, IRS guidance indicates that the

excess inclusion income would be allocated

among our stockholders in proportion to our dividends paid. Excess inclusion

income cannot be offset by losses of our stockholders. If

the stockholder is a tax-exempt entity and not a disqualified organization, then this

income would be fully taxable as unrelated business

taxable income under Section 512 of the Code. If the stockholder is a foreign

person, it would be subject to U.S. federal income tax at

the maximum tax rate and withholding will be required on this income without reduction

or exemption pursuant to any otherwise

applicable income tax treaty.

Our recognition of “phantom” income may reduce a stockholder’s after-tax

return on an investment in our common stock.

We may recognize taxable income in excess of our economic income, known as phantom

income, in the first years that we hold

certain investments, and experience an offsetting excess of economic income over our taxable

income in later years. As a result,

stockholders at times may be required to pay U.S. federal income tax on distributions

that economically represent a return of capital

rather than a dividend. These distributions would be offset in later years by distributions

representing economic income that would be

treated as returns of capital for U.S. federal income tax purposes. Taking into account the time value of money, this acceleration of

U.S. federal income tax liability may reduce a stockholder’s

after-tax return on his or her investment to an amount less than the after-

tax return on an investment with an identical before-tax rate of return that did

not generate phantom income.

Liquidation of our assets may jeopardize our REIT qualification.

To maintain our qualification as a REIT,

we must comply with requirements regarding our assets and our sources

of income. If

we are compelled to liquidate our assets to repay obligations to our lenders, we

may be unable to comply with these requirements,

thereby jeopardizing our qualification as a REIT, or we may be subject to a 100% tax on any resultant gain if we sell assets that are

treated as inventory or property held primarily for sale to customers

in the ordinary course of business.

Our qualification as a REIT and exemption from U.S. federal income tax with respect

to certain assets may be dependent on the

accuracy of legal opinions or advice rendered or given or statements by the issuers

of assets that we acquire, and the inaccuracy

of any such opinions, advice or statements may adversely affect our REIT qualification and

result in significant corporate-level

tax.

When purchasing securities, we may rely on opinions or advice of counsel for the issuer

of such securities, or statements made

in related offering documents, for purposes of determining whether such securities

represent debt or equity securities for U.S. federal

income tax purposes, the value of such securities, and the extent to which those

securities constitute qualified real estate assets for

purposes of the REIT asset tests and produce income that qualifies under the

75% gross income test. The inaccuracy of any such

opinions, advice or statements may adversely affect our REIT qualification and result in

significant corporate-level tax.

Risks Related to COVID-19

The market and economic disruptions caused by COVID-19 have negatively impacted

our business.

The COVID-19 pandemic has caused and continues to cause significant disruptions

to the U.S. and global economies and has

contributed to volatility, illiquidity and dislocations in the financial markets. The COVID-19 outbreak has led governments and other

authorities around the world to impose measures intended to control

its spread, including restrictions on freedom of movement and

business operations such as travel bans, border closings, closing non-essential

businesses, quarantines and shelter-in-place orders.

The market and economic disruptions caused by COVID-19 have negatively impacted

and could further negatively impact our

business.

Beginning in mid-March 2020, Agency RMBS markets experienced significant volatility

and sharp declines in liquidity, which

negatively impacted our portfolio. Our portfolio was pledged as collateral under

daily mark-to-market repurchase agreements.

Fluctuations in the value of our Agency RMBS resulted in margin calls, requiring

us to post additional collateral with our lenders under

these repurchase agreements. These fluctuations and requirements to post additional

collateral were material.

The Agency RMBS market largely stabilized after the Fed announced on

March 23, 2020 that it would purchase Agency RMBS

and U.S. Treasuries in the amounts needed to support smooth market functioning. The Fed continued to increase

its holdings of U.S.

Treasuries and Agency RMBS throughout 2020 and 2021 to sustain smooth functioning of markets for these

securities; however, in

response to growing inflation concerns in late 2021, the FOMC began tapering

its net asset purchases and announced on January 26,

2022 that it would completely phase them out by early March 2022. If the COVID-19

outbreak continues or worsens, or if the current

policy response changes or is ineffective, the Agency RMBS market may experience

significant volatility, illiquidity and dislocations in

the future, which may adversely affect our results of operations and financial condition.

Our inability to access funding or the terms on which such funding is available

could have a material adverse effect on our financial

condition, particularly in light of ongoing market dislocations resulting from the COVID-19

pandemic.

Our ability to fund our operations, meet financial obligations and finance

asset acquisitions is dependent upon our ability to secure

and maintain our repurchase agreements with our counterparties. Because repurchase

agreements are short-term commitments of

capital, lenders may respond to market conditions in ways that make it more difficult for

us to renew or replace on a continuous basis

our maturing short-term borrowings and have imposed and may continue to impose

more onerous terms when rolling such financings.

If we are not able to renew our existing repurchase agreements or arrange for

new financing on terms acceptable to us, or if we are

required to post more collateral or face larger haircuts, we may have to curtail

our asset acquisition activities and/or dispose of assets.

Issues related to financing are exacerbated in times of significant dislocation

in the financial markets, such as those experienced

related to the COVID-19 pandemic. It is possible our lenders will become unwilling

or unable to provide us with financing, and we could

be forced to sell our assets at an inopportune time when prices are depressed.

In addition, if the regulatory capital requirements

imposed on our lenders change, they may be required to significantly increase

the cost of the financing that they provide to us. Our

lenders also have revised and may continue to revise the terms of such financings,

including haircuts and requiring additional collateral

in the form of cash, based on, among other factors, the regulatory environment

and their management of actual and perceived risk.

Moreover, the amount of financing we receive under our repurchase agreements will be directly related to our

lenders’ valuation of our

assets that collateralize the outstanding borrowings. Typically, repurchase agreements grant the lender the absolute right to re-

evaluate the fair market value of the assets that cover outstanding borrowings

at any time. If a lender determines in its sole discretion

that the value of the assets has decreased, the lender has the right to initiate a

margin call. These valuations may be different than the

values that we ascribe to these assets and may be influenced by recent asset sales at

distressed levels by forced sellers. A margin call

requires us to transfer additional assets to a lender without any advance of funds from

the lender for such transfer or to repay a portion

of the outstanding borrowings. Significant margin calls could have a

material adverse effect on our results of operations, financial

condition, business, liquidity and ability to make distributions to our stockholders, and

could cause the value of our common stock to

decline. In addition, we experienced an increase in haircuts on financings we have rolled.

As haircuts are increased, we are required to

post additional collateral. We may also be forced to sell assets at significantly depressed

prices to meet such margin calls and to

maintain adequate liquidity. As a result of the ongoing COVID-19 pandemic, we experienced margin calls in 2020 well beyond historical

norms. As of December 31, 2021, we had met all margin call requirements,

but a sufficiently deep and/or rapid increase in margin calls

or haircuts will have an adverse impact on our liquidity.

We cannot predict the effect that government policies, laws and plans adopted in response to the COVID-19

pandemic and the

global recessionary economic conditions will have on us.

Governments have adopted, and may continue to adopt, policies, laws and plans

intended to address the COVID-19 pandemic

and adverse developments in the economy and continued functioning of

the financial markets. We cannot assure you that these

programs will be effective, sufficient or will otherwise have a positive impact on our business.

There can be no assurance as to how, in the long term, these and other actions by the U.S. government will

affect the efficiency,

liquidity and stability of the financial and mortgage markets or prepayments

on Agency RMBS. To the extent the financial or mortgage

markets do not respond favorably to any of these actions, such actions do not function

as intended, or prepayments increase materially

as a result of these actions,

our business, results of operations and financial condition may

continue to be materially adversely affected.

Measures intended to prevent the spread of COVID-19 have disrupted our ability to

operate our business.

In response to the outbreak of COVID-19 and the federal and state mandates implemented

to control its spread, some of our

Manager’s employees worked remotely until June of 2021. If

our Manager’s employees are unable to work effectively as a result

COVID-19, including because of illness, quarantines, office closures, ineffective remote work arrangements

or technology failures or

limitations, our operations would be adversely impacted. Further, remote work arrangements may increase

the risk of cybersecurity

incidents, data breaches or cyber-attacks, which could have a material adverse

effect on our business and results of operations, due

to, among other things, the loss of proprietary data, interruptions or delays in the operation

of our business and damage to our

reputation.

General Risk Factors

The occurrence of cyber-incidents, or a deficiency in our cybersecurity or in those

of any of our third party service providers could

negatively impact our business by causing a disruption to our operations, a

compromise or corruption of our confidential

information or damage to our business relationships or reputation, all of which

could negatively impact our business and results

of operations.

A cyber-incident is considered to be any adverse event that threatens the

confidentiality, integrity,

or availability of our

information resources or the information resources of our third party service providers.

More specifically, a cyber-incident is an

intentional attack or an unintentional event that can include gaining unauthorized

access to systems to disrupt operations, corrupt data,

or steal confidential information. As our reliance on technology has increased, so have

the risks posed to our systems, both internal

and those we have outsourced. The primary risks that could directly result from

the occurrence of a cyber-incident include operational

interruption and private data exposure. We have implemented processes, procedures and

controls to help mitigate these risks, but

these measures, as well as our focus on mitigating the risk of a cyber-incident,

do not guarantee that our business and results of

operations will not be negatively impacted by such an incident.

We face possible risks associated with the effects of climate change and severe weather.

We cannot predict the rate at which climate change will progress. However, the physical effects of climate change could have a

material adverse effect on our operations and business. Our headquarters and our Manager

are located very close to the Florida

coastline. To the extent that climate change impacts changes in weather patterns, our headquarters and our Manager could experience

severe weather, including hurricanes and coastal flooding due to increases in storm intensity and rising sea

levels. Such weather

events could disrupt our operations or damage our headquarters. There

can be no assurance that climate change and severe weather

will not have a material adverse effect on our operations or business.

If we issue debt securities, our operations may be restricted and we will

be exposed to additional risk.

If we decide to issue debt securities in the future, it is likely that such securities

will be governed by an indenture or other

instrument containing covenants restricting our operating flexibility. Additionally, any convertible or exchangeable securities that we

issue in the future may have rights, preferences and privileges more favorable

than those of our common stock. We, and indirectly our

stockholders, will bear the cost of issuing and servicing such securities. Holders

of debt securities may be granted specific rights,

including but not limited to, the right to hold a perfected security interest in certain of our

assets, the right to accelerate payments due

under the indenture, rights to restrict dividend payments, and rights to approve the

sale of assets. Such additional restrictive covenants

and operating restrictions could have a material adverse effect on our business, financial

condition and results of operations and our

ability to pay distributions to our stockholders.

There may not be an active market for our common stock, which may cause our

common stock to trade at a discount and make it

difficult to sell the common stock you purchase.

Our common stock is listed on the NYSE under the symbol “ORC.” Trading on the NYSE does not

ensure that there will continue

to be an actual market for our common stock. Accordingly, no assurance can be given as to:

●

the likelihood that an actual market for our common stock will continue;

●

the liquidity of any such market;

●

the ability of any holder to sell shares of our common stock; or

●

the prices that may be obtained for our common stock.

Future offerings of debt securities, which would be senior to our common stock upon liquidation,

or equity securities, which would

dilute our existing stockholders and may be senior to our common stock for the

purposes of distributions, may harm the value of

our common stock.

In the future, we may attempt to increase our capital resources by making additional

offerings of debt or equity securities,

including commercial paper, medium-term notes, senior or subordinated notes and classes of preferred stock or common

stock, as well

as warrants to purchase shares of common stock or convertible preferred stock.

Upon the liquidation of the Company, holders of our

debt securities and shares of preferred stock and lenders with respect to

other borrowings will receive a distribution of our available

assets prior to the holders of our common stock. Additional equity offerings by us

may dilute the holdings of our existing stockholders or

reduce the market value of our common stock, or both. Our preferred stock,

if issued, would have a preference on distributions that

could limit our ability to make distributions to the holders of our common

stock. Furthermore, our Board of Directors may, without

stockholder approval, amend our charter to increase the aggregate number

of shares or the number of shares of any class or series

that we have the authority to issue, and to classify or reclassify any unissued

shares of common stock or preferred stock. Because our

decision to issue securities in any future offering will depend on market conditions and other

factors beyond our control, we cannot

predict or estimate the amount, timing or nature of our future securities offerings. Our

stockholders are therefore subject to the risk of

our future securities offerings reducing the market price of our common stock and diluting

their common stock.

The market value of our common stock may be volatile.

The market value of shares of our common stock may be based primarily upon

current and expected future cash dividends and

our book value. The market price of shares of our common stock may be influenced

by the dividends on those shares relative to market

interest rates. Rising interest rates may lead potential buyers of our common stock to

expect a higher dividend rate, which could

adversely affect the market price of shares of our common stock. In addition, our book

value could decrease, which could reduce the

market price of our common stock to the extent our common stock trades

relative to our book value. As a result, the market price of our

common stock may be highly volatile and subject to wide price fluctuations.

In addition, the trading volume in our common stock may

fluctuate and cause significant price variations to occur. Some of the factors that could negatively affect the share price

or trading

volume of our common stock include:

●

actual or anticipated variations in our operating results or distributions;

●

changes in our earnings estimates or publication of research reports about us

or the real estate or specialty finance industry;

●

the market valuations of Agency RMBS;

●

increases in market interest rates that lead purchasers of our common stock

to expect a higher dividend yield;

●

government action or regulation;

●

changes in our book value;

●

changes in market valuations of similar companies;

●

adverse market reaction to any increased indebtedness we incur in the future;

●

a change in our Manager or additions or departures of key management personnel;

●

actions by institutional stockholders;

●

speculation in the press or investment community; and

●

general market and economic conditions.

We cannot make any assurances that the market price of our common stock will not fluctuate

or decline significantly in the future.

We are subject to risks related to corporate social responsibility.

Our business faces public scrutiny related to environmental, social and governance

(“ESG”) activities. We risk damage to our

reputation if we or our Manager fail to act responsibly in a number of areas, such as

diversity and inclusion, environmental stewardship,

support for local communities, corporate governance and transparency and considering

ESG factors in our investment processes.

Adverse incidents with respect to ESG activities could impact the cost of our

operations and relationships with investors, all of which

could adversely affect our business and results of operations. Additionally, new legislative or regulatory initiatives related to ESG could

adversely affect our business.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

We do not own any real property. Our offices are owned by Bimini, the parent of our Manager, and are located at 3305 Flamingo

Drive, Vero Beach, Florida 32963.

We consider this property to be adequate for our business as currently conducted.

Our telephone

number is (772) 231-1400.

ITEM 3.

LEGAL PROCEEDINGS

We are not party to any material pending legal proceedings as described in Item 103

of Regulation S-K.

ITEM 4.

MINE SAFETY

DISCLOSURES

Not Applicable.

PART II

ITEM 5. MARKET

FOR REGISTRANT'S

COMMON EQUITY, RELATED

STOCKHOLDER

MATTERS AND ISSUER

PURCHASES

EQUITY SECURITIES

Market Information

and Holders

Our common stock trades on the NYSE under the symbol “ORC.”

As of February 14, 2022, we had 176,993,049 shares of

common stock issued and outstanding which were held by 14 stockholders of record

and 67,045 beneficial owners whose shares were

held in “street name” by brokers and depository institutions.

Dividend

Distribution

Policy

We intend to continue to make regular monthly cash distributions to our stockholders, as more

fully described below. To

maintain

our qualification as a REIT, we must distribute annually to our stockholders an amount at least equal to 90% of our REIT taxable

income, determined without regard to the deductions

for dividends paid and excluding any net capital gain. We will be subject to

income tax on our taxable income that is not distributed and to an excise tax

to the extent that certain percentages of our taxable

income are not distributed by specified dates. Income as computed for purposes

of the foregoing tax rules will not necessarily

correspond to our income as determined for financial reporting purposes pursuant

to GAAP.

Any additional distributions we make will be authorized by and at the discretion

of our Board of Directors based upon a variety of

factors deemed relevant by our directors, which

may include:

●

actual results of operations;

●

our financial condition;

●

our level of retained cash flows;

●

our capital requirements;

●

any debt service requirements;

●

our taxable income;

●

the annual distribution requirements under the REIT provisions of the Code;

●

applicable provisions of Maryland law; and

●

other factors that our Board of Directors may deem relevant.

We have not established a minimum distribution payment level, and we cannot assure

you of our ability to make distributions to

our stockholders in the future.

Our charter authorizes us to issue preferred stock that could have a

preference over our common stock with respect to

distributions. If we issue any preferred stock, the distribution preference on the

preferred stock could limit our ability to make

distributions to the holders of our common stock.

Our ability to make distributions to our stockholders will depend upon the

performance of our investment portfolio, and, in turn,

upon our Manager’s management of our business. To the extent that our cash available for distribution is less than the amount required

to be distributed under the REIT provisions of the Code, we may consider various

funding sources to cover any shortfall, including

selling certain of our assets, borrowing funds or using a portion of the net proceeds

we receive in future securities

offerings (and thus

all or a portion of such distributions may constitute a return of capital for U.S.

federal income tax purposes). We also may elect to pay

all or a portion of any distribution in the form of a taxable distribution of our

stock or debt securities.

In addition, our Board of Directors

may change our distribution policy in the future.

100

120

140

160

180

200

220

240

260

12/31/2016

12/31/2017

12/31/2018

12/31/2019

12/31/2020

12/31/2021

Total Return Performance

Orchid Island Capital, Inc.

NAREIT Mortgage REIT TRR Index

S&P 500 Total Return

Index

Agency REIT Peer Group

Performance

Graph

Set forth below is a graph comparing the yearly percentage change in

the cumulative total return on our common stock, with the

cumulative total return of the S&P 500 Total Return Index, the FTSE NAREIT Mortgage REIT Index and an index of selected issuers in

our Agency REIT Peer Group (composed of AGNC Investment Corp., Annaly Capital

Management, Inc., Anworth Mortgage Asset

Corporation, Arlington Asset Investment Corp., ARMOUR Residential REIT, Inc., Capstead Mortgage Corporation, Cherry Hill

Mortgage Investment Corporation and Dynex Capital, Inc.) for the period beginning

December 31, 2016, and ending December 31,

2021, assuming the investment of $100 on December 31, 2016 and the reinvestment

of dividends.

The information in the performance chart and the table below has been obtained

from sources believed to be reliable, but its

accuracy nor its completeness can be guaranteed.

The historical information set forth below is not necessarily indicative

of future

performance.

12/31/16

12/31/17

12/31/18

12/31/19

12/31/20

12/31/21

Orchid Island Capital, Inc.

100.00

101.13

80.57

86.10

90.62

90.75

Agency REIT Peer Group

100.00

112.90

102.32

105.99

96.18

101.49

NAREIT Mortgage REIT TRR Index

100.00

119.79

116.77

141.67

115.08

133.08

S&P 500 Total

Return Index

100.00

121.83

116.49

153.17

181.35

233.41

Securities Authorized for Issuance under Equity Compensation Plans

Information about securities authorized for issuance under our equity

compensation plans required for this Item 5 is incorporated

by reference to our definitive Proxy Statement to be filed in connection with our 2022 annual

meeting of stockholders.

Unregistered Sales of Equity Securities

The Company

did not issue

or sell equity

securities

that were

not registered

under the

Securities

Act during

the year

ended December

31, 2021.

Issuer Purchases

of Equity

Securities

On July 29,

2015, the

Company's

Board of

Directors

authorized

the repurchase

of up to

2,000,000

shares of

the Company's

common

stock. On

February

8, 2018,

the Board

of Directors

approved an

increase in

the stock

repurchase

program for

up to an

additional

4,522,822

shares of

the Company's

common stock.

On December

9, 2021,

the Board

of Directors

approved

an increase

in the number

shares of

the Company’s

common stock

available

in the stock

repurchase

program for

up to an

additional

16,861,994

shares, bringing

the

remaining authorization

under the

stock repurchase

program to

up to 17,699,305

shares, representing

approximately

10% of the

Company’s then

outstanding

shares of

common stock.

Unless modified

or revoked

by the Board,

the authorization

does not

expire. The

Company did

not repurchase

any shares

of its common

stock during

the three

months ended

December

31, 2021.

ITEM 6.

RESERVED.

ITEM 7. 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 8 of this Form 10-K.

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 this Form 10-K,

our actual results may differ materially from those

anticipated in such forward-looking statements.

Overview

We are a specialty finance company that invests in residential mortgage-backed securities

(“RMBS”) which are issued and

guaranteed by a federally chartered corporation or agency (“Agency RMBS”).

Our investment strategy focuses on, and our portfolio

consists of, two categories of Agency RMBS: (i) traditional pass-through Agency RMBS,

such as mortgage pass-through certificates

issued by Fannie Mae, Freddie Mac or Ginnie Mae (the “GSEs”) and collateralized

mortgage obligations (“CMOs”) issued by the GSEs

(“PT RMBS”) and (ii) structured Agency RMBS, such as interest-only securities (“IOs”),

inverse interest-only securities (“IIOs”) and

principal only securities (“POs”), among other types of structured Agency RMBS.

We were formed by Bimini in August 2010,

commenced operations on November 24, 2010 and completed our initial public

offering (“IPO”) on February 20, 2013.

We are

externally managed by Bimini Advisors, an investment adviser registered with the Securities

and Exchange Commission (the “SEC”).

Our business objective is to provide attractive risk-adjusted total returns over the

long term through a combination of capital

appreciation and the payment of regular monthly distributions. We intend to achieve this objective

by investing in and strategically

allocating capital between the two categories of Agency RMBS described above.

We seek to generate income from (i) the net interest

margin on our leveraged PT RMBS portfolio and the leveraged portion of our

structured Agency RMBS portfolio, and (ii) the interest

income we generate from the unleveraged portion of our structured Agency RMBS

portfolio. We intend to fund our PT RMBS and

certain of our structured Agency RMBS through short-term borrowings structured

as repurchase agreements. PT RMBS and structured

Agency RMBS typically exhibit materially different sensitivities to movements in interest

rates. Declines in the value of one portfolio

may be offset by appreciation in the other. The percentage of capital that we allocate to our two Agency RMBS asset categories will

vary and will be actively managed in an effort to maintain the level of income generated by

the combined portfolios, the stability of that

income stream and the stability of the value of the combined portfolios. We believe that this

strategy will enhance our liquidity,

earnings, book value stability and asset selection opportunities in various interest

rate environments.

We operate so as to qualify to be taxed as a real estate investment trust (“REIT”) under the

Internal Revenue Code of 1986, as

amended (the “Code”).

We generally will not be subject to U.S. federal income tax to the extent that we

currently distribute all of our

REIT taxable income (as defined in the Code) to our stockholders and maintain

our REIT qualification.

The Company’s common stock trades on the New York Stock Exchange under the symbol “ORC”.

Capital Raising Activities

On August 2, 2017, we entered

into an equity distribution agreement (the “August 2017 Equity Distribution Agreement”)

with two

sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate

amount of $125,000,000 of shares of our

common stock in transactions that were deemed to be “at the market” offerings and privately

negotiated transactions. We issued a total

of 15,123,178 shares under the August 2017 Equity Distribution Agreement for

aggregate gross proceeds of $125.0 million, and net

proceeds of approximately $123.1 million, after commissions and fees,

prior to its termination in July 2019.

On July 30, 2019, we entered into an underwriting agreement (the “2019 Underwriting

Agreement”) with Morgan Stanley & Co.

LLC, Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, as representatives of the underwriters named therein, relating to

the offer and sale of 7,000,000 shares of the Company’s common stock at a price to the public of

$6.55 per share. The underwriters

purchased the shares pursuant to the 2019 Underwriting Agreement at a price of

$6.3535 per share. The closing of the offering of

7,000,000 shares of common stock occurred on August 2, 2019, with net

proceeds to us of approximately $44.2 million after deduction

of underwriting discounts and commissions and other estimated offering expenses.

On January 23, 2020, we entered into an equity distribution agreement (the “January

2020 Equity Distribution Agreement”) with

three sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount

of $200,000,000 of shares

of our common stock in transactions that were deemed to be “at the market”

offerings and privately negotiated transactions.

We issued

a total of 3,170,727 shares under the January 2020 Equity Distribution Agreement for aggregate

gross proceeds of $19.8 million, and

net proceeds of approximately $19.4 million, after commissions and fees, prior to

its termination in August 2020.

On August 4, 2020, we entered into an equity distribution agreement (the “August

2020 Equity Distribution Agreement”) with four

sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate

amount of $150,000,000 of shares of our

common stock in transactions that were deemed to be “at the market” offerings and privately

negotiated transactions. We issued a total

of 27,493,650 shares under the August 2020 Equity Distribution Agreement for

aggregate gross proceeds of approximately $150.0

million, and net proceeds of approximately $147.4 million, after commissions

and fees, prior to its termination in June 2021.

On January 20, 2021, we entered into an underwriting agreement (the “January 2021

Underwriting Agreement”) with J.P. Morgan

Securities LLC (“J.P. Morgan”), relating to the offer and sale of 7,600,000 shares of our common stock. J.P.

Morgan purchased the

shares of our common stock from the Company pursuant to the January 2021

Underwriting Agreement at $5.20 per share. In addition,

we granted J.P.

Morgan a 30-day option to purchase up to an additional 1,140,000 shares

of our common stock on the same terms and

conditions, which J.P. Morgan exercised in full on January 21, 2021. The closing of the offering of 8,740,000 shares of our common

stock occurred on January 25, 2021, with proceeds to us of approximately $45.2

million, net of offering expenses.

On March 2, 2021, we entered into an underwriting agreement (the “March 2021 Underwriting

Agreement”) with J.P. Morgan,

relating to the offer and sale of 8,000,000 shares of our common stock. J.P. Morgan purchased the shares of our common stock from

the Company pursuant to the March 2021 Underwriting Agreement at $5.45 per share.

In addition, we granted J.P. Morgan a 30-day

option to purchase up to an additional 1,200,000 shares of our common stock

on the same terms and conditions, which J.P. Morgan

exercised in full on March 3, 2021. The closing of the offering of 9,200,000 shares of our common

stock occurred on March 5, 2021,

with proceeds to us of approximately $50.0 million, net of offering expenses.

On June 22, 2021, we entered into an equity distribution agreement (the “June 2021

Equity Distribution Agreement”) with four

sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate

amount of $250,000,000 of shares of our

common stock in transactions that were deemed to be “at the market” offerings and privately

negotiated transactions. We issued a total

of 49,407,336 shares under the June 2021 Equity Distribution Agreement for aggregate

gross proceeds of approximately $250.0

million, and net proceeds of approximately $246.2 million, after commissions

and fees,

prior to its termination in October 2021.

On October 29, 2021, we entered into an equity distribution agreement (the “October

2021 Equity Distribution Agreement”) with

four sales agents pursuant to which we may offer and sell, from time to time, up to an aggregate

amount of $250,000,000 of shares of

our common stock in transactions that are deemed to be “at the market” offerings and privately negotiated

transactions. Through

December 31, 2021, we issued a total of 15,835,700 shares under the October 2021 Equity

Distribution Agreement for aggregate gross

proceeds of approximately $78.3 million, and net proceeds of approximately

$77.0 million, after commissions and fees.

Stock Repurchase Program

On July 29, 2015, the Company’s Board of Directors authorized the repurchase of up to 2,000,000

shares of our common stock.

The timing, manner, price and amount of any repurchases is determined by the Company in its discretion and is subject

to economic

and market conditions, stock price, applicable legal requirements and other factors.

The authorization does not obligate the Company

to acquire any particular amount of common stock and the program may

be suspended or discontinued at the Company’s discretion

without prior notice.

On February 8, 2018, the Board of Directors approved an increase

in the stock repurchase program for up to an

additional 4,522,822 shares of the Company’s common stock.

Coupled with the 783,757 shares remaining from the original 2,000,000

share authorization, the increased authorization brought the total authorization

to 5,306,579 shares, representing 10% of the then

outstanding share count. On December 9, 2021, the Board of Directors approved an

increase in the number of shares of the

Company’s common stock available in the stock repurchase program for up to an additional

16,861,994 shares, bringing the remaining

authorization under the stock repurchase program to 17,699,305 shares, representing

approximately 10% of the Company’s currently

outstanding shares of common stock. This stock repurchase program has no

termination date.

From the inception of the stock repurchase program through December 31, 2021,

the Company repurchased a total of 5,685,511

shares at an aggregate cost of approximately $40.4 million, including commissions

and fees, for a weighted average price of $7.10 per

share. During the year ended December 31, 2020, the Company repurchased a

total of 19,891 shares at an aggregate cost of

approximately

$0.1 million, including commissions and fees, for a weighted average

price of $3.42 per share. There were no shares

repurchased during the year ended December 31, 2021.

Factors that Affect our Results of Operations and Financial Condition

A variety of industry and economic factors may impact our results of operations and

financial condition. These factors include:

●

interest rate trends;

●

increases in our cost of funds resulting from increases in the Federal Funds rate that

are controlled by the Fed and are likely

to occur in 2022;

●

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

●

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

●

actions taken by the U.S. government, including the presidential administration, the

Fed,

the Federal Housing Financing

Agency (the “FHFA”), the Federal Housing Administration (the “FHA”), the Federal Open Market Committee (the

“FOMC”) and

the U.S. Treasury;

●

prepayment rates on mortgages underlying our Agency RMBS and credit

trends insofar as they affect prepayment rates; and

●

other market developments.

In addition, a variety of factors relating to our business may also impact our results

of operations and financial condition. 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; and

●

the requirements to qualify as a REIT and the requirements to qualify for

a registration exemption under the Investment

Company Act.

Results

of Operations

Described

below are

the Company’s

results of

operations

for the

years ended

December

31, 2021,

as compared

to the Company’s

results of

operations

for the years

ended December

31, 2020

and 2019.

Net (Loss)

Income Summary

Net loss

for the year

ended December

31, 2021

was $64.8

million, or

$0.54 per

share. Net

income for

the year ended

December

31,

2020 was

$2.1 million,

or $0.03

per share.

Net income

for the year

ended December

31, 2019

was $24.3

million, or

$0.43 per

share. The

components

of net (loss)

income for

the years

ended December

31, 2021,

2020 and

2019 are

presented

in the table

below:

(in thousands)

2021

2020

2019

Interest income

134,700

116,045

142,324

Interest expense

(7,090)

(25,056)

(83,666)

Net interest income

127,610

90,989

58,658

Losses on RMBS and derivative contracts

(177,119)

(78,317)

(24,008)

Net portfolio (loss) income

(49,509)

12,672

34,650

Expenses

(15,251)

(10,544)

(10,385)

Net (loss) income

(64,760)

2,128

24,265

GAAP and

Non-GAAP

Reconciliations

In addition

to the results

presented

in accordance

with GAAP, our results

of operations

discussed

below include

certain non-GAAP

financial

information,

including

“Net Earnings

Excluding

Realized

and Unrealized

Gains and

Losses”,

“Economic

Interest

Expense”

and

“Economic

Net Interest

Income.”

Net Earnings

Excluding

Realized

and Unrealized

Gains and

Losses

We have elected

to account

for our

Agency RMBS

under the

fair value

option. Securities

held under

the fair

value option

are

recorded

at estimated

fair value,

with changes

in the fair

value recorded

as unrealized

gains or

losses through

the statements

operations.

In addition,

we have not

designated

our derivative

financial

instruments

used for

hedging purposes

as hedges

for accounting

purposes,

but rather

hold them

for economic

hedging purposes.

Changes in

fair value

of these

instruments

are presented

in a separate

line item

in the Company’s

statements

of operations

and are not

included in

interest

expense.

As such,

for financial

reporting

purposes,

interest

expense and

cost of funds

are not impacted

by the fluctuation

in value of

the derivative

instruments.

Presenting

net earnings

excluding

realized and

unrealized

gains and

losses allows

management

to: (i) isolate

the net interest

income

and other

expenses of

the Company

over time,

free of all

fair value

adjustments

and (ii)

assess the

effectiveness

of our funding

and

hedging strategies

on our capital

allocation

decisions

and our

asset allocation

performance.

Our funding

and hedging

strategies,

capital

allocation

and asset

selection

are integral

to our risk

management

strategy, and therefore

critical to

the management

of our portfolio.

believe that

the presentation

of our net

earnings

excluding

realized

and unrealized

gains is useful

to investors

because it

provides a

means

of comparing

our results

of operations

to those

of our peers

who have not

elected the

same accounting

treatment.

Our presentation

of net

earnings

excluding

realized and

unrealized

gains and

losses may

not be comparable

to similarly-titled

measures of

other companies,

who

may use different

calculations.

As a result,

net earnings

excluding

realized and

unrealized

gains and

losses should

not be considered

as a

substitute

for our GAAP

net income

(loss) as

a measure

of our financial

performance

or any measure

of our liquidity

under GAAP.

The

table below

presents

a reconciliation

of our net

income (loss)

determined

in accordance

with GAAP

and net earnings

excluding realized

and unrealized

gains and

losses.

Net Earnings Excluding Realized and Unrealized Gains and Losses

(in thousands, except per share data)

Per Share

Net Earnings

Excluding

Realized and

Net

Unrealized

Net

Unrealized

Income

Gains and

Income

Gains and

(GAAP)

Losses

(1)

Losses

(GAAP)

Losses

Three Months Ended

December 31, 2021

(44,564)

(82,597)

38,033

(0.27)

(0.49)

0.22

September 30, 2021

26,038

(2,887)

28,925

0.20

(0.02)

0.22

June 30, 2021

(16,865)

(40,844)

23,979

(0.17)

(0.41)

0.24

March 31, 2021

(29,369)

(50,791)

21,422

(0.34)

(0.60)

0.26

December 31, 2020

16,479

(4,605)

21,084

0.23

(0.07)

0.30

September 30, 2020

28,076

5,745

22,331

0.42

0.09

0.33

June 30, 2020

48,772

28,749

20,023

0.74

0.43

0.31

March 31, 2020

(91,199)

(108,206)

17,007

(1.41)

(1.68)

0.27

December 31, 2019

18,612

3,840

14,772

0.29

0.06

0.23

September 30, 2019

(8,477)

(19,431)

10,954

(0.14)

(0.32)

0.18

June 30, 2019

3,533

(7,670)

11,203

0.07

(0.15)

0.22

March 31, 2019

10,597

(747)

11,344

0.22

(0.02)

0.24

Years Ended

December 31, 2021

(64,760)

(177,119)

112,359

(0.54)

(1.46)

0.92

December 31, 2020

2,128

(78,317)

80,445

0.03

(1.17)

1.20

December 31, 2019

24,265

(24,008)

48,273

0.43

(0.43)

0.86

(1)

Includes realized

and unrealized

gains (losses)

on RMBS and derivative

financial instruments,

including net

interest income

or expense on

interest

rate swaps.

Economic

Interest

Expense and

Economic

Net Interest

Income

We use derivative

and other

hedging instruments,

specifically

Eurodollar, Fed

Funds and

T-Note futures

contracts,

short positions

U.S. Treasury

securities,

interest

rate swaps

and swaptions,

to hedge

a portion

of the interest

rate risk

on repurchase

agreements

in a

rising rate

environment.

We have not

elected to

designate

our derivative

holdings for

hedge accounting

treatment.

Changes in

fair value

of these

instruments

are presented

in a separate

line item

in our statements

of operations

and not included

in interest

expense. As

such, for

financial

reporting

purposes,

interest

expense and

cost of funds

are not impacted

by the fluctuation

in value of

the derivative

instruments.

For the purpose

of computing

economic net

interest

income and

ratios relating

to cost of

funds measures,

GAAP interest

expense

has been

adjusted to

reflect the

realized and

unrealized

gains or

losses on

certain derivative

instruments

the Company

uses, specifically

Eurodollar, Fed

Funds and

U.S. Treasury

futures,

and interest

rate swaps

and swaptions,

that pertain

to each period

presented.

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,

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.

The Company

may invest

in TBAs,

which are

forward contracts

for the purchase

or sale of

Agency RMBS

at a predetermined

price,

face amount,

issuer, coupon

and stated

maturity on

an agreed-upon

future date.

The specific

Agency RMBS

to be delivered

into the

contract

are not known

until shortly

before the

settlement

date. We may

choose, prior

to settlement,

to move the

settlement

of these

securities

out to a

later date

by entering

into a dollar

roll transaction.

The Agency

RMBS purchased

or sold for

a forward

settlement

date

are typically

priced at

a discount

to equivalent

securities

settling

in the current

month. Consequently,

forward

purchases

of Agency

RMBS

and dollar

roll transactions

represent

a form of

off-balance

sheet financing.

These TBAs

are accounted

for as derivatives

and marked

market through

the income

statement.

Gains or losses

on TBAs

are included

with gains

or losses

on other

derivative

contracts

and are not

included in

interest

income for

purposes of

the discussions

below.

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 statements

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 income

statement

line item,

gains (losses)

on derivative

instruments,

calculated

in accordance

with GAAP

for the

years ended

December

31, 2021,

2020 and

2019 and

each quarter

during 2021,

2020 and

2019.

Gains (Losses) on Derivative Instruments

(in thousands)

Economic Hedges

Recognized in

Attributed to

Income

U.S. Treasury and TBA

Current

Future

Statement

Securities Gain (Loss)

Period

Periods

(GAAP)

(Short Positions)

(Long Positions)

(Non-GAAP)

Three Months Ended

December 31, 2021

10,945

2,568

(7,949)

16,326

September 30, 2021

5,375

(2,306)

(1,248)

8,929

June 30, 2021

(34,915)

(5,963)

(5,104)

(23,848)

March 31, 2021

45,472

9,133

(8,559)

(4,044)

48,942

December 31, 2020

8,538

(436)

5,480

(5,790)

9,284

September 30, 2020

4,079

131

3,336

(6,900)

7,512

June 30, 2020

(8,851)

582

1,133

(5,751)

(4,815)

March 31, 2020

(82,858)

(7,090)

(4,900)

(70,868)

December 31, 2019

10,792

(512)

3,823

7,481

September 30, 2019

(8,648)

572

1,907

1,244

(12,371)

June 30, 2019

(34,288)

(1,684)

1,464

(34,068)

March 31, 2019

(19,032)

(4,641)

2,427

(16,818)

Years Ended

December 31, 2021

26,877

3,432

(8,559)

(18,345)

50,349

December 31, 2020

(79,092)

(6,813)

9,949

(23,341)

(58,887)

December 31, 2019

(51,176)

(6,265)

1,907

8,958

(55,776)

Economic Interest Expense and Economic Net Interest Income

(in thousands)

Interest Expense on Borrowings

Gains

(Losses) on

Derivative

Instruments

Net Interest Income

GAAP

Attributed

Economic

GAAP

Economic

Interest

to Current

Interest

Net Interest

Income

Expense

Period

(1)

Expense

(2)

Income

(3)

Three Months Ended

December 31, 2021

44,421

2,023

(7,949)

9,972

42,398

34,449

September 30, 2021

34,169

1,570

(1,248)

2,818

32,599

31,351

June 30, 2021

29,254

1,556

(5,104)

6,660

27,698

22,594

March 31, 2021

26,856

1,941

(4,044)

5,985

24,915

20,871

December 31, 2020

25,893

2,011

(5,790)

7,801

23,882

18,092

September 30, 2020

27,223

2,043

(6,900)

8,943

25,180

18,280

June 30, 2020

27,258

4,479

(5,751)

10,230

22,779

17,028

March 31, 2020

35,671

16,523

(4,900)

21,423

19,148

14,248

December 31, 2019

37,529

20,022

3,823

16,199

17,507

21,330

September 30, 2019

35,907

22,321

1,244

21,077

13,586

14,830

June 30, 2019

36,455

22,431

1,464

20,967

14,024

15,488

March 31, 2019

32,433

18,892

2,427

16,465

13,541

15,968

Years Ended

December 31, 2021

134,700

7,090

(18,345)

25,435

127,610

109,265

December 31, 2020

116,045

25,056

(23,341)

48,397

90,989

67,648

December 31, 2019

142,324

83,666

8,958

74,708

58,658

67,616

(1)

Reflects the effect of derivative instrument hedges for only the period

presented.

(2)

Calculated by adding the effect of derivative instrument hedges attributed

to the period presented to GAAP interest expense.

(3)

Calculated by adding the effect of derivative instrument hedges attributed

to the period presented to GAAP net interest income.

Net Interest Income

During the

year ended

December

31, 2021,

we generated

$127.6 million

of net interest

income, consisting

of $134.7

million of

interest

income from

RMBS assets

offset by $7.1

million of

interest

expense on

borrowings.

For the comparable

period ended

December

31,

2020, we

generated

$91.0 million

of net interest

income, consisting

of $116.0 million

of interest

income from

RMBS assets

offset by $25.1

million of

interest

expense on

borrowings.

The $18.7

million increase

in interest

income was

driven by

a $1,569.3

million increase

average RMBS

that was

partially offset

by a 72 basis

point ("bps")

decrease

in yield on

average

RMBS. The

$18.0 million

decrease

interest

expense for

the year

ended December

31, 2021

was driven

by a 63 bps

decrease

in the average

cost of funds,

offset by

$1,510.5

million increase

in average

borrowings.

For the year

ended December

31, 2019,

we generated

$58.7 million

of net interest

income, consisting

of $142.3

million of

interest

income from

RMBS assets

offset by $83.7

million of

interest

expense on

borrowings.

The $26.3

million decrease

in interest

income for

the

year ended

December

31, 2020,

compared

to the year

ended December

31, 2019,

was due to

a 69 bps

decrease in

yield on

average

RMBS,

combined with

a $71.6 million

decrease

in average

RMBS during

the period.

The $58.6

million decrease

in interest

expense for

the

year ended

December

31, 2020

was due to

a $114.7 million

decrease

in average

borrowings,

combined with

a 175 bps

decrease

in the

average cost

of funds.

On an economic

basis, our

interest

expense on

borrowings

for the years

ended December

31, 2021,

2020 and

2019 was

$25.4

million, $48.4

million and

$74.7 million,

respectively, resulting

in $109.3

million, $67.6

million and

$67.6 million

of economic

net interest

income, respectively.

The tables

below provide

information

on our portfolio

average balances,

interest

income, yield

on assets,

average borrowings,

interest

expense, cost

of funds,

net interest

income and

net interest

spread for

each quarter

in 2021, 2020

and 2019

and for the

years ended

December

31, 2021,

2020 and

2019 on both

a GAAP and

economic basis.

($ in thousands)

Average

Yield on

Interest Expense

Average Cost of Funds

RMBS

Interest

Average

GAAP

Economic

GAAP

Economic

Held

(1)

Income

RMBS

Borrowings

(1)

Basis

(2)

Basis

(3)

Three Months Ended

December 31, 2021

6,056,259

44,421

2.93%

5,728,988

2,023

9,972

0.14%

0.70%

September 30, 2021

5,136,331

34,169

2.66%

4,864,287

1,570

2,818

0.13%

0.23%

June 30, 2021

4,504,887

29,254

2.60%

4,348,192

1,556

6,660

0.14%

0.61%

March 31, 2021

4,032,716

26,856

2.66%

3,888,633

1,941

5,985

0.20%

0.62%

December 31, 2020

3,633,631

25,893

2.85%

3,438,444

2,011

7,801

0.23%

0.91%

September 30, 2020

3,422,564

27,223

3.18%

3,228,021

2,043

8,943

0.25%

1.11%

June 30, 2020

3,126,779

27,258

3.49%

2,992,494

4,479

10,230

0.60%

1.37%

March 31, 2020

3,269,859

35,671

4.36%

3,129,178

16,523

21,423

2.11%

2.74%

December 31, 2019

3,705,920

37,529

4.05%

3,631,042

20,022

16,199

2.21%

1.78%

September 30, 2019

3,674,087

35,907

3.91%

3,571,752

22,321

21,077

2.50%

2.36%

June 30, 2019

3,307,885

36,455

4.41%

3,098,133

22,431

20,967

2.90%

2.71%

March 31, 2019

3,051,509

32,433

4.25%

2,945,895

18,892

16,465

2.57%

2.24%

Years Ended

December 31, 2021

4,932,548

134,700

2.73%

4,707,525

7,090

25,435

0.15%

0.54%

December 31, 2020

3,363,208

116,045

3.45%

3,197,034

25,056

48,397

0.78%

1.51%

December 31, 2019

3,434,850

142,324

4.14%

3,311,705

83,666

74,708

2.53%

2.26%

($ in thousands)

Net Interest Income

Net Interest Spread

GAAP

Economic

GAAP

Economic

Basis

(2)

Basis

(4)

Three Months Ended

December 31, 2021

42,398

34,449

2.79%

2.23%

September 30, 2021

32,599

31,351

2.53%

2.43%

June 30, 2021

27,698

22,594

2.46%

1.99%

March 31, 2021

24,915

20,871

2.46%

2.04%

December 31, 2020

23,882

18,093

2.62%

1.94%

September 30, 2020

25,180

18,280

2.93%

2.07%

June 30, 2020

22,779

17,028

2.89%

2.12%

March 31, 2020

19,148

14,248

2.25%

1.62%

December 31, 2019

17,507

21,330

1.84%

2.27%

September 30, 2019

13,586

14,830

1.41%

1.55%

June 30, 2019

14,024

15,488

1.51%

1.70%

March 31, 2019

13,541

15,968

1.68%

2.01%

Years Ended

December 31, 2021

127,610

109,265

2.58%

2.19%

December 31, 2020

90,989

67,649

2.67%

1.94%

December 31, 2019

58,658

67,616

1.61%

1.88%

(1)

Portfolio yields and costs of borrowings presented in the tables above and the

tables on pages 60 and 61 are calculated based on the

average balances of the underlying investment portfolio/borrowings 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 table above and the tables on page 61 includes the effect

of our derivative instrument hedges for only the periods presented.

(3)

Represents interest cost of our borrowings and the effect of derivative

instrument hedges attributed to the period divided by average

RMBS.

(4)

Economic net interest spread is calculated by subtracting average economic

cost of funds from realized yield on average RMBS.

Interest Income and Average Asset Yield

Our interest

income for

the years

ended December

31, 2021

and 2020

was $134.7

million and

$116.0 million,

respectively.

We had

average RMBS

holdings of

$4,932.5

million and

$3,363.2

million for

the years

ended December

31, 2021

and 2020,

respectively.

The

yield on our

portfolio

was 2.73%

and 3.45%

for the years

ended December

31, 2021

and 2020,

respectively. For

the year

ended

December

31, 2021

as compared

to the year

ended December

31, 2020,

there was

a $18.7 million

increase in

interest

income due

to a

$1,569.3

million increase

in average

RMBS, offset

by a 72 bps

decrease

in the yield

on average

RMBS.

For the year

ended December

31, 2019,

we had interest

income of

$142.3 million

and average

RMBS holdings

of $3,434.9

million,

resulting

in a yield

on our portfolio

of 4.14%.

For the year

ended December

31, 2020,

as compared

to the year

ended December

31, 2019,

there was

a $26.3 million

decrease

in interest

income due

to a $71.6

million decrease

in average

RMBS, combined

with a 69

bps decrease

in the yield

on average

RMBS.

The table

below presents

the average

portfolio

size, income

and yields

of our respective

sub-portfolios,

consisting

of structured

RMBS

and PT RMBS

for the years

ended December

31, 2021,

2020 and

2019 and

for each

quarter during

2021, 2020

and 2019.

($ in thousands)

Average RMBS Held

Interest Income

Realized Yield on Average RMBS

Structured

RMBS

Total

RMBS

Total

RMBS

Total

Three Months Ended

December 31, 2021

5,878,376

177,883

6,056,259

42,673

1,748

44,421

2.90%

3.93%

2.93%

September 30, 2021

5,016,550

119,781

5,136,331

33,111

1,058

34,169

2.64%

3.53%

2.66%

June 30, 2021

4,436,135

68,752

4,504,887

29,286

(32)

29,254

2.64%

(0.18)%

2.60%

March 31, 2021

3,997,965

34,751

4,032,716

26,869

(13)

26,856

2.69%

(0.15)%

2.66%

December 31, 2020

3,603,885

29,746

3,633,631

25,933

(40)

25,893

2.88%

(0.53)%

2.85%

September 30, 2020

3,389,037

33,527

3,422,564

27,021

202

27,223

3.19%

2.41%

3.18%

June 30, 2020

3,088,603

38,176

3,126,779

27,004

254

27,258

3.50%

2.67%

3.49%

March 31, 2020

3,207,467

62,392

3,269,859

35,286

385

35,671

4.40%

2.47%

4.36%

December 31, 2019

3,611,461

94,459

3,705,920

36,600

929

37,529

4.05%

3.93%

4.05%

September 30, 2019

3,558,075

116,012

3,674,087

36,332

(425)

35,907

4.08%

(1.47)%

3.91%

June 30, 2019

3,181,976

125,909

3,307,885

34,992

1,463

36,455

4.40%

4.65%

4.41%

March 31, 2019

2,919,415

132,094

3,051,509

30,328

2,105

32,433

4.16%

6.37%

4.25%

Years Ended

December 31, 2021

4,832,257

100,291

4,932,548

131,939

2,761

134,700

2.73%

2.75%

2.73%

December 31, 2020

3,322,248

40,960

3,363,208

115,244

801

116,045

3.47%

1.96%

3.45%

December 31, 2019

3,317,732

117,118

3,434,850

138,252

4,072

142,324

4.17%

3.48%

4.14%

Interest Expense and the Cost of Funds

We had average

outstanding

borrowings

of $4,707.5

million and

$3,197.0 million

and total

interest

expense of

$7.1 million

and $25.1

million for

the years

ended December

31, 2021

and 2020,

respectively. Our

average cost

of funds

was 0.15%

for the year

ended

December

31, 2021,

compared

to 0.78%

for the comparable

period in

2020.

There was

a $1,510.5

million increase

in average

outstanding

borrowings

during the

year ended

December

31, 2021

as compared

to the year

ended December

31, 2020.

For the year

ended December

31, 2019,

we had average

borrowings

of $3,311.7 million

and total

interest

expense of

$83.7 million,

resulting

in an average

cost of funds

of 2.53%.

There was

a 175 bps

decrease

in the average

cost of funds

and an $114.7 million

decrease

in average

outstanding

borrowings

during the

year ended

December

31, 2020

as compared

to the year

ended December

31,

2019.

Our economic

interest

expense

was $25.4

million, $48.4

million and

$74.7 million

for the years

ended December

31, 2021,

2020 and

2019, respectively.

There was

a 97 bps

decrease

in the average

economic cost

of funds to

0.54% for

the year

ended December

31, 2021

from 1.51%

for the year

ended December

31, 2020.

The reason

for the decrease

in economic

cost of funds

is primarily

due to the

lower

cost of our

borrowings

noted above,

offset by the

negative performance

of our hedging

activities

during the

period. There

was a 75 bps

decrease

in the average

economic

cost of funds

to 1.51%

for the year

ended December

31, 2020

from 2.26%

for the year

ended

December

31, 2019.

Since all

of our repurchase

agreements

are short-term,

changes in

market rates

directly affect

our interest

expense. Our

average

cost

of funds

calculated

on a GAAP

basis was

5 bps above

average

one-month

LIBOR and

9 bps below

average six-month

LIBOR for

the

quarter ended

December

31, 2021.

Our average

economic cost

of funds

was equal

to average

one-month

LIBOR and

47 bps above

average six-month

LIBOR for

the quarter

ended December

31, 2021.

The average

term to maturity

of the outstanding

repurchase

agreements

was 27 days

and 31 days

at December

31, 2021 and

2020, respectively.

The tables

below present

the average

balance of

borrowings

outstanding,

interest

expense and

average cost

of funds,

and average

one-month

and six-month

LIBOR rates

for each

quarter in

2021, 2020

and 2019

and for the

years ended

December

31, 2021,

2020 and

2019 on both

a GAAP and

economic basis.

($ in thousands)

Average

Interest Expense

Average Cost of Funds

Balance of

GAAP

Economic

GAAP

Economic

Borrowings

Basis

Three Months Ended

December 31, 2021

5,728,988

2,023

9,972

0.14%

0.70%

September 30, 2021

4,864,287

1,570

2,818

0.13%

0.23%

June 30, 2021

4,348,192

1,556

6,660

0.14%

0.61%

March 31, 2021

3,888,633

1,941

5,985

0.20%

0.62%

December 31, 2020

3,438,444

2,011

7,801

0.23%

0.91%

September 30, 2020

3,228,021

2,043

8,943

0.25%

1.11%

June 30, 2020

2,992,494

4,479

10,230

0.60%

1.37%

March 31, 2020

3,129,178

16,523

21,423

2.11%

2.74%

December 31, 2019

3,631,042

20,022

16,199

2.21%

1.78%

September 30, 2019

3,571,752

22,321

21,077

2.50%

2.36%

June 30, 2019

3,098,133

22,431

20,967

2.90%

2.71%

March 31, 2019

2,945,895

18,892

16,465

2.57%

2.24%

Years Ended

December 31, 2021

4,707,525

7,090

25,435

0.15%

0.54%

December 31, 2020

3,197,034

25,056

48,397

0.78%

1.51%

December 31, 2019

3,311,705

83,666

74,708

2.53%

2.26%

Average GAAP Cost of Funds

Average Economic Cost of Funds

Relative to Average

Average LIBOR

One-Month

Six-Month

One-Month

Six-Month

One-Month

Six-Month

LIBOR

Three Months Ended

December 31, 2021

0.09%

0.23%

0.05%

(0.09)%

0.61%

0.47%

September 30, 2021

0.09%

0.16%

0.04%

(0.03)%

0.14%

0.07%

June 30, 2021

0.10%

0.18%

0.04%

(0.04)%

0.51%

0.43%

March 31, 2021

0.13%

0.23%

0.07%

(0.03)%

0.49%

0.39%

December 31, 2020

0.15%

0.27%

0.08%

(0.04)%

0.76%

0.64%

September 30, 2020

0.17%

0.35%

0.08%

(0.10)%

0.94%

0.76%

June 30, 2020

0.55%

0.70%

0.05%

(0.10)%

0.82%

0.67%

March 31, 2020

1.34%

1.43%

0.77%

0.68%

1.40%

1.31%

December 31, 2019

1.90%

1.98%

0.31%

0.23%

(0.12)%

(0.20)%

September 30, 2019

2.22%

2.18%

0.28%

0.32%

0.14%

0.18%

June 30, 2019

2.45%

2.49%

0.45%

0.41%

0.26%

0.22%

March 31, 2019

2.51%

2.77%

0.06%

(0.20)%

(0.27)%

(0.53)%

Years Ended

December 31, 2021

0.10%

0.20%

0.05%

(0.05)%

0.44%

0.34%

December 31, 2020

0.55%

0.69%

0.23%

0.09%

0.96%

0.82%

December 31, 2019

2.27%

2.35%

0.26%

0.18%

(0.01)%

(0.09)%

Gains or Losses

The table

below presents

our gains

or losses

for the years

ended December

31, 2021,

2020 and

2019.

(in thousands)

2021

2020

2019

Realized losses on sales of RMBS

(5,542)

(24,986)

(10,877)

Unrealized (losses) gains on RMBS

(198,454)

25,761

38,045

Total (losses)

gains on RMBS

(203,996)

775

27,168

Losses on interest rate futures

(856)

(13,044)

(18,858)

Gains (losses) on interest rate swaps

23,613

(66,212)

(26,582)

Gains (losses) on payer swaptions (short positions)

9,062

(3,070)

(1,379)

(Losses) gains on payer swaptions (long positions)

(2,580)

Gains on interest rate floors

2,765

Gains (losses) on TBA securities (short positions)

3,432

(6,719)

(6,264)

(Losses) gains on TBA securities (long positions)

(8,559)

9,950

1,907

Losses on U.S. Treasury securities

(95)

Total

(177,119)

(78,317)

(24,008)

We invest in

RMBS 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 sales.

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 years

ended December

31, 2021,

2020 and

2019, the

Company received

proceeds

of $2,851.7

million, $4,200.5

million and

$3,321.2

million,

respectively, from

the sales

of RMBS.

Approximately

$1.1 billion

of the sales

during the

year ended

December

31,

2020 occurred

during the

second half

of March

2020 as we

sold assets

in order

to maintain

sufficient

cash and liquidity

and reduce

risk

associated

with the

market turmoil

brought about

by COVID-19.

Realized and

unrealized

gains and

losses on

RMBS are

driven in

part by changes

in yields

and interest

rates, which

affect the

pricing

of the securities

in our portfolio.

Gains and

losses on

interest

rate futures

contracts

are affected

by changes

in implied

forward

rates during

the reporting

period.

The table

below presents

historical

interest

rate data

for each

quarter end

during 2021,

2020 and

2019.

5 Year

10 Year

15 Year

30 Year

Three

U.S. Treasury

Fixed-Rate

Month

Rate

(1)

Rate

(1)

Mortgage Rate

(2)

Mortgage Rate

(2)

LIBOR

(3)

December 31, 2021

1.26%

1.51%

2.35%

3.10%

0.21%

September 30, 2021

1.00%

1.53%

2.18%

2.90%

0.12%

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%

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 and 10 Year

U.S. Treasury Rates are obtained from quoted end

of day prices on the Chicago Board Options Exchange.

(2)

Historical 30 Year and

15 Year Fixed

Rate Mortgage Rates are obtained from Freddie Mac’s Primary

Mortgage Market Survey.

(3)

Historical LIBOR is obtained from the Intercontinental Exchange Benchmark

Administration Ltd.

Expenses

Total operating expenses

were $15.3

million, $10.5

million and

$10.4 million

for the years

ended December

31, 2021,

2020 and 2019,

respectively.

The table

below provides

a breakdown

of operating

expenses for

the years

ended December

31, 2021,

2020 and

2019.

(in thousands)

2021

2020

2019

Management fees

8,156

5,281

5,528

Overhead allocation

1,632

1,514

1,380

Accrued incentive compensation

1,132

115

Directors fees and liability insurance

1,169

998

Audit, legal and other professional fees

1,112

1,045

1,105

Direct REIT operating expenses

1,475

1,057

997

Other administrative

575

611

262

Total expenses

15,251

10,544

10,385

We are externally managed and advised by Bimini Advisors, LLC (the “Manager”) pursuant

to the terms of a management

agreement. The management agreement has been renewed through February

20, 2023 and provides for automatic one-year extension

options thereafter and is subject to certain termination rights.

Under the terms of the management agreement, the Manager is

responsible for administering the business activities and day-to-day operations of

the Company.

The Manager receives a monthly

management fee in the amount of:

●

One-twelfth of 1.5% of the first $250 million of the Company’s month end equity, as defined in the management agreement,

●

One-twelfth of 1.25% of the Company’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 the Company’s month end equity that is greater than $500

million.

The Company is obligated to reimburse the Manager for any direct expenses

incurred on its behalf and to pay the Manager the

Company’s pro rata portion of certain overhead costs set forth in the management

agreement.

The Company has contracted with AVM, L.P.

(“AVM”) to provide repurchase agreement trading, clearing and administrative

services to the Company. Commencing in 2022, the Manager will begin performing these functions and the contracted relationship

with

AVM may be reduced or eliminated. Following the termination of the arrangements with AVM, the Company will pay the Manager

additional fees for its performance of repurchase agreement funding transaction

services and related clearing and operational services

as set forth in the management agreement, as amended.

Should the Company terminate the management agreement without cause,

it will pay the Manager 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 term of the

agreement.

The following table summarizes the management fee and overhead allocation

expenses for each quarter in 2021, 2020 and 2019

and for the years ended December 31, 2021, 2020 and 2019.

($ in thousands)

Average

Advisory Services

Orchid

Management

Overhead

Three Months Ended

MBS

Equity

Fee

Allocation

Total

December 31, 2021

6,056,259

806,382

2,587

443

3,030

September 30, 2021

5,136,331

672,384

2,156

390

2,546

June 30, 2021

4,504,887

542,679

1,792

395

2,187

March 31, 2021

4,032,716

456,687

1,621

404

2,025

December 31, 2020

3,633,631

387,503

1,384

442

1,826

September 30, 2020

3,422,564

368,588

1,252

377

1,629

June 30, 2020

3,126,779

361,093

1,268

348

1,616

March 31, 2020

3,269,859

376,673

1,377

347

1,724

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

327

1,653

March 31, 2019

3,051,509

363,204

1,285

323

1,608

Years Ended

December 31, 2021

4,932,548

619,533

8,156

1,632

9,788

December 31, 2020

3,363,208

373,464

5,281

1,514

6,795

December 31, 2019

3,434,850

383,993

5,528

1,380

6,908

Financial

Condition:

Mortgage-Backed Securities

As of December

31, 2021,

our RMBS

portfolio

consisted

of $6,511.1 million

of Agency

RMBS at

fair value

and had a

weighted

average coupon

on assets

of 3.03%.

During the

year ended

December

31, 2021,

we received

principal

repayments

of $591.1

million

compared

to $523.7

million for

the year

ended December

31, 2020.

The average

three month

prepayment

speeds for

the quarters

ended

December

31, 2021

and 2020

were 11.4% and

20.1%, respectively.

The following

table presents

the 3-month

constant prepayment

rate (“CPR”)

experienced

on our structured

and PT RMBS

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 RMBS

RMBS

Total

Three Months Ended

Portfolio (%)

December 31, 2021

9.0

24.6

11.4

September 30, 2021

9.8

25.1

12.4

June 30, 2021

10.9

29.9

12.9

March 31, 2021

9.9

40.3

12.0

December 31, 2020

16.7

44.3

20.1

September 30, 2020

14.3

40.4

17.0

June 30, 2020

13.9

35.3

16.3

March 31, 2020

9.8

22.9

11.9

The following

tables summarize

certain characteristics

of the Company’s

PT RMBS

and structured

RMBS as of

December 31,

2021

and 2020:

($ in thousands)

Weighted

Percentage

Average

Weighted

Maturity

Fair

Entire

Average

Longest

Asset Category

Value

Portfolio

Coupon

Months

Maturity

December 31, 2021

Fixed Rate RMBS

6,298,189

96.7%

2.93%

342

1-Dec-51

Total Mortgage-backed Pass-through

6,298,189

96.7%

2.93%

342

1-Dec-51

Interest-Only Securities

210,382

3.2%

3.40%

263

25-Jan-52

Inverse Interest-Only Securities

2,524

0.1%

3.75%

300

15-Jun-42

Total Structured RMBS

212,906

3.3%

3.41%

264

25-Jan-52

Total Mortgage Assets

6,511,095

100.0%

3.03%

325

25-Jan-52

December 31, 2020

Fixed Rate RMBS

3,560,746

95.5%

3.09%

339

1-Jan-51

Fixed Rate CMOs

137,453

3.7%

4.00%

312

15-Dec-42

Total Mortgage-backed Pass-through

3,698,199

99.2%

3.13%

338

1-Jan-51

Interest-Only Securities

28,696

0.8%

3.98%

268

25-May-50

Total Structured RMBS

28,696

0.8%

3.98%

268

25-May-50

Total Mortgage Assets

3,726,895

100.0%

3.19%

333

1-Jan-51

($ in thousands)

December 31, 2021

December 31, 2020

Percentage of

Agency

Fair Value

Entire Portfolio

Fair Value

Entire Portfolio

Fannie Mae

4,719,349

72.5%

2,733,960

73.4%

Freddie Mac

1,791,746

27.5%

992,935

26.6%

Total Portfolio

6,511,095

100.0%

3,726,895

100.0%

December 31, 2021

December 31, 2020

Weighted Average Pass-through Purchase Price

107.19

107.43

Weighted Average Structured Purchase Price

15.21

20.06

Weighted Average Pass-through Current Price

105.31

108.94

Weighted Average Structured Current Price

14.08

10.87

Effective Duration

(1)

3.390

2.360

(1)

Effective duration is the approximate percentage change in price

for a 100 bps change in rates.

An effective duration of 3.390 indicates that an

interest rate increase of 1.0% would be expected to cause a 3.390% decrease in the value

of the RMBS in the Company’s investment portfolio

at December 31, 2021.

An effective duration of 2.360 indicates that an interest rate increase

of 1.0% would be expected to cause a 2.360%

decrease in the value of the RMBS in the Company’s investment portfolio

at December 31, 2020. These figures include the structured securities

in the portfolio, but do not include the effect of the Company’s funding

cost hedges.

Effective duration quotes for individual investments are

obtained from The Yield Book, Inc.

The following

table presents

a summary

of portfolio

assets acquired

during the

years ended

December

31, 2021

and 2020.

($ in thousands)

2021

2020

Total Cost

Average

Price

Weighted

Average

Yield

Total Cost

Average

Price

Weighted

Average

Yield

Pass-through RMBS

6,224,819

106.68

1.63%

4,858,602

107.71

1.38%

Structured RMBS

205,906

13.61

3.88%

832

12.96

2.80%

Borrowings

As of December

31, 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

23 of these

counterparties.

None of these

lenders are

affiliated

with

the Company. These

borrowings

are secured

by the Company’s

RMBS and

cash, and

bear interest

at prevailing

market rates.

We believe

our established

repurchase

agreement

borrowing

facilities

provide borrowing

capacity in

excess of

our needs.

As of December

31, 2021,

we had obligations

outstanding

under the

repurchase

agreements

of approximately

$6,244.1

million with

net weighted

average borrowing

cost of 0.15%.

The remaining

maturity of

our outstanding

repurchase

agreement

obligations

ranged from

5 to 257

days, with

a weighted

average remaining

maturity of

27 days.

Securing

the repurchase

agreement

obligations

as of December

31, 2021

are RMBS

with an estimated

fair value,

including

accrued

interest,

of approximately

$6,525.2

million and

a weighted

average

maturity of

345 months,

and cash

pledged to

counterparties

of approximately

$57.3 million.

Through

February

25, 2022,

we have been

able to maintain

our repurchase

facilities

with comparable

terms to

those that

existed at

December

31, 2021

with maturities

extending

various dates

through September

14, 2022.

The table below presents information about our period end,

maximum and average balances of borrowings for each quarter in

2021 and 2020.

($ in thousands)

Difference Between Ending

Ending

Maximum

Average

Borrowings and

Balance of

Average Borrowings

Three Months Ended

Borrowings

Amount

Percent

December 31, 2021

6,244,106

6,419,689

5,728,988

515,118

8.99%

September 30, 2021

5,213,869

5,214,254

4,864,287

349,582

7.19%

June 30, 2021

4,514,704

4,517,953

4,348,192

166,512

3.83%

March 31, 2021

4,181,680

4,204,935

3,888,633

293,047

7.54%

December 31, 2020

3,595,586

3,597,313

3,438,444

157,142

4.57%

September 30, 2020

3,281,303

3,286,454

3,228,021

53,282

1.65%

June 30, 2020

3,174,739

3,235,370

2,992,494

182,245

6.09%

March 31, 2020

2,810,250

4,297,621

3,129,178

(318,928)

(10.19)%

(1)

The lower ending balance relative to the average balance during the quarter

ended March 31, 2020 reflects the sale of RMBS pledged as

collateral in order to maintain cash and liquidity in response to the dislocations in the financial

and mortgage markets resulting from the

economic impacts of COVID-19.

During the quarter ended March 31, 2020, the Company’s investment

in RMBS decreased $642.1 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,

fulfill margin

calls and

pay dividends.

We have both

internal

and external

sources of

liquidity. However,

our material

unused sources

of liquidity

include cash

balances,

unencumbered

assets and

our ability

to sell encumbered

assets to

raise cash.

At the

onset of

the COVID-19

pandemic in

the spring

of 2020,

the markets

the Company

operates

in were severely

disrupted

and the Company

was forced

to rely on

these sources

of liquidity. Our

balance sheet

also generates

liquidity

on an on-going

basis through

payments

principal

and interest

we receive

on our RMBS

portfolio.

Management

believes that

we currently

have sufficient

liquidity

and capital

resources

available

for (a) the

acquisition

of additional

investments

consistent

with the

size and

nature of

our existing

RMBS portfolio,

(b)

the repayments

on borrowings

and (c) the

payment of

dividends

to the extent

required

for our continued

qualification

as a REIT.

We may

also generate

liquidity

from time

to time by

selling our

equity or

debt securities

in public

offerings

or private

placements.

Internal

Sources of

Liquidity

Our internal

sources of

liquidity

include our

cash balances,

unencumbered

assets and

our ability

to liquidate

our encumbered

security

holdings.

Our balance

sheet also

generates

liquidity

on an on-going

basis through

payments

of principal

and interest

we receive

on our

RMBS portfolio.

Because our

PT RMBS portfolio

consists entirely

of government

and agency

securities,

we do not

anticipate

having

difficulty converting

our assets

to cash should

our liquidity

needs ever

exceed our

immediately

available

sources of

cash.

Our structured

RMBS portfolio

also consists

entirely of

governmental

agency securities,

although

they typically

do not trade

with comparable

bid / ask

spreads as

PT RMBS.

However, we anticipate

that we would

be able to

liquidate

such securities

readily, even in

distressed

markets,

although

we would

likely do

so at prices

below where

such securities

could be sold

in a more

stable market.

To enhance our liquidity

even

further, we may

pledge a

portion of

our structured

RMBS as

part of a

repurchase

agreement

funding,

but retain

the cash in

lieu of acquiring

additional

assets.

In this way

we can, at

a modest

cost, retain

higher levels

of cash on

hand and

decrease

the likelihood

we will

have to

sell assets

in a distressed

market in

order to

raise cash.

Our strategy

for hedging

our funding

costs typically

involves

taking short

positions

in interest

rate futures,

treasury

futures,

interest

rate

swaps, interest

rate swaptions

or other

instruments.

When the

market causes

these short

positions

to decline

in value we

are required

meet margin

calls with

cash.

This can

reduce our

liquidity

position

to the extent

other securities

in our portfolio

move in price

in such a

way

that we do

not receive

enough cash

via margin

calls to

offset the

derivative

related margin

calls. If

this were

to occur

in sufficient

magnitude,

the loss of

liquidity

might force

us to reduce

the size

of the levered

portfolio,

pledge additional

structured

securities

to raise

funds or

risk operating

the portfolio

with less

liquidity.

External

Sources of

Liquidity

Our primary

external

sources of

liquidity

are our ability

to (i) borrow

under master

repurchase

agreements,

(ii) use

the TBA

security

market and

(iii) sell

our equity

or debt

securities

in public

offerings

or private

placements.

Our borrowing

capacity will

vary over

time as the

market value

of our interest

earning assets

varies.

Our master

repurchase

agreements

have no

stated expiration,

but can be

terminated

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

post additional

collateral.

Conversely, if

the market

value of the

asset pledged

increases

in value,

we would

be over collateralized

and we

would be

entitled to

have excess

margin returned

to us by the

counterparty.

Our lenders

typically

value our

pledged securities

daily to

ensure the

adequacy of

our margin

and make margin

calls as

needed, as

do we.

Typically, but not

always, the

parties agree

to a minimum

threshold

amount for

margin calls

so as to avoid

the need

for nuisance

margin calls

on a daily

basis.

Our master

repurchase

agreements

do not specify

the haircut;

rather haircuts

are determined

on an individual

repurchase

transaction

basis. Throughout

the year

ended

December

31, 2021,

haircuts on

our pledged

collateral

remained

stable and

as of December

31, 2021,

our weighted

average haircut

was

approximately

4.9% of the

value of

our collateral.

TBAs

represent

a form of

off-balance

sheet financing

and are

accounted

for as derivative

instruments.

(See Note

4 to our

Financial

Statements

in this Form

10-K for

additional

details on

of our TBAs).

Under certain

market conditions,

it may be

uneconomical

for us to

roll

our TBAs

into future

months and

we may need

to take or

make physical

delivery

of the underlying

securities.

If we were

required

to take

physical delivery

to settle

a long TBA,

we would

have to fund

our total

purchase

commitment

with cash

or other

financing

sources and

our

liquidity

position could

be negatively

impacted.

Our TBAs

are also

subject to

margin requirements

governed

by the Mortgage-Backed

Securities

Division ("MBSD")

of the FICC

and

by our master

securities

forward

transaction

agreements,

which may

establish

margin levels

in excess

of the MBSD.

Such provisions

require that

we establish

an initial

margin based

on the notional

value of the

TBA, which

is subject

to increase

if the estimated

fair value

our TBAs

or the estimated

fair value

of our pledged

collateral

declines.

The MBSD

has the sole

discretion

to determine

the value

of our

TBAs

and of the

pledged collateral

securing such

contracts.

In the event

of a margin

call, we

must generally

provide additional

collateral

the same

business day.

Settlement

of our TBA

obligations

by taking

delivery of

the underlying

securities

as well as

satisfying

margin requirements

could

negatively

impact our

liquidity

position.

However, since

we do not

use TBA dollar

roll transactions

as our primary

source of

financing,

believe that

we will have

adequate

sources of

liquidity

to meet

such obligations.

As discussed

earlier, we invest

a portion

of our capital

in structured

Agency RMBS.

We generally

do not apply

leverage

to this portion

of our portfolio.

The leverage

inherent

in structured

securities

replaces the

leverage

obtained

by acquiring

PT securities

and funding

them

in the repurchase

market.

This structured

RMBS strategy

has been a

core element

of the Company’s

overall investment

strategy

since

inception.

However, we

have and may

continue to

pledge a

portion

of our structured

RMBS 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

in a manner

that is consistent

with our

current operations

through

repurchase

agreements.

As of December

31, 2021,

we had cash

and cash equivalents

of $385.1

million.

We generated

cash flows

$716.5 million

from principal

and interest

payments on

our RMBS

and had average

repurchase

agreements

outstanding

of $4,707.5

million

during the

year ended

December

31, 2021.

As described more fully below, we may also access liquidity by selling our equity or debt securities in public offerings or private

placements.

Stockholders’

Equity

On August 2, 2017, we entered into the August 2017 Equity Distribution Agreement

with two sales agents pursuant to which we

could offer and sell, from time to time, up to an aggregate amount of $125,000,000 of

shares of our common stock in transactions that

were deemed to be “at the market” offerings and privately negotiated transactions. We issued

a total of 15,123,178 shares under the

August 2017 Equity Distribution Agreement for aggregate gross proceeds of $125.0

million, and net proceeds of approximately $123.1

million, after commissions and fees, prior to its termination in July 2019.

On July 30, 2019, we entered into the 2019 Underwriting Agreement with Morgan

Stanley & Co. LLC, Citigroup Global Markets Inc.

and J.P.

Morgan Securities LLC, as representatives of the underwriters named

therein, relating to the offer and sale of 7,000,000

shares of the Company’s common stock at a price to the public of $6.55 per share. The underwriters

purchased the shares pursuant to

the 2019 Underwriting Agreement at a price of $6.3535 per share. The closing

of the offering of 7,000,000 shares of common stock

occurred on August 2, 2019, with net proceeds to us of approximately $44.2

million after deduction of underwriting discounts and

commissions and other estimated offering expenses.

On January 23, 2020, we entered into the January 2020 Equity Distribution

Agreement with three sales agents pursuant to which

we could offer and sell, from time to time, up to an aggregate amount of $200,000,000 of

shares of our common stock in transactions

that were deemed to be “at the market” offerings and privately negotiated transactions.

We issued a total of 3,170,727 shares under

the January 2020 Equity Distribution Agreement for aggregate gross proceeds

of $19.8 million, and net proceeds of approximately

$19.4 million, after commissions and fees, prior to its termination in August

2020.

On August 4, 2020, we entered into the August 2020 Equity Distribution Agreement

with four sales agents pursuant to which we

could offer and sell, from time to time, up to an aggregate amount of $150,000,000

of shares of our common stock in transactions that

were deemed to be “at the market” offerings and privately negotiated transactions. We issued a total

of 27,493,650 shares under the

August 2020 Equity Distribution Agreement for aggregate gross proceeds

of approximately $150.0 million, and net proceeds of

approximately $147.4 million, after commissions and fees,

prior to its termination in June 2021.

On January 20, 2021, we entered into the January 2021 Underwriting Agreement

with J.P. Morgan Securities LLC (“J.P.

Morgan”),

relating to the offer and sale of 7,600,000 shares of our common stock. J.P. Morgan purchased the shares of our common stock from

the Company pursuant to the January 2021 Underwriting Agreement at $5.20

per share. In addition, we granted J.P. Morgan a 30-day

option to purchase up to an additional 1,140,000 shares of our common stock

on the same terms and conditions, which J.P. Morgan

exercised in full on January 21, 2021. The closing of the offering of 8,740,000 shares of our

common stock occurred on January 25,

2021, with proceeds to us of approximately $45.2 million, net of offering expenses.

On March 2, 2021, we entered into the March 2021 Underwriting Agreement

with J.P. Morgan, relating to the offer and sale of

8,000,000 shares of our common stock. J.P. Morgan purchased the shares of our common stock from the Company pursuant to the

March 2021 Underwriting Agreement at $5.45 per share. In addition, we

granted J.P. Morgan a 30-day option to purchase up to an

additional 1,200,000 shares of our common stock on the same terms

and conditions, which J.P. Morgan exercised in full on March 3,

2021. The closing of the offering of 9,200,000 shares of our common stock occurred on

March 5, 2021, with proceeds to us of

approximately $50.0 million, net of offering expenses.

On June 22, 2021, we entered into the June 2021 Equity Distribution Agreement with four

sales agents pursuant to which we could

offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares

of our common stock in transactions that were

deemed to be “at the market” offerings and privately negotiated transactions. We issued a

total of 49,407,336 shares under the June

2021 Equity Distribution Agreement for aggregate gross proceeds of

approximately $250.0 million, and net proceeds of approximately

$246.2 million, after commissions and fees, prior to its termination in October

2021.

On October 29, 2021, we entered into the October 2021 Equity Distribution

Agreement with four sales agents pursuant to which

we may offer and sell, from time to time, up to an aggregate amount of $250,000,000 of

shares of our common stock in transactions

that are deemed to be “at the market” offerings and privately negotiated transactions. Through

December 31, 2021, we issued a total of

15,835,700 shares under the October 2021 Equity Distribution Agreement for aggregate

gross proceeds of approximately $78.3 million,

and net proceeds of approximately $77.0

million, after commissions and fees.

Outlook

Economic Summary

COVID-19 continued to impact the United States and the rest of the world during the fourth

quarter of 2021 and into the first

quarter of 2022.

The most recent variant, Omicron, spreads much more readily

than past variants, but also tends to be much less

severe.

Instances of new cases spiked rapidly, starting in December of 2021 and peaked, in the U.S., the week ended January 16,

2022 at 5.58 million.

Since then cases have declined fairly rapidly, as have hospitalizations, which have also tended to involve much

shorter stays in the hospital, especially in comparison to the Delta variant.

Despite the Omicron wave, the economy added 467,000

jobs in January 2022 and retail sales also rose well above estimates at 3.8%,

causing the markets and the Fed to meaningfully revise

expectations for the path of monetary policy in 2022 and beyond.

The rationale for the shift in expectations for monetary policy was found in the

economic data that was released during the fourth

quarter of 2021.

There were several economic indicators that reached milestone

levels and made it clear the economy had more than

recovered from the pandemic.

The Fed focuses on two areas of economic performance – inflation and the labor

market – tied to their

dual mandates of stable prices and maximum employment.

With respect to inflation, the year-over-year consumer price index reading

increased from the 4% increase reported in September of 2021

to 5.43% in December of 2021. Core personal consumption

expenditures – the Fed’s preferred inflation measure – increased from 3.7% year-over-year

to 4.85% between September and

December of 2021.

In the latter case, this was the highest reading since the early 1980s.

The producer price index was also increasing

rapidly – approaching 7% year over year in December of 2021.

This led the Fed to formally declare that their assessment of inflation

as “transitory” was no longer the case.

Labor market indicators

also reached new milestones. Initial claims for unemployment insurance

breached the 200,000 level

during the fourth quarter of 2021–

the first time this happened since the late 1960s.

Continuing claims for unemployment insurance

reached levels even lower than the lows reached prior to the pandemic, and the

unemployment rate reached 3.9% in December, still

0.4% above the lowest level reached prior to the pandemic but below the Fed’s long-term target

level and their proxy for full

employment.

The final piece of information was gross domestic product growth of 6.9%

for the fourth quarter, released in January of

2022.

The Fed’s outlook for monetary policy pivoted materially beginning in November

of 2021.

The economic data has strengthened further in early 2022.

In particular, measures of inflation have accelerated from the trend of

late 2021 and are very broad based, as prices for essentially every category

of goods and services are accelerating.

The employment

data has also been very strong, exhibiting little effect from the Omicron variant. The combination

of accelerating inflation well above the

Fed’s target level and a very tight labor market have led the market to anticipate the Fed will

react aggressively soon. The Fed has

signaled they are about to start an accelerated removal of the extreme monetary accommodation

necessitated by the pandemic.

January of 2022 the FOMC announced they would end their asset purchases

in March of 2022 and were likely to start decreasing the

reinvestment of their U.S. Treasury and RMBS assets as they matured or were repaid starting shortly

after their first rate hike.

The first

rate hike is likely to be in March as well. Current pricing in the futures

market indicates

the Fed will increase the Fed Funds rate at least

six times by January of 2023 and by approximately 75 basis points more in 2023.

There is a potentially significant geo-political development in the outlook as well.

Russia appears to be threatening to take military

action in the Ukraine.

They have moved over 100,000 troops and significant other military assets

such as tanks, combat aircraft,

missile systems, naval forces and medical personnel into areas on the

north, east and south of Ukraine. The situation has been

developing since late 2021 and diplomatic efforts to ease tensions in the area do not appear

to be working.

The United States and

several NATO allies have sent troops to the region and military supplies to Ukraine.

There is also the possibility hostilities may not be

limited to direct military confrontation.

This may have begun already as reports of cyber attacks throughout Ukraine

and other forms of

non-military intervention have occurred. Should the situation deteriorate further

and military action lead to a protracted war, there would

likely be an economic impact on Europe and therefore indirectly in the U.S., potentially

slowing economic activity at the margin and

possibly lessening the need for the Fed to remove monetary policy as

aggressively as expected otherwise.

Legislative Response and the Federal Reserve

Congress passed the CARES Act (described below) quickly in response to

the pandemic’s emergence during the spring of 2020.

As provisions of the CARES Act expired and the effects of the pandemic continued

to adversely impact the country, the federal

government passed an additional stimulus package in late December of 2020.

Further, on March 11, 2021, President Biden signed into

law an additional $1.9 trillion coronavirus aid package as part of the American

Rescue Plan Act of 2021.

This law provided for, among

other things, direct payments to most Americans with a gross income of

less than $75,000 a year, expansion of the child tax credit,

extension of expanded unemployment benefits through September 6, 2021, funding

for procurement of vaccines and health providers,

loans to qualified businesses, funding for rental and mortgage assistance and

funding for schools. The expanded federal

unemployment benefits expired on September 6, 2021.

In addition, the Fed provided as much support to the markets and the economy

as it could 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 allows the Fed Funds rate to remain quite low, even if inflation is expected to temporarily surpass the 2% target

level. Further, the

Fed stated they would look past the presence of very tight labor markets,

should they 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 rates could remain low for a

considerable period but

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.

As mentioned above, this policy shift will not likely have an effect on current

monetary policy as inflation is now running

considerably higher than the Fed’s 2% target level and the Fed appears likely to move

quickly to remove the extreme monetary

accommodation they provided as the pandemic emerged in the U.S. in the

spring of 2020.

Interest Rates

At the beginning of 2021,

interest rates were still close to the lowest levels ever observed

in 2020.

As the country and economy

emerged from the effects of the pandemic and the federal government and the Fed took unprecedented

actions to buttress the

economy from the effects of the pandemic, interest rates increased over the course of

the year.

Increases in interest rates were not

uniform over the year as shorter maturity rates, typically more sensitive to anticipated

increases in short term rates controlled by the

Fed, increased more than longer term rates.

As inflation accelerated in the fourth quarter of 2021, and even more so

in early 2022, this

trend intensified and currently the spread between certain intermediate rates

– such as 5-year and 7-year maturities – trade at yields

only marginally below longer-term rates such as 10-year U.S. Treasuries.

This flattening of the rates curve is typical as the economy

strengthens and the market anticipates increases in short-term rates by the Fed. As

economic and/or inflation data strengthen and the

market anticipates progressively more increases in short-term rates, this flattening

effect intensifies as well. Eventually the rates curve

could actually invert, whereby the intermediate rates mentioned above actually yield

more than longer-term rates.

This would occur

when the market anticipates the increases to short-term rates by the Fed will actually

slow the economy too much in the future and a

possible recession is on the horizon.

Given the unprecedented nature of the monetary and fiscal stimulus

needed to combat the

pandemic and the related supercharged effect on the economy, the current recovery and pending rate increase cycle will be difficult to

manage by the Fed and we expect that such an outcome is more likely to occur

than in past cycles.

The Agency RMBS Market

As was anticipated,

the Fed announced a tapering of their U.S. Treasury and Agency RMBS

asset purchases at their November

2021 meeting.

As described above, the forthcoming data was likely to necessitate an accelerated

pace of accommodation removal

and in December of 2021,

and again in January of 2022, the Fed announced revised schedules

for tapering.

This means a material

source of demand for Agency RMBS is about to leave the market.

Given Fed purchases are a source of reserves into the banking

system, this also means banks, which have also been a material source

for Agency RMBS, may also be buying fewer securities.

However, the securities that were the focus of the Fed and bank buying, namely production coupon securities, performed

relatively well

during the fourth quarter of 2021.

Total

returns for Agency RMBS for the fourth quarter and full year of 2021 were -0.4%

and -1.2%, respectively.

Agency RMBS

returns generally trailed other major domestic fixed income categories.

High yield debt returned 0.7% and 5.4% for the fourth quarter

and full year of 2021, respectively.

Investment grade returns for the same two periods were 0.2% and -1.0%.

Legacy non-Agency

RMBS returns were equal to or exceeded high yield returns.

Relative to comparable duration U.S. Treasuries Agency RMBS returns

were -1.0% and -1.6%, respectively for the same two periods.

Again, these returns trailed the same other major domestic fixed-income

categories and by comparable amounts.

Within the Agency RMBS 30-year coupons, production coupons – 2.0%

and 2.5% -

outperformed higher, liquid securities – 3.0% and 3.5%, both on an absolute and relative to comparable duration U.S.

Treasury basis

for the fourth quarter of 2021.

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. On

Sunday, March 15, 2020, the Fed announced a $700 billion asset purchase program to provide liquidity to the U.S. Treasury and

Agency MBS 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. On June 30, 2020, Fed Chairman Powell

announced expectations to maintain interest rates at

this level until the Fed is confident that the economy has weathered recent events

and is on track to achieve maximum employment

and price stability goals. The Federal Open Market Committee (“FOMC”) continued

to reaffirm this commitment at all subsequent

meetings through December of 2021, 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 January 26, 2022, the FOMC reiterated its goals of maximum

employment and a 2% long-run inflation rate and stated that, with a strong labor market

and inflation well above 2%, it expected it

would soon be appropriate to raise the target federal funds rate.

In response to the deterioration in the markets for U.S. Treasuries, Agency MBS and other mortgage

and fixed income markets as

investors liquidated investments in response to the economic crisis resulting from

the actions to contain and minimize the impacts of

the COVID-19 pandemic, on the morning of Monday, March 23, 2020, the Fed announced a program to acquire U.S. Treasuries and

Agency MBS in the amounts needed to support smooth market functioning. With

these purchases, market conditions improved

substantially, and in early April, the Fed began to gradually reduce the pace of these purchases. Through November of 2021, the Fed

was committed to purchasing $80 billion of U.S. Treasuries and $40 billion of Agency MBS each month. In November

of 2021, it began

tapering its net asset purchases each month, reducing them to $70 billion,

$60 billion and $40 billion of U.S. Treasuries and $35 billion,

$30 billion and $20 billion of Agency MBS in November of 2021, December of

2021 and January of 2022, respectively.

On January 26,

2022, the FOMC announced that it would continue to increase its holdings of U.S. Treasuries by $20 billion per

month and its holdings

of Agency RMBS by $10 billion per month for February of 2022 and would end

its net asset purchases entirely by early March of 2022.

The CARES Act was passed by Congress and signed into law by President Trump on March 27, 2020.

The CARES Act provided

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 December 27, 2020, President Trump signed into law an additional $900 billion coronavirus aid package

as part of the

Consolidated Appropriations Act, 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. The FHFA subsequently extended 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 until July 31, 2021 and September 30, 2021, respectively. The U.S. Housing and Urban Development

Department subsequently extended the FHA foreclosure and eviction moratoria to

July 31, 2021 and September 30, 2021, respectively.

Despite the expirations of these foreclosure moratoria, a final rule adopted

by the CFPB on June 28, 2021 effectively prohibited

servicers from initiating a foreclosure before January 1, 2022 in most instances.

On March 11, 2021, President Biden signed into law an additional $1.9 trillion coronavirus aid package as part of the

American

Rescue Plan Act of 2021.

This law provided for, among other things, direct payments to most Americans with a gross income of less

than $75,000 a year, expansion of the child tax credit, extension of expanded unemployment benefits through September

6, 2021,

funding for procurement of vaccines and health providers, loans to qualified businesses,

funding for rental and mortgage assistance

and funding for schools. The expanded federal unemployment benefits expired on September

6, 2021.

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. The final rule on the new capital framework

for the GSEs was published in the 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 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 released or enacted with respect

to ending the

conservatorship, unwinding the GSEs, or materially reducing the roles of the GSEs

in the U.S. mortgage market.

On September 14,

2021, the U.S. Treasury and the FHFA suspended certain policy provisions in the January agreement, including limits on loans

acquired for cash consideration, multifamily loans, loans with higher risk

characteristics and second homes and investment properties.

On September 15, 2021, the FHFA announced a notice of proposed rulemaking for the purpose of amending the December

rule to,

among other things, reduce the Tier 1 capital and risk-weight floor requirements.

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. However, the ICE Benchmark Administration, in its

capacity as administrator of

USD LIBOR, has announced that it intends to extend publication of USD LIBOR (other

than one-week and two-month tenors) by 18

months to June 2023.

Notwithstanding this possible extension, 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 ARRC,

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. Many banks believe that it may take four to five years to complete

the transition to SOFR, despite the December 31, 2021

deadline. We will monitor the emergence of SOFR carefully as it appears likely to 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

LIBOR.

On December 7, 2021, the CFPB released a final rule that amends Regulation

Z, which implemented the Truth in Lending Act,

aimed at addressing cessation of LIBOR for both closed-end (e.g., home mortgage) and

open-end (e.g., home equity line of credit)

products. The rule, which mostly becomes effective in April of 2022, establishes requirements

for the selection of replacement indices

for existing LIBOR-linked consumer loans. Although the rule does not mandate

the use of SOFR as the alternative rate, it identifies

SOFR as a comparable rate for closed-end products and states that for open-end products,

the CFPB has determined that ARRC’s

recommended spread-adjusted indices based on SOFR for consumer products

to replace the one-month, three-month, or six-month

USD LIBOR index “have historical fluctuations that are substantially similar to

those of the LIBOR indices that they are intended to

replace.” The CFPB reserved judgment, however, on a SOFR-based spread-adjusted replacement

index to replace the one-year USD

LIBOR until it obtained additional information.

On December 8, 2021, the House of Representatives passed the Adjustable Interest

Rate (LIBOR) Act of 2021 (H.R. 4616) (the

“LIBOR Act”), which provides for a statutory replacement benchmark rate for contracts

that use LIBOR as a benchmark and do not

contain any fallback mechanism independent of LIBOR. Pursuant to the LIBOR

Act, SOFR becomes the new benchmark rate by

operation of law for any such contract. The LIBOR Act establishes a safe harbor from

litigation for claims arising out of or related to the

use of SOFR as the recommended benchmark replacement. The LIBOR Act

makes clear that it should not be construed to disfavor the

use of any benchmark on a prospective basis.

The LIBOR Act also attempts to forestall challenges that it is impairing

contracts. It provides that the discontinuance of LIBOR and

the automatic statutory transition to a replacement rate neither impairs or

affects the rights of a party to receive payment under such

contracts, nor allows a party to discharge their performance obligations or to declare

a breach of contract. It amends the Trust

Indenture Act of 1939 to state that the “the right of any holder of any

indenture security to receive payment of the principal of and

interest on such indenture security shall not be deemed to be impaired or

affected” by application of the LIBOR Act to any indenture

security.

On December 9, 2021, the United States Senate referred the LIBOR Act to

the Committee on Banking, Housing and Urban

Affairs.

One-week and two-month U.S. dollar LIBOR rates phased out on December 31,

2021, but other U.S. dollar tenors may continue

until June 30, 2023. We will monitor the emergence of SOFR carefully as it appears likely

to 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, extended 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 (i.e.,

24 months past due). This new timeframe

applied to outstanding single-family pools and newly issued single-family pools and was

first reflected when January 2021 factors were

released on the fourth business day in February 2021.

For Agency 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 GSEs anticipated, however, that delinquent loans will be

repurchased in most cases before the 24-month deadline under one of the following

exceptions listed below.

•

a loan that is paid in full, or where the related lien is released and/or the

note debt is satisfied or forgiven;

•

a loan repurchased by a seller/servicer under applicable selling and servicing

requirements;

•

a 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;

•

a loan subject to a short sale or deed-in-lieu of foreclosure; or

•

a loan referred to foreclosure.

Because of these exceptions, the GSEs 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.

Effect on Us

Regulatory developments, movements in interest rates and prepayment rates

affect us in many ways, including the following:

Effects on our Assets

A change in or elimination of the guarantee structure of Agency RMBS may increase

our costs (if, for example, guarantee fees

increase) or require us to change our investment strategy altogether. For example, the elimination of the guarantee

structure of Agency

RMBS may cause us to change our investment strategy to focus on

non-Agency RMBS, which in turn would require us to significantly

increase our monitoring of the credit risks of our investments in addition to interest

rate and prepayment risks.

Lower long-term interest rates can affect the value of our Agency RMBS in a number of ways.

If prepayment rates are relatively

low (due, in part, to the refinancing problems described above), lower long-term interest

rates can increase the value of higher-coupon

Agency 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 a

principal prepayment accelerates the effective term of an Agency RMBS, which would shorten

the period during which an investor

would receive above-market returns (assuming the yield on the prepaid asset

is higher than market yields). Also, prepayment proceeds

may not be able to be reinvested in similar-yielding assets. Agency RMBS

backed by mortgages with high interest rates are more

susceptible to prepayment risk because holders of those mortgages

are most likely to refinance to a lower rate. IOs and IIOs, however,

may be the types of Agency RMBS most sensitive to increased prepayment

rates. Because the holder of an IO or IIO receives no

principal payments, the values of IOs and IIOs are entirely dependent

on the existence of a principal balance on the underlying

mortgages. If the principal balance is eliminated due to prepayment, IOs

and IIOs essentially become worthless. Although increased

prepayment rates can negatively affect the value of our IOs and IIOs, they have the opposite

effect on POs. Because POs act like zero-

coupon bonds, meaning they are purchased at a discount to their par value

and have an effective interest rate based on the discount

and the term of the underlying loan, an increase in prepayment rates would reduce

the effective term of our POs and accelerate the

yields earned on those assets, which would increase our net income.

Higher long-term rates can also affect the value of our Agency RMBS.

As long-term rates rise, rates available to borrowers also

rise.

This tends to cause prepayment activity to slow and extend the expected

average life of mortgage cash flows.

As the expected

average life of the mortgage cash flows increases, coupled with higher discount

rates, the value of Agency RMBS declines.

Some of

the instruments 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. On March 23, 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, but announced a tapering of these purchases in November 2021.

The Fed’s reduction of these purchases could

negatively impact our investment portfolio. 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

The country and economy currently appear to be on the verge of recovering from

the COVID-19 pandemic.

While the virus

continues to infect people and often results in hospitalizations and deaths,

the effect on economic activity has decreased materially.

Coupled with unprecedented monetary and fiscal policy, the most significant combination of the two since the Second World War, the

fading effect of the pandemic is clearly causing the economy to run at unsustainable

levels, resulting in very tight labor markets and the

highest levels of inflation in decades. The Fed has begun the rapid transformation

from accommodation to constraint and will likely

begin raising short-term rates at their meeting in March of 2022.

Currently the market anticipates the Fed will continue to raise rates

throughout the year and into 2023, possibly by as much as 200 basis points.

Further, they are rapidly winding down their asset

purchases and will likely stop asset purchases altogether – possibly by the

end of the year – as they begin the process of “normalizing”

the size of their balance sheet.

Market experts estimate the Fed may have to shrink the size of their balance

sheet by up to $4 trillion,

and over a much shorter time frame than the last time they did so over the

period from 2017 to 2019.

The effect of these developments

on the level of interest rates has been a material flattening of the U.S. Treasury curve, whereby

short and intermediate term rates rise

and more so relative to longer maturity U.S. Treasuries.

For the Company,

this means our funding costs are likely to rise materially over the course

of 2022 and possibly into 2023.

While

longer-term maturities have not risen as much as short and intermediate term rates,

they have risen and refinancing and purchase

activity in the residential housing market is likely to slow. If this occurs, it would slow premium amortization on the Company’s Agency

RMBS securities. The net effect of higher funding costs and slower premium amortization

will depend on the extent and timing of both,

but may reduce the Company’s net interest income, and perhaps meaningfully so, over this period.

To the

extent geo-political events unfold, such as the current crisis in

Ukraine, the Fed may have to alter their monetary policy

decisions over the course of 2022 and beyond.

However, given the level of inflation and strength of the economy at present, such

developments would likely have to be severe in order to meaningfully

impact the path of monetary policy over the near-term.

Critical Accounting Estimates

Our 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. Management has

identified its most critical accounting

estimates:

Mortgage-Backed Securities

Our investments in Agency RMBS are accounted for at fair value. We acquire our Agency

RMBS for the purpose of generating

long-term returns, and not for the short-term investment of idle capital.

As discussed in Note 12 to the financial statements, our Agency RMBS are valued using

Level 2 valuations, and such valuations

currently are determined by our manager based on independent pricing sources and/or

third party broker quotes, when available.

Because the price estimates may vary, our Manager must make certain judgments and assumptions about the appropriate

price to use

to calculate the fair values. Alternatively, our Manager could opt to have the value of all of our positions in Agency RMBS

determined

by either an independent third-party or do so internally.

In managing our portfolio, Bimini Advisors employs the following four-step process at

each valuation date to determine the fair

value of our Agency RMBS:

•

First, our Manager obtains fair values from subscription-based independent pricing

sources. These prices are used by both

our Manager as well as many of our repurchase agreement counterparty on

a daily basis to establish margin requirements for our

borrowings.

•

Second, our Manager requests non-binding quotes from one to four broker-dealers

for certain Agency RMBS in order to

validate the values obtained by the pricing service. Our Manager requests these

quotes from broker-dealers that actively trade and

make markets in the respective asset class for which the quote is requested.

•

Third, our Manager reviews the values obtained by the pricing source and the broker-dealers

for consistency across similar

assets.

•

Finally, if the data from the pricing services and broker-dealers is not homogenous or if the data obtained is inconsistent with

our Manager’s market observations, our Manager makes a judgment

to determine which price appears the most consistent with

observed prices from similar assets and selects that price. To the extent our Manager believes that none of the prices are consistent

with observed prices for similar assets, which is typically the case for only an

immaterial portion of our portfolio each quarter, our

Manager may use a third price that is consistent with observed prices for

identical or similar assets. In the case of assets that have

quoted prices such as Agency RMBS backed by fixed-rate mortgages, our Manager

generally uses the quoted or observed market

price. For assets such as Agency RMBS backed by ARMs or structured Agency

RMBS, our Manager may determine the price based

on the yield or spread that is identical to an observed transaction or a similar

asset for which a dealer mark or subscription-based price

has been obtained.

Management believes its pricing methodology to be consistent with the

definition of fair value described in Financial Accounting

Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements.

Derivative Financial Instruments

We use derivative instruments to manage interest rate risk, facilitate asset/liability strategies

and manage other exposures, and we

may continue to do so in the future. The principal instruments that we have

used to date are Fed Funds, T-Note and Eurodollar futures

contracts, interest rate swaps, interest rate swaptions and TBA securities,

but we may enter into other derivatives in the future.

We account for TBA securities as derivative instruments. Gains and losses associated

with TBA securities transactions are

reported in gain (loss) on derivative instruments in the accompanying

statements of operations.

We have elected not to treat any of our derivative financial instruments as hedges in

order to align the accounting treatment of its

derivative instruments with the treatment of our portfolio assets under the fair

value option election. All derivative instruments are

carried at fair value, and changes in fair value are recorded in earnings for

each period.

Our futures contracts are Level 1 valuations, as

they are exchange-traded instruments and quoted market prices are readily available.

Our interest rate swaps,

interest rate swaptions

and TBA securities 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 fair value of our TBA

securities are determined by the Company based on independent

pricing sources and/or third party broker quotes, similar to how

the fair value of our Agency RMBS is derived, as discussed above.

Income Recognition

Since we commenced operations, we have elected to account for all of our Agency

RMBS under the fair value option.

All of our Agency RMBS are either pass-through securities or structured Agency

RMBS, including CMOs, IOs, IIOs or POs. Income

on pass-through securities, POs and CMOs that contain principal balances is

based on the stated interest rate of the security. As a

result of accounting for our RMBS under the fair value option, premium or

discount present at the date of purchase is not amortized.

For IOs, IIOs and CMOs that do not contain principal balances, income is accrued

based on the carrying value and the effective yield.

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, current interest rates and current

asset prices. The new effective yield is calculated based

on the carrying value at the end of the previous reporting period, the new prepayment

estimates and the contractual terms of the

security. Changes in fair value of all of our Agency RMBS during the period are recorded in earnings and reported as unrealized

gains

(losses) on mortgage-backed securities in the accompanying statements of operations.

For IIO securities, effective yield and income

recognition calculations also take into account the index value applicable to

the security.

Capital Expenditures

At December 31, 2021,

we had no material commitments for capital expenditures.

Dividends

In addition to other requirements that must be satisfied to continue to qualify as a REIT, we must pay annual dividends to our

stockholders of at least 90% of our REIT taxable income, determined without regard

to the deductions for dividends paid and excluding

any net capital gains. REIT taxable income (loss) is computed in accordance with

the Code, and can be greater than or less than our

financial statement net income (loss) computed in accordance with GAAP. These book to tax differences primarily relate to the

recognition of interest income on RMBS, unrealized gains and losses on

RMBS, and the amortization of losses on derivative

instruments that are treated as funding hedges for tax purposes.

We intend to pay regular monthly dividends to our stockholders and have declared the

following dividends since the completion of

our IPO.

(in thousands, except per share amounts)

Year

Per Share

Amount

Total

2013

1.395

4,662

2014

2.160

22,643

2015

1.920

38,748

2016

1.680

41,388

2017

1.680

70,717

2018

1.070

55,814

2019

0.960

54,421

2020

0.790

53,570

2021

0.780

97,601

2022 YTD

(1)

0.110

19,502

Totals

12.545

459,066

(1)

On January 13, 2022, the Company declared a dividend of $0.055 per

share to be paid on February 24, 2022. On February 16, 2022, the

Company declared a dividend of $0.055 per share to be paid on March 29,

2022. The dollar amount of the dividend declared in February 2022

is estimated based on the number of shares outstanding at February

25, 2022. The effects of these dividends are included in the table

above

but are not reflected in the Company’s financial statements as of December

31, 2021.

ITEM 7A.

QUANTITATIVE

AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the exposure to loss resulting from changes in market factors such as

interest rates, foreign currency exchange

rates, commodity prices and equity prices. The primary market risks that we

are exposed to are interest rate risk, prepayment risk,

spread risk, liquidity risk, extension risk and counterparty credit risk.

Interest Rate Risk

Interest rate risk is highly sensitive to many factors, including governmental

monetary and tax policies, domestic and international

economic and political considerations and other factors beyond our control.

Changes in the general level of interest rates can affect our net interest income, which is the

difference between the interest

income earned on interest-earning assets and the interest expense incurred in

connection with our interest-bearing liabilities, by

affecting the spread between our interest-earning assets and interest-bearing liabilities. Changes

in the level of interest rates can also

affect the rate of prepayments of our securities and the value of the RMBS that constitute our

investment portfolio, which affects our net

income, ability to realize gains from the sale of these assets and ability to borrow, and the amount that we can

borrow against, these

securities.

We may utilize a variety of financial instruments in order to limit the effects of changes in interest rates on

our operations. The

principal instruments that we use are futures contracts, interest rate swaps and

swaptions. These instruments are intended to serve as

an economic hedge against future interest rate increases on our repurchase agreement

borrowings.

Hedging techniques are partly

based on assumed levels of prepayments of our Agency RMBS.

If prepayments are slower or faster than assumed, the life of the

Agency RMBS will be longer or shorter, which would reduce the effectiveness of any hedging strategies we may use and

may cause

losses on such transactions.

Hedging strategies involving the use of derivative securities are highly

complex and may produce volatile

returns.

Hedging techniques are also limited by the rules relating to REIT

qualification.

In order to preserve our REIT status, we may

be forced to terminate a hedging transaction at a time when the transaction is

most needed.

Our profitability and the value of our investment portfolio (including derivatives used

for hedging purposes) may be adversely

affected during any period as a result of changing interest rates, including changes in

the forward yield curve.

Our portfolio of PT RMBS is typically comprised of adjustable-rate RMBS (“ARMs”),

fixed-rate RMBS and hybrid adjustable-rate

RMBS. We generally seek to acquire low duration assets that offer high levels of protection from mortgage

prepayments provided they

are reasonably priced by the market.

Although the duration of an individual asset can change as a result of

changes in interest rates,

we strive to maintain a hedged PT RMBS portfolio with an effective duration of less than

2.0. The stated contractual final maturity of the

mortgage loans underlying our portfolio of PT RMBS generally ranges up to

30 years. However, the effect of prepayments of the

underlying mortgage loans tends to shorten the resulting cash flows from

our investments substantially. Prepayments occur for various

reasons, including refinancing of underlying mortgages, loan payoffs in connection with home

sales, and borrowers paying more than

their scheduled loan payments, which accelerates the amortization of the loans.

The duration of our IO and IIO portfolios will vary greatly depending on the

structural features of the securities.

While prepayment

activity will always affect the cash flows associated with the securities, the interest only

nature of IOs may cause their durations to

become extremely negative when prepayments are high, and less negative when prepayments

are low.

Prepayments affect the

durations of IIOs 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 RMBS can alter the timing of the cash flows

from the underlying loans to us. As a result,

we gauge the interest rate sensitivity of our assets by measuring their effective duration.

While modified duration measures the price

sensitivity of a bond to movements in interest rates, effective duration captures both the

movement in interest rates and the fact that

cash flows to a mortgage related security are altered when interest rates

move. Accordingly, when the contract interest rate on a

mortgage loan is substantially above prevailing interest rates in the market,

the effective duration of securities collateralized by such

loans can be quite low because of expected prepayments.

We face the risk that the market value of our PT RMBS assets will increase or decrease

at different rates than that of our

structured RMBS or liabilities, including our hedging instruments. Accordingly, we assess our interest rate risk by estimating the

duration of our assets and the duration of our liabilities. We generally calculate duration

using various third party models.

However,

empirical results and various third party models may produce different duration numbers

for the same securities.

The following sensitivity analysis shows the estimated impact on the fair value of

our interest rate-sensitive investments and hedge

positions as of December 31, 2021 and December 31, 2020, assuming rates instantaneously

fall 200 bps, fall 100 bps, fall 50 bps, rise

50 bps, rise 100 bps and rise 200 bps, adjusted to reflect the impact of

convexity, which is the measure of the sensitivity of our hedge

positions and Agency RMBS’ effective duration to movements in interest rates.

We have a negatively convex asset profile and a linear

to slightly positively convex hedge portfolio (short positions).

It is not at all uncommon for us to have losses in both directions.

All changes in value in the table below are measured as percentage changes from

the investment portfolio value and net asset

value at the base interest rate scenario. The base interest rate scenario assumes

interest rates and prepayment projections as of

December 31, 2021 and 2020.

Actual results could differ materially from

estimates

, especially in the current market environment. To the extent that these

estimates or other assumptions do not hold true, which is likely in a period of

high price volatility, actual results will likely differ

materially from projections and could be larger or smaller than the estimates in the

table below. Moreover, if different models were

employed in the analysis, materially different projections could result. Lastly, while the table below reflects the estimated impact of

interest rate increases and decreases on a static portfolio, we may from time to

time sell any of our agency securities as a part of our

overall management of our investment portfolio.

Interest Rate Sensitivity

(1)

Portfolio

Market

Book

Change in Interest Rate

Value

(2)(3)

Value

(2)(4)

As of December 31, 2021

-200 Basis Points

(2.01)%

(17.00)%

-100 Basis Points

(0.33)%

(2.76)%

-50 Basis Points

0.19%

1.59%

+50 Basis Points

(0.48)%

(4.04)%

+100 Basis Points

(1.64)%

(13.91)%

+200 Basis Points

(4.79)%

(40.64)%

As of December 31, 2020

-200 Basis Points

2.43%

21.85%

-100 Basis Points

1.35%

12.08%

-50 Basis Points

0.69%

6.18%

+50 Basis Points

(0.90)%

(8.03)%

+100 Basis Points

(2.39)%

(21.42)%

+200 Basis Points

(4.95)%

(44.44)%

(1)

Interest rate sensitivity is derived from models that are dependent on

inputs and assumptions provided by third parties as well as by our

Manager, and assumes there are no changes

in mortgage spreads and assumes a static portfolio. Actual results could differ

materially from

these estimates.

(2)

Includes the effect of derivatives and other securities used for hedging

purposes.

(3)

Estimated dollar change in investment portfolio value expressed as a percent

of the total fair value of our investment portfolio as of such date.

(4)

Estimated dollar change in portfolio value expressed as a percent of stockholders' equity as

of such date.

In addition to changes in interest rates, other factors impact the fair value of our

interest rate-sensitive investments, 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.

Prepayment Risk

Because residential borrowers have the option to prepay their mortgage loans at

par at any time, we face the risk that we will

experience a return of principal on our investments faster than anticipated. Various factors affect the rate at which mortgage

prepayments occur, including changes in the level of and directional trends in housing prices, interest rates, general economic

conditions, loan age and size, loan-to-value ratio, the location of the property and

social and demographic conditions. Additionally,

changes to GSE underwriting practices or other governmental programs could

also significantly impact prepayment rates or

expectations. Generally, prepayments on Agency RMBS increase during periods of falling mortgage interest rates and decrease

during

periods of rising mortgage interest rates. However, this may not always be the case.

We may reinvest principal repayments at a yield

that is lower or higher than the yield on the repaid investment, thus affecting our net interest

income by altering the average yield on

our assets.

Spread Risk

When the market spread widens between the yield on our Agency RMBS and benchmark

interest rates, our net book value could

decline if the value of our Agency RMBS falls by more than the offsetting fair value increases

on our hedging instruments tied to the

underlying benchmark interest rates. We refer to this as "spread risk" or "basis risk." The

spread risk associated with our mortgage

assets and the resulting fluctuations in fair value of these securities can occur independent

of changes in benchmark interest rates and

may relate to other factors impacting the mortgage and fixed income markets,

such as actual or anticipated monetary policy actions by

the Fed, market liquidity, or changes in required rates of return on different assets. Consequently, while we use futures contracts and

interest rate swaps and swaptions to attempt to protect against moves in interest rates,

such instruments typically will not protect our

net book value against spread risk.

Liquidity Risk

The primary liquidity risk for us arises from financing long-term assets with

shorter-term borrowings through repurchase

agreements. Our assets that are pledged to secure repurchase agreements

are Agency RMBS and cash. As of December 31, 2021,

we had unrestricted cash and cash equivalents of $385.1 million and unpledged

securities of approximately $4.7 million (not including

unsettled securities purchases or securities pledged to us) available to

meet margin calls on our repurchase agreements and derivative

contracts, and for other corporate purposes. However, should the value of our Agency RMBS pledged as collateral

or the value of our

derivative instruments suddenly decrease, margin calls relating to our repurchase

and derivative agreements could increase, causing

an adverse change in our liquidity position. Further, there is no assurance that we will always be able to renew

(or roll) our repurchase

agreements. In addition, our counterparties have the option to increase our haircuts

(margin requirements) on the assets we pledge

against repurchase agreements, thereby reducing the amount that can be borrowed against

an asset even if they agree to renew or roll

the repurchase agreement. Significantly higher haircuts can reduce our

ability to leverage our portfolio or even force us to sell assets,

especially if correlated with asset price declines or faster prepayment rates on our

assets.

Extension Risk

The projected weighted average life and the duration (or interest rate

sensitivity) of our investments is based on our Manager's

assumptions regarding the rate at which the borrowers will prepay the underlying mortgage

loans. In general, we use futures contracts

and interest rate swaps and swaptions to help manage our funding cost

on our investments in the event that interest rates rise. These

hedging instruments allow us to reduce our funding exposure on the notional amount

of the instrument for a specified period of time.

However, if prepayment rates decrease in a rising interest rate environment, the average life or duration of

our fixed-rate assets or

the fixed-rate portion of the ARMs or other assets generally extends. This could have

a negative impact on our results from operations,

as our hedging instrument expirations are fixed and will, therefore, cover a

smaller percentage of our funding exposure on our

mortgage assets to the extent that their average lives increase due to slower prepayments.

This situation

may

also cause the market

value of our Agency RMBS and CMOs collateralized by fixed rate mortgages

or hybrid ARMs to decline by more than otherwise would

be the case, while most of our hedging instruments would not receive any incremental

offsetting gains. In extreme situations, we may

be forced to sell assets to maintain adequate liquidity, which could cause us to incur realized losses.

Counterparty Credit Risk

We are exposed to counterparty credit risk relating to potential losses that could be recognized

in the event that the counterparties

to our repurchase agreements and derivative contracts fail to perform their obligations

under such agreements. The amount of assets

we pledge as collateral in accordance with our agreements varies over time based

on the market value and notional amount of such

assets as well as the value of our derivative contracts. In the event of a default

by a counterparty, we may not receive payments

provided for under the terms of our agreements and may have difficulty obtaining our assets

pledged as collateral under such

agreements. Our credit risk related to certain derivative transactions is largely

mitigated through daily adjustments to collateral pledged

based on changes in market value, and we limit our counterparties to registered

central clearing exchanges and major financial

institutions with acceptable credit ratings, monitoring positions with individual counterparties

and adjusting collateral posted as required.

However, there is no guarantee our efforts to manage counterparty credit risk will be successful and we could suffer significant losses if

unsuccessful.

ITEM 8. FINANCIAL

STATEMENTS AND SUPPLEMENTARY

DATA

Index to

Financial

Statements

Page

Report of

Independent

Registered

Public Accounting

Firm (

BDO USA, LLP

;

West Palm Beach, FL

; PCAOB ID#

243

)

Balance Sheets

Statements

of Operations

Statements

of Stockholders’

Equity

Statements

of Cash Flows

Notes to

Financial

Statements

Report of Independent Registered Public Accounting Firm

Stockholders and Board of Directors

Orchid Island Capital, Inc.

Vero Beach, Florida

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Orchid Island Capital, Inc. (the “Company”)

as of December 31, 2021 and

2020, the related statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended

December 31, 2021, and the related notes (collectively referred to as the “financial

statements”). In our opinion, the financial

statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020,

and the

results of its operations and its cash flows for each of the three years in the period

ended December 31, 2021

in conformity with

accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting

Oversight Board (United States)

(“PCAOB”), the Company's internal control over financial reporting as of December

31, 2021, based on criteria established in

Internal

Control – Integrated Framework (2013)

issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”)

and our report dated February 25, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the

Company’s financial statements based on our audits. We are a public accounting firm registered with

the PCAOB and are required to

be independent with respect to the Company in accordance with the U.S. federal

securities laws and the applicable rules and

regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards

require that we plan and perform the audit

to obtain reasonable assurance about whether the financial statements are free

of material misstatement, whether due to error or

fraud.

Our audits included performing procedures to assess the risks of material misstatement

of the financial statements, whether due to

error or fraud, and performing procedures that respond to those risks. Such procedures

included examining, on a test basis, evidence

regarding the amounts and disclosures in the financial statements. Our audits

also included evaluating the accounting principles used

and significant estimates made by management, as well as evaluating the overall

presentation of the financial statements. We believe

that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current

period audit of the financial statements that was

communicated or required to be communicated to the audit committee and that: (1)

relates to accounts or disclosures that are material

to the financial statements and (2) involved our especially challenging,

subjective, or complex judgments. The communication

of the critical audit matter does not alter in any way our opinion on the financial

statements, taken as a whole, and we are not, by

communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts

or disclosures

to which it relates.

Valuation of Investments in Mortgage-Backed Securities

As described in Notes

and

to the financial statements, the Company

accounts for its Level 2

mortgage-backed securities at fair

value, which

totaled

$6.5

billion at December 31, 2021.

The fair value of mortgage-backed securities is

based on independent pricing

sources and/or third-party broker

quotes, when available. Because the price estimates may vary, management must make certain

judgments and assumptions about the appropriate price to use to calculate the fair

values based on various techniques including

observing the most recent market for like or identical assets (including

security coupon rate, maturity, yield, prepayment speed), market

credit spreads, and model driven approaches.

We identified the valuation of mortgage-backed securities

a critical audit matter.

The principal considerations for our determination

are: (i)

the potential for bias in how management subjectively selects the price from

multiple pricing sources to determine the fair value

of the mortgage-backed securities and (ii)

the audit effort involved, including the use of

valuation

professionals with specialized skill and

knowledge.

The primary procedures we performed to address this critical audit matter included:

●

Testing the

design, implementation, and operating

effectiveness of

controls

relating to the valuation of mortgaged-backed

securities, including

controls over

management’s

process to select the price from multiple pricing sources.

●

Reviewing

the

range of values used for each investment position,

and

assessing

the price selected

for management bias

by comparing the price

to the high, low and average of the range of pricing sources.

●

Testing the reasonableness of fair values determined by management by comparing the fair value of certain securities to

recent transactions, if applicable.

●

Utilizing

personnel with specialized knowledge and skill in valuation to develop

an independent estimate of the fair value of

each investment position by considering the stated security coupon rate,

yield, maturity, and prepayment speeds, and

comparing to the fair value used by management.

/s/ BDO USA, LLP

Certified Public Accountants

We have served as the Company's auditor since 2011.

West Palm Beach, Florida

February 25, 2022

ORCHID ISLAND CAPITAL, INC.

BALANCE SHEETS

($ in thousands, except per share data)

December 31, 2021

December 31, 2020

ASSETS:

Mortgage-backed securities, at fair value (includes pledged assets

of $

6,506,372

6,511,095

3,726,895

and $

3,719,906

, respectively)

U.S. Treasury Notes, at fair value (includes pledged assets of

$29,740

and $

, respectively)

37,175

Cash and cash equivalents

385,143

220,143

Restricted cash

65,299

79,363

Accrued interest receivable

18,859

9,721

Derivative assets

50,786

20,999

Receivable for securities sold, pledged to counterparties

414

Other assets

320

516

Total Assets

7,068,677

4,058,051

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:

Repurchase agreements

6,244,106

3,595,586

Dividends payable

11,530

4,970

Derivative liabilities

7,589

33,227

Accrued interest payable

788

1,157

Due to affiliates

1,062

632

Other liabilities

35,505

7,188

Total Liabilities

6,300,580

3,642,760

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:

Preferred stock, $

0.01

par value;

100,000,000

shares authorized; no shares issued

and outstanding as of December 31, 2021 and December 31, 2020

Common Stock, $

0.01

par value;

500,000,000

shares authorized,

176,993,049

shares issued and outstanding as of December 31, 2021 and

76,073,317

shares issued

and outstanding as of December 31, 2020

1,770

761

Additional paid-in capital

849,081

432,524

Accumulated deficit

(82,754)

(17,994)

Total Stockholders' Equity

768,097

415,291

Total Liabilities

and Stockholders' Equity

7,068,677

4,058,051

See Notes to Financial Statements

ORCHID ISLAND CAPITAL, INC.

STATEMENTS

OF OPERATIONS

For the Years Ended December 31, 2021,

2020 and 2019

($ in thousands, except per share data)

2021

2020

2019

Interest income

134,700

116,045

142,324

Interest expense

(7,090)

(25,056)

(83,666)

Net interest income

127,610

90,989

58,658

Realized losses on mortgage-backed securities

(5,542)

(24,986)

(10,877)

Unrealized (losses) gains on mortgage-backed securities and U.S. Treasury

Notes

(198,454)

25,761

38,045

Gains (losses) on derivative instruments

26,877

(79,092)

(51,176)

Net portfolio (loss) income

(49,509)

12,672

34,650

Expenses:

Management fees

8,156

5,281

5,528

Allocated overhead

1,632

1,514

1,380

Incentive compensation

1,132

115

Directors' fees and liability insurance

1,169

998

Audit, legal and other professional fees

1,112

1,045

1,105

Direct REIT operating expenses

1,475

1,057

997

Other administrative

575

611

262

Total expenses

15,251

10,544

10,385

Net (loss) income

(64,760)

2,128

24,265

Basic and diluted net (loss) income per share

(0.54)

0.03

0.43

Weighted Average Shares Outstanding

121,144,326

67,210,815

56,328,027

See Notes to Financial Statements

ORCHID ISLAND CAPITAL, INC.

STATEMENTS

OF STOCKHOLDERS' EQUITY

For the Years Ended December 31, 2021,

2020 and 2019

(in thousands)

Additional

Retained

Common Stock

Paid-in

Earnings

Par Value

Capital

(Deficit)

Total

Balances, January 1, 2019

49,132

491

379,975

(44,387)

336,079

Net income

24,265

Cash dividends declared

(54,421)

Issuance of common stock pursuant to public offerings, net

14,377

145

92,169

92,314

Stock based awards and amortization

294

Shares repurchased and retired

(470)

(5)

(3,019)

(3,024)

Balances, December 31, 2019

63,062

631

414,998

(20,122)

395,507

Net income

2,128

Cash dividends declared

(53,570)

Issuance of common stock pursuant to public offerings, net

13,019

130

70,920

71,050

Stock based awards and amortization

244

Shares repurchased and retired

(20)

(68)

Balances, December 31, 2020

76,073

761

432,524

(17,994)

415,291

Net loss

(64,760)

Cash dividends declared

(97,601)

Issuance of common stock pursuant to public offerings, net

100,828

1,008

513,051

514,059

Stock based awards and amortization

1,107

1,108

Balances, December 31, 2021

176,993

1,770

849,081

(82,754)

768,097

See Notes to Financial Statements

ORCHID ISLAND CAPITAL, INC.

STATEMENTS

OF CASH FLOWS

For the Years Ended December 31, 2021,

2020 and 2019

($ in thousands)

2021

2020

2019

CASH FLOWS FROM OPERATING

ACTIVITIES:

Net (loss) income

(64,760)

2,128

24,265

Adjustments to reconcile net (loss) income to net cash provided by operating

activities:

Stock based compensation

772

244

294

Realized and unrealized losses (gains) on mortgage-backed securities

203,731

(775)

(27,168)

Unrealized losses on U.S. Treasury Notes

265

Realized and unrealized (gains) losses on derivative instruments

(35,350)

58,891

45,207

Changes in operating assets and liabilities:

Accrued interest receivable

(9,138)

2,683

837

Other assets

196

(446)

Accrued interest payable

(369)

(9,944)

4,656

Other liabilities

663

2,583

Due to affiliates

430

(32)

NET CASH PROVIDED BY OPERATING

ACTIVITIES

96,440

55,374

48,161

CASH FLOWS FROM INVESTING ACTIVITIES:

From mortgage-backed securities investments:

Purchases

(6,430,725)

(4,859,434)

(4,241,822)

Sales

2,851,708

4,200,536

3,321,206

Principal repayments

591,086

523,699

594,833

Purchases of U.S. Treasury Notes

(37,440)

Net proceeds from reverse repurchase agreements

Net Proceeds from (payments on) on derivative instruments

8,571

(64,171)

(29,023)

NET CASH USED IN INVESTING ACTIVITIES

(3,016,800)

(199,340)

(354,806)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from repurchase agreements

35,950,241

33,140,625

45,595,010

Principal payments on repurchase agreements

(33,301,721)

(32,993,145)

(45,171,956)

Cash dividends

(90,984)

(53,645)

(53,307)

Proceeds from issuance of common stock, net of issuance costs

514,059

71,050

92,314

Common stock repurchases, including shares withheld from employee stock awards

for payment of taxes

(299)

(68)

(3,024)

NET CASH PROVIDED BY FINANCING ACTIVITIES

3,071,296

164,817

459,037

NET INCREASE IN CASH, CASH EQUIVALENTS

AND RESTRICTED CASH

150,936

20,851

152,392

CASH, CASH EQUIVALENTS

AND RESTRICTED CASH, beginning of the period

299,506

278,655

126,263

CASH, CASH EQUIVALENTS

AND RESTRICTED CASH, end of the period

450,442

299,506

278,655

SUPPLEMENTAL DISCLOSURE OF

CASH FLOW INFORMATION:

Cash paid during the period for:

Interest

7,458

35,000

79,010

See Notes to Financial Statements

ORCHID ISLAND

CAPITAL, INC.

NOTES TO FINANCIAL

STATEMENTS

DECEMBER

31, 2021

NOTE 1.

ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization

and Business

Description

Orchid Island

Capital,

Inc. (“Orchid”

or the “Company”),

was incorporated

in Maryland

on August

17, 2010

for the purpose

of creating

and managing

a leveraged

investment

portfolio

consisting

of residential

mortgage-backed

securities

(“RMBS”).

From incorporation

February

20, 2013

Orchid was

a wholly

owned subsidiary

of Bimini

Capital Management,

Inc. (“Bimini”).

Orchid began

operations

November

24, 2010

(the date

of commencement

of operations).

From incorporation

through November

24, 2010,

Orchid’s only

activity

was the issuance

of common

stock to

Bimini.

On August 2, 2017, Orchid entered into an equity distribution agreement (the “August

2017 Equity Distribution Agreement”) with

two sales agents pursuant to which the Company could offer and sell, from time to time,

up to an aggregate amount of $

125,000,000

shares of the Company’s common stock in transactions that were deemed to be “at the market” offerings and privately

negotiated

transactions.

The Company issued a total of

15,123,178

shares under the August 2017 Equity Distribution Agreement for aggregate

gross proceeds of approximately $

125.0

million, and net proceeds of approximately $

123.1

million, net of commissions and fees,

prior

to its termination in July 2019.

On July 30, 2019, Orchid entered into an underwriting agreement (the “2019 Underwriting

Agreement”) with Morgan Stanley & Co.

LLC, Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, as representatives of the underwriters named therein, relating to

the offer and sale of 7,000,000 shares of the Company’s common stock at a price to the public of

6.55

per share. The underwriters

purchased the shares pursuant to the 2019 Underwriting Agreement at a price of $

6.3535

per share. The closing of the offering of

7,000,000

shares of common stock occurred on August 2, 2019, with net proceeds to the

Company of approximately $

44.2

million after

deduction of underwriting discounts and commissions and other estimated offering expenses.

On January 23, 2020, Orchid entered into an equity distribution agreement (the

“January 2020 Equity Distribution Agreement”) with

three sales agents pursuant to which the Company could offer and sell, from time to time,

up to an aggregate amount of $

200,000,000

of shares of the Company’s common stock in transactions that were deemed to be “at the market” offerings and

privately negotiated

transactions.

The Company issued a total of

3,170,727

shares under the January 2020 Equity Distribution Agreement for

aggregate

gross proceeds of $

19.8

million, and net proceeds of approximately $

19.4

million, after commissions and fees, prior to its termination in

August 2020.

On August 4, 2020, Orchid entered into an equity distribution agreement (the “August

2020 Equity Distribution Agreement”) with

four sales agents pursuant to which the Company could offer and sell, from time to time, up

to an aggregate amount of $

150,000,000

shares of the Company’s common stock in transactions that were deemed to be “at the market” offerings and privately

negotiated

transactions.

The Company issued a total of

27,493,650

shares under the August 2020 Equity Distribution Agreement for aggregate

gross proceeds of approximately $

150.0

million, and net proceeds of approximately $

147.4

million, after commissions and fees, prior to

its termination in June 2021.

On January 20, 2021, Orchid entered into an underwriting agreement (the “January

2021 Underwriting Agreement”) with J.P.

Morgan Securities LLC (“J.P. Morgan”), relating to the offer and sale of

7,600,000

shares of the Company’s common stock. J.P.

Morgan purchased the shares of the Company’s common stock from the Company pursuant

to the January 2021 Underwriting

Agreement at $

5.20

per share. In addition, the Company granted J.P. Morgan a 30-day option to purchase up to an additional

1,140,000

shares of the Company’s common stock on the same terms and conditions, which

J.P.

Morgan exercised in full on January

21, 2021. The closing of the offering of

8,740,000

shares of the Company’s common stock occurred on January 25, 2021, with

proceeds to the Company of approximately $

45.2

million, after deduction of underwriting discounts and commissions and

other

estimated offering expenses.

On March 2, 2021, Orchid entered into an underwriting agreement (the “March 2021 Underwriting

Agreement”) with J.P. Morgan,

relating to the offer and sale of

8,000,000

shares of the Company’s common stock. J.P. Morgan purchased the shares of the

Company’s common stock from the Company pursuant to the March 2021 Underwriting

Agreement at $

5.45

per share. In addition, the

Company granted J.P. Morgan a 30-day option to purchase up to an additional

1,200,000

shares of the Company’s common stock on

the same terms and conditions, which J.P. Morgan exercised in full on March 3, 2021. The closing of the offering of

9,200,000

of the Company’s common stock occurred on March 5, 2021, with proceeds to the Company

of approximately $

50.0

million, after

deduction of underwriting discounts and commissions and other estimated offering expenses.

On June 22, 2021, Orchid entered into an equity distribution agreement (the “June

2021 Equity Distribution Agreement”) with four

sales agents pursuant to which the Company could offer and sell, from time to time, up to

an aggregate amount of $

250,000,000

shares of the Company’s common stock in transactions that were deemed to be “at the market” offerings and privately

negotiated

transactions. The Company issued a total of

49,407,336

shares under the June 2021 Equity Distribution Agreement for aggregate

gross proceeds of approximately $

250.0

million, and net proceeds of approximately $

246.0

million, after commissions and fees,

prior to

its termination in October 2021.

On October 29, 2021, Orchid entered into an equity distribution agreement (the

“October 2021 Equity Distribution Agreement”) with

four sales agents pursuant to which the Company may offer and sell, from time to time, up

to an aggregate amount of $

250,000,000

shares of the Company’s common stock in transactions that are deemed to be “at the market”

offerings and privately negotiated

transactions.

Through December 31, 2021, the Company issued a total of

15,835,700

shares under the October 2021 Equity

Distribution Agreement for aggregate gross proceeds of approximately $

78.3

million, and net proceeds of approximately $

77.0

million,

after commissions and fees.

Basis of

Presentation

and Use of

Estimates

The accompanying

financial

statements

have been

prepared

in accordance

with accounting

principles

generally

accepted

in the

United States

(“GAAP”).

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

financial

statements

and the reported

amounts of

revenues

and expenses

during the

reporting

period. Actual

results could

differ from

those

estimates.

The significant

estimates

affecting the

accompanying

financial

statements

are the

fair values

of RMBS and

derivatives.

Management

believes the

estimates

and assumptions

underlying

the financial

statements

are reasonable

based on

the information

available

as of December

31, 2021.

Variable Interest Entities (VIEs)

We obtain interests in VIEs through our investments in mortgage-backed securities.

Our interests in these VIEs are passive in

nature and are not expected to result in us obtaining a controlling financial interest

in these VIEs in the future.

As a result, we do not

consolidate these VIEs and we account for our interest in these VIEs as mortgage-backed

securities.

See Note 2 for additional

information regarding our investments in mortgage-backed securities.

Our maximum exposure to loss for these VIEs is the carrying

value of the mortgage-backed securities.

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

three months

or less at

the time

of purchase.

Restricted

cash includes

cash pledged

as collateral

for repurchase

agreements

and other

borrowings,

and interest

rate

swaps and

other derivative

instruments.

The following

table provides

a reconciliation

of cash, cash

equivalents,

and restricted

cash reported

within the

statement

of financial

position that

sum to the

total of

the same

such amounts

shown in

the statement

of cash flows.

(in thousands)

December 31, 2021

December 31, 2020

Cash and cash equivalents

385,143

220,143

Restricted cash

65,299

79,363

Total cash, cash equivalents

and restricted cash

450,442

299,506

The Company

maintains

cash balances

at three

banks and

excess margin

on account

with two

exchange clearing

members.

At times,

balances 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

customer 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

any significant

credit risk

on cash and

cash equivalents

or restricted

cash balances.

Mortgage-Backed

Securities

and U.S.

Treasury Notes

The Company

invests primarily

in mortgage

pass-through

(“PT”) residential

mortgage

backed (“RMBS”)

and collateralized

mortgage

obligations

(“CMOs”)

certificates

issued by

Freddie Mac,

Fannie Mae

or Ginnie

Mae,

interest-only

(“IO”) securities

and inverse

interest-only

(“IIO”) securities

representing interest in or obligations backed by pools of RMBS. We refer to RMBS

and CMOs as PT RMBS.

We refer

to IO and IIO securities as structured RMBS. The Company also invests in U.S. Treasury Notes, primarily to

satisfy collateral

requirements of derivative counterparties. The Company has elected to account

for its investment in RMBS and U.S. Treasury Notes

under the fair value option. Electing the fair value option requires the Company

to record changes in fair value in the 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 securities

transactions

on the trade

date. Security

purchases

that have

not settled

as of the

balance sheet

date

are included

in the portfolio

balance with

an offsetting

liability

recorded,

whereas securities

sold that

have not

settled as

of the balance

sheet date

are removed

from the

portfolio

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 RMBS

are based

on independent

pricing sources

and/or third

party

broker quotes,

when available.

Estimated

fair values

for U.S.

Treasury Notes

are based

on quoted

prices for

identical

assets in

active

markets.

Income on

PT RMBS

securities

and U.S.

Treasury Notes

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 (losses)

on RMBS

in the 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

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 RMBS

during each

reporting

period are

recorded

in earnings

and reported

as unrealized

gains or

losses on

mortgage-backed

securities

in the accompanying

statements

of operations.

Derivative Financial Instruments

The Company

uses derivative

and other

hedging 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”),

Fed Funds

and Eurodollar

futures contracts,

short positions

in U.S.

Treasury securities,

interest

rate swaps,

options to

enter in

interest

rate swaps

(“interest

rate swaptions”)

and TBA

securities

transactions,

but the Company

may enter

into other

derivative

and other

hedging 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

statements

of operations.

Derivative

and other

hedging instruments

are carried

at fair value,

and changes

in fair value

are recorded

in earnings

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.

Gains and

losses on

derivatives,

except those

that result

in cash receipts

or payments,

are

included in

operating

activities

on the statement

of cash flows.

Cash payments

and cash receipts

from settlements

of derivatives,

including

current period

net cash settlements

on interest

rate swaps,

is classified

as an investing

activity

on the statements

of cash flows.

Holding derivatives

creates exposure

to credit

risk related

to the potential

for failure

on the part

of counterparties

and exchanges

honor their

commitments.

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.

The Company’s

derivative

agreements

require it

to post or

receive

collateral

to mitigate

such risk.

In addition,

the Company

uses only

registered

central clearing

exchanges

and well-established

commercial

banks as 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 financial

statements

or in the

accompanying

notes. RMBS,

Eurodollar,

Fed Funds

and T-Note futures

contracts,

interest

rate swaps,

interest

rate

swaptions

and TBA

securities

are accounted

for at fair

value in the

balance sheets.

The methods

and assumptions

used to

estimate fair

value for

these instruments

are presented

in Note 12

of the financial

statements.

The estimated

fair value

of cash and

cash equivalents,

restricted

cash, accrued

interest

receivable,

receivable

for securities

sold,

other assets,

due to affiliates,

repurchase

agreements,

payable for

unsettled

securities

purchased,

accrued interest

payable and

other

liabilities

generally

approximates

their carrying

values as

of December

31, 2021

and December

31, 2020

due to the

short-term

nature of

these financial

instruments.

Repurchase

Agreements

The Company

finances the

acquisition

of the majority

of its RMBS

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.

Reverse

Repurchase

Agreements

and Obligations

to Return

Securities

Borrowed

under Reverse

Repurchase

Agreements

The Company

borrows securities

to cover

short sales

of U.S.

Treasury securities

through reverse

repurchase

transactions

under our

master repurchase

agreements.

We account

for these

as securities

borrowing

transactions

and recognize

an obligation

to return

the

borrowed

securities

at fair value

on the balance

sheet based

on the value

of the underlying

borrowed

securities

as of the

reporting

date.

The securities

received as

collateral

in connection

with our

reverse repurchase

agreements

mitigate

our credit

risk exposure

counterparties.

Our reverse

repurchase

agreements

typically

have maturities

of 30 days

or less.

Manager Compensation

The Company

is externally

managed

by Bimini

Advisors,

LLC (the

“Manager”

or “Bimini

Advisors”),

a Maryland

limited liability

company and

wholly-owned

subsidiary

of Bimini.

The Company’s

management

agreement

with the

Manager provides

for payment

to the

Manager of

a management

fee and reimbursement

of certain

operating

expenses,

which are

accrued and

expensed during

the period

for

which they

are earned

or incurred.

Refer to

Note 13 for

the terms

of the management

agreement.

Earnings

Per Share

Basic earnings

per share

(“EPS”)

is calculated

as net income

or loss attributable

to common

stockholders

divided by

the weighted

average number

of shares

of common

stock outstanding

or subscribed

during the

period. Diluted

EPS is calculated

using the

treasury

stock or two-class

method, as

applicable,

for common

stock equivalents,

if any. However, the

common stock

equivalents

are not

included

in computing

diluted EPS

if the result

is anti-dilutive.

Stock-Based

Compensation

The Company

may grant

equity-based

compensation

to non-employee

members of

its board

of directors

and to the

executive

officers

and employees

of the Manager.

Stock-based

awards issued

include Performance

Units, Deferred

Stock Units

and immediately

vested

common stock

awards. Compensation

expense is

measured

and recognized

for all stock-based

payment awards

made to employees

and

non-employee

directors

based on

the fair

value of our

common stock

on the date

of grant.

Compensation

expense is

recognized

over each

award’s respective

service period

using the

graded vesting

attribution

method. We

do not estimate

forfeiture

rates; rather,

we adjust

for

forfeitures

in the periods

in which

they occur.

Income Taxes

Orchid elected and is organized and operated so as to qualify to be taxed as a REIT

under the Code.

REITs are generally not

subject to federal income tax on their REIT taxable income provided that they distribute

to their stockholders all of their REIT taxable

income on an annual basis.

A REIT must distribute at least 90% of its REIT taxable income,

determined without regard to the

deductions for dividends paid and excluding net capital gain, and meet other requirements

of the Code to retain its tax status.

Orchid 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.

All of Orchid’s tax positions are categorized as

highly certain.

There is no accrual for any tax, interest or penalties related to Orchid’s tax position

assessment.

The measurement of

uncertain tax positions is adjusted when new information is available,

or when an event occurs that requires a change.

Recent Accounting

Pronouncements

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 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 financial statements.

NOTE 2.

MORTGAGE-BACKED SECURITIES AND U.S. TREASURY NOTES

The following

table presents

the Company’s

RMBS portfolio

as of December

31, 2021

and December

31, 2020:

(in thousands)

December 31, 2021

December 31, 2020

Pass-Through RMBS Certificates:

Fixed-rate Mortgages

6,298,189

3,560,746

Fixed-rate CMOs

137,453

Total Pass-Through

Certificates

6,298,189

3,698,199

Structured RMBS Certificates:

Interest-Only Securities

210,382

28,696

Inverse Interest-Only Securities

2,524

Total Structured

RMBS Certificates

212,906

28,696

Total

6,511,095

3,726,895

As of December

31, 2021,

the Company

held U.S.

Treasury Notes

with a fair

value of approximately

$37.2 million,

primarily

to satisfy

collateral

requirements

of one of

its derivative

counterparties.

The Company

did not hold

any U.S.

Treasury Notes

as of December

31,

2020.

The following

table is a

summary of

our net gain

(loss) from

the sale of

mortgage-backed

securities

for the years

ended December

31,

2021, 2020

and 2019.

(in thousands)

2021

2020

2019

Total

Carrying value of RMBS sold

2,857,250

4,225,522

3,332,083

Proceeds from sales of RMBS

2,851,708

4,200,536

3,321,206

Net (loss) gain on sales of RMBS

(5,542)

(24,986)

(10,877)

Gross gain on sales of RMBS

7,930

8,678

2,177

Gross loss on sales of RMBS

(13,472)

(33,664)

(13,054)

Net gain (loss) on sales of RMBS

(5,542)

(24,986)

(10,877)

NOTE 3.

REPURCHASE AGREEMENTS

The Company

pledges certain

of its RMBS

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

December

31, 2021,

the Company

had met all

margin call

requirements.

As of December

31, 2021

and 2020,

the Company’s

repurchase

agreements

had remaining

maturities

as summarized

below:

($ in thousands)

OVERNIGHT

BETWEEN 2

BETWEEN 31

GREATER

(1 DAY OR

AND

THAN

LESS)

30 DAYS

90 DAYS

TOTAL

December 31, 2021

Fair market value of securities pledged, including

accrued interest receivable

4,624,396

1,848,080

52,699

6,525,175

Repurchase agreement liabilities associated with

these securities

4,403,182

1,789,327

51,597

6,244,106

Net weighted average borrowing rate

0.15%

0.13%

0.15%

December 31, 2020

Fair market value of securities pledged, including

accrued interest receivable

2,112,969

1,560,798

55,776

3,729,543

Repurchase agreement liabilities associated with

these securities

2,047,897

1,494,500

53,189

3,595,586

Net weighted average borrowing rate

0.23%

0.22%

0.30%

0.23%

In addition,

cash pledged

to counterparties

as collateral

for repurchase

agreements

was approximately

57.3

million and

58.8

million

as of December

31, 2021

and 2020,

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. At December

31, 2021,

the Company

had an aggregate

amount at

risk (the

difference

between the

amount loaned

to the Company,

including

interest

payable and

securities

posted by

the counterparty

(if any),

and the fair

value of securities

and cash

pledged

(if any),

including

accrued

interest

on such securities)

with all

counterparties

of approximately

338.3

million.

The Company

did not

have an amount

at risk with

any individual

counterparty

that was

greater than

10% of the

Company’s equity

at December

31, 2021

and 2020

NOTE 4. DERIVATIVE AND OTHER HEDGING INSTRUMENTS

The table

below summarizes

fair value

information

about our

derivative

and other

hedging instruments

assets and

liabilities

as of

December

31, 2021

and 2020.

(in thousands)

Derivative and Other Hedging Instruments

Balance Sheet Location

December 31, 2021

December 31, 2020

Assets

Interest rate swaps

Derivative assets, at fair value

29,293

Payer swaptions (long positions)

Derivative assets, at fair value

21,493

17,433

TBA securities

Derivative assets, at fair value

3,559

Total derivative

assets, at fair value

50,786

20,999

Liabilities

Interest rate swaps

Derivative liabilities, at fair value

2,862

24,711

Payer swaptions (short positions)

Derivative liabilities, at fair value

4,423

7,730

TBA securities

Derivative liabilities, at fair value

304

786

Total derivative

liabilities, at fair value

7,589

33,227

Margin Balances Posted to (from) Counterparties

Futures contracts

Restricted cash

8,035

489

TBA securities

Restricted cash

284

TBA securities

Other liabilities

(856)

(2,520)

Interest rate swaption contracts

Other liabilities

(6,350)

(3,563)

Interest rate swap contracts

Restricted cash

19,761

Total margin

balances on derivative contracts

829

14,451

Eurodollar, Fed

Funds and

T-Note futures

are cash

settled futures

contracts

on an interest

rate, with

gains and

losses credited

charged to

the Company’s

cash accounts

on a daily

basis. A

minimum balance,

or “margin”,

is required

to be maintained

in the account

a daily basis.

The tables

below present

information

related to

the Company’s

Eurodollar

and T-Note futures

positions

at December

31,

2021 and

2020.

($ in thousands)

December 31, 2021

Average

Weighted

Contract

Average

Notional

Entry

Effective

Open

Expiration Year

Amount

Rate

Equity

(1)

U.S. Treasury Note Futures Contracts

(Short Positions)

(2)

March 2022 5-year T-Note futures

(Mar 2022 - Mar 2027 Hedge Period)

369,000

1.56%

1.62%

1,013

March 2022 10-year Ultra futures

(Mar 2022 - Mar 2032 Hedge Period)

220,000

1.22%

1.09%

(3,861)

($ in thousands)

December 31, 2020

Average

Weighted

Contract

Average

Notional

Entry

Effective

Open

Expiration Year

Amount

Rate

Equity

(1)

Eurodollar Futures Contracts (Short Positions)

2021

50,000

1.03%

0.18%

(424)

U.S. Treasury Note Futures Contracts

(Short Position)

(2)

March 2021 5 year T-Note futures

(Mar 2021 - Mar 2026 Hedge Period)

69,000

0.72%

0.67%

(186)

(1)

Open equity represents the cumulative gains (losses) recorded on open

futures positions from inception.

(2)

5-Year T-Note

futures contracts were valued at a price of $

120.98

at December 31, 2021 and $

126.16

at December 31, 2020.

The contract

values of the short positions were $

446.4

million and $

87.1

million at December 31, 2021 and December 31, 2020, respectively.

10-Year Ultra

futures contracts were valued at price of $

146.44

at December 31, 2021. The contract value of the short position was $

322.2

million at

December 31, 2021.

Under our

interest

rate swap

agreements,

we typically

pay a fixed

rate and

receive a

floating rate

based on LIBOR

("payer swaps").

The floating

rate we

receive under

our swap

agreements

has the effect

of offsetting

the repricing

characteristics

of our repurchase

agreements

and cash flows

on such liabilities.

We are typically

required

to post collateral

on our interest

rate swap

agreements.

The table

below presents

information

related to

the Company’s

interest

rate swap

positions

at December

31, 2021 and

2020.

($ in thousands)

Average

Net

Fixed

Average

Estimated

Average

Notional

Pay

Receive

Fair

Maturity

Amount

Rate

Value

(Years)

December 31, 2021

Expiration > 3 to ≤ 5 years

955,000

0.64%

0.16%

21,788

4.0

Expiration > 5 years

400,000

1.16%

0.21%

4,643

7.3

1,355,000

0.79%

0.18%

26,431

5.0

December 31, 2020

Expiration > 1 to ≤ 3 years

620,000

1.29%

0.22%

(23,760)

3.6

Expiration > 3 to ≤ 5 years

200,000

0.67%

0.23%

(944)

6.4

820,000

1.14%

0.23%

(24,704)

4.3

The table

below presents

information

related to

the Company’s

interest

rate swaption

positions

at December

31, 2021

and 2020.

($ in thousands)

Option

Underlying Swap

Weighted

Average

Weighted

Average

Adjustable

Average

Fair

Months to

Notional

Fixed

Rate

Term

Expiration

Cost

Value

Expiration

Amount

Rate

(LIBOR)

(Years)

December 31, 2021

Payer Swaptions (long positions)

≤ 1 year

4,000

1,575

3.2

400,000

1.66%

3 Month

5.0

> 1 year ≤ 2 years

32,690

19,918

18.4

1,258,500

2.46%

3 Month

14.1

36,690

21,493

14.7

1,658,500

2.27%

3 Month

11.9

Payer Swaptions (short positions)

≤ 1 year

(16,185)

(4,423)

5.3

(1,331,500)

2.29%

3 Month

11.4

December 31, 2020

Payer Swaptions (long positions)

≤ 1 year

3,450

2.5

500,000

0.95%

3 Month

4.0

> 1 year ≤ 2 years

13,410

17,428

17.4

675,000

1.49%

3 Month

12.8

16,860

17,433

11.0

1,175,000

1.26%

3 Month

9.0

Payer Swaptions (short positions)

≤ 1 year

(4,660)

(7,730)

5.4

(507,700)

1.49%

3 Month

12.8

The following table summarizes our contracts to purchase and sell TBA

securities as of December 31, 2021 and 2020.

($ in thousands)

Notional

Net

Amount

Cost

Market

Carrying

Long (Short)

(1)

Basis

(2)

Value

(3)

Value

(4)

December 31, 2021

30-Year TBA securities:

3.0%

(575,000)

(595,630)

(595,934)

(304)

Total

(575,000)

(595,630)

(595,934)

(304)

December 31, 2020

30-Year TBA securities:

2.0%

465,000

479,531

483,090

3,559

3.0%

(328,000)

(342,896)

(343,682)

(786)

Total

137,000

136,635

139,408

2,773

(1)

Notional amount represents the par value (or principal balance) of the underlying

Agency RMBS.

(2)

Cost basis represents the forward price to be paid (received) for the underlying

Agency RMBS.

(3)

Market value represents the current market value of the TBA securit

ies (or of the underlying Agency RMBS) as of period-end.

(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 balance sheets.

Gain (Loss) From Derivative and Other Hedging Instruments, Net

The table below presents the effect of the Company’s derivative and other hedging instruments on the statements of operations for

the years ended December 31, 2021, 2020 and 2019.

(in thousands)

2021

2020

2019

Eurodollar futures contracts (short positions)

(10)

(8,337)

(13,860)

U.S. Treasury Note futures contracts (short position)

(846)

(4,707)

(5,175)

Fed Funds futures contracts (short positions)

177

Interest rate swaps

23,613

(66,212)

(26,582)

Payer swaptions (long positions)

(2,580)

(1,379)

Payer swaptions (short positions)

9,062

(3,070)

Interest rate floors

2,765

TBA securities (short positions)

3,432

(6,719)

(6,264)

TBA securities (long positions)

(8,559)

9,950

1,907

U.S. Treasury securities (short positions)

(95)

Total

26,877

(79,092)

(51,176)

Credit Risk-Related Contingent Features

The

use

derivatives

and

other

hedging

instruments

creates

exposure

credit

risk

relating

potential

losses

that

could

recognized in the event

that the counterparties to these

instruments fail to perform their

obligations under the contracts. We

attempt to

minimize this risk

by limiting

our counterparties

for instruments which

are not centrally

cleared on a

registered exchange

to major financial

institutions

with

acceptable credit

ratings

and

monitoring positions

with

individual counterparties.

addition,

may

required

pledge assets as collateral

for our 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, we may not receive payments provided for under the terms of

our derivative

agreements, and

may have

difficulty obtaining

our assets

pledged as

collateral for

our derivatives.

The cash

and cash

equivalents pledged as collateral for our derivative instruments are included in

restricted cash on our balance sheets.

the

Company's

policy

not

offset

assets

and

liabilities

associated

with

open

derivative

contracts.

However,

the

Chicago

Mercantile

Exchange

(“CME”)

rules

characterize

variation

margin

transfers

settlement

payments,

opposed

adjustments

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 5. PLEDGED ASSETS

Assets Pledged

to Counterparties

The table

below summarizes

our assets

pledged as

collateral

under our

repurchase

agreements

and derivative

agreements

by type,

including

securities

pledged related

to securities

sold but not

yet settled,

as of December

31, 2021

and 2020.

(in thousands)

December 31, 2021

December 31, 2020

Repurchase

Derivative

Repurchase

Derivative

Assets Pledged to Counterparties

Agreements

Total

Agreements

Total

PT RMBS - fair value

6,294,102

3,692,811

Structured RMBS - fair value

212,270

27,095

U.S. Treasury Notes

29,740

Accrued interest on pledged securities

18,804

18,817

9,636

Restricted cash

57,264

8,035

65,299

58,829

20,534

79,363

Total

6,582,440

37,788

6,620,228

3,788,371

20,534

3,808,905

Assets Pledged

from Counterparties

The table

below summarizes

assets pledged

to us from

counterparties

under our

repurchase

agreements

and derivative

agreements

as of December

31, 2021

and 2020.

(in thousands)

December 31, 2021

December 31, 2020

Repurchase

Derivative

Repurchase

Derivative

Assets Pledged to Orchid

Agreements

Total

Agreements

Total

Cash

4,339

7,206

11,545

120

6,083

6,203

U.S. Treasury securities - fair value

253

Total

4,339

7,206

11,545

373

6,083

6,456

PT RMBS

and U.S.

Treasury securities

received as

margin under

our repurchase

agreements

are not recorded

in the balance

sheets

because the

counterparty

retains ownership

of the security.

Cash received

as margin

is recognized

in cash and

cash equivalents

with a

corresponding

amount recognized

as an increase

in repurchase

agreements

or other

liabilities

in the balance

sheets.

NOTE 6. OFFSETTING ASSETS AND LIABILITIES

The Company’s

derivative

agreements

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

table presents

information

regarding

those assets

and liabilities

subject to

such arrangements

as if the

Company had

presented

them on a

net basis

as of December

31, 2021

and 2020.

(in thousands)

Offsetting of Assets

Gross Amount Not

Net Amount

Offset in the Balance Sheet

of Assets

Financial

Gross Amount

Presented

Instruments

Cash

of Recognized

Offset in the

in the

Received as

Net

Assets

Balance Sheet

Collateral

Amount

December 31, 2021

Interest rate swaps

29,293

Interest rate swaptions

21,493

(6,350)

15,143

50,786

(6,350)

44,436

December 31, 2020

Interest rate swaps

Interest rate swaptions

17,433

(3,563)

13,870

TBA securities

3,559

(2,520)

1,039

20,999

(6,083)

14,916

(in thousands)

Offsetting of Liabilities

Gross Amount Not

Net Amount

Offset in the Balance Sheet

of Liabilities

Financial

Gross Amount

Presented

Instruments

of Recognized

Offset in the

in the

Posted as

Cash Posted

Net

Liabilities

Balance Sheet

Collateral

Amount

December 31, 2021

Repurchase Agreements

6,244,106

(6,186,842)

(57,264)

Interest rate swaps

2,862

(2,862)

Interest rate swaptions

4,423

TBA securities

304

6,251,695

(6,189,704)

(57,264)

4,727

December 31, 2020

Repurchase Agreements

3,595,586

(3,536,757)

(58,829)

Interest rate swaps

24,711

(19,761)

4,950

Interest rate swaptions

7,730

TBA securities

786

(284)

502

3,628,813

(3,536,757)

(78,874)

13,182

The amounts

disclosed

for collateral

received by

or posted

to the same

counterparty

up to and

not exceeding

the net amount

of the

asset or

liability

presented

in the balance

sheets. The

fair value

of the actual

collateral

received

by or posted

to the same

counterparty

typically

exceeds the

amounts

presented.

See Note

5 for a discussion

of collateral

posted or

received

against or

for repurchase

obligations

and derivative

and other

hedging

instruments.

NOTE 7.

CAPITAL STOCK

Common Stock

Issuances

During 2021

and 2020,

the Company

completed

the following

public offerings

of shares

of its common

stock.

($ in thousands, except per share amounts)

Weighted

Average

Price

Received

Net

Type of Offering

Period

Per Share

(1)

Proceeds

(2)

2021

At the Market Offering Program

(3)

First Quarter

5.10

308,048

1,572

Follow-on Offerings

First Quarter

5.31

17,940,000

95,336

At the Market Offering Program

(3)

Second Quarter

5.40

23,087,089

124,746

At the Market Offering Program

(3)

Third Quarter

4.94

35,818,338

177,007

At the Market Offering Program

(3)

Fourth Quarter

4.87

23,674,698

115,398

100,828,173

514,059

2020

At the Market Offering Program

(3)

First Quarter

6.23

3,170,727

19,447

At the Market Offering Program

(3)

Second Quarter

At the Market Offering Program

(3)

Third Quarter

5.15

3,073,326

15,566

At the Market Offering Program

(3)

Fourth Quarter

5.41

6,775,187

36,037

13,019,240

71,050

(1)

Weighted average price received per share is after deducting the underwriters’

discount, if applicable, and other offering costs.

(2)

Net proceeds are net of the underwriters’ discount, if applicable, and other

offering costs.

(3)

As of December 31, 2021, the Company had entered into ten equity distribution agreements,

nine of which have either been terminated

because all shares were sold or were replaced with a subsequent agreement.

Stock Repurchase Program

On July 29, 2015, the Company’s Board of Directors authorized the repurchase of up to

2,000,000

shares of the Company’s

common stock. On February 8, 2018, the Board of Directors approved an increase

in the stock repurchase program for up to an

additional

4,522,822

shares of the Company's common stock. Coupled with the

783,757

shares remaining from the original 2,0000,000

share authorization, the increased authorization brought the total authorization

5,306,579

shares, representing 10% of the then

outstanding share count. On December 9, 2021, the Board of Directors approved an

increase in the number of shares of the

Company’s common stock available in the stock repurchase program for up to an additional

16,861,994

shares, bringing the remaining

authorization under the stock repurchase program to

17,699,305

shares, representing approximately 10% of the Company’s then

outstanding shares of common stock. As part of the stock repurchase program,

shares may be purchased in open market transactions,

block purchases, through privately negotiated transactions, or pursuant to any trading

plan that may be adopted in accordance with

Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the

“Exchange Act”).

Open market repurchases will be made in

accordance with Exchange Act Rule 10b-18, which sets certain restrictions

on the method, timing, price and volume of open market

stock repurchases. The timing, manner, price and amount of any repurchases will be determined by the Company

in its discretion and

will be subject to economic and market conditions, stock price, applicable legal requirements

and other factors.

The authorization does

not obligate the Company to acquire any particular amount of common stock

and the program may be suspended or discontinued at

the Company’s discretion without prior notice.

From the inception of the stock repurchase program through December 31, 2021, the

Company repurchased a total of

5,685,511

shares at an aggregate cost of approximately $

40.4

million, including commissions and fees, for a weighted average price

of $

7.10

per

share. The Company did not repurchase any of its common stock during the

year ended December 31, 2021. During the year ended

December 31, 2020, the Company repurchased a total of

19,891

shares at an aggregate cost of approximately $

0.1

million, including

commissions and fees, for a weighted average price of $

3.42

per share. During the year ended December 31, 2019, the Company

repurchased a total of

469,975

shares at an aggregate cost of approximately $

3.0

million, including commissions and fees, for a

weighted average price of $

6.43

per share. The remaining authorization under the stock repurchase program

as of December 31, 2021

17,699,305

shares.

Cash Dividends

The table below presents the cash dividends declared on the Company’s common

stock.

(in thousands, except per share amounts)

Year

Per Share

Amount

Total

2013

1.395

4,662

2014

2.160

22,643

2015

1.920

38,748

2016

1.680

41,388

2017

1.680

70,717

2018

1.070

55,814

2019

0.960

54,421

2020

0.790

53,570

2021

0.780

97,601

2022 - YTD

(1)

0.110

19,502

Totals

12.545

459,066

(1)

On January 13, 2022, the Company declared a dividend of $0.055 per

share to be paid on February 24, 2022. On February 16, 2022, the

Company declared a dividend of $0.055 per share to be paid on March 29,

2022. The dollar amount of the dividend declared in February 2022

is estimated based on the number of shares outstanding at February

25, 2022. The effect of these dividends are included in the table above,

but are not reflected in the Company’s financial statements as of December

31, 2021.

NOTE 8.

STOCK INCENTIVE PLAN

In 2021, the Company’s Board of Directors adopted, and the stockholders approved, the

Orchid Island Capital, Inc. 2021 Equity

Incentive Plan (the “2021 Incentive Plan”) to replace the Orchid Island Capital,

Inc. 2012 Equity Incentive Plan (the “2012 Incentive

Plan” and together with the 2021 Incentive Plan, the “Incentive Plans”). The 2021 Incentive

Plan provides for the award of stock

options, stock appreciation rights, stock award, performance units, other equity-based

awards (and dividend equivalents with respect to

awards of performance units and other equity-based awards) and incentive

awards.

The 2021 Incentive Plan is administered by the

Compensation Committee of the Company’s Board of Directors except that the Company’s full Board

of Directors will administer

awards made to directors who are not employees of the Company or its affiliates. The

2021 Incentive Plan provides for awards of up to

an aggregate of

% of the issued and outstanding shares of our common stock (on a fully

diluted basis) at the time of the awards,

subject to a maximum aggregate

7,366,623

shares of the Company’s common stock that may be issued under the 2021 Incentive Plan.

The 2021 Incentive Plan replaces the 2012 Incentive Plan, and no further

grants will be made under the 2012 Incentive Plan.

However, any outstanding awards under the 2012 Incentive Plan will continue in accordance with the terms of the

2012 Incentive Plan

and any award agreement executed in connection with such outstanding awards.

Performance Units

The Company has issued, and may in the future issue additional performance units

under the Incentive Plan to certain executive

officers and employees of its Manager.

“Performance Units” vest after the end of a defined performance period,

based on satisfaction

of the performance conditions set forth in the performance unit agreement.

When earned, each Performance Unit will be settled by the

issuance of one share of the Company’s common stock, at which time the Performance

Unit will be cancelled.

The Performance Units

contain dividend equivalent rights, which entitle the Participants to receive distributions

declared by the Company on common stock,

100

but do not include the right to vote the underlying shares of common stock.

Performance Units are subject to forfeiture should the

participant no longer serve as an executive officer or employee of the Company.

Compensation expense for the Performance Units,

included in incentive compensation on the statements of operations, is recognized

over the remaining vesting period once it becomes

probable that the performance conditions will be achieved.

The following table presents information related to Performance Units outstanding during

the years ended December 31, 2021 and

2020.

($ in thousands, except per share data)

2021

2020

Weighted

Average

Grant Date

Fair Value

Unvested, beginning of period

4,554

7.45

19,021

7.78

Granted

137,897

5.88

Forfeited

(4,674)

5.88

(1,607)

7.45

Vested and issued

(4,554)

7.45

(12,860)

7.93

Unvested, end of period

133,223

5.88

4,554

7.45

Compensation expense during period

321

Unrecognized compensation expense, end of period

467

Intrinsic value, end of period

599

Weighted-average remaining vesting term (in years)

1.4

0.8

The number of shares of common stock issuable upon the vesting of the remaining

outstanding Performance Units was reduced in

2020 as a result of the book value impairment event that occurred pursuant

to the Company's Long Term Incentive Compensation

Plans (the "Plans"). The book value impairment event occurred when the Company's

book value per share declined by more than 15%

during the quarter ended March 31, 2020 and the Company's book value

per share decline from January 1, 2020 to June 30, 2020 was

more than 10%. The Plans provide that if such a book value impairment event

occurs, then the number of outstanding Performance

Units that are outstanding as of the last day of such two-quarter period shall be reduced

by 15%.

Stock Awards

The Company has issued, and may in the future issue additional, immediately vested

common stock under the Incentive Plans to

certain executive officers and employees of its Manager. Compensation expense for the stock awards is based on the fair

value of the

Company’s common stock on the grant date and is included in incentive compensation

in the statements of operations. The following

table presents information related to fully vested common stock issued during

the years ended December 31, 2021 and 2020. All of the

fully vested shares of common stock issued during the year ended December 31,

2021, and the related compensation expense, were

granted with respect to service performed during the previous fiscal year.

($ in thousands, except per share data)

2021

2020

Fully vested shares granted

137,897

Weighted average grant date price per share

5.88

Compensation expense related to fully vested shares of common stock awards

(1)

811

(1)

The awards issued during the year ended December 31, 2021 were granted

with respect to service performed in 2020. Approximately $600,000

of compensation expense related to the 2021 awards was accrued and recognized

in 2020.

Deferred Stock Units

101

Non-employee directors receive a portion of their compensation in the

form of deferred stock unit awards (“DSUs”) pursuant to the

Incentive Plans.

Each DSU represents a right to receive one share of the Company’s

common stock. The DSUs are immediately

vested and are settled at a future date based on the election of the individual participant.

Compensation expense for the DSUs is

included in directors’ fees and liability insurance in the statements of operations. The DSUs

contain dividend equivalent rights, which

entitle the participant to receive distributions declared by the Company on common

stock.

These distributions will be made in the form

of cash or additional DSUs at the participant’s election. The DSUs do not include the right

to vote the underlying shares of common

stock.

The following table presents information related to the DSUs outstanding during

the years ended December 31, 2021 and 2020.

($ in thousands, except per share data)

2021

2020

Weighted

Average

Grant Date

Fair Value

Outstanding, beginning of period

90,946

5.44

43,570

6.56

Granted and vested

52,030

5.29

47,376

4.41

Outstanding, end of period

142,976

5.38

90,946

5.44

Compensation expense during period

240

180

Intrinsic value, end of period

643

473

NOTE 9.

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. Management is not aware of any reported or unreported contingencies

at December 31, 2021.

NOTE 10.

INCOME TAXES

The Company

will generally

not be subject

to U.S. federal

income tax

on its REIT

taxable income

to the extent

that it distributes

its

REIT taxable

income to

its stockholders

and satisfies

the ongoing

REIT requirements,

including

meeting certain

asset, income

and stock

ownership

tests.

A REIT must

generally

distribute

at least 90%

of its REIT

taxable income,

determined

without regard

to the deductions

for

dividends

paid and

excluding

net capital

gain,

to its stockholders,

annually to

maintain REIT

status.

An amount

equal to

the sum of

85% of

its REIT

ordinary

income and

95% of its

REIT capital

gain net

income, plus

certain undistributed

income from

prior taxable

years, must

distributed

within the

taxable year

in order

to avoid the

imposition

of an excise

tax.

The remaining

balance may

be distributed

up to the

end of the

following

taxable year,

provided

the REIT

elects to treat

such amount

as a prior

year distribution

and meets

certain other

requirements.

REIT taxable

income (loss)

is computed

in accordance

with the

Code, which

is different

than the Company’s

financial

statement

net

income (loss)

computed in

accordance

with GAAP. Book to

tax differences

primarily

relate to

the recognition

of interest

income on

RMBS,

unrealized

gains and

losses on

RMBS, and

the amortization

of losses on

derivative

instruments

that are

treated as

hedges for

tax

purposes.

As of December

31, 2021,

we had distributed

all of our

estimated

REIT taxable

income through

fiscal year

2021. Accordingly,

income tax

provision

was recorded

for 2021,

2020 and

2019.

NOTE 11.

EARNINGS PER SHARE (EPS)

102

The Company

had dividend

eligible

Performance

Units and

Deferred

Stock Units

that were

outstanding

during the

years ended

December

31, 2021,

2020 and

2019. The

basic and

diluted per

share computations

include these

unvested Performance

Units and

Deferred

Stock Units

if there

is income available

to common

stock, as

they have

dividend

participation

rights. The

unvested Performance

Units and

Deferred

Stock Units

have no contractual

obligation

to share

in losses.

Because there

is no such

obligation,

the unvested

Performance

Units and

Deferred

Stock Units

are not included

in the basic

and diluted

EPS computations

when no income

is available

common stock

even though

they are

considered

participating

securities.

The table

below reconciles

the numerator

and denominator

of EPS for

the years

ended December

31, 2021,

2020 and

2019.

(in thousands, except per-share information)

2021

2020

2019

Basic and diluted EPS per common share:

Numerator for basic and diluted EPS per share of common stock:

Net (loss) income - Basic and diluted

(64,760)

2,128

24,265

Weighted average shares of common stock:

Shares of common stock outstanding at the balance sheet date

176,993

76,073

63,062

Unvested dividend eligible share based compensation

outstanding at the balance sheet date

Effect of weighting

(55,849)

(8,958)

(6,797)

Weighted average shares-basic and diluted

121,144

67,211

56,328

Net (loss) income per common share:

Basic and diluted

(0.54)

0.03

0.43

Anti-dilutive incentive shares not included in calculation.

281

NOTE 12.

FAIR VALUE

The framework

for using

fair value

to measure

assets and

liabilities

defines fair

value as the

price that

would be

received to

sell an

asset or

paid to transfer

a liability

(an exit

price). A

fair value

measure should

reflect the

assumptions

that market

participants

would use

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 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.

The Company's

RMBS and

TBA securities

are Level

2 valuations,

and such valuations

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), and

model driven

approaches

(the discounted

cash flow

method, Black

Scholes and

103

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

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 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

U.S. Treasury

Notes are

based on

quoted prices

for identical

instruments

in active

markets and

are classified

Level 1 assets.

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

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.

RMBS (based

on the fair

value option),

derivatives

and TBA

securities

were recorded

at fair value

on a recurring

basis during

the

years ended

December

31, 2021,

2020 and

2019. When

determining

fair value

measurements,

the Company

considers

the principal

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.

The following

table presents

financial

assets (liabilities)

measured

at fair value

on a recurring

basis as of

December

31, 2021

and

2020.

Derivative

contracts

are reported

as a net

position by

contract

type, and

not based

on master

netting arrangements.

(in thousands)

Quoted Prices

in Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

Assets

Inputs

(Level 1)

(Level 2)

(Level 3)

December 31, 2021

Mortgage-backed securities

6,511,095

U.S. Treasury Notes

37,175

Interest rate swaps

26,431

Interest rate swaptions

17,070

TBA securities

(304)

December 31, 2020

Mortgage-backed securities

3,726,895

Interest rate swaps

(24,704)

Interest rate swaptions

9,703

TBA securities

2,773

During the years ended December 31, 2021 and 2020, there were no transfers of financial

assets or liabilities between levels 1, 2

or 3.

NOTE 13. RELATED PARTY TRANSACTIONS

104

Management Agreement

The Company is externally managed and advised by the “Manager” pursuant to

the terms of a management agreement. The

management agreement has been renewed through

February 20, 2023

and provides for automatic

one-year

extension options

thereafter and is subject to certain termination rights.

Under the terms of the management agreement, the Manager is responsible

for

administering the business activities and day-to-day operations of the

Company.

The Manager receives a monthly management fee in

the amount of:

●

One-twelfth of 1.5% of the first $250 million of the Company’s month-end equity, as defined in the management agreement,

●

One-twelfth of 1.25% of the Company’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 the Company’s month-end equity that is greater than $500

million.

The Company is obligated to reimburse the Manager for any direct expenses

incurred on its behalf and to pay the Manager the

Company’s pro rata portion of certain overhead costs set forth in the management agreement.

Should the Company terminate the

management agreement without cause, it will pay the Manager 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 term of

the agreement.

Total

expenses recorded for the management fee and allocated overhead incurred

were approximately $

9.8

million, $

6.8

million

and $

6.9

million for the years ended December 31, 2021, 2020 and 2019, respectively.

Other Relationships with Bimini

Robert Cauley, our Chief Executive Officer and Chairman of our Board of Directors, also serves as Chief Executive Officer and

Chairman of the Board of Directors of Bimini and owns shares of common stock

of Bimini. George H. Haas, our Chief Financial Officer,

Chief Investment Officer, Secretary and a member of our Board of Directors, also serves as the Chief Financial Officer, Chief

Investment Officer and Treasurer of Bimini and owns shares of common stock of Bimini. In addition, as of December

31, 2021, Bimini

owned

2,595,357

shares, or

1.5

%, of the Company’s common stock.

105

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL

DISCLOSURE

We had no disagreements with our Independent Registered Public Accounting Firm on any matter of accounting

principles or practices or financial statement disclosure.

ITEM 9A. 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

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 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 significant 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.

Management’s Report of Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining

adequate internal control over financial reporting.

Internal control over financial reporting is defined in Rules 13a-15(f) under

the Exchange Act as a process designed by, or under the

supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board

of directors,

management and other personnel to provide reasonable assurance regarding

the reliability of financial reporting and the preparation of

financial statements for external purposes in accordance with generally

accepted accounting principles and includes those policies and

procedures that:

●

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect

the transactions and

dispositions of the assets of the Company;

●

provide reasonable assurance that transactions are recorded as necessary to

permit preparation of financial statements

in accordance with generally accepted accounting principles, and that receipts

and expenditures of the Company are

being made only in accordance with authorizations of management and directors

of the Company; and

●

provide reasonable assurance regarding prevention or timely detection of

unauthorized acquisition, use or disposition of

the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may

not prevent or detect misstatements.

As a result,

even systems determined to be effective can provide only reasonable assurance regarding

the preparation and presentation of

financial statements.

Moreover, projections of any evaluation of effectiveness to future periods are subject to the risks that controls

may become inadequate because of changes in conditions or that the degree

of compliance with the policies or procedures may

deteriorate.

106

The Company’s management assessed the effectiveness of the Company’s internal control over financial

reporting as of

December 31, 2021.

In making this assessment, the Company’s management used criteria

set forth in

Internal Control—Integrated

Framework (2013)

issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on management’s assessment, the Company’s management believes that, as of December 31, 2021, the

Company’s

internal control over financial reporting was effective based on those criteria. The Company’s independent registered

public accounting

firm, BDO USA, LLP,

has issued an attestation report on the Company’s internal control over

financial reporting, which is included

herein.

107

Report of Independent Registered Public

Accounting Firm

Stockholders and Board of Directors

Orchid Island Capital, Inc.

Vero Beach, Florida

Opinion on Internal Control over Financial

Reporting

have

audited Orchid

Island

Capital, Inc.’s

(the “Company’s”)

internal control

over

financial

reporting

December 31, 2021, based on criteria established in

Internal Control – Integrated Framework (2013)

issued by the

Committee

Sponsoring Organizations

the

Treadway

Commission (the

“COSO

criteria”).

our opinion,

the

Company maintained, in

all material respects,

effective internal control over

financial reporting as

of December

31, 2021 based on the COSO criteria

We also have audited,

in accordance

with the standards

of the Public

Company Accounting

Oversight Board (United

States) (“PCAOB”), the balance sheets of the Company

as of December 31, 2021 and 2020, the related statements

of operations, stockholders’ equity,

and cash flows for each of the three years

in the period ended December 31,

2021, and the related notes and our report

dated February 25, 2022, expressed an

unqualified opinion thereon.

Basis for Opinion

The Company’s

management is responsible for maintaining effective

internal control over financial reporting and

for its assessment

of the effectiveness

of internal control over

financial reporting, included in

the accompanying

“Item 9A, Management’s

Report on

Internal Control over Financial

Reporting”. Our responsibility

is to express an

opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting

firm registered with

the PCAOB

and are

required to be

independent with respect

to the

Company in

accordance

with U.S.

federal

securities laws

and the

applicable

rules and

regulations

of the

Securities

and Exchange

Commission

and the PCAOB.

We conducted our

audit of

internal control

over financial

reporting in

accordance with

the standards

of the PCAOB.

Those standards

require that

we plan

and perform

the audit

to obtain

reasonable assurance

about whether

effective

internal control over financial

reporting was maintained in

all material respects. Our

audit included obtaining an

understanding of internal control over financial

reporting, assessing the risk that

a material weakness exists, and

testing and evaluating

the design and

operating effectiveness of

internal control based

on the assessed

risk. Our

audit also included

performing such

other procedures

as we considered

necessary in the

circumstances. We believe

that our audit provides a reasonable basis

for our opinion.

Definition and Limitations of Internal

Control over Financial Reporting

company’s

internal

control

over

financial

reporting

process

designed

provide

reasonable

assurance

regarding the reliability of financial

reporting and the preparation of financial

statements for external purposes in

accordance with

generally accepted accounting

principles. A

company’s

internal control over

financial reporting

includes those policies

and procedures that

(1) pertain to

the maintenance of

records that, in

reasonable detail,

accurately and fairly reflect

the transactions and

dispositions of the assets

of the company; (2)

provide reasonable

assurance that transactions are

recorded as necessary

to permit preparation of

financial statements in accordance

with generally accepted

accounting principles, and

that receipts and expenditures

of the company are

being made

only in accordance with authorizations of

management and directors of the company;

and (3) provide reasonable

assurance

regarding

prevention

timely

detection

unauthorized

acquisition,

use,

disposition

the

company’s assets that could have a material effect on the financial

statements.

Because

its

inherent

limitations,

internal

control

over

financial

reporting

may

not

prevent

detect

misstatements. Also, projections of

any evaluation of

effectiveness to future periods

are subject to

the risk that

controls

may

become

inadequate because

changes

conditions, or

that

the

degree

compliance with

the

policies or procedures may deteriorate.

108

/s/ BDO USA, LLP

Certified Public Accountants

West Palm Beach, Florida

February 25, 2022

109

ITEM 9B.

OTHER INFORMATION

None.

ITEM 9C.

DISCLOSURE

REGARDING

FOREIGN

JURISDICTIONS

THAT PREVENT INSPECTIONS

Not applicable.

110

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this Item 10 and not otherwise set forth below is incorporated herein by reference to the

Company's definitive Proxy Statement relating to the Company’s 2022 Annual Meeting of Stockholders (the “Proxy

Statement”), which the Company expects to file with the SEC, pursuant to Regulation 14A, not later than 120 days after

December 31, 2021.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item 11 is incorporated herein by reference to the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED

STOCKHOLDER MATTERS

The information required by this Item 12 is incorporated herein by reference to the Proxy Statement and to Part II, Item

5 of this Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS

AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item 13 is incorporated herein by reference to the Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTANT

FEES AND SERVICES

The information required by this Item 14 is incorporated herein by reference to the Proxy Statement.

111

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Financial Statements. The financial statements of the Company, together with the report of Independent Registered Public

Accounting Firm thereon, are set forth in Part II-Item 8 of this Form 10-K

and are incorporated herein by reference.

The following

information

is filed

as part of

this Form

10-K:

Page

Report of

Independent

Registered

Public Accounting

Firm

Balance Sheets

Statements

of Operations

Statements

of Stockholders’

Equity

Statements

of Cash Flows

Notes to

Financial

Statements

Financial Statement Schedules.

Not applicable.

Exhibits.

Exhibit No.

Description

3.1

Articles of Amendment and Restatement of Orchid Island Capital, Inc. (filed as Exhibit 3.1

to the Company’s Registration Statement on Amendment No. 1 to Form S-11 (File No.333-

184538) filed on November 28, 2012 and incorporated herein by reference)

3.2

Certificate of Correction of Orchid Island Capital, Inc. (filed as Exhibit 3.2 to the Company’s

Annual Report on Form 10-K filed on February 22, 2019 and incorporated herein by

reference)

3.3

Amended and Restated Bylaws of Orchid Island Capital, Inc. (filed as Exhibit 3.1 to the

Company’s Current Report on Form 8-K filed on March 19, 2019)

4.1

Specimen Certificate of common stock of Orchid Island Capital, Inc. (filed as Exhibit 4.1 to

the Company’s Registration Statement on Amendment No. 1 to Form S-11 (File No.333-

184538) filed on November 28, 2012 and incorporated herein by reference)

4.2

Description of Securities (filed as Exhibit 4.2 to the Company’s Annual Report on Form 10-

K filed on February 21, 2020 and incorporated herein by reference)

10.1

Management Agreement between Orchid Island Capital, Inc. and Bimini Advisors, LLC,

dated as of February 20, 2013 (filed as Exhibit 10.2 to the Company's Current Report on

Form 8 K filed on April 3, 2014 and incorporated herein by reference)†

112

10.2

First Amendment to Management Agreement, effective as of April 1, 2014 (filed as Exhibit

10.1 to the Company’s Current Report on Form 8-K filed on April 3, 2014 and incorporated

herein by reference)†

10.3

Second Amendment to Management Agreement, effective as of June 30, 2014 (filed as

Exhibit 10.1 to the Company's Current Report on Form 8-K filed on July 3, 2014 and

incorporated herein by reference)

10.4

Third Amendment to Management Agreement, effective as of November 17, 2021 (filed as

Exhibit 10.1 to the Company's Current Report on Form 8-K filed on November 17, 2021

and incorporated herein by reference)†

10.5

Form of Investment Allocation Agreement by and among Orchid Island Capital, Inc., Bimini

Advisors, LLC and Bimini Capital Management, Inc. (filed as Exhibit 10.2 to the Company’s

Registration Statement on Amendment No. 1 to Form S-11 (File No.333-184538) filed on

November 28, 2012 and incorporated herein by reference)†

10.6

2012 Equity Incentive Plan (filed as Exhibit 10.3 to the Company’s Registration Statement

on Amendment No. 1 to Form S-11 (File No.333-184538) filed on November 28, 2012 and

incorporated herein by reference)†

10.7

2021 Equity Incentive Plan (filed as Exhibit 10.1 to the Company’s Current Report on Form

8-K filed on June 15, 2021 and incorporated herein by reference)†

10.8

Form of Indemnification Agreement by and between Orchid Island Capital, Inc. and

Indemnitee (filed as Exhibit 10.4 to the Company’s Registration Statement on Amendment

No. 1 to Form S-11 (File No.333-184538) filed on November 28, 2012 and incorporated

herein by reference)†

10.9

Form of Master Repurchase Agreement (filed as Exhibit 10.5 to the Company’s

Registration Statement on Amendment No. 1 to Form S-11 (File No.333-184538) filed on

November 28, 2012 and incorporated herein by reference)

10.10

Performance Unit Award Agreement by Orchid Island Capital, Inc. to Robert E. Cauley

dated January 21, 2015 (filed as Exhibit 99.2 to Form 8-K filed on January 23, 2015 and

incorporated herein by reference)†

10.11

Performance Unit Award Agreement by Orchid Island Capital, Inc. to George H. Haas, IV

dated January 21, 2015 (filed as Exhibit 99.4 to Form 8-K filed on January 23, 2015 and

incorporated herein by reference)†

10.12

2015 Long Term Incentive Compensation Plan (filed as Exhibit 99.1 to Form 8-K filed on

March 25, 2015 and incorporated herein by reference)†

10.13

2016 Long Term Incentive Compensation Plan (filed as Exhibit 10.1 to Form 10-Q filed on

April 28, 2016 and incorporated herein by reference)†

10.14

2017 Long Term Incentive Compensation Plan (filed as Exhibit 10.2 to Form 10-Q filed on

April 28, 2017 and incorporated herein by reference)†

10.15

2018 Long Term Incentive Compensation Plan (filed as Exhibit 10.5 to Form 10-Q filed on

April 27, 2018 and incorporated herein by reference)†

10.16

2019 Long Term Incentive Compensation Plan (filed as Exhibit 10.1 to Form 10-Q filed on

April 26, 2019 and incorporated herein by reference)†

10.17

2020 Long Term Incentive Compensation Plan (filed as Exhibit 10.1 to Form 10-Q filed on

May 1, 2020 and incorporated herein by reference)†

10.18

2021 Long Term Incentive Compensation Plan (filed as Exhibit 10.1 to Form 10-Q filed on

April 30, 2021 and incorporated herein by reference)†

10.19

Form of Deferred Stock Unit Grant Notice and Agreement under the 2021 Equity Incentive

Plan † *

10.20

Form of Director Cash Compensation Deferral Election Form † *

113

21.1

Subsidiaries of the Company (filed as Exhibit 21.1 to the Company’s Annual Report on

Form 10-K filed on February 26, 2021 and incorporated herein by reference)

23.1

Consent of BDO USA, LLP*

31.1

Certification of Robert E. Cauley, Chief Executive Officer and President of the Registrant,

pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2

Certification of George H. Haas, IV, Chief Financial Officer of the Registrant, pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002.*

32.1

Certification of Robert E. Cauley, Chief Executive Officer and President of the Registrant,

pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-

Oxley Act of 2002.**

32.2

Certification of George H. Haas, IV, Chief Financial Officer of the Registrant, pursuant to 18

U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of

2002.**

Exhibit 101.INS XBRL

Instance Document ***

Exhibit 101.SCH

XBRL

Taxonomy Extension Schema Document ***

Exhibit 101.CAL XBRL

Taxonomy Extension Calculation Linkbase Document***

Exhibit 101.DEF XBRL

Additional Taxonomy Extension Definition Linkbase Document Created***

Exhibit 101.LAB XBRL

Taxonomy Extension Label Linkbase Document ***

Exhibit 101.PRE XBRL

Taxonomy Extension Presentation Linkbase Document ***

Exhibit 104

Cover Page Interactive Data File (embedded within the Inline XBRL document)

Filed herewith.

Furnished herewith.

***

Submitted electronically herewith.

†

Management contract or compensatory plan.

ITEM 16. FORM 10-K SUMMARY

The Company has elected not to provide summary information.

114

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.

Orchid Island Capital, Inc

Registrant

Date:

February 25, 2022

By:

/s/ Robert E. Cauley

Robert E. Cauley

Chief Executive Officer, President and Chairman of the Board

Date:

February 25, 2022

By:

/s/ George H. Haas, IV

George H. Haas,

Secretary, Chief Financial Officer, Chief Investment Officer and

Director (Principal Financial and Accounting Officer)

Pursuant to

the requirements

of the

Securities Exchange Act

of 1934,

this report

has been

signed below

by the

following persons

behalf of the Company and in the capacities and on the dates indicated.

/s/ Robert E. Cauley

Chairman of the Board, Director, Chief

February 25, 2022

Robert E. Cauley

Executive Officer, and President

(Principal Executive Officer)

/s/ George H. Haas, IV

Chief Financial Officer, Chief

February 25, 2022

George H. Haas, IV

Investment Officer, and Director

(Principal Financial and Accounting Officer)

/s/ W Coleman Bitting

Independent Director

February 25, 2022

W Coleman Bitting

/s/ Frank P.

Filipps

Independent Director

February 25, 2022

Frank P.

Filipps

/s/ Paula Morabito

Independent Director

February 25, 2022

Paula Morabito

/s/ Ava L. Parker

Independent Director

February 25, 2022

Ava L. Parker

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Readability	8th grade Good

Orchid Island Capital (ORC) 10-K2021 FY Annual report

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