BIMINI CAPITAL MANAGEMENT, INC. - Annual Report: 2021 (Form 10-K)

bmnm10k2021

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

001-32171

Bimini Capital Management, Inc.

(Exact name of registrant as specified in its charter)

Maryland

72-1571637

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

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:

None

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

Title of Each Class

Class A Common Stock, $0.001 par value

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

☐

☒

State the aggregate market value of the voting stock held by non-affiliates of the Registrant as of June 30, 2021:

Title of each Class

Shares held by non-affiliates

Aggregate market value held

by non-affiliates

Class A Common Stock, $0.001 par value

7,457,553

13,000,000

(a)

Class B Common Stock, $0.001 par value

20,760

1,000

(b)

Class C Common Stock, $0.001 par value

31,938

1,500

(b)

(a) The aggregate market value was calculated by using the last sale price of the Class A Common Stock as of June 30, 2021.

(b)

The market value of the Class B and Class C Common Stock is an estimate based on their initial purchase price.

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date:

Title of each Class

Latest Practicable Date

Shares Outstanding

Class A Common Stock, $0.001 par value

March 11, 2022

10,531,772

Class B Common Stock, $0.001 par value

March 11, 2022

31,938

Class C Common Stock, $0.001 par value

March 11, 2022

31,938

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the

Registrant’s definitive

Proxy Statement for

its 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”).

BIMINI CAPITAL MANAGEMENT, INC.

INDEX

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

ITEM 9A.

Controls

and Procedures

ITEM 9B.

Other Information

ITEM 9C.

Disclosure

Regarding

Foreign Jurisdictions

the Prevent

Inspections

PART III

ITEM 10.

Directors,

Executive

Officers and

Corporate

Governance

ITEM 11. Executive

Compensation

ITEM 12.

Security

Ownership

of Certain

Beneficial

Owners and

Management

and Related

Stockholder

Matters

ITEM 13.

Certain Relationships

and Related

Transactions,

and Director

Independence

ITEM 14.

Principal

Accountant

Fees and

Services

PART IV

ITEM 15.

Exhibits and

Financial

Statement

Schedules

ITEM 16.

Form 10-K

Summary

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 changing 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;

●

the impact of inflation on general economic conditions and monetary

policy;

●

market trends;

●

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

●

our ability to quantify risk based on historical experience;

●

our ability to forecast our tax attributes, which are based upon various facts

and assumptions, and our ability to protect and

use our NOLs to offset future taxable income, including whether our shareholder rights plan

will be effective in preventing an

ownership change that would significantly limit our ability to utilize such NOLs;

●

the impact of possible future changes in tax laws or tax rates;

●

our ability to maintain our exemption from the obligation to register under the Investment

Company Act of 1940, as amended

(the “Investment Company Act”);

●

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 MBS 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.

- 1 -

PART I

ITEM 1. BUSINESS

Overview

Bimini Capital Management, Inc., a Maryland corporation (“Bimini Capital”

and, collectively with its subsidiaries, the “Company,”

“we”, “us” or “our”) is a specialty finance company that operates in two

business segments: investing in mortgage-backed securities

(“MBS”) and Orchid Island Capital, Inc. (“Orchid”) common stock in our own

portfolio, and serving as the external manager of Orchid

which also invests in MBS.

In both cases, the principal and interest payments of these MBS

are guaranteed by Fannie Mae, Freddie

Mac or the Government National Mortgage Association (“Ginnie Mae” and,

collectively with Fannie Mae and Freddie Mac, “GSEs”) and

are backed primarily by single-family residential mortgage loans. We refer to these types of

MBS as “Agency MBS.” The investment

strategy focuses on, and the portfolios consist of, two categories of Agency

MBS: (i) traditional pass-through Agency MBS, such as

mortgage pass-through certificates and collateralized mortgage obligations (“CMOs”)

issued by the GSEs and (ii) structured Agency

MBS, such as interest only securities (“IOs”), inverse interest only securities

(“IIOs”) and principal only securities (“POs”), among other

types of structured Agency MBS. The Company’s operations are classified into two principal reportable

segments: the asset

management segment and the investment portfolio segment.

The investment portfolio segment includes the investment activities conducted

at Bimini Capital’s wholly-owned subsidiary, Royal

Palm Capital, LLC (“Royal Palm”). The investment portfolio segment receives revenue

in the form of interest and dividend income on its

investments.

References to the general management of the Company’s portfolio of MBS refer

to the operations of Royal Palm.

The Company, through Royal Palm’s wholly-owned subsidiary, Bimini Advisors Holdings, LLC (“Bimini Advisors”), serves as the

external manager of Orchid and from this arrangement the Company receives management

fees and expense reimbursements.

The

asset management segment includes these investment advisory services

provided by Bimini Advisors to Orchid.

Management of Orchid

Orchid is externally managed and advised by our wholly-owned subsidiary, Bimini Advisors, and its MBS investment team

pursuant to the terms of a management agreement.

As Manager, Bimini Advisors is responsible for administering Orchid’s business

activities and day-to-day operations.

Pursuant to the terms of the management agreement, Bimini Advisors

provides Orchid with its

management team, including its officers, along with appropriate support personnel.

Bimini Advisors is at all times subject to the

supervision and oversight of Orchid’s board of directors,

of which a majority of the members are independent, and is only

permitted to

perform such functions

delegated by Orchid’s Board.

Bimini Advisors receives a monthly management fee in the amount of:

●

One-twelfth of 1.5% of the first $250 million of the Orchid’s equity, as defined in the management agreement,

●

One-twelfth of 1.25% of the Orchid’s equity that is greater than $250 million and less than or

equal to $500 million, and

●

One-twelfth of 1.00% of the Orchid’s equity that is greater than $500 million.

Orchid is obligated to reimburse Bimini Advisors for any direct expenses incurred

on its behalf.

In addition, Bimini Advisors

allocates to Orchid its pro rata portion of certain overhead costs as set forth in the

management agreement.

Should Orchid terminate

the management agreement without cause, it shall pay to Bimini Advisors a termination

fee equal to three times the average annual

management fee, as defined in the management agreement, before or on the

last day of the initial term or automatic renewal term.

The Investment and Capital Allocation Strategy

Investment Strategy

- 2 -

With respect to our own portfolio, the business objective is to provide attractive

risk-adjusted total returns to our investors over the long

term through a combination of capital appreciation and interest income. We intend to achieve

this objective by investing in and

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

MBS. We seek to generate income from (i)

the net interest margin on the leveraged pass-through Agency MBS portfolio

and the leveraged portion of the structured Agency MBS

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

of the structured Agency MBS portfolio. We also seek to

minimize the volatility of both the net asset value of, and income from, the portfolio

through a process which emphasizes capital

allocation, asset selection, liquidity and active interest rate risk management. In addition,

we also hold an investment, and earn

dividends, on Orchid common stock.

We fund the pass-through Agency MBS and certain of the structured Agency MBS through

repurchase agreements. However, we

generally do not employ leverage on the structured Agency MBS 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

the cash balance, but we do not intend to

invest the cash derived from pledging the assets.

The target asset categories and principal assets in which we intend to invest

are as follows:

Pass-through Agency MBS

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

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 MBS generally declines.

The rate of prepayments on underlying

mortgages will affect the price and volatility of Agency MBS 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 MBS 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.

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

into the following categories:

- 3 -

●

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

. 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.

Collateralized Mortgage Obligation MBS

CMOs are a type of MBS 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

MBS 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 MBS

We also invest in structured Agency MBS, which include CMOs, IOs, IIOs and POs. The

payment of principal and interest, as

appropriate, on structured Agency MBS 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 MBS 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 MBS 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 MBS, 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,

- 4 -

which are prepayments, 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.

Mortgage REIT Common Stock

We also maintain an investment in the common stock of Orchid.

Because Orchid is a mortgage REIT that invests primarily in assets

similar to those in which the Company invests,

we consider this investment as a proxy for our overall investment strategy.

We do not

currently invest in other REIT common stock, but subject to certain limitations we

are not prohibited from doing so in the future.

Our investment strategy consists of the following components:

●

investing in pass-through Agency MBS and certain structured Agency MBS on a

leveraged basis to increase returns on the

capital allocated to this portfolio;

●

investing in certain structured Agency MBS, 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, the cash from such borrowings may be retained and (iii) diversify portfolio

interest

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

Agency MBS;

●

investing in Agency MBS in order to minimize credit risk;

●

investing in REIT common stock, including Orchid;

●

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

as an investment company under the

Investment Company Act.

Our management team 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.

- 5 -

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 will enable us to provide attractive long-term returns

to our stockholders.

Capital Allocation Strategy

The percentage of capital invested in each of our 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. Typically, pass-through Agency MBS and structured Agency MBS 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, we will seek to maintain adequate liquidity as we allocate capital. The value of our investment in Orchid

common stock typically fluctuates with Orchid’s book value, which is affected by the same

factors that affect our MBS investments,

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 MBS, 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 MBS, which are negatively impacted by rising interest

rates.

Financing Strategy

We borrow against our pass-through Agency MBS and certain of our structured Agency

MBS 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 MBS 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 not exceed 12 to 1 and will generally be

less than 10 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 MBS portfolio

will be leveraged generally through

repurchase agreement funding. The structured Agency MBS 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.

The amount of leverage typically will be a function

of the capital allocated to the pass-through Agency MBS portfolio and the amount

of haircuts required by our lenders on our

borrowings. When the capital allocation to the pass-through Agency MBS

portfolio is high, we expect that the leverage ratio will be high

- 6 -

because more capital is being explicitly leveraged and less capital is un-leveraged.

If the haircuts 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 MBS 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 well in excess of anticipated 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

MBS portfolio. Our pass-through Agency MBS 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

MBS 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 MBS and Orchid common stock to mitigate credit risk. Additionally, our Agency MBS, as well as Orchid’s, 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 the value of 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 MBS Backed by ARMs

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

of our Agency MBS 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 MBS backed by ARMs

and the related borrowings and (ii) the interest rate

adjustment periods for our Agency MBS 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 MBS Backed by Fixed-Rate Mortgages

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

Agency MBS backed by fixed-rate mortgages remains unchanged. 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 MBS Backed by Hybrid ARMs

. During the fixed-rate period of our Agency MBS backed by hybrid ARMs,

the security is similar

to Agency MBS backed by fixed-rate mortgages. During this period, we

may employ the same hedging strategy that we employ for our

Agency MBS backed by fixed-rate mortgages. Once our Agency MBS backed

by hybrid ARMs convert to floating rate securities, we

may employ the same hedging strategy as we employ for our Agency MBS

backed by ARMs.

- 7 -

Derivative Instruments.

We may 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

Eurodollar,

Fed Funds

and Treasury

Note (“T-Note”)

futures contracts

and options

to enter

into interest

rate swaps

(“interest

rate

swaptions”)

and “to-be-announced”

(“TBA”)

securities

transactions,

but we 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

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.

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 swaption"),

or swaption agreements that provide us the option to enter into a receive

fixed

interest rate swap ("receiver swaptions").

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

Agency MBS. To the extent they do so, our structured Agency MBS 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.

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 consolidated 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 coupon 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 MBS, 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 MBS 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 MBS. 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

MBS backed by mortgages with well-documented and predictable prepayment histories.

To protect against increases in prepayment

rates, we invest in Agency MBS backed by mortgages that we believe are

less likely to be prepaid. For example, we invest in Agency

MBS backed by mortgages (i) with loan balances low enough such that a

borrower would likely have little incentive to refinance, (ii)

- 8 -

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 MBS 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 MBS 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 MBS portfolio to our unleveraged

Agency MBS portfolio;

●

Investing in Agency MBS 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;

●

Investing in REIT common stock; 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.

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 MBS are

non-qualifying real estate assets. We monitor our portfolio periodically 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 MBS 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. We

manage our pass-through Agency MBS portfolio such that we have sufficient whole-pool pass-through

Agency MBS 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 MBS 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

- 9 -

As of December 31, 2021, we had 8 full-time salaried employees,

none of whom are subject to a collective bargaining agreement. We

provide a variety of benefit programs including a 401(k) plan and health, dental

and other insurance. We believe our relationship with

our employees is excellent.

Competition

Our net income depends on our ability to acquire Agency MBS for our portfolio at

favorable spreads over our borrowing costs. Our net

income also depends on our ability to execute the same investment

strategy for the Orchid portfolio, for which we receive management

fees and expense reimbursement payments. When we invest in Agency MBS

and other investment assets, we compete with a variety

of institutional investors, including mortgage 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.

Available Information

Our investor relations website is

https://ir.biminicapital.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.

- 10 -

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.

●

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

newly issued, or investor demand for, Agency MBS,

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

objectives and our business,

financial condition and results of operations.

●

Interest rate mismatches between our Agency MBS 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.

●

Although structured Agency MBS are generally subject to the same risks as

our pass-through Agency MBS, certain types of risks

may be enhanced depending on the type of structured Agency MBS 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.

●

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 MBS.

●

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

associated with Agency MBS

●

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

might decrease net interest income or result

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

results of operations.

●

Interest rate caps on the ARMs and hybrid ARMs backing our Agency MBS 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.

●

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.

●

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.

●

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

and results of operations.

●

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 MBS back to us at the

end of the repurchase transaction term, or if

the value of the Agency MBS 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.

●

We have issued long-term debt to fund our operations which can increase the volatility of

our earnings and stockholders’ equity.

- 11 -

●

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 depend primarily on two individuals to operate our business, and the loss of one

or both of such persons could materially

adversely affect our 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.

●

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

negatively affect the value of shares of our

common stock.

●

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.

●

The termination of our management agreement with Orchid could significantly

reduce our revenues.

●

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.

●

Our investment in Orchid Island Capital, Inc. or other mortgage REIT common

stock may fluctuate in value which may materially

adversely affect our business, financial condition and results of operations.

Risk Factors

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

consolidated 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.

Under normal market conditions,

an investment in Agency MBS 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 MBS 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 cash available to fund our operations.

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

risk associated with our investment in

Agency MBS. If long-term rates were to increase significantly, the market value of our Agency MBS 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 MBS, which would decrease cash. 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 MBS, our business, financial

position and results of operations.

- 12 -

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

newly issued, or investor demand for, Agency MBS,

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

objectives and our business,

financial condition and results of operations.

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 MBS available to us, which could affect our

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

may also cause Agency MBS 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 MBS or Agency MBS with a yield that exceeds our borrowing

costs, our ability to satisfy our

investment objectives and to generate income, our business, financial

condition and results of operations.

Interest rate mismatches between our Agency MBS 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.

Our portfolio includes Agency MBS 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 MBS 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

MBS backed by fixed-rate mortgage loans) or will

not increase at the same rate (with respect to Agency MBS 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 MBS, including IOs, IIOs and POs. Although structured Agency

MBS are generally subject to the

same risks as our pass-through Agency MBS, certain types of risks may be

enhanced depending on the type of structured Agency

MBS in which we invest.

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

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

collateralized by Agency MBS 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

MBS. For example,

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

sensitive to prepayment risks than pass-through Agency

MBS. If we were to invest in structured Agency MBS that were more sensitive to prepayment

risks relative to other types of structured

Agency MBS or pass-through Agency MBS, 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

- 13 -

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.

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.

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

associated with Agency MBS.

The Fed owned approximately $2.6 trillion of Agency MBS 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 MBS, returns on Agency

MBS may be adversely affected.

Increased levels of prepayments on the mortgages underlying our Agency

MBS might decrease net interest income or result in a

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

of operations.

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 MBS,

- 14 -

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

financial condition and results of operations in

various ways, including, if we are unable to quickly acquire new Agency

MBS that generate comparable returns to replace the prepaid

Agency MBS.

When we acquire structured Agency MBS, 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 MBS 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.

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

MBS might decrease net interest income or result in a

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

of operations.

Certain of our structured Agency MBS 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.

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.

Interest rate caps on the ARMs and hybrid ARMs backing our Agency MBS 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.

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 MBS. 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 MBS backed by ARMs and hybrid ARMs than

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

MBS 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.

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.

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 MBS, 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

- 15 -

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 may be adversely affected.

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

our acquisition of Agency MBS, 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.

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

MBS, 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 MBS 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 MBS 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. This risk is magnified given that the Company’s equity

capital, particularly its tangible equity, is

relatively small.

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.

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 MBS 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 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

- 16 -

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. These risks are magnified given that the Company’s equity capital,

particularly its tangible equity, is relatively small.

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

our business, financial condition and results

of operations.

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.

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 10 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 MBS and

a portion of our structured Agency MBS. 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 MBS at unfavorable prices. Our use of

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

of operations. For example, our borrowings are

secured by our pass-through Agency MBS and a portion of our structured Agency

MBS under repurchase agreements. A decline in the

market value of the pass-through Agency MBS or structured Agency MBS 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 MBS 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 MBS, we would experience

losses. 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.

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

MBS securities. TBA contracts enable

us to purchase or sell, for future delivery, Agency MBS with certain principal and interest terms and certain types of collateral, but the

particular Agency MBS 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

- 17 -

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 MBS purchased for a forward

settlement date under the TBA contract are

typically priced at a discount to Agency MBS 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 MBS over the roll

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

MBS 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 MBS

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

to Agency MBS for settlement in the current

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

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, the military conflict between Ukraine

and Russia, 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 and

our investment in Orchid common stock.

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.

The Russian invasion of Ukraine has created market volatility and economic uncertainty

that may have an adverse effect on our

results of operations, financial condition and the value of our stock.

A significant geo-political development is unfolding in the Ukraine.

Russia invaded Ukraine on February 24, 2022, and since then

Russian military activity has escalated rapidly.

The United States and several NATO allies have imposed significant economic

sanctions that are likely to cripple the Russian economy and currency, the Ruble. These events have created significant

market

volatility and growing economic uncertainty.

Should the situation deteriorate further and military action lead to

a protracted war, there

would likely be a material adverse economic impact on Europe and therefore

indirectly in the U.S., potentially slowing economic activity

and possibly lessening the need for the Fed to remove monetary policy

as aggressively as expected otherwise.

The risk of Russian

cyber-attacks may also create market volatility and economic uncertainty.

It is believed that Russian cyber-attacks of the Ukrainian

- 18 -

government infrastructure have already occurred, and cyber-attacks could potentially spread

to a broader network of countries and

networks.

These events may have an adverse effect on our results of operations, financial condition and

the value of our common

stock.

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

certain risks, including price risks and counterparty

risks.

We purchase some of our Agency MBS 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 MBS, or (ii) a TBA, or to-be-

issued, Agency MBS with certain terms. As with any forward purchase contract,

the value of the underlying Agency MBS may decrease

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

counterparty may fail to deliver the underlying Agency MBS

at the settlement date. If any of these risks were to occur, our financial condition and results of operations may be materially adversely

affected.

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 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

- 19 -

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 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 MBS at

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

condition and results of operations.

Agency MBS generally experience periods of illiquidity. Such conditions are more likely to occur for structured Agency

MBS

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

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

may be unable to dispose of our Agency MBS 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 MBS could materially adversely affect our business, financial condition

and results of operations.

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 a repurchase agreement counterparty defaults on their obligations to resell the Agency

MBS back to us at the end of the

repurchase term,

or if the value of the Agency MBS 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.

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 MBS. 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.

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

- 20 -

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.

We have issued long-term debt to fund our operations which can increase the volatility of our

earnings and stockholders’ equity.

In October 2005, Bimini Capital completed a private offering of trust preferred securities

of Bimini Capital Trust II, of which $26.8

million are still outstanding.

The Company must pay interest on these junior subordinated notes on a quarterly

basis at a rate equal to

current three month LIBOR rate plus 3.5%.

To the extent the Company’s does not generate sufficient earnings to cover the interest

payments on the debt, our earnings and stockholders’ equity may be negatively impacted.

The Company considers the junior subordinated notes as part of its long-term capital

base.

Therefore, for purposes of all

disclosure in this report concerning our capital or leverage, the Company considers

both stockholders’ equity and the $26.8 million of

junior subordinated notes to constitute capital.

The Company has also elected to account for its investments in MBS under the

fair value option and, therefore, will report MBS on

our financial statements at fair value with unrealized gains and losses included

in earnings.

Changes in the value of the MBS do not

impact the outstanding balance of the junior subordinated notes but rather our

stockholders’ equity.

Therefore, changes in the value of

our MBS will be absorbed solely by our stockholders’ equity.

Because our stockholders’

equity is small in relation to our total capital,

such changes may result in significant changes in our stockholders’ equity.

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, 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.

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.

Competition might prevent us from acquiring Agency MBS at favorable yields,

which could materially adversely affect our business,

financial condition and results of operations.

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

largely depends on our ability to acquire

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

MBS, we compete with a variety of institutional

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

funds, other lenders, other entities that purchase Agency MBS, 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 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

- 21 -

investments. Furthermore, competition for investments in Agency MBS 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 MBS at favorable

spreads over our borrowing costs, which would materially adversely affect our

business, financial condition and results of operations.

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 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.

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 MBS trading activities, which could have a material adverse

effect on our business, financial condition and results of

operations.

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 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 employees worked remotely until June 2021,

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, 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, or certain

of the third parties that facilitate our 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.

We depend primarily on two individuals to operate our business, and the loss of one or both

of such persons could materially

adversely affect our business, financial condition and results of operations.

We depend substantially on two individuals, Robert E. Cauley, our Chairman and Chief Executive Officer, and G. Hunter Haas, our

President, Chief Investment Officer and Chief Financial Officer, to manage our business.

We depend on the diligence, experience and

skill of Mr. Cauley and Mr. Haas in managing all aspects of our business, including the selection, acquisition, structuring and monitoring

of securities portfolios and associated borrowings. Although we

have entered into contracts and compensation arrangements with

- 22 -

Mr. Cauley and Mr. Haas that encourage their continued employment, those contracts may not prevent either Mr. Cauley or Mr. Haas

from leaving our company. The loss of either of them could materially adversely affect our business, financial condition and results of

operations.

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 Class A 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.

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 develop 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, and

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

- 23 -

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 MBS

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 GSEs have common equity Tier 1 capital of at least 3%

of their 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 MBS and could have broad adverse market implications.

If Fannie Mae or Freddie Mac was eliminated, or their

- 24 -

structures were to change in a material manner that is not compatible with

our business model, we would not be able to acquire

Agency MBS from these entities, which could adversely affect our business operations.

Such changes would likely have a similar

impact on the business operations of Orchid, which could adversely affect the value and

performance of our investment in Orchid

common stock and the amount of management fees and expense reimbursements

we receive from Orchid.

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.

Our investment in Orchid Island Capital, Inc. or other mortgage REIT common

stock may fluctuate in value which materially

adversely affect our business, financial condition and results of operations.

Investments in the securities of companies that own Agency MBS will be

subject to all of the risks associated with the direct

ownership of Agency MBS discussed above that could adversely affect the market price of

the investment and the ability of the REIT to

pay dividends. In addition, the market value of the common stock could be affected by

market conditions beyond the Company’s

control, such as limited liquidity in trading market for the common stock. A decrease

in the dividend payment rate or the market value of

the common stock could have a material adverse effect on our business, financial condition

and results of operations.

In addition, the Company’s ability to dispose of the common stock investment because

selling investments in Orchid’s common

equity securities may be hindered due to its relationship as Orchid’s manager and the

possession of inside information. Also, if we or

other significant investors sell or are perceived as intending to sell a substantial

number of shares in a short period of time, the market

price of our remaining shares could be adversely affected.

The termination of our management agreement with Orchid could significantly

reduce our revenues.

Orchid is externally managed and advised by Bimini Advisors. As Manager, Bimini Advisors is responsible for administering

Orchid’s business activities and day-to-day operations.

Pursuant to the terms of the management agreement, Bimini

Advisors provides

Orchid with its management team, including its officers, along with appropriate

support personnel.

In exchange for these services, Bimini Advisors receives a monthly management

fee.

In addition, Orchid is obligated to reimburse

Bimini Advisors for any direct expenses incurred on its behalf and Bimini Advisors

allocates to Orchid its pro rata portion of certain

overhead costs. The significance of these management fees and overhead reimbursements

has increased, and is expected to continue

to increase, as Orchid’s capital base continues to grow. If Orchid were to terminate the management agreement without

cause, it would

be obligated to pay to Bimini Advisors a termination fee equal to three times the

average annual management fee, as defined in the

management agreement, before or on the last day of the initial term

or automatic renewal term.

The loss of these revenues, if it were

to occur, would have a severe and immediate impact on the Company.

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 MBS 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.

- 25 -

We may incur losses as a result of unforeseen or catastrophic events, including the emergence of

a pandemic and acts of

terrorism.

The occurrence of unforeseen or catastrophic events, including the emergence

of a pandemic, such as coronavirus, or other

widespread health emergency (or concerns over the possibility of such an emergency)

terrorist attacks could create economic and

financial disruptions, and could lead to operational difficulties that could impair our

ability to manage our businesses.

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 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.

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.

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 and for any other 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 MBS, 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 MBS, we might have

to sell CMOs or structured Agency MBS 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 and for any other 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 in this

- 26 -

prospectus. 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 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.

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 received a no-action letter from

the CFTC for relief from registration as a

commodity pool operator and commodity trading advisor.

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.

Our Rights Plan could inhibit a change in our control that would otherwise

be favorable to our stockholders.

In December 2015, our Board of Directors adopted a Rights Agreement (the “Rights

Plan”) in an effort to protect against a possible

limitation on our ability to use our net operating losses “(NOLs”) and

net capital losses (“NCLs”) by discouraging investors from

aggregating ownership of our Class A Common Stock and triggering an “ownership

change” for purposes of Sections 382 and 383 of

the Code.

Under the terms of the Rights Plan, in general, if a person or group

acquires ownership of 4.9% or more of the outstanding

shares of our Class A Common Stock without the consent of our Board of Directors

(an “Acquiring Person”), all of our other

stockholders will have the right to purchase securities from us at a discount to

such securities’ fair market value, thus causing

substantial dilution to the Acquiring Person.

As a result, the Rights Plan may have the effect of inhibiting or impeding

a change in

control not approved by our Board of Directors and, notwithstanding its purpose,

could adversely affect our shareholders’ ability to

realize a premium over the then-prevailing market price for our common

stock in connection with such a transaction.

In addition,

because our Board of Directors may consent to certain transactions, the Rights

Plan gives our Board of Directors significant discretion

over whether a potential acquirer’s efforts to acquire a large interest

in us will be successful.

There can be no assurance that the

Rights Plan will prevent an “ownership change” within the meaning of Sections

382 and 383 of the Code, in which case we may lose all

or most of the anticipated tax benefits associated with our prior losses.

- 27 -

Certain 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. 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 that may be considered to be 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”

- 28 -

(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.

U.S. Federal Income Tax Risks

An investment in our common stock has various income tax risks.

This summary 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 and state 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. Management strongly urges shareholders to seek advice based

on their particular circumstances from their tax

advisor concerning the effects of federal, state and local income tax law on an investment

in our common stock.

Our ability to use net operating loss (“NOL”) carryovers and net capital

loss (“NCL”) carryovers to reduce our taxable income may

be limited.

We must have taxable income or net capital gains to benefit from our NOL and NCL, as

well as certain other tax attributes.

Although we believe that a significant portion of our NOLs will be available to use

to offset the future taxable income of Bimini Capital

and Royal Palm, no assurance can be provided that we will have taxable income

or gains in the future to apply against our remaining

NOLs and NCLs.

In addition, our NOL and NCL carryovers may be limited by Sections 382

and 383 of the Code if we undergo an “ownership

change.” Generally, an “ownership change” occurs if certain persons or groups increase their aggregate ownership in our

company by

more than 50 percentage points looking back over the relevant testing period. If

an ownership change occurs, our ability to use our

NOLs and NCLs to reduce our taxable income in a future year would be

limited to a Section 382 limitation equal to the fair market value

of our stock immediately prior to the ownership change multiplied by the long-term tax-exempt

interest rate in effect for the month of the

ownership change. In the event of an ownership change, NOLs and NCLs that

exceed the Section 382 limitation in any year will

continue to be allowed as carryforwards for the remainder of the carryforward period

and such losses can be used to offset taxable

income for years within the carryforward period subject to the Section 382 limitation

in each year. However, if the carryforward period

for any NOL or NCL were to expire before that loss had been fully utilized, the

unused portion of that loss would be lost. The

carryforward period for NOLs is 20 years from the year in which the losses

giving rise to the NOLs were incurred, and the carryforward

period for NCL is five years from the year in which the losses giving rise

to the NCL were incurred. Our use of new NOLs or NCLs

arising after the date of an ownership change would not be affected by the Section 382 limitation

(unless there were another ownership

change after those new losses arose).

Based on our knowledge of our stock ownership, we do not believe that

an ownership change has occurred since our losses were

generated. Accordingly, we believe that at the current time there is no annual limitation imposed on our use of our NOLs

and NCLs to

reduce future taxable income. The determination of whether an ownership change

has occurred or will occur is complicated and

depends on changes in percentage stock ownership among stockholders. We adopted the

Rights Plan described above in order to

discourage or prevent an ownership change.

However, there can be no assurance that the Rights Plan will prevent an ownership

change. In addition, we have not obtained, and currently do not plan to obtain, a ruling

from the Internal Revenue Service, or IRS,

- 29 -

regarding our conclusion as to whether our losses are subject to any such limitations.

Furthermore, we may decide in the future that it

is necessary or in our interest to take certain actions that could result in an ownership

change. Therefore, no assurance can be

provided as to whether an ownership change has occurred or will occur in the

future.

Preserving the ability to use our NOLs and NCLs may cause us to forgo otherwise

attractive opportunities.

Limitations imposed by Sections 382 and 383 of the Internal Revenue Code may

discourage us from, among other things,

redeeming our stock or issuing additional stock to raise capital or to acquire

businesses or assets. Accordingly, our desire to preserve

our NOLs and NCLs may cause us to forgo otherwise attractive opportunities.

Changes in tax laws could adversely affect our future results.

We have recorded a deferred tax asset in the consolidated balance sheet based on the differences

between the financial

statement and income tax bases of assets using enacted tax rates.

When U.S. corporate income tax rates change, we are required to

reevaluate our deferred tax assets using the new tax rate.

Changes in enacted tax rates require an adjustment to the carrying value of

our deferred tax assets with a corresponding charge or benefit to earnings in the

period of the tax rate change.

Based on the size of

our deferred tax assets, any such adjustment could be significant.

Risks Related to Conflicts of Interest in Our Relationship with Orchid

Bimini Capital and Orchid may compete for opportunities to acquire assets, which

are allocated in accordance with the Investment

Allocation Agreement by and among Orchid and Bimini Advisors.

From time to time we may seek to purchase for Bimini Capital the same or similar

assets that we seek to purchase for Orchid. In

such an instance, we may allocate such opportunities in a manner that preferentially

favors Orchid. We will make available to either

Bimini Capital or Orchid opportunities to acquire assets that we determine, in

our reasonable and good faith judgment, based on the

objectives, policies and strategies, and other relevant factors, are appropriate

for either entity in accordance with the Investment

Allocation Agreement among Bimini Capital, Orchid and Bimini Advisors.

Because many of Bimini Capital’s targeted assets are typically available only in specified

quantities and because many of our

targeted assets are also targeted assets for Orchid, we may not be able to buy as much

of any given asset as required to satisfy the

needs of both Bimini Capital and Orchid. In these cases, the Investment Allocation Agreement

will require the allocation of such assets

to both 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

MBS, 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 Orchid, which

could result in decisions that may be considered as being not

in the best interests of Bimini Capital’s stockholders.

We are subject to conflicts of interest arising out of Bimini Advisors relationship as Manager

of Orchid. All of our executive officers

may have conflicts between their duties to Bimini Capital and their duties

to Orchid as its Manager.

Bimini Capital may acquire or sell assets in which Orchid may have an interest.

Similarly, Orchid may acquire or sell assets in

which Bimini Capital has or may have an interest. Although such acquisitions

or dispositions may present conflicts of interest, we

nonetheless may pursue and consummate such transactions. Additionally, Bimini Capital may engage in transactions directly with

Orchid, including the purchase and sale of all or a portion of a portfolio asset.

- 30 -

Our officers devote as much time to Bimini Capital and to Orchid as they deem appropriate.

However, these officers may have

conflicts in allocating their time and services among Bimini Capital and

Orchid. During turbulent conditions in the mortgage industry,

distress in the credit markets or other times when we will need focused support

and assistance from employees, Orchid and other

entities for which we may act as manager in the future will likewise require greater focus

and attention, placing personnel resources in

high demand. In such situations, Bimini Capital may not receive the necessary

support and assistance it requires or would otherwise

receive if it were not acting as manager of one or more other entities.

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 Orchid and owns shares of common stock of Orchid

at the time of this filing and may continue to

hold shares in the future. Mr. Haas, our Chief Financial Officer, Chief Investment Officer and President, is a member of the Board of

Directors of Orchid, serves as the Chief Financial Officer, Chief Investment Officer and Treasurer of Orchid and owns shares of

common stock of Orchid at the time of this filing and may continue to hold

shares in the future.

Mr. Dwyer and Mr. Jaumot, the two

independent members of our Board of Directors, own shares of common stock

of Orchid at the time of this filing and may continue to

own shares in the future.

Accordingly, Messrs. Cauley, Haas, Dwyer and Jaumot may have a conflict of interest with respect to actions

by Bimini Capital or Bimini Advisors that relate to Orchid as its Manager.

Bimini continues to hold an investment in the common stock of Orchid. In evaluating

opportunities for ourselves and Orchid, this

may lead us 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 in our

common stock.

Orchid may elect not to renew the management agreement without cause which may

adversely affect our business, financial

condition and results of operations.

Orchid may elect not to renew the management agreement, even without cause.

The 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

Orchid’s independent directors, and upon providing 180-days’ prior written notice, Orchid may elect not

to renew the management

agreement. If Orchid elects to not renew the agreement because of a decision by

its Board of Directors that the management fee is

unfair, Bimini Advisors will have the right to renegotiate a mutually agreeable management fee. If Orchid

elects to not renew the

management agreement without cause, it is required to pay Bimini Advisors a

termination fee equal to three times the average annual

management fee incurred during the prior 24-month period immediately preceding

the most recently completed calendar quarter prior

to the effective date of termination. Notwithstanding the termination fee, nonrenewal of the

management agreement may adversely

affect our business, financial condition and results of operations.

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.

There is a limited market for our Class A Common Stock.

Our Class A Common Stock trades on the OTCQB under the symbol “BMNM”.

We may apply to list our Class A Common Stock

on a national securities market if, in the future, we qualify for such a listing.

However, even if listed on a national securities market, the

ability to buy and sell our Class A Common Stock may be limited due to our small

public float, and significant sales may depress or

result in a decline in the market price of our Class A Common Stock.

Additionally, until such time that our Class A Common Stock is

- 31 -

approved for listing on a national securities market, our ability to raise capital

through the sale of additional securities may be limited.

Accordingly, no assurance can be given as to:

●

the likelihood that an actual market for our common stock will develop, or

be continued once developed;

●

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.

We have not made distributions

to our stockholders since 2011.

Our Board of Directors has not authorized the payment of any cash dividends to

our stockholders since 2011.

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 and such other factors as our Board of Directors may deem relevant from

time to time. As a result of the termination of our

REIT status effective as of January 1, 2015, we are planning to retain any available funds

and future earnings to fund the development

and growth of our business. As a result, for the foreseeable future, we do not expect

to make distributions.

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. 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 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;

●

changes in our earnings estimates or publication of research reports about us

or the real estate or specialty finance

industry;

●

increases in market interest rates that affect the value of our MBS portfolios;

●

changes in our book value;

●

changes in market valuations of similar companies;

●

adverse market reaction to any increased indebtedness we incur in the future;

●

departures of key management personnel;

●

actions by institutional stockholders;

●

speculation in the press or investment community; and

- 32 -

●

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.

Sales of our common stock may harm our share price.

There is very limited liquidity in the trading market for our common stock. Sales of

substantial amounts of shares of our common

stock, or the perception that these sales could occur, may harm prevailing market prices for our common stock.

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 MBS 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 MBS 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 MBS market largely stabilized after the Fed announced on

March 23, 2020 that it would purchase Agency MBS and

U.S. Treasuries in the amounts needed to support smooth market functioning. The Fed continued to increase its

holdings of U.S.

Treasuries and Agency MBS throughout 2020 and 2021 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 MBS

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.

- 33 -

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, and liquidity, 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 MBS. 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 may disrupt 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

employees are worked remotely until June of 2021. If our employees are

unable to work effectively as a result of COVID-19, including

because of illness, quarantines, office closures, ineffective remote work arrangements or technology failures

or limitations, our

operations could 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.

ITEM 1B.

UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

Our executive offices and principal administrative offices are located at 3305 Flamingo Drive, Vero Beach, Florida, 32963, in an

office building which Bimini Capital owns. This facility is shared with our subsidiaries

and Orchid. This property is suitable and adequate

for our business as currently conducted.

ITEM 3.

LEGAL PROCEEDINGS.

On April 22, 2020, the Company received a demand for payment from Citigroup, Inc.

in the amount of $33.1 million related to the

indemnification provisions of various mortgage loan purchase agreements (“MLPA’s”) entered into between Citigroup Global Markets

- 34 -

Realty Corp and Royal Palm Capital, LLC (f/k/a Opteum Financial Services,

LLC) prior to the date Royal Palm’s mortgage origination

operations ceased in 2007.

In November 2021, Citigroup notified the Company of additional

indemnity claims totaling $0.2 million. The

demands are based on Royal Palm’s alleged breaches of certain representations and warranties

in the related MLPA’s.

The Company

believes the demands are without merit and intends to defend against the demands

vigorously.

No provision or accrual has been

recorded as of December 31, 2021 related to the Citigroup demands.

We are not party to any other material pending legal proceedings as described in Item 103

of Regulation S-K.

ITEM 4.

MINE SAFETY

DISCLOSURES.

Not Applicable.

- 35 -

PART II

ITEM 5. MARKET

FOR REGISTRANT'S

COMMON EQUITY, RELATED

STOCKHOLDER

MATTERS AND ISSUER

PURCHASES

EQUITY SECURITIES.

Market Information

Our Class A Common Stock is traded over-the-counter under the symbol “BMNM”.

As of March 11, 2022, we had 10,531,772

shares of Class A Common Stock issued and outstanding, which were held

by 102 shareholders of record and

912 beneficial owners

whose shares were held in “street name” by brokers and depository institutions.

As of March 11, 2022, we had 31,938 shares of Class B Common Stock outstanding, which were held by 2 holders of record

and

31,938 shares of Class C Common Stock outstanding, which were held by one

holder of record. There is no established public trading

market for our Class B Common Stock or Class C Common Stock.

Dividend Distribution Policy

We have not made a distribution to stockholders since 2011. We are planning to retain any available funds and future earnings to

fund the development and growth of our business.

As a result, for the foreseeable future, we do not expect to make

distributions.

Preferred Stock

Our charter authorizes us to issue preferred stock that could have a

preference over our common stock with respect to

distributions. If we were to 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.

Securities Authorized For Issuance Under Equity Compensation

Plans

None.

Unregistered Sales of Equity Securities

None.

Issuer Purchases of Equity Securities

On March 26,

2018, the

Board of

Directors

of the Company

(the “Board”)

approved

a Stock Repurchase

Plan (the

“2018 Repurchase

Plan”).

Pursuant

to the 2018

Repurchase

Plan, the

Company could

purchase

up to 500,000

shares of

its Class

A Common

Stock from

time to time,

subject to

certain limitations

imposed by

Rule 10b-18

of the Securities

Exchange Act

of 1934.

The 2018

Repurchase

Plan

was terminated

on September

16, 2021.

On September

16, 2021,

the Board

authorized

a share repurchase

plan pursuant

to Rule 10b5-1

of the Securities

Exchange

Act of

1934 (the

“2021 Repurchase

Plan”). Pursuant

to the 2021

Repurchase

Plan, the

Company may

purchase

shares of

its Class

A Common

Stock from

time

to time for

an aggregate

purchase

price not

to exceed

$2.5 million.

The table

below presents

the Company’s

share repurchase

activity

for the three

months ended

December

31, 2021.

Approximate Dollar

Shares Purchased

Amount of Shares

Total Number

Weighted-Average

as Part of Publicly

That May Yet

of Shares

Price Paid

Announced

Be Repurchased Under

Repurchased

Per Share

Programs

the Authorization

October 1, 2021 - October 31, 2021

64,849

2.01

64,849

2,369,860

November 1, 2021 - November 30, 2021

21,089

2.34

21,089

2,320,610

December 1, 2021 - December 31, 2021

6,349

2.13

6,349

2,307,095

- 36 -

Totals / Weighted Average

92,287

2.09

92,287

2,307,095

ITEM 6.

[RESERVED]

- 37 -

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

Bimini Capital Management, Inc. ("Bimini Capital" or the "Company") is a holding

company that was formed in September 2003.

The Company’s principal wholly-owned operating subsidiary is Royal Palm Capital,

LLC. We operate in two business segments: the

asset management segment, which includes (a) the investment advisory services provided

by Royal Palm’s wholly-owned subsidiary,

Bimini Advisors Holdings, LLC, to Orchid, and (b) the investment portfolio segment, which

includes the investment activities conducted

by Royal Palm.

Bimini Advisors Holdings, LLC and its wholly-owned subsidiary, Bimini Advisors, LLC (an investment advisor registered

with the

Securities and Exchange Commission), are collectively referred to as

“Bimini Advisors.”

Bimini Advisors serves as the external

manager of the portfolio of Orchid Island Capital, Inc. ("Orchid"). From this arrangement,

the Company receives management fees and

expense reimbursements.

As manager, Bimini Advisors is responsible for administering Orchid's business activities and

day-to-day

operations.

Pursuant to the terms of the management agreement, Bimini Advisors

provides Orchid with its management team,

including its officers, along with appropriate support personnel. Bimini Advisors is at all times

subject to the supervision and oversight of

Orchid's board of directors and has only such functions and authority as delegated to

it.

Royal Palm Capital, LLC (collectively with its wholly-owned subsidiaries

referred to as “Royal Palm”) maintains an investment

portfolio, consisting primarily of residential mortgage-backed securities ("MBS")

issued and guaranteed by a federally chartered

corporation or agency ("Agency MBS"). We also invest in the common stock of Orchid. Our

investment strategy focuses on, and our

portfolio consists of, two categories of Agency MBS: (i) traditional pass-through Agency

MBS, such as mortgage pass-through

certificates issued by Fannie Mae, Freddie Mac or Ginnie Mae (the “GSEs”)

and collateralized mortgage obligations (“CMOs”) issued

by the GSEs (“PT MBS”) and (ii) structured Agency MBS, such as interest

only securities ("IOs"), inverse interest only securities

("IIOs") and principal only securities ("POs"), among other types of

structured Agency MBS. In addition, Royal Palm receives dividends

from its investment in Orchid common shares.

Stock Repurchase

Plans

On March 26,

2018, the

Board of

Directors

of the Company

approved

a Stock Repurchase

Plan the

“2018 Repurchase

Plan”).

Pursuant

to the 2018

Repurchase

Plan, we

could purchase

up to 500,000

shares of

the Company’s

Class A Common

Stock from

time to

time, subject

to certain

limitations

imposed by

Rule 10b-18

of the Securities

Exchange

Act of 1934.

The 2018

Repurchase

Plan was

terminated

on September

16, 2021.

During the

period beginning

January 1,

2021 through

September

16, 2021,

the Company

repurchased

a total of

1,195 shares

under

the 2018

Repurchase

Plan at an

aggregate

cost of approximately

$2,298, including

commissions

and fees,

for a weighted

average price

$1.92 per

share. From

commencement

of the 2018

Repurchase

Plan, through

its termination,

the Company

repurchased

a total of

71,598

shares at

an aggregate

cost of approximately

$169,243,

including

commissions

and fees,

for a weighted

average price

of $2.36

per share.

On September

16, 2021,

the Board

authorized

a share repurchase

plan pursuant

to Rule 10b5-1

of the Securities

Exchange

Act of

1934 (the

“2021 Repurchase

Plan”). Pursuant

to the 2021

Repurchase

Plan, we

may purchase

shares of

our Class

A Common

Stock from

time to time

for an aggregate

purchase price

not to exceed

$2.5 million.

Share repurchases

may be executed

through various

means,

- 38 -

including,

without limitation,

open market

transactions.

The 2021

Repurchase

Plan does

not obligate

the Company

to purchase

any

shares, and

it expires

on September

16, 2023.

The authorization

for the 2021

Repurchase

Plan may be

terminated,

increased

decreased

by the Company’s

Board of

Directors

in its discretion

at any time.

From the

commencement

of the 2021

Repurchase

Plan,

through December

31, 2021,

we repurchased

a total of

92,287 shares

at an aggregate

cost of approximately

$192,905,

including

commissions

and fees,

for a weighted

average price

of $2.09

per share.

Subsequent

to December

31, 2021,

and through

March 10,

2022,

the Company

repurchased

a total of

170,422 shares

at an aggregate

cost of approximately

$343,732,

including

commissions

and fees,

for

a weighted

average price

of $2.02

per share.

Tender Offer

In July 2021,

we completed

a “modified

Dutch auction”

tender offer

and paid

$1.5 million,

excluding

fees and

related expenses,

repurchase

812,879 shares

of our Class

A common

stock, which

were retired,

at a price

of $1.85 per

share.

Factors that Affect our Results of Operations and Financial Condition

A variety of industry and economic factors (in addition to those related to the COVID-19

pandemic) may impact our results of

operations and financial condition. These factors include:

●

interest rate trends;

●

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 MBS yields and our funding and hedging costs;

●

competition for, and supply of, investments in Agency MBS;

●

actions taken by the U.S. government, including the presidential administration,

the U.S. Federal Reserve (the “Fed”), the

Federal Open Market Committee (the “FOMC”), The Federal Housing Finance

Agency (the “FHFA”) and the U.S. Treasury;

●

prepayment rates on mortgages underlying our Agency MBS, and credit trends

insofar as they affect prepayment rates;

●

the equity markets and the ability of Orchid to raise additional capital;

●

geo-political events that affect the U.S. and international economies, such as the current crisis

in Ukraine; and

●

other market developments.

In addition, a variety of factors relating to our business may also impact our results

of operations and financial condition. These

factors include:

●

our degree of leverage;

●

our access to funding and borrowing capacity;

●

our borrowing costs;

●

our hedging activities;

●

the market value of our investments;

●

the requirements to qualify for a registration exemption under the Investment Company Act;

●

our ability to use net operating loss carryforwards and net capital loss carryforwards

to reduce our taxable income;

●

the impact of possible future changes in tax laws or tax rates; and

●

our ability to manage the portfolio of Orchid and maintain our role as manager.

Results

of Operations

Described

below are

the Company’s

results of

operations

for the

year ended

December

31, 2021,

as compared

to the year

ended

December

31, 2020.

- 39 -

Net Income

(Loss) Summary

Consolidated

net income

for the year

ended December

31, 2021

was $0.3

million, or

$0.02 basic

and diluted

income per

share of

Class A Common

Stock, as

compared

to consolidated

net loss

of $5.5 million,

or $0.47

basic and

diluted loss

per share

of Class A

Common Stock,

for the year

ended December

31, 2020.

The components

of net income

(loss) for

the years

ended December

31, 2021

and 2020,

along with

the changes

in those components

are presented

in the table

below:

(in thousands)

2021

2020

Change

Advisory services revenue

9,788

6,795

2,993

Interest and dividend income

4,262

5,517

(1,255)

Interest expense

(1,113)

(2,225)

1,112

Net revenues

12,937

10,087

2,850

Other expense

(4,744)

(10,279)

5,535

Expenses

(8,286)

(6,666)

(1,620)

Net loss before income tax benefit

(93)

(6,858)

6,765

Income tax benefit

(368)

(1,369)

1,001

Net income (loss)

275

(5,489)

5,764

GAAP and

Non-GAAP

Reconciliation

Economic Interest

Expense and

Economic Net

Interest

Income

We use derivative

instruments,

specifically

Eurodollar

and Treasury

Note (“T-Note”)

futures contracts

and TBA

short positions

hedge a portion

of the interest

rate risk

on repurchase

agreements

in a rising

rate environment.

We have not

designated

our derivative

financial

instruments

as hedge

accounting

relationships,

but rather

hold them

for economic

hedging purposes.

Changes in

fair value

of these

instruments

are presented

in a separate

line item

in our consolidated

statements

operations

and not included

in interest

expense. As

such, for

financial

reporting

purposes,

interest

expense and

cost of funds

are not

impacted by

the fluctuation

in value

of the derivative

instruments.

For the purpose

of computing

economic net

interest

income and

ratios relating

to cost of

funds measures,

GAAP interest

expense has

been adjusted

to reflect

the realized

and unrealized

gains or

losses on

certain derivative

instruments

the Company

uses that

pertain to

each period

presented.

We believe

that adjusting

our interest

expense for

the periods

presented

by the gains

or losses

on these

derivative

instruments

would not

accurately

reflect our

economic interest

expense for

these periods.

The reason

is that these

derivative

instruments

may cover

periods that

extend into

the future,

not just the

current period.

Any realized

or unrealized

gains or

losses on

the instruments

reflect the

change in

market value

of the instrument

caused by

changes in

underlying

interest

rates applicable

to the term

covered by

the

instrument,

not just the

current period.

For each

period presented,

we have combined

the effects

of the derivative

financial

instruments

in place for

the respective

period with

the actual

interest

expense incurred

on our 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.

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

our financial

position and

performance

without the

effects of

certain transactions

and GAAP

adjustments

that are

not necessarily

indicative

of our

- 40 -

current investment

portfolio

or operations.

The gains

or losses

on derivative

instruments

presented

in our consolidated

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 consolidated

statements

of operations

line item,

gains (losses)

on derivative

instruments,

calculated

in accordance

with GAAP

for the years

ended December

31, 2021

and 2020

and for each

quarter during

2021 and

2020. As

a result

of the market

turmoil

during the

first quarter

of 2020 several

hedge positions

where closed.

However, the

hedges closed

were hedges

that covered

periods well

beyond the

first quarter

of 2020.

Accordingly, the

open equity

at the time

these hedges

were closed

will result

in adjustments

to economic

interest

expense through

the balance

of their respective

original

hedge periods.

Since the

Company’s portfolio

was significantly

reduced

during the

first quarter

of 2020, the

effect of applying

the open

equity at

the time

of closure

of these

hedge instruments

to the current,

and

much smaller,

repurchase

agreement

interest

expense amounts

has materially

impacted

the economic

interest

amounts reported

below.

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

(in thousands)

Recognized in

Statement of

TBA

Operations

Securities

Futures

Three Months Ended

(GAAP)

Income (Loss)

Contracts

December 31, 2021

September 30, 2021

June 30, 2021

March 31, 2021

December 31, 2020

September 30, 2020

June 30, 2020

(2)

March 31, 2020

(5,291)

(1,441)

(3,850)

Years Ended

December 31, 2021

December 31, 2020

(5,293)

(1,441)

(3,852)

Gains (Losses) on Futures Contracts

(in thousands)

Attributed to Current Period (Non-GAAP)

Attributed to Future Periods (Non-GAAP)

Junior

Statement

Repurchase

Subordinated

Repurchase

Subordinated

Three Months Ended

Agreements

Debt

Total

Agreements

Debt

Total

Operations

December 31, 2021

(707)

(60)

(767)

707

767

September 30, 2021

(709)

(57)

(766)

709

766

June 30, 2021

(708)

(58)

(766)

708

766

March 31, 2021

(708)

(58)

(766)

708

766

December 31, 2020

(615)

(40)

(655)

615

655

September 30, 2020

(1,065)

(40)

(1,105)

1,065

1,105

June 30, 2020

(456)

(40)

(496)

456

494

(2)

March 31, 2020

(456)

(40)

(496)

(2,879)

(475)

(3,354)

(3,850)

- 41 -

Years Ended

December 31, 2021

(2,832)

(233)

(3,065)

2,832

233

3,065

December 31, 2020

(2,592)

(160)

(2,752)

(743)

(357)

(1,100)

(3,852)

Economic Net Portfolio Interest Income

(in thousands)

Interest Expense on Repurchase Agreements

Net Portfolio

Effect of

Interest Income

Interest

GAAP

Non-GAAP

Economic

GAAP

Economic

Three Months Ended

Income

Basis

Hedges

(1)

Basis

(2)

Basis

(3)

December 31, 2021

511

(707)

728

490

(217)

September 30, 2021

537

(709)

733

513

(196)

June 30, 2021

578

(708)

739

547

(161)

March 31, 2021

611

(708)

748

571

(137)

December 31, 2020

597

(615)

658

554

(61)

September 30, 2020

604

(1,065)

1,108

561

(504)

June 30, 2020

523

(456)

516

463

March 31, 2020

2,040

928

(456)

1,384

1,112

656

Years Ended

December 31, 2021

2,237

116

(2,832)

2,948

2,121

(711)

December 31, 2020

3,764

1,074

(2,592)

3,666

2,690

(1)

Reflects the effect of derivative instrument hedges for only the period

presented.

(2)

Calculated by subtracting the effect of derivative instrument hedges

attributed to the period presented from GAAP interest expense.

(3)

Calculated by adding the effect of derivative instrument hedges attributed

to the period presented to GAAP net portfolio interest income.

Economic Net Interest Income

(in thousands)

Net Portfolio

Interest Expense on Long-Term Debt

Interest Income

Effect of

Net Interest Income

GAAP

Economic

GAAP

Non-GAAP

Economic

GAAP

Economic

Three Months Ended

Basis

(1)

Basis

Hedges

(2)

Basis

(3)

Basis

(4)

December 31, 2021

490

(217)

249

(60)

309

241

(526)

September 30, 2021

513

(196)

248

(57)

305

265

(501)

June 30, 2021

547

(161)

250

(58)

308

297

(469)

March 31, 2021

571

(137)

250

(58)

308

321

(445)

December 31, 2020

554

(61)

257

(40)

297

(358)

September 30, 2020

561

(504)

261

(40)

301

300

(805)

June 30, 2020

463

282

(40)

322

181

(315)

March 31, 2020

1,112

656

350

(40)

390

762

266

Years Ended

December 31, 2021

2,121

(711)

997

(233)

1,230

1,124

(1,941)

December 31, 2020

2,690

1,150

(160)

1,310

1,540

(1,212)

(1)

Calculated by adding the effect of derivative instrument hedges attributed

to the period presented to GAAP net portfolio interest income.

(2)

Reflects the effect of derivative instrument hedges for only the period

presented.

(3)

Calculated by subtracting the effect of derivative instrument hedges

attributed to the period presented from GAAP interest expense.

(4)

Calculated by adding the effect of derivative instrument hedges

attributed to the period presented to GAAP net interest income.

Segment Information

- 42 -

We have two operating segments. The asset management segment includes the investment

advisory services provided by Bimini

Advisors to Orchid and Royal Palm. The investment portfolio segment includes the

investment activities conducted by Royal Palm.

Segment information for the years ended December 31, 2021 and 2020 is as follows:

(in thousands)

Asset

Investment

Management

Portfolio

Corporate

Eliminations

Total

2021

Advisory services, external customers

9,788

Advisory services, other operating segments

(1)

147

(147)

Interest and dividend income

4,262

Interest expense

(116)

(997)

(2)

(1,113)

Net revenues

9,935

4,146

(997)

(147)

12,937

Other (expense) income

(4,898)

154

(3)

(4,744)

Operating expenses

(4)

(5,676)

(2,609)

(8,285)

Intercompany expenses

(1)

(147)

147

Income (loss) before income taxes

4,259

(3,508)

(843)

(92)

Assets

1,901

111,022

9,162

122,085

Asset

Investment

Management

Portfolio

Corporate

Eliminations

Total

2020

Advisory services, external customers

6,795

Advisory services, other operating segments

(1)

152

(152)

Interest and dividend income

5,517

Interest expense

(1,074)

(1,151)

(2)

(2,225)

Net revenues

6,947

4,443

(1,151)

(152)

10,087

Other expense

(9,825)

(454)

(3)

(10,279)

Operating expenses

(4)

(3,653)

(3,014)

(6,667)

Intercompany expenses

(1)

(152)

152

Income (loss) before income taxes

3,294

(8,548)

(1,605)

(6,859)

Assets

1,469

113,764

13,468

128,701

(1)

Includes advisory services revenue received by Bimini Advisors from Royal Palm.

(2)

Includes interest on long-term debt.

(3)

Includes income recognized on the forgiveness of the PPP loan and gains (losses)

on Eurodollar futures contracts entered into as a hedge on

junior subordinated notes.

(4)

Corporate expenses are allocated based on each segment’s proportional

share of total revenues.

Asset Management

Segment

Advisory Services

Revenue

Advisory services

revenue

consists

of management

fees and

overhead

reimbursements

charged

to Orchid

for the management

of its

portfolio

pursuant

to the terms

of a management

agreement.

We receive a monthly management fee in the amount of:

●

One-twelfth of 1.5% of the first $250 million of Orchid’s month-end equity, as defined in the management agreement,

●

One-twelfth of 1.25% of Orchid’s month-end equity that is greater than $250 million

and less than or equal to $500 million, and

●

One-twelfth of 1.00% of Orchid’s month-end equity that is greater than $500 million.

In addition, Orchid is obligated to reimburse us for any direct expenses

incurred on its behalf and to pay to us an amount equal to

Orchid's pro rata portion of certain overhead costs set forth in the management

agreement. The management agreement has been

- 43 -

renewed through February 2023 and provides for automatic one-year extension

options. Should Orchid terminate the management

agreement without cause, it will be obligated to pay to us a termination fee equal

to three times the average annual management fee,

as defined in the management agreement, before or on the last day of the automatic

renewal term.

The following table summarizes the advisory services revenue received from

Orchid for the years ended December 31, 2021 and

2020 and each quarter during 2021 and 2020.

($ 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

2,157

390

2,547

June 30, 2021

4,504,887

542,679

1,791

395

2,186

March 31, 2021

4,032,716

456,687

1,621

404

2,025

December 31, 2020

3,633,631

387,503

1,384

442

1,826

September 30, 2020

3,422,564

368,588

1,252

377

1,629

June 30, 2020

3,126,779

361,093

1,268

347

1,615

March 31, 2020

3,269,859

376,673

1,377

348

1,725

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

Investment Portfolio Segment

Net Portfolio Interest Income

We define

net portfolio

interest

income as

interest

income on

MBS less

interest

expense on

repurchase

agreement

funding.

During

the year

ended December

31, 2021,

we generated

$2.1 million

of net portfolio

interest

income, consisting

of $2.2 million

of interest

income

from MBS

assets offset

by $0.1 million

of interest

expense on

repurchase

liabilities.

For the year

ended December

31, 2020,

generated

$2.7 million

of net portfolio

interest

income, consisting

of $3.8 million

of interest

income from

MBS assets

offset by

$1.1 million

of interest

expense on

repurchase

liabilities.

The $1.5

million

decrease

in interest

income for

the year

ended December

31, 2021

was due

to a $13.2

million decrease

in average

MBS balances,

combined

with a 136

basis point

("bp") decrease

in yields

earned on

the portfolio.

The $1.0

million decrease

in interest

expense for

the year

ended December

31, 2021

was due to

a 121 bp

decrease

in cost of

funds,

combined with

a $10.6 million

decrease

in average

repurchase

liabilities.

Our economic

interest

expense

on repurchase

liabilities

for the

years ended

December

31, 2021

and 2020

was $2.9

million and

$3.7

million, respectively,

resulting

in ($0.7)

million and

$0.1 million

of economic

net portfolio

interest

income, respectively.

The tables

below provide

information

on our portfolio

average balances,

interest

income, yield

on assets,

average repurchase

agreement

balances,

interest

expense,

cost of funds,

net interest

income and

net interest

rate spread

for each

quarter in

2021 and

2020

and for the

years ended

December

31, 2021

and 2020

on both a

GAAP and

economic basis.

($ in thousands)

Average

Yield on

Average

Interest Expense

Average Cost of Funds

MBS

Interest

Average

Repurchase

GAAP

Economic

GAAP

Economic

Three Months Ended

Held

(1)

Income

(2)

MBS

Agreements

(1)

Basis

(2)

Basis

(3)

December 31, 2021

62,597

511

3.27%

61,019

728

0.14%

4.77%

September 30, 2021

66,692

537

3.22%

67,253

733

0.14%

4.36%

June 30, 2021

70,925

578

3.26%

72,241

739

0.17%

4.09%

March 31, 2021

69,017

611

3.54%

69,104

748

0.23%

4.33%

- 44 -

December 31, 2020

69,161

597

3.45%

67,878

658

0.25%

3.88%

September 30, 2020

62,981

604

3.84%

61,151

1,108

0.28%

7.25%

June 30, 2020

53,630

523

3.90%

51,987

516

0.46%

3.97%

March 31, 2020

136,142

2,040

5.99%

131,156

928

1,384

2.83%

4.22%

Years Ended

December

31, 2021

67,308

2,237

3.32%

67,404

116

2,948

0.17%

4.37%

December 31, 2020

80,479

3,764

4.68%

78,043

1,074

3,666

1.38%

4.70%

($ in thousands)

Net Portfolio

Interest Income

Interest Spread

GAAP

Economic

GAAP

Economic

Three Months Ended

Basis

(2)

Basis

(4)

December 31, 2021

490

(217)

3.13%

(1.50)%

September 30, 2021

513

(196)

3.08%

(1.14)%

June 30, 2021

547

(161)

3.09%

(0.83)%

March 31, 2021

571

(137)

3.31%

(0.79)%

December 31, 2020

554

(61)

3.20%

(0.43)%

September 30, 2020

561

(504)

3.56%

(3.41)%

June 30, 2020

463

3.44%

(0.07)%

March 31, 2020

1,112

656

3.16%

1.77%

Years Ended

December 31, 2021

2,121

(711)

3.15%

(1.05)%

December 31, 2020

2,690

3.30%

(0.02)%

(1)

Portfolio yields and costs of borrowings presented in the tables above and the

tables on pages 43 and 44 are calculated based on the

average balances of the underlying investment portfolio/repurchase

agreement balances and are annualized for the periods presented.

(2)

Economic interest expense and economic net interest income

presented in the tables above and the tables on page 44 include the

effect of derivative instrument hedges for only the period presented.

(3)

Represents interest cost of our borrowings and the effect of derivative

instrument hedges attributed to the period related to hedging

activities divided by average MBS held.

(4)

Economic net interest spread is calculated by subtracting average economic

cost of funds from yield on average MBS.

Interest Income and Average Earning Asset Yield

Our interest

income was

$2.2 million

for the year

ended December

31, 2021

and $3.8

million for

year ended

December

31, 2020.

Average MBS

holdings were

$67.3 million

and $80.5

million for

the years

ended December

31, 2021

and 2020,

respectively. The

$1.5

million decrease

in interest

income was

due to a

$13.2 million

decrease

in average

MBS holdings,

combined with

a 136 bp

decrease

yields.

The table

below presents

the average

portfolio

size, income

and yields

of our respective

sub-portfolios,

consisting

of structured

MBS

and pass-through

MBS (“PT

MBS”) for

the years

ended December

31, 2021

and 2020

and each

quarter during

2021 and

2020.

($ in thousands)

Average MBS Held

Interest Income

Realized Yield on Average MBS

Structured

Three Months Ended

MBS

Total

MBS

Total

MBS

Total

December 31, 2021

59,701

2,896

62,597

500

511

3.35%

1.55%

3.27%

September 30, 2021

64,641

2,051

66,692

533

537

3.30%

0.91%

3.22%

June 30, 2021

70,207

718

70,925

579

(1)

578

3.30%

(0.11)%

3.26%

March 31, 2021

68,703

314

69,017

605

611

3.53%

6.54%

3.54%

December 31, 2020

68,842

319

69,161

598

(1)

597

3.47%

(1.20)%

3.45%

September 30, 2020

62,564

417

62,981

588

604

3.76%

15.35%

3.84%

- 45 -

June 30, 2020

53,101

529

53,630

502

523

3.78%

16.12%

3.90%

March 31, 2020

135,044

1,098

136,142

2,029

2,040

6.01%

3.93%

5.99%

Years Ended

December 31, 2021

65,813

1,495

67,308

2,217

2,237

3.37%

1.39%

3.32%

December 31, 2020

79,888

591

80,479

3,717

3,764

4.65%

7.98%

4.68%

Interest Expense on Repurchase Agreements and the Cost of Funds

Our average

outstanding

repurchase

agreements

were $67.4

million and

$78.0 million,

generating

interest

expense of

$0.1 million

and

$1.1 million

for the years

ended December

31, 2021

and 2020,

respectively.

Our average

cost of funds

was 0.17%

and 1.38%

for the

years ended

December

31, 2021 and

2020, respectively.

There was

a 121 bp

decrease

in the average

cost of funds

and a $10.6

million

decrease

in average

outstanding

repurchase

agreements

during the

year ended

December

31, 2021 as

compared

to the year

ended

December

31, 2020.

Our economic

interest

expense

was $2.9

million

and $3.7

million

for the

years ended

December

31, 2021

and 2020,

respectively.

There

was a 33 bp

decrease

in the average

economic cost

of funds to

4.37% for the

year ended

December

31, 2021 from

4.70% for

the previous

year. The $0.8 million

decrease

in economic

interest

expense was

due to the

decrease

in interest

expense on

the repurchase

agreements,

partially

offset by the

negative

performance

of our hedging

agreements

attributed

to the current

period.

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 468 bps

above average

one-month

LIBOR and

454 bps

above average

six-month LIBOR

for the quarter

ended December

31, 2021.

The average

term to maturity

of the outstanding

repurchase

agreements

decreased

from 33

days at December

31, 2020

to 16 days

at December

31, 2021.

The tables

below present

the average

outstanding

balance under

all repurchase

agreements,

interest

expense and

average

economic

cost of funds,

and average

one-month

and six-month

LIBOR rates

for each

quarter in

2021 and

2020 and

for the years

ended December

31, 2021

and 2020

on both a

GAAP and

economic basis.

($ in thousands)

Average

Balance of

Interest Expense

Average Cost of Funds

Repurchase

GAAP

Economic

GAAP

Economic

Three Months Ended

Agreements

Basis

December 31, 2021

61,019

728

0.14%

4.77%

September 30, 2021

67,253

733

0.14%

4.36%

June 30, 2021

72,241

739

0.17%

4.09%

March 31, 2021

69,104

748

0.23%

4.33%

December 31, 2020

67,878

658

0.25%

3.88%

September 30, 2020

61,151

1,108

0.28%

7.25%

June 30, 2020

51,987

516

0.46%

3.97%

March 31, 2020

131,156

928

1,384

2.83%

4.22%

Years Ended

December 31, 2021

67,404

116

2,948

0.17%

4.37%

December 31, 2020

78,043

1,074

3,666

1.38%

4.70%

Average GAAP Cost of Funds

Average Economic Cost of Funds

Relative to Average

Average LIBOR

One-Month

Six-Month

One-Month

Six-Month

Three Months Ended

One-Month

Six-Month

LIBOR

December 31, 2021

0.09%

0.23%

0.05%

(0.09)%

4.68%

4.54%

- 46 -

September 30, 2021

0.09%

0.16%

0.05%

(0.02)%

4.27%

4.20%

June 30, 2021

0.10%

0.18%

0.07%

(0.01)%

3.99%

3.91%

March 31, 2021

0.13%

0.23%

0.10%

0.00%

4.20%

4.10%

December 31, 2020

0.15%

0.27%

0.10%

(0.02)%

3.73%

3.61%

September 30, 2020

0.17%

0.35%

0.11%

(0.07)%

7.08%

6.90%

June 30, 2020

0.55%

0.70%

(0.09)%

(0.24)%

3.42%

3.27%

March 31, 2020

1.34%

1.43%

1.49%

1.40%

2.88%

2.79%

Average GAAP Cost of Funds

Average Economic Cost of Funds

Relative to Average

Average LIBOR

One-Month

Six-Month

One-Month

Six-Month

Years Ended

One-Month

Six-Month

LIBOR

December 31, 2021

0.10%

0.20%

0.07%

(0.03)%

4.27%

4.17%

December 31, 2020

0.55%

0.69%

0.83%

0.69%

4.15%

4.01%

Dividend Income

We owned 1,520,036 shares of Orchid common stock as of December 31, 2019. We acquired 1,075,321

additional shares during

the year ended December 31, 2020, bringing our total ownership to 2,595,357 shares

as of December 31, 2021 and 2020. Orchid paid

total dividends of $0.78 per share during 2021 and $0.79 per share during 2020.

During the years ended December 31, 2021 and

2020, we received dividends on this common stock investment of approximately

$2.0 million and $1.8 million, respectively.

Long-Term Debt

Junior Subordinated

Debt

Interest

expense on

our junior

subordinated

debt securities

was approximately

$1.0 million

and $1.1

million for

the years

ended

December

31, 2021

and 2020,

respectively.

The average

rate of

interest

paid for

the year

ended December

31, 2021

was 3.66%

compared

to 4.22%

for the year

ended December

31, 2020.

The junior

subordinated

debt securities

pay interest

at a floating

rate.

The

rate is adjusted

quarterly

and set

at a spread

of 3.50%

over the

prevailing

three-month

LIBOR rate

on the determination

date.

As of

December

31, 2021,

the interest

rate was

3.70%.

Note Payable

On October 30, 2019,

the Company borrowed $680,000 from a bank. The note is payable in equal

monthly principal and interest

installments of approximately $4,500 through October 30, 2039. Interest accrues

at 4.89% through October 30, 2024. Thereafter,

interest accrues based on the weekly average yield to the United States Treasury securities adjusted to

a constant maturity of 5 years,

plus 3.25%.

The note is secured by a mortgage on the Company’s office building.

Paycheck Protection Plan Loan

On April 13, 2020, the Company received approximately $152,000 through the Paycheck

Protection Program (“PPP”) of the

CARES Act in the form of a low interest loan.

The Small Business Administration notified the Company that, effective as of April 22,

2021, all principal and accrued interest under the PPP loan has been forgiven.

Gains or Losses and Other Income

The table

below presents

our gains

or losses

and other

income for

the years

ended December

31, 2021

and 2020.

(in thousands)

- 47 -

2021

2020

Change

Realized gains (losses) on sales of MBS

(5,745)

5,814

Unrealized (losses) gains on MBS

(3,099)

112

(3,211)

Total losses on

MBS

(3,030)

(5,633)

2,603

Losses on derivative instruments

(5,293)

5,293

Gains on retained interests in securitizations

(59)

Unrealized (losses) gains on Orchid Island Capital, Inc. common stock

(1,869)

584

(2,453)

We invest in

MBS with

the intent

to earn net

income from

the realized

yield on those

assets over

their related

funding and

hedging

costs, and

not for the

purpose of

making short

term gains

from trading

in these securities.

However, we

have sold,

and may continue

sell, existing

assets to

acquire

new assets,

which our

management

believes might

have higher

risk-adjusted

returns in

light of current

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

year ended

December 31,

2021, we

received proceeds

of $13.1

million from

the sales

MBS compared

to $176.2

million for

the year

ended December

31, 2020.

Most of the

2020 sales

occurred

during the

second half

of March

2020 as we

sold assets

in order

to maintain

our leverage

ratio at

prudent levels,

maintain sufficient

cash and liquidity

and reduce

risk

associated

with the

market turmoil

brought about

by COVID-19.

The fair

value of our

MBS portfolio

and derivative

instruments,

and the gains

(losses) reported

on those

financial

instruments,

are

sensitive

to changes

in interest

rates.

The table

below presents

historical

interest

rate data

as of each

quarter end

during

2021 and

2020.

15 Year

30 Year

Three

5 Year

10 Year

Fixed-Rate

Month

Treasury Rate

(1)

Treasury 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%

(1)

Historical 5 Year and 10

Year 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 are obtained from the Intercontinental Exchange Benchmark Administration

Ltd.

Operating Expenses

For the year

ended December

31, 2021,

our total

operating

expenses were

approximately

$8.3 million

compared

to approximately

$6.7 million

for the year

ended December

31, 2020.

The table

below presents

a breakdown

of operating

expenses for

the years

ended

December

31, 2021

and 2020.

(in thousands)

2021

2020

Change

Compensation and benefits

5,721

4,235

1,486

Legal fees

137

145

(8)

Accounting, auditing and other professional fees

377

431

(54)

Directors’ fees and liability insurance

763

691

Administrative and other expenses

1,287

1,165

122

8,285

6,667

1,618

- 48 -

The increase

in compensation

and benefits

in 2021 compared

to 2020 reflects

an evaluation

performed

by the Company’s

Board of

Directors

of the performance

of the Company’s

executive

officers,

particularly

the increase

in advisory

services

revenue.

Financial

Condition:

Mortgage-Backed Securities

As of December

31, 2021,

our MBS portfolio

consisted

of $60.8

million of

agency or

government

MBS at fair

value and

had a

weighted

average coupon

of 3.41%.

During the

year ended

December 31,

2021,

we received

principal

repayments

of $14.5

million

compared

to $13.9

million for

the year

ended December

31, 2020.

The average

prepayment

speeds for

the quarters

ended December

31,

2021 and

2020 were

21.1% and

14.4%,

respectively.

The following

table presents

the three-month

constant prepayment

rate (“CPR”)

experienced

on our structured

and PT MBS

sub-

portfolios,

on an annualized

basis, for

the quarterly

periods presented.

CPR is a

method of

expressing

the prepayment

rate for

a mortgage

pool that

assumes that

a constant

fraction

of the remaining

principal

is prepaid

each month

or year. Specifically,

the CPR

in the chart

below represents

the three

month prepayment

rate of the

securities

in the respective

asset category.

Structured

PT MBS

MBS

Total

Three Months Ended

Portfolio (%)

December 31, 2021

13.7

35.2

21.1

September 30, 2021

15.5

26.9

18.3

June 30, 2021

21.0

31.3

21.9

March 31, 2021

18.5

16.4

18.3

December 31, 2020

12.8

24.5

14.4

September 30, 2020

13.0

32.0

15.8

June 30, 2020

12.4

25.0

15.3

March 31, 2020

11.6

18.1

13.7

The following

tables summarize

certain characteristics

of our PT

MBS and structured

MBS as of

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 PT MBS

58,029

95.4%

3.69%

330

1-Sep-51

Interest-Only Securities

2,759

4.6%

2.86%

306

15-May-51

Inverse Interest-Only Securities

0.0%

5.90%

209

15-May-39

Total Mortgage Assets

60,803

100.0%

3.41%

329

1-Sep-51

December 31, 2020

Fixed Rate PT MBS

64,902

99.6%

3.89%

333

1-Aug-50

Interest-Only Securities

251

0.4%

3.56%

299

15-Jul-48

Inverse Interest-Only Securities

0.0%

5.84%

221

15-May-39

Total Mortgage Assets

65,178

100.0%

3.89%

333

1-Aug-50

($ in thousands)

December 31, 2021

December 31, 2020

Percentage of

Agency

Fair Value

Entire Portfolio

Fair Value

Entire Portfolio

- 49 -

Fannie Mae

39,703

65.3%

38,946

59.8%

Freddie Mac

21,100

34.7%

26,232

40.2%

Total Portfolio

60,803

100.0%

65,178

100.0%

December 31, 2021

December 31, 2020

Weighted Average Pass-through Purchase Price

109.33

109.51

Weighted Average Structured Purchase Price

4.81

4.28

Weighted Average Pass-through Current Price

109.30

112.67

Weighted Average Structured Current Price

9.87

3.20

Effective Duration

(1)

2.103

3.309

(1)

Effective duration is the approximate percentage change in price

for a 100 bp change in rates.

An effective duration of 2.103 indicates that an

interest rate increase of 1.0% would be expected to cause a 2.103% decrease in the value

of the MBS in our investment portfolio at December

31, 2021.

An effective duration of 3.309 indicates that an interest rate increase

of 1.0% would be expected to cause a 3.309% decrease in the

value of the MBS in our investment portfolio at December 31, 2020. These figures

include the structured securities in the portfolio but do include

the effect of our funding cost hedges. Effective duration quotes

for individual investments are obtained from The Yield

Book, Inc.

The following

table presents

a summary

of our portfolio

assets acquired

during the

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

PT MBS

23,338

106.48

1.41%

43,130

111.44

1.99%

Structured MBS

2,852

10.01

3.44%

0.00%

Our portfolio

of PT MBS

is typically

comprised

of adjustable-rate

MBS, fixed-rate

MBS and hybrid

adjustable-rate

MBS. We generally

seek to acquire

low duration

assets that

offer high

levels of

protection

from mortgage

prepayments

provided

that they

are reasonably

priced by

the market.

The stated

contractual

final maturity

of the mortgage

loans underlying

our portfolio

of PT MBS

generally ranges

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

connection

with home

sales, and

borrowers

paying more

than their

scheduled

loan payments,

which accelerates

the amortization

of the

loans.

The duration

of our IO

and IIO portfolio

will vary

greatly depending

on the structural

features

of the securities.

While prepayment

activity will

always affect

the cash

flows associated

with the

securities,

the interest

only nature

of IO’s may

cause their

durations

to become

extremely

negative when

prepayments

are high,

and less negative

when prepayments

are low. Prepayments

affect the

durations

of IIO’s

similarly, but the

floating rate

nature of

the coupon

of IIOs (which

is inversely

related to

the level

of one month

LIBOR) cause

their price

movements

- and model

duration

- to be affected

by changes

in both

prepayments

and one month

LIBOR - both

current and

anticipated

levels.

As a result,

the duration

of IIO securities

will also

vary greatly.

Prepayments

on the loans

underlying

our MBS

can alter

the timing

of the cash

flows received

by us. As

a result,

we gauge

the interest

rate sensitivity

of its assets

by measuring

their effective

duration.

While modified

duration

measures

the price

sensitivity

of a bond

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

expected prepayments.

We face the

risk that

the market

value of our

PT MBS assets

will increase

or decrease

at different

rates than

that of our

structured

- 50 -

MBS or liabilities,

including

our hedging

instruments.

Accordingly, we

assess our

interest

rate risk

by estimating

the duration

of our assets

and the duration

of our liabilities.

We generally

calculate

duration

and effective

duration

using various

third-party

models or

obtain these

quotes from

third-parties.

However, empirical

results and

various third-party

models may

produce

different duration

numbers for

the same

securities.

The following

sensitivity

analysis

shows the

estimated

impact on

the fair

value of our

interest

rate-sensitive

investments

and hedge

positions

as of December

31, 2021,

assuming rates

instantaneously

fall 100 bps,

rise 100

bps and

rise 200

bps, adjusted

to reflect

the

impact of

convexity, which

is the

measure of

the sensitivity

of our hedge

positions

and Agency

MBS’ effective

duration to

movements

interest

rates.

($ in thousands)

Fair

$ Change in Fair Value

% Change in Fair Value

MBS Portfolio

Value

-100BPS

+100BPS

+200BPS

-100BPS

+100BPS

+200BPS

Fixed Rate MBS

58,029

1,830

(2,594)

(5,654)

3.15%

(4.47)%

(9.74)%

Interest-Only MBS

2,759

(813)

651

999

(29.48)%

23.59%

36.21%

Inverse Interest-Only MBS

(2)

(4)

5.51%

(14.75)%

(29.76)%

Total MBS

Portfolio

60,803

1,018

(1,945)

(4,659)

1.67%

(3.20)%

(7.66)%

In addition

to changes

in interest

rates, other

factors impact

the fair

value of our

interest

rate-sensitive

investments

and hedging

instruments,

such as the

shape of

the yield

curve, market

expectations

as to future

interest

rate changes

and other

market conditions.

Accordingly, in

the event

of changes

in actual

interest

rates, the

change in

the fair

value of our

assets would

likely differ

from that

shown

above and

such difference

might be

material and

adverse to

our stockholders.

Repurchase Agreements

As of 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

five of these

counterparties.

We believe

these facilities

provide

borrowing

capacity in

excess of

our needs.

None of these

lenders are

affiliated

with the

Company. These borrowings

are secured

by our

MBS and cash.

As of December

31, 2021,

we had obligations

outstanding

under the

repurchase

agreements

of approximately

$58.9 million

with a net

weighted

average borrowing

cost of 0.14%.

The remaining

maturity of

our outstanding

repurchase

agreement

obligations

ranged from

6 to

45 days, with

a weighted

average maturity

of 16 days.

Securing

the repurchase

agreement

obligation

as of December

31, 2021

are MBS

with an estimated

fair value,

including

accrued interest,

of $61.0 million

and a weighted

average maturity

of 330 months,

and cash

posted

as collateral

of $1.4 million.

Through

March 11, 2022,

we have been

able to maintain

our repurchase

facilities

with comparable

terms to

those that

existed at

December

31, 2021

with maturities

through May

16, 2022.

The table below presents information about our period-end and average repurchase

agreement obligations for each quarter in

2021 and 2020.

($ in thousands)

Ending

Maximum

Average

Difference Between Ending

Balance

Repurchase Agreements and

of Repurchase

Average Repurchase Agreements

Three Months Ended

Agreements

Amount

Percent

December 31, 2021

58,878

62,139

61,019

(2,141)

(3.51)%

September 30, 2021

63,160

72,047

67,253

(4,093)

(6.09)%

June 30, 2021

71,346

72,372

72,241

(895)

(1.24)%

March 31, 2021

73,136

76,004

69,104

4,032

5.83%

December 31, 2020

65,071

70,684

67,878

(2,807)

(4.14)%

- 51 -

September 30, 2020

70,685

70,794

61,151

9,534

15.59%

(1)

June 30, 2020

51,617

52,068

51,987

(370)

(0.71)%

March 31, 2020

52,357

214,921

131,156

(78,799)

(60.08)%

(2)

(1)

The higher ending balance relative to the average balance during the quarter

ended September 30, 2020 reflects the increase in the portfolio.

During that quarter,

the Company's investment in PT MBS increased $20.4 million.

(2)

The lower ending balance relative to the average balance during the quarter

ended March 31, 2020 reflects the Company’s response to the

COVID-19 pandemic. During that quarter,

the Company's investment in PT MBS decreased $162.4 million.

Liquidity and Capital Resources

Liquidity is

our ability

to turn non-cash

assets into

cash, purchase

additional

investments,

repay principal

and interest

on borrowings,

fund overhead

and fulfill

margin calls.

We have both

internal

and external

sources of

liquidity. However,

our material

unused sources

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 of

principal

and interest

receive on

our MBS

portfolio

and dividends

we receive

on our investment

in Orchid

common stock.

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

generated

liquidity

on an ongoing

basis through

payments

of principal

and interest

we receive

on our

MBS portfolio

and dividends

we receive

on our investment

in Orchid

common stock.

We have previously,

and may

again in the

future, employ

a hedging

strategy

that typically

involves

taking short

positions

in Eurodollar

futures,

T-Note futures,

TBAs 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

through margin

calls to offset

the Eurodollar

related margin

calls. If

this were

to occur

in sufficient

magnitude,

the loss of

liquidity

might force

us to reduce

the size

of the levered

portfolio,

pledge additional

structured

securities

to raise

funds or

risk operating

the portfolio

with less

liquidity.

External

Sources of

Liquidity

Our primary

external

sources of

liquidity

are our ability

to (i) borrow

under master

repurchase

agreements

and (ii)

use the TBA

security

market. Our

borrowing

capacity will

vary over

time as the

market value

of our interest

earning assets

varies. Our

master repurchase

agreements

have no stated

expiration,

but can be

terminated

at any time

at our option

or at the

option of

the counterparty.

However, once

a definitive

repurchase

agreement

under a master

repurchase

agreement

has been

entered into,

it generally

may not be

terminated

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.

- 52 -

As discussed

above, we

invest a

portion of

our capital

in structured

MBS.

We generally

do not apply

leverage

to this portion

of our

portfolio.

The leverage

inherent

in structured

securities

replaces

the leverage

obtained by

acquiring

PT securities

and funding

them in the

repurchase

market.

This structured

MBS strategy

has been

a core element

of the Company’s

overall investment

strategy

since 2008.

However, we

have and

may continue

to pledge

a portion

of our structured

MBS in order

to raise our

cash levels,

but generally

will not

pledge these

securities

in order

to acquire

additional

assets.

In future

periods we

expect to

continue to

finance our

activities

through repurchase

agreements.

As of December

31, 2021,

we had

cash and cash

equivalents

of $8.4

million.

We generated

cash flows

of $16.7

million from

principal

and interest

payments on

our MBS

portfolio

and had average

repurchase

agreements

outstanding

of $67.4

million during

the year

ended December

31, 2021.

In addition,

during the

year ended

December

31, 2021,

we received

approximately

$9.4 million

in management

fees and

expense reimbursements

manager of

Orchid and

approximately

$2.0 million

in dividends

from our

investment

in Orchid

common stock.

In order

to generate

additional

cash to be

invested in

our MBS

portfolio,

on October

30, 2019,

we obtained

a $680,000

loan secured

by a mortgage

on the Company’s

office property.

The loan

is payable

in equal monthly

principal

and interest

installments

of approximately

$4,500 through

October 30,

2039. Interest

accrued at

4.89%, through

October 30,

2024. Thereafter,

interest

accrued based

on the weekly

average yield

to the United

States Treasury

securities

adjusted

to a constant

maturity of

five years,

plus 3.25%.

Net loan

proceeds

were

approximately

$651,000.

In addition,

during 2020,

we completed

the sale of

real property

that was

not used

in the Company’s

business.

The net proceeds

from this

sale were

approximately

$462,000 and

were invested

in our MBS

portfolio.

Outlook

Orchid Island

Capital Inc.

To the extent Orchid

is able to

increase

its capital

base over

time, we

will benefit

via increased

management

fees.

In addition,

Orchid

is obligated

to reimburse

us for direct

expenses paid

on its behalf

and to pay

to us Orchid’s

pro rata

share of

overhead

as defined

in the

management

agreement.

As a stockholder

of Orchid,

we will also

continue to

share in

distributions,

if any, paid by

Orchid to

its

stockholders.

Our operating

results are

also impacted

by changes

in the market

value of our

holdings of

Orchid common

shares,

although

these market

value changes

do not impact

our cash

flows from

Orchid.

The independent

Board of

Directors

of Orchid

has the ability

to terminate

the management

agreement

and thus

end our ability

collect management

fees and

share overhead

costs.

Should Orchid

terminate

the management

agreement

without cause,

it will be

obligated

to pay us

a termination

fee equal

to three

times the

average annual

management

fee, as

defined in

the management

agreement,

before or

on the last

day of the

current automatic

renewal term.

Economic Summary

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 481,000

jobs in January 2022, 678,000 jobs in February 2022 and January 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

- 53 -

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 MBS 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

five times by January of 2023 and by approximately 75 basis points more in 2023.

Based solely on domestic economic developments of late the Fed is likely to aggressively

remove their accommodative monetary

policy. However, a potentially significant geo-political development has unfolded in the Ukraine. Russia invaded Ukraine on February

24, 2022. The United States and several NATO allies have imposed significant economic sanctions that are likely to cripple the

Russian economy and currency, the Ruble. 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

- 54 -

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.

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 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.

However, recent developments in the Ukraine have reversed some of the compression in the treasury

curve as shorter term rates have decreased more than longer-term rates, a sign of

a “flight to quality” rally as investors across the

globe seek the safety of short-term US treasury securities in times of duress.

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 even more difficult to manage by the Fed and we expect that such

an outcome is more likely to occur than in

past cycles.

The Agency MBS Market

As was anticipated, the Fed announced a tapering of their U.S.

Treasury and Agency MBS 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 MBS 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 MBS, 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 MBS for the quarter and year ended December 31, 2021

were -0.4% and -1.2%, respectively.

Agency

MBS returns generally trailed other major domestic fixed income categories.

High yield debt returned 0.7% and 5.4% for the quarter

and year ended December 31, 2021, respectively.

Investment grade returns for the same two periods were 0.2% and -1.0%,

respectively.

Legacy non-Agency MBS returns were equal to or exceeded high yield returns.

Relative to comparable duration U.S.

Treasuries Agency MBS 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 MBS 30-year coupons, production

coupons – 2.0% and 2.5% - outperformed higher, liquid securities – 3.0% and 3.5% - both on absolute

terms and relative to

comparable duration U.S. Treasuries 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.

- 55 -

The Fed has taken a number of other actions to stabilize markets as a result

of the impacts of the COVID-19 pandemic. On 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.

The COVID-19 pandemic and the actions taken to contain and minimize its

impact resulted in the deterioration of the markets for

U.S. Treasuries, Agency MBS and other mortgage and fixed income markets. As a result, investors liquidated

significant holdings in

these assets. In response, on 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

MBS 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.

- 56 -

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 would 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.

- 57 -

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 MBS 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:

- 58 -

Effects on our Assets

A change in or elimination of the guarantee structure of Agency MBS 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

MBS may cause us to change our investment strategy to focus on non-Agency

MBS, which in turn would require us to significantly

increase our monitoring of the credit risks of our investments in addition to interest rate

and prepayment risks.

Lower long-term interest rates can affect the value of our Agency MBS 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 MBS. 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 MBS affected by such prepayments

may decline. This is because a

principal prepayment accelerates the effective term of an Agency MBS, which would shorten the period

during which an investor would

receive above-market returns (assuming the yield on the prepaid asset is higher than

market yields). Also, prepayment proceeds may

not be able to be reinvested in similar-yielding assets. Agency MBS backed

by mortgages with high interest rates are more susceptible

to prepayment risk because holders of those mortgages are most likely to refinance

to a lower rate. IOs and IIOs, however, may be the

types of Agency MBS 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 MBS.

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 MBS declines.

Some of the

instruments the Company may use to hedge our Agency MBS assets, such as interest rate

futures, swaps and swaptions, are stable

average life instruments.

This means that to the extent we use such instruments to hedge

our Agency MBS assets, our hedges may

not adequately protect us from price declines, and therefore may negatively impact our

book value.

It is for this reason we use interest

only securities in our portfolio. As interest rates rise, the expected average

life of these securities increases, causing generally positive

price movements as the number and size of the cash flows increase the

longer the underlying mortgages remain outstanding. This

makes interest only securities desirable hedge instruments for pass-through

Agency MBS.

As described above, the Agency MBS market began to experience severe

dislocations in mid-March 2020 as a result of the

economic, health and market turmoil brought about by COVID-19. On March 23, 2020,

the Fed announced that it would purchase

Agency MBS and U.S. Treasuries in the amounts needed to support smooth market functioning, which largely

stabilized the Agency

MBS market. However, in November 2021 the Fed announced a tapering of these purchases. 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 foreclosures

or evictions, when and if they occur, 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 MBS assets were acquired at a premium to

par, this will tend to increase the realized yield on

the asset in question.

- 59 -

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

MBS with shorter durations. We believe these

securities have a lower sensitivity to changes in long-term interest rates than other

asset classes. We may attempt to mitigate our

exposure to changes in long-term interest rates by investing in IOs and

IIOs, which typically have different sensitivities to changes in

long-term interest rates than PT MBS, particularly PT MBS backed

by fixed-rate mortgages.

Effects on our borrowing costs

We leverage our PT MBS portfolio and a portion of our structured Agency MBS with principal balances

through the use of short-

term repurchase agreement transactions. The interest rates on our debt

are determined by the short term interest rate markets. An

increase in the Fed Funds rate or LIBOR would increase our borrowing costs, which

could affect our interest rate spread if there is no

corresponding increase in the interest we earn on our assets. This would be

most prevalent with respect to our Agency MBS backed by

fixed rate mortgage loans because the interest rate on a fixed-rate mortgage loan does not

change even though market rates may

change.

In order to protect our net interest margin against increases in short-term interest rates, we

may enter into interest rate swaps,

which economically convert our floating-rate repurchase

agreement debt to fixed-rate debt, or utilize other hedging instruments

such as

Eurodollar, Fed Funds and T-Note futures contracts or interest rate swaptions.

Summary

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

MBS 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 materially

so, over this period.

These developments will likely impact Orchid Island Capital in a similar manner. In particular, Orchid’s ability to grow or maintain its

capital base at its current level could be adversely affected if these developments continue to

pressure Orchid’s MBS assets.

This

could slow the growth of or reduce the Company’s advisory service revenues and could reduce

the amount of dividends paid by Orchid

on its common stock.

All of the above developments are being impacted by the geo-political events in

the Ukraine which may cause the Fed 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

- 60 -

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 consolidated

financial

statements

are prepared

in accordance

with GAAP. GAAP requires

our management

to make some

complex and

subjective

decisions

and assessments.

Our most

critical accounting

policies

involve decisions

and assessments

which could

significantly

affect reported

assets, liabilities,

revenues

and expenses.

Management

has identified

the following

as its most

critical

accounting

estimates:

Mortgage-Backed

Securities

Our investments

in MBS are

accounted

for at fair

value. We acquire

our MBS

for the purpose

of generating

long-term

returns,

and not

for the short-term

investment

of idle capital.

As discussed

in Note 14

to the financial

statements,

our MBS

are valued

using Level

2 valuations,

and such valuations

currently

are

determined

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. Alternatively,

the Company

could opt

to have the

value of all

of our positions

in MBS determined

by either

an independent

third-party

or do so

internally.

In managing

our portfolio,

the Company

employs the

following

four-step

process at

each valuation

date to determine

the fair

value of our

MBS.

●

First, the

Company obtains

fair values

from subscription-based

independent

pricing services.

●

Second, the

Company requests

non-binding

quotes from

one to four

broker-dealers

for certain

MBS in order

to validate

the

values obtained

by the pricing

service. The

Company requests

these quotes

from broker-dealers

that actively

trade and

make

markets in

the respective

asset class

for which

the quote

is requested.

●

Third, the

Company 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

management’s

market observations,

the Company

makes a judgment

to determine

which price

appears the

most consistent

with

observed

prices from

similar assets

and selects

that price.

To the extent management

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, the

Company may

use a third

price that

is consistent

with observed

prices for

identical

or similar

assets. In

the case

assets that

have quoted

prices such

as Agency

MBS backed

by fixed-rate

mortgages,

the Company

generally

uses the quoted

observed

market price.

For assets

such as Agency

MBS backed

by ARMs or

structured

Agency MBS,

the Company

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.

Income Recognition

All of our

MBS are

either PT

MBS or structured

MBS, including

CMOs, IOs,

IIOs or POs.

Income on

PT MBS,

POs and CMOs

that

contain principal

balances

is based

on the stated

interest

rate of the

security. As a

result of

accounting

for our MBS

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. As

cash is received

it is first

applied to

accrued interest

and then

to reduce

the carrying

value of the

security. At each

reporting

date, the

effective yield

is adjusted

prospectively

from the

reporting

- 61 -

period 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 MBS

during the

period are

recorded in

earnings

and reported

as unrealized

gains or

losses on

mortgage-backed

securities

in the accompanying

consolidated

statements

of operations.

For IIO securities,

effective yield

and income

recognition

calculations

also take

into account

the index

value applicable

to the security.

Income Taxes

Income

taxes are

provided

for using

the

asset

and liability

method.

Deferred tax

assets and

liabilities

represent the

differences

between the financial

statement and income

tax bases of assets

and liabilities using enacted

tax rates. The measurement

of net deferred

tax assets

is adjusted

by a

valuation allowance

if, based

on the

Company’s evaluation,

it is

more likely

than not

that they

will not

realized. A

majority of

the Company’s

net deferred

tax assets,

which consist

primarily of

NOLs, are

expected to

be realized

over an

extended number

of years.

Management’s conclusion

is supported

by taxable

income projections

which include

forecasts of

management

fees, Orchid

dividends and

net interest

income, and

the subsequent

reinvestment of

those amounts

into the

MBS portfolio.

However,

management reassesses its valuation allowance conclusions whenever there is a material

change in taxable income projections.

Capital Expenditures

At December 31, 2021, we had no material commitments for capital expenditures.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET

RISK.

Not Applicable.

- 62 -

ITEM 8. Financial

Statements

and Supplementary

Data.

Index to Financial

Statements

Report of

Independent

Registered

Public Accounting

Firm (

BDO USA, LLP

West Palm Beach, FL

; PCAOB ID#

243

)

Consolidated

Balance Sheets

Consolidated

Statements

of Operations

Consolidated

Statements

of Equity

Consolidated

Statements

of Cash Flows

Notes to

Consolidated

Financial

Statements

- 63 -

Report of Independent Registered Public

Accounting Firm

Stockholders and Board of Directors

Bimini Capital Management, Inc.

Vero Beach, Florida

Opinion on the Consolidated Financial

Statements

have

audited

the

accompanying

consolidated

balance

sheets

Bimini

Capital

Management,

Inc.

(the

“Company”) as of December 31, 2021 and 2020, the

related consolidated statements of operations, stockholders’

equity,

and cash

flows for

each of

the two

years in

the period

ended December 31,

2021, and

the related notes

(collectively

referred

the

“consolidated financial

statements”). In

our

opinion,

the

consolidated 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 two years

in the period ended December

31, 2021

in conformity with accounting principles

generally accepted in the United States

of America.

Basis for Opinion

These consolidated financial

statements are the

responsibility of the

Company’s management. Our responsibility

to express

an opinion

on the

Company’s

consolidated financial

statements based

on our

audits. We

are a

public

accounting firm registered

with the Public

Company Accounting

Oversight Board

(United States)

(“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 consolidated

financial statements are free of

material misstatement,

whether due to error

or fraud. The

Company is not required

to have, nor were

we engaged

to perform, an audit

of its internal control

over financial reporting.

As part of our audits

we are required to obtain

an understanding of

internal control over

financial reporting but

not for the

purpose of expressing

an opinion on

the

effectiveness

the

Company’s

internal

control

over

financial

reporting.

Accordingly,

express

such

opinion.

Our audits

included performing

procedures

to assess

the risks

of material

misstatement

of the

consolidated

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 consolidated 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 consolidated financial statements. We

believe

that our audits provide a reasonable basis

for our opinion.

Critical Audit Matters

The

critical

audit

matters

communicated

below

are

matters

arising

from

the

current

period

audit

the

consolidated

financial

statements that

were communicated

or required

to be

communicated

to the

audit committee

and that: (1)

relate to accounts

or disclosures that

are material to

the consolidated financial statements

and (2)

involved

our

especially challenging,

subjective,

complex

judgments. The

communication of the critical

audit

matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we

are

not,

communicating

the

critical

audit

matters

below,

providing separate

opinions

the

critical

audit

matters or on the accounts or disclosures

to which they relate.

Realizability of deferred tax assets

As described in Note 12 to the consolidated

financial statements, the Company has recorded

$64.8 million in gross

deferred tax

assets as

of December

31, 2021

and recorded

a valuation

allowance of

$29.8 million.

Management

applies

significant

judgment

assessing

the

projections

future

taxable

income

the

determination

the

amount

deferred

tax

assets

that

were

more-likely-than-not

realized

the

future.

assessing

the

realizability of deferred tax assets, management considers

whether it is more likely than not that some portion or

all of the deferred tax assets will not be

realized.

- 64 -

We identified assessing

the realizability of

deferred tax assets

as a critical

audit matter. Specifically, we identified

there is significant judgment required by management in formulating the forecast of taxable income over the net

operating loss expiration periods

to determine the

amount of deferred

tax assets that were

more-likely-than-not

to be realized

in the future. Auditing

these forecasts involved especially challenging

auditor judgment, including

the need for specialized knowledge and skill

in assessing these elements.

The primary procedures we performed

to address this critical audit matter included:

●

Evaluating the design

and implementation

of controls relating

to the projection

of taxable income

in future

periods, including controls over management’s process to select the

assumptions utilized.

●

Evaluating the positive and negative evidence in assessing whether the deferred

tax assets are more likely

than not to be utilized, including evaluating the trends of historical financial results, projected sources of

taxable income in future periods, and market

information (such as interest yield curves).

●

Assessing the

reasonableness

of management’s

historical ability

to make

forecasts of

future taxable

income,

by performing a retrospective review of the

prior year’s estimates.

●

Utilizing personnel with specialized

knowledge and skill in

income taxes to

assist in the

evaluation of the

appropriateness of the Company’s positions and analysis of the realizability

of the deferred tax assets.

Valuation of Investments in Mortgage-Backed Securities

As described

in Notes

and

to the

consolidated financial

statements, the

Company

accounts for

its

mortgage-

backed

securities

fair

value,

which

totaled

$60.8

illion

December

31,

2021.

The

fair

value

mortgage-

backed

securities

based

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

use to

calculate

the

fair

values

based

various

techniques

including

observing

the

most

recent

market

for

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:

●

Evaluating

the

design

and

implementation

controls

relating

the

valuation

mortgaged-backed

securities,

including

controls

over

management’s

process to

select

the

price from

multiple

pricing

sources.

●

Reviewing

the

range

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

develop an independent

estimate

the

fair

value

each

investment

position

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 2008.

West Palm Beach, Florida

March 11, 2022

- 65 -

BIMINI CAPITAL MANAGEMENT,

INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2021 and 2020

2021

2020

ASSETS:

Mortgage-backed securities, at fair value

Pledged to counterparties

60,788,129

65,153,274

Unpledged

15,015

24,957

Total mortgage

-backed securities

60,803,144

65,178,231

Cash and cash equivalents

8,421,410

7,558,342

Restricted cash

1,391,000

3,353,015

Investment in Orchid Island Capital, Inc. common stock, at fair value

11,679,107

13,547,764

Accrued interest receivable

229,942

202,192

Property and equipment, net

2,024,190

2,093,440

Deferred tax assets, net of allowances

35,036,312

34,668,467

Due from affiliates

1,062,155

632,471

Other assets

1,437,381

1,466,647

Total Assets

122,084,641

128,700,569

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:

Repurchase agreements

58,877,999

65,071,113

Long-term debt

27,438,976

27,612,781

Accrued interest payable

55,610

107,417

Other liabilities

2,712,206

1,421,409

Total Liabilities

89,084,791

94,212,720

Commitments and Contingencies (Note 11)

STOCKHOLDERS' EQUITY:

Preferred stock, $

0.001

par value;

10,000,000

shares authorized;

100,000

designated Series A Junior Preferred Stock,

9,900,000

shares undesignated;

no shares issued and outstanding as of December 31, 2021 and 2020

Class A Common stock, $

0.001

par value;

98,000,000

shares designated:

10,702,194

shares issued and outstanding as of December 31, 2021 and

11,608,555

shares issued

and outstanding as of December 31, 2020

10,702

11,609

Class B Common stock, $

0.001

par value;

1,000,000

shares designated,

31,938

issued and outstanding as of December 31, 2021 and 2020

Class C Common stock, $

0.001

par value;

1,000,000

shares designated,

31,938

issued and outstanding as of December 31, 2021 and 2020

Additional paid-in capital

330,880,252

332,642,758

Accumulated deficit

(297,891,168)

(298,166,582)

Stockholders' Equity

32,999,850

34,487,849

Total Liabilities

and Equity

122,084,641

128,700,569

See Notes to Consolidated Financial Statements

- 66 -

BIMINI CAPITAL MANAGEMENT,

INC.

CONSOLIDATED STATEMENTS

OF OPERATIONS

For the Years Ended December 31, 2021

and 2020

2021

2020

Revenues:

Advisory services

9,788,340

6,795,072

Interest income

2,237,217

3,764,003

Dividend income from Orchid Island Capital, Inc. common stock

2,024,379

1,752,730

Total revenues

14,049,936

12,311,805

Interest expense:

Repurchase agreements

(116,179)

(1,073,528)

Long-term debt

(996,794)

(1,150,613)

Net revenues

12,936,963

10,087,664

Other income (expense)

Unrealized (losses) gains on mortgage-backed securities

(3,098,866)

111,615

Realized gains (losses) on mortgage-backed securities

69,498

(5,744,589)

Unrealized (losses) gains on Orchid Island Capital, Inc. common stock

(1,868,657)

583,961

Losses on derivative instruments

(198)

(5,292,521)

Gains on retained interests in securitizations

58,735

Other income

154,191

3,478

Other expense, net

(4,744,032)

(10,279,321)

Expenses:

Compensation and related benefits

5,721,315

4,235,487

Directors' fees and liability insurance

762,735

690,713

Audit, legal and other professional fees

513,925

576,662

Administrative and other expenses

1,287,387

1,164,039

Total expenses

8,285,362

6,666,901

Net loss before income tax benefit

(92,431)

(6,858,558)

Income tax benefit

(367,845)

(1,369,416)

Net income (loss)

275,414

(5,489,142)

Basic and Diluted Net Income (Loss) Per Share of:

CLASS A COMMON STOCK

Basic and Diluted

0.02

(0.47)

CLASS B COMMON STOCK

Basic and Diluted

0.02

(0.47)

Weighted Average Shares Outstanding:

CLASS A COMMON STOCK

Basic and Diluted

11,198,434

11,608,555

CLASS B COMMON STOCK

Basic and Diluted

31,938

See Notes to Consolidated Financial Statements

- 67 -

BIMINI CAPITAL MANAGEMENT,

INC

CONSOLIDATED STATEMENTS

OF EQUITY

Years Ended December 31, 2021 and 2020

Stockholders' Equity

Common Stock

Additional

Accumulated

Par Value

Paid-in Capital

Deficit

Total

Balances, January 1, 2020

11,672,431

11,673

332,642,758

(292,677,440)

39,976,991

Net loss

(5,489,142)

Balances, December 31, 2020

11,672,431

11,673

332,642,758

(298,166,582)

34,487,849

Net income

275,414

Class A common shares repurchased and retired

(906,361)

(907)

(1,762,506)

(1,763,413)

Balances, December 31, 2021

10,766,070

10,766

330,880,252

(297,891,168)

32,999,850

See Notes to Consolidated Financial Statements

- 68 -

BIMINI CAPITAL MANAGEMENT,

INC.

CONSOLIDATED STATEMENTS

OF CASH FLOWS

Years Ended December 31, 2021 and 2020

2021

2020

CASH FLOWS FROM OPERATING

ACTIVITIES:

Net income (loss)

275,414

(5,489,142)

Adjustments to reconcile net income (loss) to net cash provided by operating

activities:

Depreciation

69,250

69,536

Deferred income tax

(367,845)

(1,379,931)

Losses on mortgage-backed securities

3,029,368

5,632,974

Gains on retained interests in securitizations

(58,735)

Gain from disposition of real property held for sale

(11,591)

PPP loan forgiveness

(153,724)

Realized losses on forward settling to-be-announced securities

1,441,406

Unrealized losses (gains) on Orchid Island Capital, Inc. common stock

1,868,657

(583,961)

Changes in operating assets and liabilities:

Accrued interest receivable

(27,750)

548,683

Due from affiliates

(429,684)

(10,351)

Other assets

29,266

1,629,514

Accrued interest payable

(50,248)

(537,885)

Other liabilities

1,290,797

48,469

NET CASH PROVIDED BY OPERATING

ACTIVITIES

5,533,501

1,298,986

CASH FLOWS FROM INVESTING ACTIVITIES:

From mortgage-backed securities investments:

Purchases

(26,189,505)

(43,129,835)

Sales

13,063,248

176,249,711

Principal repayments

14,471,976

13,909,872

Payments received on retained interests in securitizations

58,735

Net settlement of forward settling TBA contracts

(1,500,000)

Purchases of Orchid Island Capital, Inc. common stock

(4,071,592)

Proceeds from disposition of real property held for sale

461,590

NET CASH PROVIDED BY INVESTING ACTIVITIES

1,345,719

141,978,481

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from repurchase agreements

293,283,000

538,558,549

Principal repayments on repurchase agreements

(299,476,114)

(683,441,436)

Proceeds from long-term debt

152,165

Principal repayments on long-term debt

(21,640)

(20,505)

Class A common shares repurchased and retired

(1,763,413)

NET CASH USED IN FINANCING ACTIVITIES

(7,978,167)

(144,751,227)

NET DECREASE IN CASH, CASH EQUIVALENTS

AND RESTRICTED CASH

(1,098,947)

(1,473,760)

CASH, CASH EQUIVALENTS

AND RESTRICTED CASH, beginning of the year

10,911,357

12,385,117

CASH, CASH EQUIVALENTS

AND RESTRICTED CASH, end of the year

9,812,410

10,911,357

SUPPLEMENTAL DISCLOSURE OF

CASH FLOW INFORMATION:

Cash paid (received) during the year for:

Interest

1,164,780

2,762,026

Income taxes

(1,581,828)

See Notes to Consolidated Financial Statements

- 69 -

BIMINI CAPITAL

MANAGEMENT, INC.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS

NOTE 1.

ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Business

Description

Bimini Capital Management, Inc., a Maryland corporation (“Bimini Capital”

or the “Company”) formed in September 2003, is a

holding company.

The Company operates in two business segments through its principal wholly-owned

operating subsidiary,

Royal

Palm Capital, LLC, which includes its wholly-owned subsidiary, Bimini Advisors Holdings, LLC.

Bimini Advisors Holdings, LLC and its wholly-owned subsidiary, Bimini Advisors, LLC

(

an investment advisor registered with the

Securities and Exchange Commission), are collectively referred to as "Bimini Advisors."

Bimini Advisors manages a residential

mortgage-backed securities (“MBS”) portfolio for Orchid Island Capital, Inc.

("Orchid") and receives fees for providing these services.

Bimini Advisors also manages the MBS portfolio of Royal Palm Capital, LLC.

Royal Palm Capital, LLC maintains an investment portfolio, consisting primarily

of MBS investments and shares of Orchid common

stock, for its own benefit. Royal Palm Capital, LLC and its wholly-owned subsidiaries

are collectively referred to as "Royal Palm."

Consolidation

The accompanying consolidated financial statements include the accounts of Bimini

Capital, Bimini Advisors and Royal Palm.

All

inter-company accounts and transactions have been eliminated from the

consolidated financial statements.

Variable Interest Entities (VIEs)

A variable interest entity ("VIE") is consolidated by an enterprise if it is deemed

the primary beneficiary of the VIE. Bimini Capital

has a common share investment in a trust used in connection with the issuance

of Bimini Capital's junior subordinated notes. See Note

9 for a description of the accounting used for this VIE.

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 interests in these VIEs as mortgage-backed

securities. See Note 3 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.

Basis of Presentation

The accompanying consolidated financial statements are prepared on the accrual

basis of accounting in accordance with

accounting principles generally accepted in the United States (“GAAP”).

In the opinion of management, all adjustments considered

necessary for a fair presentation of the Company's consolidated financial position,

results of operations and cash flows have been

included and are of a normal and recurring nature.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires

management to make estimates and assumptions that

affect the reported amounts of assets and liabilities and disclosure of contingent assets

and liabilities at the date of the consolidated

financial statements and the reported amounts of revenues and expenses during

the reporting period. Actual results could differ from

- 70 -

those estimates.

Significant estimates affecting the accompanying consolidated financial statements include

determining the fair

values of MBS and derivatives, determining the amounts of asset valuation allowances,

and the computation of the income tax

provision or benefit and the deferred tax asset allowances recorded for each accounting

period.

Segment Reporting

The Company’s operations are classified into two principal reportable segments: the asset

management segment and the

investment portfolio segment. These segments are evaluated by management in deciding

how to allocate resources and in assessing

performance.

The accounting policies of the operating segments are the same as the

Company’s accounting policies described in this

note with the exception that inter-segment revenues and expenses are included in

the presentation of segment results.

For further

information see Note 15.

Cash and Cash Equivalents and Restricted Cash

Cash and cash equivalents include cash on deposit with financial institutions

and highly liquid investments with original maturities

of three months or less at the time of purchase.

Restricted

cash includes

cash pledged

as collateral

for repurchase

agreements

and

derivative

instruments.

The following

table presents

the Company’s

cash, cash

equivalents

and restricted

cash as of

December

31, 2021

and 2020.

2021

2020

Cash and cash equivalents

8,421,410

7,558,342

Restricted cash

1,391,000

3,353,015

Total cash, cash equivalents

and restricted cash

9,812,410

10,911,357

The Company

maintains

cash balances

at several

banks and

excess margin

with an exchange

clearing member.

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

accounts that

are segregated

from the

general funds

of the counterparty.

The Company

limits

uninsured

balances to

only large,

well-known

banks and

exchange clearing

members and

believes

that it is

not exposed

to significant

credit risk

on cash and

cash equivalents

or restricted

cash balances.

Advisory Services

Orchid is externally managed and advised by Bimini Advisors pursuant to the terms

of a management agreement. Under the terms

of the management agreement, Orchid is obligated to pay Bimini Advisors a monthly

management fee and a pro rata portion of certain

overhead costs and to reimburse the Company for any direct expenses incurred

on its behalf. Revenues

from management fees are

recognized over the period of time in which the service is performed.

Mortgage-Backed Securities

The Company invests primarily in pass-through (“PT”) mortgage-backed certificates

issued by Freddie Mac, Fannie Mae or Ginnie

Mae (“MBS”), collateralized mortgage obligations (“CMOs”),

interest-only (“IO”) securities and inverse interest-only (“IIO”) securities

representing interest in or obligations backed by pools of mortgage-backed loans.

We refer to MBS and CMOs as PT MBS. We refer to

IO and IIO securities as structured MBS. The Company has elected to account

for its investment in MBS under the fair value option.

Electing the fair value option requires the Company to record changes in fair

value in the consolidated statement of operations, which,

in management’s view, more appropriately reflects the results of our operations for a particular reporting period and is consistent with

the underlying economics and how the portfolio is managed.

- 71 -

The Company records MBS transactions on the trade date.

Security purchases that have not settled as of the balance sheet date

are included in the MBS balance with an offsetting liability recorded, whereas securities sold

that have not settled as of the balance

sheet date are removed from the MBS balance with an offsetting receivable recorded.

Fair value is defined as the price that would be received to sell the asset or paid

to transfer the liability in an orderly transaction

between market participants at the measurement date.

The fair value measurement assumes that the transaction to sell

the asset or

transfer the liability either occurs in the principal market for the asset

or liability, or in the absence of a principal market, occurs in the

most advantageous market for the asset or liability. Estimated fair values for MBS are based on independent pricing sources and/or

third-party broker quotes, when available.

Income on PT MBS is based on the stated interest rate of the security. Premiums or discounts present at the date of purchase

are

not amortized.

Premium lost and discount accretion resulting from monthly principal repayments

are reflected in unrealized gains and

losses on MBS in the consolidated statements

of operations.

For IO securities, the income is accrued based on the carrying value and

the effective yield. The difference between income accrued and the interest received on the security is

characterized as a return of

investment and serves to reduce the asset’s carrying value. At each reporting date, the

effective yield is adjusted prospectively for

future reporting periods based on the new estimate of prepayments and the contractual

terms of the security.

For IIO securities,

effective yield and income recognition calculations also take into account the index

value applicable to the security.

Changes in fair

value of MBS during each reporting period are recorded in earnings and reported

as unrealized gains or losses on mortgage-backed

securities in the accompanying consolidated statements of operations. The

amount reported as unrealized gains or losses on

mortgage-backed securities thus captures the net effect of changes in the fair market

value of securities caused by market

developments and any premium or discount lost as a result of principal repayments

during the period.

Orchid Island Capital, Inc. Common Stock

The Company

accounts for

its investment

in Orchid

common shares

at fair value.

The change

in the fair

value and

dividends

received

on this investment

are reflected

in the consolidated

statements

of operations.

We estimate

the fair

value of our

investment

in Orchid

on a

market approach

using “Level

1” inputs

based on

the quoted

market price

of Orchid’s

common stock

on a national

stock exchange.

Retained Interests in Securitizations

The Company holds retained interests in the subordinated tranches of securities

created in securitization transactions.

These

retained interests currently have a recorded fair value of zero, as the prospect

of future cash flows being received is uncertain. Any

cash received from the retained interests is reflected as a gain in the consolidated

statements of operations.

Derivative Financial Instruments

The Company uses derivative instruments to manage interest rate risk,

facilitate asset/liability strategies and manage other

exposures, and it may continue to do so in the future. The principal instruments

that the Company has used to date are Treasury Note

(“T-Note”) and Eurodollar futures contracts,

and “to-be-announced” (“TBA”) securities, but it may enter into other

derivatives in the

future.

The Company accounts for TBA securities as derivative instruments. Gains

and losses associated with TBA securities transactions

are reported in gain (loss) on derivative instruments in the accompanying

consolidated statements of operations.

Derivative instruments are carried at fair value, and changes in fair value are recorded

in the consolidated statements of

operations for each period. The Company’s derivative financial instruments are not designated

as hedge accounting relationships, but

rather are used as economic hedges of its portfolio assets and liabilities. Gains and losses

on derivatives, except those that result in

cash receipts or payments, are included in operating activities on the statements

of cash flows. Cash payments and cash receipts from

- 72 -

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 by counterparties to 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

consolidated financial statements or in the accompanying notes. MBS, Orchid

common stock and derivative assets and liabilities are

accounted for at fair value in the consolidated balance sheets. The methods

and assumptions used to estimate fair value for these

instruments are presented in Note 14 of the consolidated financial statements.

The estimated fair value of cash and cash equivalents, restricted cash, accrued interest

receivable, other assets, repurchase

agreements, accrued interest payable and other liabilities generally approximates

their carrying value due to the short-term nature of

these financial instruments.

It is impractical to estimate the fair value of the Company’s junior subordinated notes.

Currently, there is a limited market for these

types of instruments and the Company is unable to ascertain what interest rates

would be available to the Company for similar financial

instruments. Further information regarding these instruments is presented in

Note 9 to the consolidated financial statements.

Property and Equipment, net

Property and equipment, net, consists of computer equipment with a depreciable

life of 3 years, office furniture and equipment with

depreciable lives of 8 to 20 years, land which has no depreciable life, and buildings

and improvements with depreciable lives of 30

years.

Property and equipment is recorded at acquisition cost and depreciated

to their respective salvage values using the straight-line

method over the estimated useful lives of the assets. Depreciation is included in administrative

and other expenses in the consolidated

statement of operations.

Repurchase Agreements

The Company finances the acquisition of the majority of its PT MBS through

the use of repurchase agreements under master

repurchase agreements. Repurchase agreements are accounted for as collateralized

financing transactions, which are carried at their

contractual amounts, including accrued interest, as specified in the respective agreements.

Earnings Per Share

Basic EPS is calculated as income available to common stockholders divided

by the weighted average number of common shares

outstanding during the period. Diluted EPS is calculated using the treasury stock or two-class

method, as applicable for common stock

equivalents. However, the common stock equivalents are not included in computing diluted EPS if the result

is anti-dilutive.

Outstanding shares of Class B Common Stock, participating and convertible

into Class A Common Stock, are entitled to receive

dividends in an amount equal to the dividends declared, if any, on each share of Class A Common Stock. Accordingly, shares of the

Class B Common Stock are included in the computation of basic EPS using

the two-class method and, consequently, are presented

separately from Class A Common Stock.

- 73 -

The shares of Class C Common Stock are not included in the basic EPS computation

as these shares do not have participation

rights. The outstanding shares of Class B and Class C Common Stock

are not included in the computation of diluted EPS for the Class

A Common Stock as the conditions for conversion into shares of Class A Common

Stock were not met.

Income Taxes

Income taxes are provided for using the asset and liability method. Deferred tax

assets and liabilities represent the differences

between the financial statement and income tax bases of assets and liabilities using

enacted tax rates. The measurement of net

deferred tax assets is adjusted by a valuation allowance if, based on the Company’s evaluation,

it is more likely than not that they will

not be realized.

The Company’s U.S. federal income tax returns for years ended on or after December 31,

2018 remain open for examination.

Although management believes its calculations for tax returns are correct and the

positions taken thereon are reasonable, the final

outcome of tax audits could be materially different from the tax returns filed by the Company, and those differences could result in

significant costs or benefits to the Company.

For tax filing purposes, Bimini Capital and its includable subsidiaries,

and Royal Palm and

its includable subsidiaries, file as separate tax paying entities.

The Company assesses the likelihood, based on their technical merit, that uncertain

tax positions will be sustained upon

examination based on the facts, circumstances and information available at the

end of each period.

The measurement of uncertain tax

positions is adjusted when new information is available, or when an event

occurs that requires a change. The Company recognizes tax

positions in the consolidated financial statements only when it is more likely than

not that the position will be sustained upon

examination by the relevant taxing authority based on the technical merits

of the position. A position that meets this standard is

measured at the largest amount of benefit that will more likely than not be realized

upon settlement. The difference between the benefit

recognized and the tax benefit claimed on a tax return is referred to as

an unrecognized tax benefit and is recorded as a liability in the

consolidated balance sheets. The Company records income tax-related interest and penalties,

if applicable, within the income tax

provision.

Recent Accounting Pronouncements

In March 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-04 “Reference Rate Reform (Topic 848): Facilitation

of the Effects of Reference Rate Reform on Financial Reporting.”

ASU 2020-04 provides optional expedients and exceptions to GAAP

requirements for modifications on debt instruments, leases, derivatives, and other

contracts, related to the expected market transition

from the London Interbank Offered Rate (“LIBOR,”), and certain other floating rate benchmark

indices, or collectively, IBORs, to

alternative reference rates. ASU 2020-04 generally considers contract modifications

related to reference rate reform to be an event that

does not require contract remeasurement at the modification date nor a reassessment

of a previous accounting determination. The

guidance in ASU 2020-04 is optional and may be elected over time, through December

31, 2022, as reference rate reform activities

occur. The Company does not believe the adoption of this ASU will have a material impact on its consolidated

financial statements.

In January 2021, the FASB issued ASU 2021-01 “Reference Rate Reform (Topic 848). ASU 2021-01 expands the scope of ASC

848 to include all affected derivatives and give market participants the ability to apply

certain aspects of the contract modification and

hedge accounting expedients to derivative contracts affected by the discounting transition. In addition,

ASU 2021-01 adds

implementation guidance to permit a company to apply certain optional expedients

to modifications of interest rate indexes used for

margining, discounting or contract price alignment of certain derivatives as a result

of reference rate reform initiatives and extends

optional expedients to account for a derivative contract modified as a continuation

of the existing contract and to continue hedge

accounting when certain critical terms of a hedging relationship change to

modifications made as part of the discounting transition. The

guidance in ASU 2021-01 is effective immediately and available generally through December

31, 2022, as reference rate reform

- 74 -

activities occur. The Company does not believe the adoption of this ASU will have a material impact on its consolidated

financial

statements.

NOTE 2. ADVISORY SERVICES

Bimini Advisors serves as the manager and advisor for Orchid pursuant to the

terms of a management agreement.

As Manager,

Bimini Advisors is responsible for administering Orchid's business activities and

day-to-day operations. Pursuant to the terms of the

management agreement, Bimini Advisors provides Orchid with its management

team, including its officers, along with appropriate

support personnel. Bimini Advisors is at all times subject to the supervision

and oversight of Orchid's board of directors and

has only

such functions and authority as delegated to it. Bimini Advisors receives a monthly

management fee in the amount of:

●

One-twelfth of 1.5% of the first $250 million of the Orchid’s month-end equity, as defined in the management agreement,

●

One-twelfth of 1.25% of the Orchid’s month-end equity that is greater than $250 million and

less than or equal to $500 million,

and

●

One-twelfth of 1.00% of the Orchid’s month-end equity that is greater than $500 million.

Orchid is obligated to reimburse Bimini Advisors for any direct expenses incurred

on its behalf and to pay to Bimini Advisors an

amount equal to Orchid's pro rata portion of certain overhead costs set forth in

the management agreement. The management

agreement has been renewed through February 20, 2023 and provides for automatic

one-year extension options thereafter. Should

Orchid terminate the management agreement without cause, it will be obligated to

pay Bimini Advisors a termination fee equal to three

times the average annual management fee, as defined in the management agreement,

before or on the last day of the automatic

renewal term.

The following table summarizes the advisory services revenue from

Orchid for the years ended December 31, 2021 and 2020.

(in thousands)

2021

2020

Management fee

8,156

5,281

Allocated overhead

1,632

1,514

Total

9,788

6,795

At December 31, 2021 and 2020, the net amount due from Orchid was approximately

1.1

million and $

0.6

million, respectively.

NOTE 3.

MORTGAGE-BACKED SECURITIES

The following

table presents

the Company’s

MBS portfolio

as of December

31, 2021

and 2020:

(in thousands)

2021

2020

Fixed-rate Mortgages

58,029

64,902

Interest-Only Securities

2,759

251

Inverse Interest-Only Securities

Total

60,803

65,178

The following

table is a

summary of

our net gain

(loss) from

the sale of

MBS for

the years

ended December

31, 2021 and

2020:

(in thousands)

2021

2020

Proceeds from sales of MBS

13,063

176,250

- 75 -

Carrying value of MBS sold

12,994

181,995

Net gain (loss) on sales of MBS

(5,745)

Gross gain sales of MBS

Gross loss on sales of MBS

(5,805)

Net gain (loss) on sales of MBS

(5,745)

NOTE 4.

PROPERTY AND EQUIPMENT, NET

The composition

of property

and equipment

at December

31, 2021

and 2020

follows:

(in thousands)

2021

2020

Land

1,185

Buildings and improvements

1,827

Computer equipment and software

181

Office furniture and equipment

193

198

Total cost

3,231

3,391

Less accumulated depreciation and amortization

1,207

1,298

Property and equipment, net

2,024

2,093

Depreciation

of property

and equipment

totaled approximately

69,000

and $

70,000

for the years

ended December

31, 2021

and

2020, respectively.

NOTE 5.

OTHER ASSETS

The composition of other assets at December 31, 2021 and 2020 follows:

(in thousands)

2021

2020

Investment in Bimini Capital Trust II

804

Prepaid expenses

297

278

Servicing advances

159

205

Other

177

180

Total other

assets

1,437

1,467

Receivables

are carried

at their

estimated

collectible

amounts.

The Company

maintains

an allowance

for credit

losses for

expected

losses, if

any. Management

considers

the following

factors when

determining

the expected

losses of

specific

accounts:

past transaction

activity, current

economic

conditions,

changes in

payment terms

and reasonable

and supportable

forecasts.

Adjustments

to the allowance

for credit

losses are

recorded

with a corresponding

adjustment

included in

the consolidated

statement

of operations.

As of December

31,

2021 and

2020, management

determined

that no allowance

for credit

losses was

necessary.

Collections

on amounts

previously

written off

are included

in income

as received.

NOTE 6.

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.

- 76 -

As of December

31, 2021

and December

31, 2020,

the Company’s

repurchase

agreements

had remaining

maturities

as summarized

below:

($ in thousands)

OVERNIGHT

BETWEEN 2

BETWEEN 31

GREATER

(1 DAY OR

AND

THAN

LESS)

30 DAYS

90 DAYS

TOTAL

December 31, 2021

Fair value of securities pledged, including accrued

interest receivable

60,859

159

61,018

Repurchase agreement liabilities associated with

these securities

58,793

58,878

Net weighted average borrowing rate

0.14%

0.70%

0.14%

December 31, 2020

Fair value of securities pledged, including accrued

interest receivable

49,096

8,853

7,405

65,354

Repurchase agreement liabilities associated with

these securities

49,120

8,649

7,302

65,071

Net weighted average borrowing rate

0.25%

0.23%

0.30%

0.25%

In addition,

cash pledged

to counterparties

as collateral

for repurchase

agreements

was approximately

1.4

million and

3.4

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, if any.

At December

31, 2021

and December

31, 2020,

the Company

had an aggregate

amount at

risk (the

difference

between the

amount loaned

to the Company,

including

interest

payable, and

the fair

value of securities

and

cash pledged

(if any),

including

accrued interest

on such securities)

with all

counterparties

of approximately

3.5

million and

3.6

million,

respectively.

The Company

did not

have an amount

at risk with

any individual

counterparty

greater

than 10%

of the Company’s

equity at

December

31, 2021

and December

31, 2020.

NOTE 7. PLEDGED ASSETS

Assets Pledged

to Counterparties

The table

below summarizes

Bimini’s assets

pledged

as collateral

under its

repurchase

agreements

and derivative

agreements

as of

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 MBS - at fair value

58,029

64,902

Structured MBS - at fair value

2,759

251

Accrued interest on pledged securities

230

201

Cash

1,391

3,352

3,353

Total

62,409

68,706

68,707

Assets Pledged

from Counterparties

- 77 -

The table

below summarizes

assets pledged

to Bimini

from counterparties

under repurchase

agreements

as of December

31, 2021

and 2020.

Cash received

as margin

is recognized

in cash and

cash equivalents

with a corresponding

amount recognized

as an increase

repurchase

agreements

in the consolidated

balance sheets.

($ in thousands)

Assets Pledged to Bimini

2021

2020

Cash

106

Total

106

NOTE 8. OFFSETTING ASSETS AND LIABILITIES

The Company’s

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 Liabilities

Net Amount

Gross Amount Not Offset in the

of Liabilities

Consolidated Balance Sheet

Gross Amount

Presented

Financial

Gross Amount

Offset in the

in the

Instruments

Cash

of Recognized

Consolidated

Posted as

Net

Liabilities

Balance Sheet

Collateral

Amount

December 31, 2021

Repurchase Agreements

58,878

(57,487)

(1,391)

58,878

(57,487)

(1,391)

December 31, 2020

Repurchase Agreements

65,071

(61,719)

(3,352)

65,071

(61,719)

(3,352)

The amounts

disclosed

for collateral

received by

or posted

to the same

counterparty

are limited

to the amount

sufficient

to reduce

the

asset or

liability

presented

in the consolidated

balance sheet

to zero.

The fair

value of the

actual collateral

received by

or posted

to the

same counterparty

typically

exceeds the

amounts presented.

See Note

7 for a discussion

of collateral

posted for, or

received against,

repurchase

obligations

and derivative

instruments.

NOTE 9.

LONG-TERM DEBT

Long-term

debt at December

31, 2021

and 2020

is summarized

as follows:

(in thousands)

2021

2020

Junior subordinated debt

26,804

Note payable

635

657

Paycheck Protection Plan ("PPP") loan

152

Total

27,439

27,613

Junior Subordinated

Debt

During 2005,

Bimini Capital