SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2017~~March 31, 2018

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to ___________

Commission File Number: 001-35236

Orchid Island Capital, Inc.

(Exact name of registrant as specified in its charter)

(State or other jurisdiction of

incorporation or organization)

3305 Flamingo Drive, Vero Beach, Florida 32963

(Address of principal executive offices) (Zip Code)

(Registrant's telephone number, including area code)

~~ORCHID ISLAND CAPITAL, INC.~~

~~TABLE OF CONTENTS~~

ORCHID ISLAND CAPITAL, INC.

TABLE OF CONTENTS

	Page

PART I. FINANCIAL INFORMATION

ITEM 1. Condensed Financial Statements		1
Condensed Consolidated Balance Sheets (unaudited)		1
Condensed Consolidated Statements of Operations (unaudited)		2
Condensed Consolidated Statement of Stockholders' Equity (unaudited)		3
Condensed Consolidated Statements of Cash Flows (unaudited)		4
Notes to Condensed Consolidated Financial Statements		5
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		2324
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk		43
ITEM 4. Controls and Procedures		4647

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings		4748
ITEM 1A. Risk Factors		4748
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		4748
ITEM 3. Defaults upon Senior Securities		4748
ITEM 4. Mine Safety Disclosures		4748
ITEM 5. Other Information		4748
ITEM 6. Exhibits		4849
SIGNATURES		4950

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED FINANCIAL STATEMENTS

ORCHID ISLAND CAPITAL, INC.	ORCHID ISLAND CAPITAL, INC.					ORCHID ISLAND CAPITAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS	CONDENSED CONSOLIDATED BALANCE SHEETS					CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands, except per share data)	($ in thousands, except per share data)					($ in thousands, except per share data)

		(Unaudited)					(Unaudited)
		September 30, 2017		December 31, 2016			March 31, 2018			December 31, 2017
ASSETS:
Mortgage-backed securities, at fair value
Pledged to counterparties		$	3,917,425	$	2,972,290		$	3,643,718		$	3,712,561
Unpledged			12,915		49,884			102,066			32,250
Total mortgage-backed securities			3,930,340		3,022,174			3,745,784			3,744,811
Cash and cash equivalents			161,659		73,475			127,168			214,363
Restricted cash			19,629		20,950			36,837			32,349
Accrued interest receivable			15,410		11,512			15,384			14,444
Derivative assets, at fair value			16,871		10,365			36,179			17,160
Receivable for securities sold, pledged to counterparties								160,919			-
Other assets			475		218			427			216
Total Assets		$	4,144,384	$	3,138,694		$	4,122,698		$	4,023,343

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
Repurchase agreements		$	3,710,077	$	2,793,705		$	3,619,280		$	3,533,786
Payable for unsettled securities purchased								32,054			-
Dividends payable			6,343		4,616			4,776			7,429
Derivative liabilities, at fair value			2,591		1,982			2,582			2,038
Accrued interest payable			4,815		1,826			7,152			6,516
Due to affiliates			762		566			796			797
Other liabilities			5,395		3,220			26,607			10,566
Total Liabilities			3,729,983		2,805,915			3,693,247			3,561,132

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 100,000,000 shares authorized; no shares issued
and outstanding as of September 30, 2017 and December 31, 2016			-		-
Common Stock, $0.01 par value; 500,000,000 shares authorized, 45,308,169
shares issued and outstanding as of September 30, 2017 and 32,962,919 shares issued
and outstanding as of December 31, 2016			453		330
and outstanding as of March 31, 2018 and December 31, 2017								-			-
Common Stock, $0.01 par value; 500,000,000 shares authorized, 53,072,169
shares issued and outstanding as of March 31, 2018 and 53,061,904 shares issued
and outstanding as of December 31, 2017								531			531
Additional paid-in capital			413,948		332,449			445,297			461,680
Retained earnings (accumulated deficit)			-		-
Accumulated (deficit) retained earnings								(16,377	)		-
Total Stockholders' Equity			414,401		332,779			429,451			462,211
Total Liabilities and Stockholders' Equity		$	4,144,384	$	3,138,694		$	4,122,698		$	4,023,343
See Notes to Consolidated Financial Statements	See Notes to Consolidated Financial Statements					See Notes to Consolidated Financial Statements

ORCHID ISLAND CAPITAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended March 31, 2018 and 2017
($ in thousands, except per share data)

	2018			2017
Interest income	$	39,935		$	32,311
Interest expense		(15,149	)		(6,715	)
Net interest income		24,786			25,596
Realized losses on mortgage-backed securities		(8,338	)		(1,350	)
Unrealized losses on mortgage-backed securities		(71,712	)		(14,958	)
Gains (losses) on derivative instruments		41,994			(4,419	)
Net portfolio (loss) income		(13,270	)		4,869

Expenses:
Management fees		1,712			1,302
Allocated overhead		382			368
Accrued incentive compensation		11			12
Directors' fees and liability insurance		252			276
Audit, legal and other professional fees		296			170
Direct REIT operating expenses		403			231
Other administrative		51			61
Total expenses		3,107			2,420

Net (loss) income	$	(16,377	)	$	2,449

Basic and diluted net (loss) income per share	$	(0.31	)	$	0.07

Weighted Average Shares Outstanding		53,065,845			33,069,064

Dividends declared per common share	$	0.31		$	0.42
See Notes to Consolidated Financial Statements

ORCHID ISLAND CAPITAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Nine and Three Months Ended September 30, 2017 and 2016
($ in thousands, except per share data)

Nine Months Ended September 30, Three Months Ended September 30,
2017 2016 2017 2016
Interest income $ 105,864 $ 62,059 $ 38,974 $ 22,358
Interest expense (28,116 ) (10,629 ) (12,638 ) (3,979 )
Net interest income 77,748 51,430 26,336 18,379
Realized gains on mortgage-backed securities 3,354 4,482 769 229
Unrealized (losses) gains on mortgage-backed securities (35,601 ) 5,652 (3,553 ) (2,398 )
(Losses) gains on derivative instruments (29,331 ) (32,594 ) (5,470 ) 6,587
FHLB stock dividends - 14 - -
Net portfolio income 16,170 28,984 18,082 22,797

Expenses:
Management fees 4,230 2,968 1,528 1,052
Allocated overhead 1,168 963 412 336
Accrued incentive compensation 439 598 209 212
Directors' fees and liability insurance 722 763 215 236
Audit, legal and other professional fees 547 654 157 193
Direct REIT operating expenses 816 426 320 187
Other administrative 259 215 58 55
Total expenses 8,181 6,587 2,899 2,271

Net income $ 7,989 $ 22,397 $ 15,183 $ 20,526

Basic and diluted net income per share $ 0.21 $ 0.99 $ 0.33 $ 0.85

Weighted Average Shares Outstanding 38,608,053 22,619,293 45,355,124 24,133,343

Dividends declared per common share $ 1.26 $ 1.26 $ 0.42 $ 0.42
See Notes to Consolidated Financial Statements

ORCHID ISLAND CAPITAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
For the Three Months Ended March 31, 2018
($ in thousands, except per share data)

			Additional			Retained
	Common		Paid-in			Earnings
	Stock		Capital			(Deficit)			Total
Balances, January 1, 2018	$	531	$	461,680		$	-		$	462,211
Net loss		-		-			(16,377	)		(16,377	)
Cash dividends declared, $0.31 per share		-		(16,463	)		-			(16,463	)
Issuance of common stock pursuant to stock based
compensation plan		-		35			-			35
Amortization of stock based compensation		-		45			-			45
Balances, March 31, 2018	$	531	$	445,297		$	(16,377	)	$	429,451
See Notes to Consolidated Financial Statements

ORCHID ISLAND CAPITAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
For the Nine Months Ended September 30, 2017
($ in thousands, except per share data)

Additional Retained
Common Paid-in Earnings
Stock Capital (Deficit) Total
Balances, January 1, 2017 $ 330 $ 332,449 $ - $ 332,779
Net income - - 7,989 7,989
Cash dividends declared, $1.26 per share - (41,688 ) (7,989 ) (49,677 )
Issuance of common stock pursuant to public offerings, net 123 122,734 - 122,857
Issuance of common stock pursuant to stock based
compensation plan - 232 - 232
Amortization of stock based compensation - 221 - 221
Balances, September 30, 2017 $ 453 $ 413,948 $ - $ 414,401
See Notes to Consolidated Financial Statements

ORCHID ISLAND CAPITAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended March 31, 2018 and 2017
($ in thousands)

	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(16,377	)	$	2,449
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Stock based compensation		80			243
Realized and unrealized losses on mortgage-backed securities		80,050			16,308
Realized and unrealized gains on interest rate swaptions		(1,717	)		-
Realized and unrealized gains on interest rate swaps		(11,576	)		(1,534	)
Realized gains on forward settling to-be-announced securities		(8,407	)		-
Changes in operating assets and liabilities:
Accrued interest receivable		(1,105	)		(1,676	)
Other assets		(251	)		(417	)
Accrued interest payable		636			164
Other liabilities		218			1,819
Due (from) to affiliates		(1	)		262
NET CASH PROVIDED BY OPERATING ACTIVITIES		41,550			17,618

CASH FLOWS FROM INVESTING ACTIVITIES:
From mortgage-backed securities investments:
Purchases		(517,829	)		(1,737,240	)
Sales		228,691			1,407,673
Principal repayments		78,720			73,298
Redemption of FHLB stock		-			3
Proceeds from net settlement of to-be-announced securities		9,161			1,119
Purchase of derivative financial instruments, net of margin cash received		10,622			-
NET CASH USED IN INVESTING ACTIVITIES		(190,635	)		(255,147	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from repurchase agreements		13,098,449			11,947,907
Principal payments on repurchase agreements		(13,012,955	)		(11,691,004	)
Cash dividends		(19,116	)		(13,869	)
Proceeds from issuance of common stock, net of issuance costs		-			12,793
NET CASH PROVIDED BY FINANCING ACTIVITIES		66,378			255,827

NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		(82,707	)		18,298
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of the period		246,712			94,425
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of the period	$	164,005		$	112,723

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	14,513		$	6,551

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Securities acquired settled in later period	$	32,054		$	-
Securities sold settled in later period		159,300			-
See Notes to Consolidated Financial Statements

ORCHID ISLAND CAPITAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended September 30, 2017 and 2016
($ in thousands)

2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,989 $ 22,397
Adjustments to reconcile net income to net cash provided by operating activities:
Stock based compensation 453 492
Realized and unrealized losses (gains) on mortgage-backed securities 32,247 (10,134 )
Realized and unrealized gains on interest rate swaptions (827 ) (36 )
Realized and unrealized losses (gains) on interest rate swaps 1,398 (792 )
Realized losses on forward settling to-be-announced securities 3,843 2,385
Changes in operating assets and liabilities:
Accrued interest receivable (3,898 ) (967 )
Other assets (170 ) (93 )
Accrued interest payable 2,989 1,010
Other liabilities (601 ) (204 )
Due to affiliates 196 15
NET CASH PROVIDED BY OPERATING ACTIVITIES 43,619 14,073

CASH FLOWS FROM INVESTING ACTIVITIES:
From mortgage-backed securities investments:
Purchases (5,079,945 ) (2,184,709 )
Sales 3,890,959 1,717,612
Principal repayments 248,483 178,460
Redemption of FHLB stock 3 3,750
Payments on net settlement of to-be-announced securities (7,945 ) (2,145 )
Purchase of interest rate swaptions, net of margin cash received 410 705
NET CASH USED IN INVESTING ACTIVITIES (948,035 ) (286,327 )

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from repurchase agreements 39,895,749 22,443,458
Principal payments on repurchase agreements (38,979,377 ) (21,944,174 )
Principal payments on FHLB advances - (187,500 )
Cash dividends (47,950 ) (28,864 )
Proceeds from issuance of common stock, net of issuance costs 122,857 47,116
NET CASH PROVIDED BY FINANCING ACTIVITIES 991,279 330,036

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 86,863 57,782
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of the period 94,425 69,959
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of the period $ 181,288 $ 127,741

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 25,127 $ 9,619

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Securities acquired settled in later period $ - $ 72,343
Securities sold settled in later period - 27,509
See Notes to Consolidated Financial Statements

ORCHID ISLAND CAPITAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~SEPTEMBER 30, 2017~~MARCH 31, 2018

NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization and Business Description

Orchid Island Capital, Inc. ("Orchid" or the "Company"), was incorporated in Maryland on August 17, 2010 for the purpose of creating and managing a leveraged investment portfolio consisting of residential mortgage-backed securities ("RMBS"). From incorporation to February 20, 2013 Orchid was a wholly owned subsidiary of Bimini Capital Management, Inc. ("Bimini"). Orchid began operations on November 24, 2010 (the date of commencement of operations). From incorporation through November 24, 2010, Orchid's only activity was the issuance of common stock to Bimini.

On February 20, 2013, Orchid completed the initial public offering ("IPO") of its common stock in which it sold approximately 2.4 million shares of its common stock and raised gross proceeds of $35.4 million, which were invested in RMBS that were issued and the principal and interest of which were guaranteed by a federally chartered corporation or agency ("Agency RMBS") on a leveraged basis. Orchid is an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act").

On July 29, 2016, Orchid entered into an equity distribution agreement (the "July 2016 Equity Distribution Agreement") with two sales agents pursuant to which the Company could offer and sell, from time to time, up to an aggregate amount of $125,000,000 of shares of the Company's common stock in transactions that were deemed to be "at the market" offerings and privately negotiated transactions. The Company issued a total of 10,174,992 shares under the July 2016 Equity Distribution Agreement for aggregate gross proceeds of $110.0 million, and net proceeds of approximately $108.2 million, net of commissions and fees, prior to its termination in February 2017.

On February 23, 2017, Orchid entered into another equity distribution agreement, as amended and restated on May 10, 2017, (the "May 2017 Equity Distribution Agreement") with two sales agents pursuant to which the Company may offer and sell, from time to time, up to an aggregate amount of $125,000,000 of shares of the Company's common stock in transactions that are deemed to be "at the market" offerings and privately negotiated transactions. The ~~May 2017 Equity Distribution Agreement replaced the July 2016 Equity Distribution Agreement. The~~ Company issued a total of 12,299,032 shares under the May 2017 Equity Distribution Agreement for aggregate gross proceeds of $125.0 million, and net proceeds of approximately $122.9 million, net of commissions and fees, prior to its termination in August 2017.

On August 2, 2017, Orchid entered into another equity distribution agreement (the "August 2017 Equity Distribution Agreement") with two sales agents pursuant to which the Company may offer and sell, from time to time, up to an aggregate amount of $125,000,000 of shares of the Company's common stock in transactions that are deemed to be "at the market" offerings and privately negotiated transactions. ~~The August 2017 Equity Distribution Agreement replaced the May 2017 Equity Distribution Agreement.~~ Through ~~September 30, 2017,~~March 31, 2018, the Company ~~has not~~ issued ~~any~~a total of 7,746,052 shares under the August 2017 Equity Distribution ~~Agreement.~~Agreement for aggregate gross proceeds of approximately $76.0 million, and net proceeds of approximately $74.7 million, net of commissions and fees.

Basis of Presentation and Use of Estimates

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The consolidated financial statements include the accounts of our wholly-owned subsidiary, Orchid Island Casualty, LLC. Significant intercompany accounts and transactions have been eliminated. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the ~~nine and~~ three month ~~periods~~period ended ~~September 30, 2017~~March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2018.

The balance sheet at December 31, ~~2016~~2017 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant estimates affecting the accompanying financial statements are the fair values of RMBS and derivatives.

Statement of Comprehensive Income (Loss)

In accordance with the Financial Accounting Standards Board (the "FASB") Accounting Standards Codification ("ASC") Topic 220, Comprehensive Income, a statement of comprehensive income (loss) has not been included as the Company has no items of other comprehensive income (loss). Comprehensive income (loss) is the same as net income (loss) for the periods presented.

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 other borrowings, and interest rate swaps and other derivative instruments.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows.

(in thousands)
	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Cash and cash equivalents		$	161,659		$	73,475		$	127,168		$	214,363
Restricted cash			19,629			20,950			36,837			32,349
Total cash, cash equivalents and restricted cash		$	181,288		$	94,425		$	164,005		$	246,712

The Company maintains cash balances at four banks and excess margin on account at derivative exchanges, and, 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. At ~~September 30, 2017,~~March 31, 2018, the Company's cash deposits exceeded federally insured limits by approximately ~~$158.1~~$125.4 million. Restricted cash balances are uninsured, but are held in separate customer accounts that are segregated from the general funds of the counterparty. The Company limits uninsured balances to only large, well-known bank and derivative ~~counterparties~~exchanges and believes that it is not exposed to any significant credit risk on cash and cash equivalents or restricted cash balances.

Mortgage-Backed Securities

The Company invests primarily in mortgage pass-through ("PT") certificates, collateralized mortgage obligations, and interest-only ("IO") securities and inverse interest-only ("IIO") securities representing interest in or obligations backed by pools of RMBS. The Company has elected to account for its investment in RMBS under the fair value option. Electing the fair value option requires the Company to record changes in fair value in the consolidated statement of operations, which, in management's view, more appropriately reflects the results of our operations for a particular reporting period and is consistent with the underlying economics and how the portfolio is managed.

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

The fair value of the Company's investments in RMBS is governed by FASB ASC 820, Fair Value Measurement. The definition of fair value in FASB ASC 820 focuses on the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date. The fair value measurement assumes that the transaction to sell the asset or transfer the liability either occurs in the principal market for the asset or liability, or in the absence of a principal market, occurs in the most advantageous market for the asset or liability. Estimated fair values for RMBS are based on independent pricing sources and/or third party broker quotes, when available.

Income on PT RMBS securities is based on the stated interest rate of the security. Premiums or discounts present at the date of purchase are not amortized. Premium lost and discount accretion resulting from monthly principal repayments are reflected in unrealized gains (losses) on RMBS in the 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 from the reporting period based on the new estimate of prepayments and the contractual terms of the security. For IIO securities, effective yield and income recognition calculations also take into account the index value applicable to the security. Changes in fair value of RMBS during each reporting period are recorded in earnings and reported as unrealized gains or losses on mortgage-backed securities in the accompanying 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, interest rate swaps, ~~and~~ options to enter in interest rate swaps ("interest rate swaptions"), and "to-be-announced" ("TBA") securities transactions, but may enter into other derivatives in the future.

The Company purchases a portion of its Agency RMBS through forward settling transactions, including ~~"to-be-announced" ("TBA")~~TBA securities transactions. At times when market conditions are conducive, the Company may choose to move the settlement of these TBA securities transactions out to a later date by entering into an offsetting short position, which is then net settled for cash, and simultaneously entering into a substantially similar TBA securities trade for a later settlement date. Such a set of transactions is referred to as a TBA "dollar roll" transaction. The TBA securities purchased at the later settlement date are typically priced at a discount to securities for settlement in the current month. This difference is referred to as the "price drop." The price drop represents compensation to the Company for foregoing net interest margin and is referred to as TBA "dollar roll income." ~~Specified pools of mortgage loans can also be the subject of a TBA dollar roll transaction, when market conditions allow.~~

The Company accounts for TBA securities as derivative instruments if either the TBA securities do not settle in the shortest period of time possible or if the Company cannot assert that it is probable at inception of the TBA transaction, or throughout its term, that it will take physical delivery of the Agency RMBS for a long position, or make delivery of the Agency RMBS for a short position, upon settlement of the trade. The Company accounts for TBA dollar roll transactions as a series of derivative transactions. Gains, losses and dollar roll income associated with TBA securities transactions and dollar roll transactions are reported in gain (loss) on derivative instruments in the accompanying consolidated statements of operations. The fair value of TBA securities is estimated based on similar methods used to value RMBS securities.

The Company has elected not to treat any of its derivative financial instruments as hedges in order to align the accounting treatment of its derivative instruments with the treatment of its portfolio assets under the fair value option election. FASB ASC Topic 815, Derivatives and Hedging, requires that all derivative instruments be carried at fair value. Changes in fair value are recorded in earnings for each period.

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

Financial Instruments

FASB ASC 825, Financial Instruments, requires disclosure of the fair value of financial instruments for which it is practicable to estimate that value, either in the body of the financial statements or in the accompanying notes. RMBS, Eurodollar and T-Note futures contracts, interest rate swaps, interest rate swaptions and TBA securities 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 12 of the consolidated financial statements.

The estimated fair value of cash and cash equivalents, restricted cash, accrued interest receivable, receivable for securities sold, other assets, due to affiliates, repurchase agreements, payable for unsettled securities purchased, accrued interest payable and other liabilities generally approximates their carrying values as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 due to the short-term nature of these financial instruments.

Repurchase Agreements

The Company finances the acquisition of the majority of its RMBS through the use of repurchase agreements under master repurchase agreements. Pursuant to ASC Topic 860, Transfers and Servicing, the Company accounts for repurchase transactions as collateralized financing transactions, which are carried at their contractual amounts, including accrued interest, as specified in the respective agreements.

Manager Compensation

The Company is externally managed by Bimini Advisors, LLC (the "Manager" or "Bimini Advisors"), a Maryland limited liability company and wholly-owned subsidiary of Bimini. The Company's management agreement with the Manager provides for payment to the Manager of a management fee and reimbursement of certain operating expenses, which are accrued and expensed during the period for which they are earned or incurred. Refer to Note 13 for the terms of the management agreement.

Earnings Per Share

The Company follows the provisions of FASB ASC 260, Earnings Per Share. Basic earnings per share ("EPS") is calculated as net income or loss attributable to common stockholders divided by the weighted average number of shares of common stock outstanding or subscribed during the period. Diluted EPS is calculated using the treasury stock or two-class method, as applicable, for common stock equivalents, if any. However, the common stock equivalents are not included in computing diluted EPS if the result is anti-dilutive.

Income Taxes

Orchid has qualified and elected to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"). REITs are generally not subject to federal income tax on their REIT taxable income provided that they distribute to their stockholders at least 90% of their REIT taxable income on an annual basis. In addition, a REIT must meet other provisions of the Code to retain its tax status.

Orchid measures, recognizes and presents its uncertain tax positions in accordance with FASB ASC 740, Income Taxes. Under that guidance, Orchid assesses the likelihood, based on their technical merit, that tax positions will be sustained upon examination based on the facts, circumstances and information available at the end of each period. All of Orchid's tax positions are categorized as highly certain. There is no accrual for any tax, interest or penalties related to Orchid's tax position assessment. The measurement of uncertain tax positions is adjusted when new information is available, or when an event occurs that requires a change.

Recent Accounting Pronouncements

In November 2016, the FASB issued Accounting Standards Update ("ASU") 2016-18, Statement of Cash Flows – (Topic 230): Restricted Cash. ASU 2016-18 requires that restricted cash and restricted cash equivalents be included as components of total cash and cash equivalents as presented on the statement of cash flows. ASU 2016-18 is effective for fiscal years, and for interim periods within those years, beginning after December 15, 2017. Early application is permitted. The Company early adopted the ASU beginning with the first quarter of 2017. ~~The prior period consolidated statement of cash flows has been retrospectively adjusted to conform to this presentation.~~

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows – (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. ASU 2016-15 is effective for fiscal years, and for interim periods within those years, beginning after December 15, 2017. ~~Early application is permitted.~~ The ~~Company does not believe the~~Company's adoption of this ASU ~~will~~did not have a material impact on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss model). ASU 2016-13 is effective for fiscal years, and for interim periods within those years, beginning after December 15, 2019. Early application is permitted for fiscal periods beginning after December 15, 2018. The Company is currently evaluating the potential effect of this ASU on its consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 provides guidance for the recognition, measurement, presentation and disclosure of financial assets and financial liabilities. ASU 2016-01 is effective for fiscal years, and for interim periods within those years, beginning after December 15, 2017 and, for most provisions, is effective using the cumulative-effect transition approach. ~~Early application is permitted for certain provisions.~~ The ~~Company does not believe the~~Company's adoption of this ASU ~~will~~did not have a material impact on its consolidated financial statements.

NOTE 2. MORTGAGE-BACKED SECURITIES

The following table presents the Company's RMBS portfolio as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016:~~2017:

(in thousands)
	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Pass-Through RMBS Certificates:
Hybrid Adjustable-rate Mortgages	$	42,201	$	45,459	$	26,482	$	27,398
Adjustable-rate Mortgages		1,783		2,062		1,754		1,754
Fixed-rate Mortgages		3,740,658		2,826,694		3,569,133		3,594,533
Total Pass-Through Certificates		3,784,642		2,874,215		3,597,369		3,623,685
Structured RMBS Certificates:
Interest-Only Securities		90,551		69,726		120,199		86,918
Inverse Interest-Only Securities		55,147		78,233		28,216		34,208
Total Structured RMBS Certificates		145,698		147,959		148,415		121,126
Total	$	3,930,340	$	3,022,174	$	3,745,784	$	3,744,811

The following table summarizes the Company's RMBS portfolio as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, according to the contractual maturities of the securities in the portfolio. Actual maturities of RMBS investments are generally shorter than stated contractual maturities and are affected by the contractual lives of the underlying mortgages, periodic payments of principal, and prepayments of principal.

(in thousands)
	March 31, 2018		December 31, 2017
Greater than one year and less than five years	$	15	$	29
Greater than five years and less than ten years		3,049		3,281
Greater than or equal to ten years		3,742,720		3,741,501
Total	$	3,745,784	$	3,744,811

(in thousands)
September 30, 2017 December 31, 2016
Greater than one year and less than five years $ 52 $ 157
Greater than five years and less than ten years 2,771 277
Greater than or equal to ten years 3,927,517 3,021,740
Total $ 3,930,340 $ 3,022,174

The Company generally pledges its RMBS assets as collateral under repurchase agreements. At March 31, 2018 and December 31, 2017, the Company had unpledged securities totaling $102.1 million and $32.3 million, respectively. The unpledged balance at March 31, 2018 includes unsettled security purchases with a fair value of approximately $14.6 million that will be pledged as collateral under repurchase agreements on their respective settlement dates in April 2018.

NOTE 3. REPURCHASE AGREEMENTS AND OTHER BORROWINGS

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 ~~September 30, 2017,~~March 31, 2018, the Company had met all margin call requirements.

As of ~~September 30, 2017,~~March 31, 2018, the Company had outstanding repurchase obligations of approximately ~~$3,710.1~~$3,619.3 million with a net weighted average borrowing rate of ~~1.37%~~1.86%. These agreements were collateralized by RMBS with a fair value, including accrued interest and securities pledged related to securities sold but not yet settled, of approximately ~~$3,932.6~~$3,818.6 million, and cash pledged to the counterparties of approximately ~~$12.0~~$28.6 million. As of December 31, ~~2016,~~2017, the Company had outstanding repurchase obligations of approximately ~~$2,793.7~~$3,533.8 million with a net weighted average borrowing rate of ~~1.00%~~1.54%. These agreements were collateralized by RMBS with a fair value, including accrued interest, of approximately ~~$2,970.9~~$3,726.5 million, and cash pledged to the counterparties of approximately ~~$10.8~~$25.3 million.

As of ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ the Company's repurchase agreements had remaining maturities as summarized below:

($ in thousands)
	OVERNIGHT		BETWEEN 2			BETWEEN 31			GREATER							OVERNIGHT		BETWEEN 2			BETWEEN 31			GREATER
	(1 DAY OR		AND			AND			THAN							(1 DAY OR		AND			AND			THAN
	LESS)		30 DAYS			90 DAYS			90 DAYS			TOTAL				LESS)		30 DAYS			90 DAYS			90 DAYS			TOTAL
September 30, 2017
March 31, 2018															March 31, 2018
Fair market value of securities pledged, including
accrued interest receivable	$	-	$	2,506,628		$	941,339		$	484,607		$	3,932,574			$	-	$	2,263,087		$	1,096,463		$	459,040		$	3,818,590
Repurchase agreement liabilities associated with
these securities	$	-	$	2,358,459		$	897,376		$	454,242		$	3,710,077			$	-	$	2,127,683		$	1,038,162		$	453,435		$	3,619,280
Net weighted average borrowing rate		-		1.34	%		1.34	%		1.57	%		1.37	%			-		1.91	%		1.88	%		1.57	%		1.86	%
December 31, 2016
December 31, 2017															December 31, 2017
Fair market value of securities pledged, including
accrued interest receivable	$	-	$	2,284,815		$	686,065		$	-		$	2,970,880			$	-	$	1,983,958		$	1,266,590		$	475,975		$	3,726,523
Repurchase agreement liabilities associated with
these securities	$	-	$	2,154,766		$	638,939		$	-		$	2,793,705			$	-	$	1,871,833		$	1,208,518		$	453,435		$	3,533,786
Net weighted average borrowing rate		-		1.01	%		0.96	%		-			1.00	%			-		1.53	%		1.53	%		1.57	%		1.54	%

If, during the term of a repurchase agreement, a lender files for bankruptcy, the Company might experience difficulty recovering its pledged assets, which could result in an unsecured claim against the lender for the difference between the amount loaned to the Company plus interest due to the counterparty and the fair value of the collateral pledged to such lender, including the accrued interest receivable and cash posted by the Company as collateral. At ~~September 30, 2017,~~March 31, 2018, the Company had an aggregate amount at risk (the difference between the amount loaned to the Company, including interest payable and securities posted by the counterparty (if any), and the fair value of securities and cash pledged (if any), including accrued interest on such securities) with all counterparties of approximately ~~$227.9~~$220.7 million. The Company did not have an amount at risk with any individual counterparty greater than 10% of the Company's equity at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

NOTE 4. DERIVATIVE FINANCIAL INSTRUMENTS

In connection with its interest rate risk management strategy, the Company economically hedges a portion of the cost of its repurchase agreement funding by entering into derivatives and other hedging contracts. To date, the Company has entered into Eurodollar and T-Note futures contracts, interest rate swaps, and interest rate swaptions, but may enter into other contracts in the future. The Company has not elected hedging treatment under GAAP, and as such all gains or losses (realized and unrealized) on these instruments are reflected in earnings for all periods presented.

In addition, the Company utilizes TBA securities as a means of investing in and financing Agency RMBS or as a means of reducing its exposure to Agency ~~RMBS, and also a hedge for tax purposes.~~RMBS. The Company accounts for TBA securities as derivative instruments if either the TBA securities do not settle in the shortest period of time possible or if the Company cannot assert that it is probable at inception and throughout the term of the TBA securities that it will take physical delivery of the Agency RMBS for a long position, or make delivery of the Agency RMBS for a short position, upon settlement of the trade.

Derivative Assets (Liabilities), at Fair Value

The table below summarizes fair value information about our derivative assets and liabilities as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

(in thousands)
Derivative Instruments and Related Accounts	Balance Sheet Location	September 30, 2017			December 31, 2016		Balance Sheet Location	March 31, 2018			December 31, 2017
Assets
Interest rate swaps	Derivative assets, at fair value	$	10,693		$	10,302	Derivative assets, at fair value	$	25,107		$	13,745
Payer swaptions	Derivative assets, at fair value		3,194			-	Derivative assets, at fair value		10,296			3,405
Receiver swaptions							Derivative assets, at fair value		760			-
TBA securities	Derivative assets, at fair value		2,984			63	Derivative assets, at fair value		16			10
Total derivative assets, at fair value		$	16,871		$	10,365		$	36,179		$	17,160

Liabilities
Interest rate swaps	Derivative liabilities, at fair value	$	2,591		$	802	Derivative liabilities, at fair value	$	-		$	215
TBA securities	Derivative liabilities, at fair value		-			1,180	Derivative liabilities, at fair value		2,582			1,823
Total derivative liabilities, at fair value		$	2,591		$	1,982		$	2,582		$	2,038

Margin Balances Posted to (from) Counterparties
Futures contracts	Restricted cash	$	6,193		$	9,419	Restricted cash	$	5,415		$	5,545
TBA securities	Restricted cash		-			446	Restricted cash		2,857			1,508
TBA securities	Other liabilities		(1,867	)		-	Other liabilities		-			(59	)
Interest rate swaption contracts	Other liabilities		(2,776	)		-	Other liabilities		(7,169	)		(3,505	)
Interest rate swap contracts	Restricted cash		1,437			-
Total margin balances on derivative contracts		$	2,987		$	9,865		$	1,103		$	3,489

Eurodollar and T-Note futures are cash settled futures contracts on an interest rate, with gains and losses credited or charged to the Company's cash accounts on a daily basis. A minimum balance, or "margin", is required to be maintained in the account on a daily basis. The tables below present information related to the Company's Eurodollar and T-Note futures positions at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

($ in thousands)
	September 30, 2017											March 31, 2018
	Average		Weighted			Weighted						Average		Weighted			Weighted
	Contract		Average			Average						Contract		Average			Average
	Notional		Entry			Effective			Open			Notional		Entry			Effective			Open
Expiration Year	Amount		Rate			Rate			Equity⁽¹⁾			Amount		Rate			Rate			Equity⁽¹⁾
Eurodollar Futures Contracts (Short Positions)
2017	$	1,000,000		1.62	%		1.48	%	$	(340	)
2018		1,000,000		1.84	%		1.73	%		(1,091	)	$	1,333,333		1.92	%		2.40	%	$	4,743
2019		1,000,000		2.09	%		1.98	%		(1,138	)		1,500,000		2.16	%		2.69	%		8,060
2020		925,000		2.62	%		2.13	%		(4,505	)		1,500,000		2.64	%		2.81	%		2,480
Total / Weighted Average	$	976,923		2.13	%		1.91	%	$	(7,074	)	$	1,454,545		2.28	%		2.66	%	$	15,283

Treasury Note Futures Contracts (Short Position)⁽²⁾
September 2017 10-year T-Note futures
(Sep 2017 - Sep 2027 Hedge Period)	$	115,000		1.98	%		2.16	%	$	(81	)
June 2018 5-year T-Note futures
(June 2018 - June 2023 Hedge Period)												$	165,000		2.94	%		2.87	%	$	(472	)

($ in thousands)
	December 31, 2016											December 31, 2017
	Average		Weighted			Weighted						Average		Weighted			Weighted
	Contract		Average			Average						Contract		Average			Average
	Notional		Entry			Effective			Open			Notional		Entry			Effective			Open
Expiration Year	Amount		Rate			Rate			Equity⁽¹⁾			Amount		Rate			Rate			Equity⁽¹⁾
Eurodollar Futures Contracts (Short Positions)
2017	$	600,000		1.48	%		1.28	%	$	(1,206	)
2018		600,000		1.81	%		1.82	%		76		$	1,212,500		1.86	%		1.98	%	$	1,418
2019		675,000		2.00	%		2.21	%		1,429			1,350,000		2.11	%		2.27	%		2,152
2020		700,000		2.65	%		2.45	%		(1,394	)		987,500		2.59	%		2.36	%		(2,360	)
Total / Weighted Average	$	643,750		2.01	%		1.97	%	$	(1,095	)	$	1,183,333		2.16	%		2.20	%	$	1,210

Treasury Note Futures Contracts (Short Position)⁽²⁾
March 2017 10 year T-Note futures
(Mar 2017 - Mar 2027 Hedge Period)	$	465,000		2.27	%		2.24	%	$	(3,134	)
March 2018 10 year T-Note futures
(Mar 2018 - Mar 2028 Hedge Period)												$	140,000		2.23	%		2.33	%	$	755

(1)	Open equity represents the cumulative gains (losses) recorded on open futures positions from inception.

(2)

T-Note futures contracts were valued at a price of ~~$125.31~~$114.46 at ~~September 30, 2017~~March 31, 2018 and ~~$124.28~~$124.05 at December 31, ~~2016.~~2017. The notional contract values of the short positions were ~~$144.1~~$188.9 million and ~~$577.9~~$173.7 million at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively.

Under our interest rate swap agreements, we typically pay a fixed rate and receive a floating rate based on the London Interbank Offered Rate ("LIBOR") ("payer swaps"). The floating rate we receive under our swap agreements has the effect of offsetting the repricing characteristics of our repurchase agreements and cash flows on such liabilities. We are typically required to post collateral on our interest rate swap agreements. The table below presents information related to the Company's interest rate swap positions at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

($ in thousands)
			Average						Net
			Fixed			Average			Estimated			Average
	Notional		Pay			Receive			Fair			Maturity
	Amount		Rate			Rate			Value			(Years)
March 31, 2018
Expiration > 1 to ≤ 3 years	$	650,000		1.09	%		1.81	%	$	17,232			1.8
Expiration > 3 to ≤ 5 years		360,000		2.05	%		2.03	%		7,875			4.0
	$	1,010,000		1.43	%		1.89	%	$	25,107			2.6
December 31, 2017
Expiration > 1 to ≤ 3 years	$	650,000		1.09	%		1.31	%	$	10,318			2.1
Expiration > 3 to ≤ 5 years		360,000		2.05	%		1.32	%		(2,216	)		4.3
	$	1,010,000		1.43	%		1.31	%	$	8,102			2.8

($ in thousands)
Average Net
Fixed Average Estimated Average
Notional Pay Receive Fair Maturity
Amount Rate Rate Value (Years)
September 30, 2017
Expiration > 1 to ≤ 3 years $ 650,000 1.09 % 1.31 % $ 10,318 2.3
Expiration > 3 to ≤ 5 years 360,000 2.05 % 1.32 % (2,216 ) 4.5
$ 1,010,000 1.43 % 1.31 % $ 8,102 3.1
December 31, 2016
Expiration > 3 to ≤ 5 years $ 700,000 1.20 % 0.91 % $ 9,500 3.4

The table below presents information related to the Company's interest rate swaption positions at ~~September 30,~~March 31, 2018 and December 31, 2017.

($ in thousands)

Option

Underlying Swap

Option

Underlying Swap

Weighted

Average

Weighted

Average

Fixed

Receive

Average

Adjustable

Average

Fair

Months to

Notional

Pay

Rate

Term

Fair

Months to

Notional

Fixed

Rate

Term

Expiration

Cost

Value

Expiration

Amount

Rate

(LIBOR)

(Years)

Expiration

Cost

Value

Expiration

Amount

Rate

(LIBOR)

(Years)

Payer Swaptions

March 31, 2018

≤ 1 year

$2,367

$3,194

11.0

$200,000

2.16%

3 Month

6.0

≤ 1 year

Payer Swaptions

11,062

10,296

9.3

750,000

3.00%

3 Month

9.2

Receiver Swaptions

820

760

10.4

100,000

2.60%

3 Month

5.0

December 31, 2017

≤ 1 year

Payer Swaptions

2,367

3,405

8.0

200,000

2.16%

3 Month

6.0

The following table summarizes our contracts to purchase and sell TBA securities as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

($ in thousands)	($ in thousands)									($ in thousands)
			Notional						Net			Notional						Net
			Amount		Cost		Market		Carrying			Amount		Cost		Market		Carrying
			Long (Short)⁽¹⁾		Basis⁽²⁾		Value⁽³⁾		Value⁽⁴⁾			Long (Short)⁽¹⁾		Basis⁽²⁾		Value⁽³⁾		Value⁽⁴⁾
September 30, 2017
March 31, 2018										March 31, 2018
30-Year TBA securities:	30-Year TBA securities:									30-Year TBA securities:
	3.0%	$	(300,000)	$	(303,773)	$	(300,789)	$	2,984	3.0%	$	(400,000)	$	(387,621)	$	(390,187)	$	(2,566)
December 31, 2016
December 31, 2017										December 31, 2017
30-Year TBA securities:	30-Year TBA securities:									30-Year TBA securities:
	3.0%	$	(100,000)	$	(99,406)	$	(99,344)	$	62	3.0%	$	(300,000)	$	(299,371)	$	(300,153)	$	(782)
	4.0%		(100,000)		(103,898)		(105,078)		(1,180)	4.0%		(357,000)		(373,403)		(373,477)		(74)
										4.5%		356,556		380,371		379,414		(957)
Total	Total	$	(200,000)	$	(203,304)	$	(204,422)	$	(1,118)	Total	$	(300,444)	$	(292,403)	$	(294,216)	$	(1,813)

(1)	Notional amount represents the par value (or principal balance) of the underlying Agency RMBS.

(2)	Cost basis represents the forward price to be paid (received) for the underlying Agency RMBS.

(3)	Market value represents the current market value of the TBA securities (or of the underlying Agency RMBS) as of period-end.

(4)	Net carrying value represents the difference between the market value and the cost basis of the TBA securities as of period-end and is reported in derivative assets (liabilities), at fair value in our consolidated balance sheets.

Gain (Loss) From Derivative Instruments, Net

The table below presents the effect of the Company's derivative financial instruments on the consolidated statements of operations for the ~~nine and~~ three months ended ~~September 30, 2017~~March 31, 2018 and ~~2016.~~2017.

Credit Risk-Related Contingent Features

The use of derivatives creates exposure to credit risk relating to potential losses that could be recognized in the event that the counterparties to these instruments fail to perform their obligations under the contracts. We minimize this risk by limiting our counterparties for instruments which are not centrally cleared on a registered exchange to major financial institutions with acceptable credit ratings and monitoring positions with individual counterparties. In addition, we may be required to pledge assets as collateral for our derivatives, whose amounts vary over time based on the market value, notional amount and remaining term of the derivative contract. In the event of a default by a counterparty, we may not receive payments provided for under the terms of our derivative agreements, and may have difficulty obtaining our assets pledged as collateral for our derivatives. The cash and cash equivalents pledged as collateral for our derivative instruments are included in restricted cash on our consolidated balance sheets.

NOTE 5. PLEDGED ASSETS

Assets Pledged to Counterparties

The table below summarizes our assets pledged as collateral under our repurchase agreements ~~prime brokerage clearing accounts,~~and derivative agreements ~~and insurance capital~~ by type, including securities pledged related to securities sold but not yet settled, as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

(in thousands)
September 30, 2017
Repurchase Derivative
Assets Pledged to Counterparties Agreements Agreements Total
PT RMBS - fair value $ 3,779,375 $ - $ 3,779,375
Structured RMBS - fair value 138,050 - 138,050
Accrued interest on pledged securities 15,150 - 15,150
Restricted cash 11,999 7,630 19,629
Total $ 3,944,574 $ 7,630 $ 3,952,204

(in thousands)
December 31, 2016
Repurchase Clearing Derivative Insurance
Assets Pledged to Counterparties Agreements Margin Agreements
Capital⁽¹⁾
Total
PT RMBS - fair value $ 2,854,062 $ - $ - $ 1,065 $ 2,855,127
Structured RMBS - fair value 106,195 10,968 - - 117,163
Accrued interest on pledged securities 10,623 266 - 4 10,893
Restricted cash 10,835 - 9,865 250 20,950
Total $ 2,981,715 $ 11,234 $ 9,865 $ 1,319 $ 3,004,133

~~(1)~~

~~Orchid Island Casualty, Inc. was required to maintain sufficient capital in the form of cash and securities to protect it against losses.~~

Assets Pledged from Counterparties

The table below summarizes our assets pledged to us from counterparties under our repurchase agreements as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

PT RMBS and U.S. Treasury securities received as margin under our repurchase agreements are not recorded in the consolidated balance sheets because the counterparty retains ownership of the security. Cash received as margin is recognized in cash and cash equivalents with a corresponding amount recognized as an increase in repurchase agreements or other liabilities in the consolidated balance sheets.

NOTE 6. OFFSETTING ASSETS AND LIABILITIES

The Company's derivatives and repurchase agreements are subject to underlying agreements with master netting or similar arrangements, which provide for the right of offset in the event of default or in the event of bankruptcy of either party to the transactions. The Company reports its assets and liabilities subject to these arrangements on a gross basis.

The following 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 ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

(in thousands)
Offsetting of Assets
Net Amount Gross Amount Not Offset in the
of Assets Consolidated Balance Sheet
Gross Amount Presented Financial
Gross Amount Offset in the in the Instruments Cash
of Recognized Consolidated Consolidated Received as Received as Net
Assets Balance Sheet Balance Sheet Collateral Collateral Amount
September 30, 2017
Interest rate swaps $ 10,693 $ - $ 10,693 $ - $ - $ 10,693
Interest rate swaptions 3,194 - 3,194 - (2,776 ) 418
TBA securities 2,984 - 2,984 - (1,867 ) 1,117
$ 16,871 $ - $ 16,871 $ - $ (4,643 ) $ 12,228
December 31, 2016
Interest rate swaps $ 10,302 $ - $ 10,302 $ - $ - $ 10,302
TBA securities 63 - 63 - (63 ) -
$ 10,365 $ - $ 10,365 $ - $ (63 ) $ 10,302

The amounts disclosed for collateral received by or posted to the same counterparty up to and not exceeding the net amount of the asset or liability presented in the consolidated balance sheets. The fair value of the actual collateral received by or posted to the same counterparty typically exceeds the amounts presented. See Note 5 for a discussion of collateral posted or received against or for repurchase obligations and derivative instruments.

Common Stock Issuances

During 2017, ~~and 2016,~~ the Company completed the following public offerings of shares of its common stock. There were no common stock issuances through public offerings during the three months ended March 31, ~~2016~~2018 and September 30, 2017.

At the Market Offering Program⁽³⁾

(1)	Weighted average price received per share is ~~gross of~~before deducting the underwriters' discount, if applicable, and other offering costs.

(2)	Net proceeds are net of the underwriters' discount, if applicable, and other offering costs.

(3)	The Company has entered into ~~five~~six equity distribution agreements, ~~all~~five of which have either been terminated because all shares were sold or were replaced with a subsequent agreement.

Stock Repurchase Program

On July 29, 2015, the Company's Board of Directors authorized the repurchase of up to 2,000,000 shares of the Company's common stock. On February 8, 2018, the Board of Directors approved an increase in the stock repurchase program for up to an additional 4,522,822 shares of the Company's common stock. As part of the ~~share~~stock repurchase program, shares may be purchased in open market transactions, including through block purchases, through privately negotiated transactions, or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Open market repurchases will be made in accordance with Exchange Act Rule 10b-18, which sets certain restrictions on the method, timing, price and volume of open market stock repurchases. The timing, manner, price and amount of any repurchases will be determined by the Company in its discretion and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors. The authorization does not obligate the Company to acquire any particular amount of common stock and the program may be suspended or discontinued at the Company's discretion without prior notice.

From the inception of the ~~share~~stock repurchase program through ~~September 30, 2017,~~March 31, 2018, the Company repurchased a total of 1,216,243 shares at an aggregate cost of approximately $10.8 million, including commissions and fees, for a weighted average price of $8.92 per share. No shares were repurchased during the year ended December 31, ~~2016~~2017 or the ~~nine~~three months ended ~~September 30, 2017.~~

March 31, 2018. As of March 31, 2018, the remaining authorization under the repurchase program is for up to 5,306,579 shares of the Company's common stock.

Cash Dividends

The table below presents the cash dividends declared on the Company's common stock.

(1)

On ~~October~~April 11, ~~2017,~~2018, the Company declared a dividend of ~~$0.14~~$0.09 per share to be paid on ~~November~~May 10, ~~2017.~~2018. The effect of this dividend is included in the table above, but is not reflected in the Company's financial statements as of ~~September 30, 2017.~~March 31, 2018.

NOTE 8. STOCK INCENTIVE PLAN

In October 2012, the Company's Board of Directors adopted and Bimini, then the Company's sole stockholder, approved, the Orchid Island Capital, Inc. 2012 Equity Incentive Plan (the "Incentive Plan") to recruit and retain employees, directors and other service providers, including employees of the Manager and other affiliates. The Incentive Plan provides for the award of stock options, stock appreciation rights, stock award, performance units, other equity-based awards (and dividend equivalents with respect to awards of performance units and other equity-based awards) and incentive awards. The Incentive Plan is administered by the Compensation Committee of the Company's Board of Directors except that the Company's full Board of Directors will administer awards made to directors who are not employees of the Company or its affiliates. The Incentive Plan provides for awards of up to an aggregate of 10% of the issued and outstanding shares of our common stock (on a fully diluted basis) at the time of the awards, subject to a maximum aggregate 4,000,000 shares of the Company's common stock that may be issued under the Incentive Plan.

Restricted Stock Awards

The table below presents information related to the Company's restricted common stock at ~~September 30, 2017~~March 31, 2018 and ~~2016.~~2017.

($ in thousands, except per share data)
Nine Months Ended September 30,
2017 2016
Weighted Weighted
Average Average
Grant Date Grant Date
Shares Fair Value Shares Fair Value
Unvested, beginning of period 8,000 $ 12.23 16,000 $ 12.23
Granted - - - -
Vested and issued (8,000 ) 12.23 (8,000 ) 12.23
Unvested, end of period - $ - 8,000 $ 12.23

Compensation expense during period $ 33 $ 73
Unrecognized compensation expense, end of period $ - $ 57
Intrinsic value, end of period $ - $ 83
Weighted-average remaining vesting term (in years) - 0.6

The Company issues immediately vested common stock under the Incentive Plan to certain executive officers, employees and directors. The following table presents information related to fully vested common stock issued during the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017. All of the fully vested shares of common stock issued during the three months ended March 31, 2018 and 2017, and ~~2016.~~the related compensation expense, were granted with respect to service performed during the previous fiscal year.

Fully vested shares granted⁽¹⁾

Compensation expense related to fully vested common share awards⁽²⁾

~~(1)~~

The table above includes 17,335 fully vested shares of common stock which were granted in January and March 2017 with respect to service performed during 2016 and 33,019 fully vested shares common stock which were granted in January and March 2016 with respect to service performed during 2015.

~~(2)~~

Approximately $168,000 of compensation expense related to the 2017 share awards was accrued and recognized in 2016. Approximately $330,000 of compensation expense related to the 2016 share awards was accrued and recognized in 2015.

The Company may issue performance units under the Incentive Plan to certain executive officers and employees. "Performance Units" vest after the end of a defined performance period, based on satisfaction of the performance conditions set forth in the performance unit agreement. When earned, each Performance Unit will be settled by the issuance of one share of the Company's common stock, at which time the Performance Unit will be cancelled. The Performance Units contain dividend equivalent rights which entitle the Participants to receive distributions declared by the Company on common stock, but do not include the right to vote the shares. Performance Units are subject to forfeiture should the participant no longer serve as an executive officer or employee for the Company. Compensation expense for the Performance Units are recognized over the remaining vesting period once it becomes probable that the performance conditions will be achieved.

The following table presents information related to Performance Units outstanding during the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017.

From time to time, the Company may become involved in various claims and legal actions arising in the ordinary course of business. Management is not aware of any reported or unreported contingencies at ~~September 30, 2017.~~March 31, 2018.

The Company will generally not be subject to federal income tax on its REIT taxable income to the extent that it distributes its REIT taxable income to its stockholders and satisfies the ongoing REIT requirements, including meeting certain asset, income and stock ownership tests. A REIT must generally distribute at least 90% of its REIT taxable income to its stockholders, of which 85% generally must be distributed within the taxable year, in order to avoid the imposition of an excise tax. The remaining balance may be distributed up to the end of the following taxable year, provided the REIT elects to treat such amount as a prior year distribution and meets certain other requirements.

The Company had dividend eligible shares of restricted common stock and Performance Units that were outstanding during the ~~nine and~~ three months ended ~~September 30,~~March 31, 2018 and 2017. The basic and diluted per share computations include these unvested shares of restricted common stock and performance units if there is income available to common stock, as they have dividend participation rights. The shares of restricted common stock and Performance Units have no contractual obligation to share in losses. Because there is no such obligation, the shares of restricted common stock and Performance Units are not included in the basic and diluted EPS computations when no income is available to common stock even though they are considered participating securities.

The table below reconciles the numerator and denominator of EPS for the ~~nine and~~ three months ended ~~September 30, 2017~~March 31, 2018 and ~~2016.~~

(in thousands, except per-share information)
Nine Months Ended September 30, Three Months Ended September 30,
2017 2016 2017 2016
Basic and diluted EPS per common share:
Numerator for basic and diluted EPS per common share:
Net income - Basic and diluted $ 7,989 $ 22,397 $ 15,183 $ 20,526
Weighted average common shares:
Common shares outstanding at the balance sheet date 45,308 26,252 45,308 26,252
Unvested dividend eligible share based compensation
outstanding at the balance sheet date 47 55 47 55
Effect of weighting (6,747 ) (3,688 ) - (2,174 )
Weighted average shares-basic and diluted 38,608 22,619 45,355 24,133
Net Income per common share:
Basic and diluted $ 0.21 $ 0.99 $ 0.33 $ 0.85

There was an average of 41,550 Performance Units that were anti-dilutive and not included in diluted EPS for the three months ended March 31, 2018.

Authoritative accounting literature establishes a framework for using fair value to measure assets and liabilities and defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) as opposed to the price that would be paid to acquire the asset or received to assume the liability (an entry price). A fair value measure should reflect the assumptions that market participants would use in pricing the asset or liability, including the assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset and the risk of non-performance. Required disclosures include stratification of balance sheet amounts measured at fair value based on inputs the Company uses to derive fair value measurements. These stratifications are:

·	Level 1 valuations, where the valuation is based on quoted market prices for identical assets or liabilities traded in active markets (which include exchanges and over-the-counter markets with sufficient volume),

Level 2 valuations, where the valuation is based on quoted market prices for similar instruments traded in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market, and

Level 3 valuations, where the valuation is generated from model-based techniques that use significant assumptions not observable in the market, but observable based on Company-specific data. These unobservable assumptions reflect the Company's own estimates for assumptions that market participants would use in pricing the asset or liability. Valuation techniques typically include option pricing models, discounted cash flow models and similar techniques, but may also include the use of market prices of assets or liabilities that are not directly comparable to the subject asset or liability.

The Company's RMBS, interest rate swaps, interest rate swaptions and TBA securities are valued using Level 2 valuations, and such valuations currently are determined by the Company based on independent pricing sources and/or third party broker quotes, when available. Because the price estimates may vary, the Company must make certain judgments and assumptions about the appropriate price to use to calculate the fair values. Alternatively, the Company could opt to have the value of all of its positions in RMBS, interest rate swaps, interest rate swaptions and TBA securities determined by either an independent third-party or could do so internally.

RMBS (based on the fair value option), interest rate swaps, interest rate swaptions, TBA securities and futures contracts were recorded at fair value on a recurring basis during the ~~nine and~~ three months ended ~~September 30, 2017~~March 31, 2018 and ~~2016.~~2017. When determining fair value measurements, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset. When possible, the Company looks to active and observable markets to price identical assets. When identical assets are not traded in active markets, the Company looks to market observable data for similar assets.

The following table presents financial assets (liabilities) measured at fair value on a recurring basis as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016:~~2017:

During the ~~nine and~~ three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ there were no transfers of financial assets or liabilities between levels 1, 2 or 3.

The Company is externally managed and advised by Bimini Advisors, LLC (the "Manager") pursuant to the terms of a management agreement. The management agreement has been renewed through February 20, ~~2018~~2019 and provides for automatic one-year extension options thereafter and is subject to certain termination rights. Under the terms of the management agreement, the Manager is responsible for administering the business activities and day-to-day operations of the Company. The Manager receives a monthly management fee in the amount of:

·	One-twelfth of 1.5% of the first $250 million of the Company's equity, as defined in the management agreement,

·	One-twelfth of 1.25% of the Company's equity that is greater than $250 million and less than or equal to $500 million, and

·	One-twelfth of 1.00% of the Company's equity that is greater than $500 million.

The Company is obligated to reimburse the Manager for any direct expenses incurred on its behalf and to pay the Manager the Company's pro rata portion of certain overhead costs set forth in the management agreement. Should the Company terminate the management agreement without cause, it will pay to the Manager a termination fee equal to three times the average annual management fee, as defined in the management agreement, before or on the last day of the term of the agreement.

Total expenses recorded for the management fee and costs incurred were approximately ~~$5.4~~$2.1 million and ~~$1.9~~$1.7 million for the ~~nine and~~ three months ended ~~September 30,~~March 31, 2018 and 2017, ~~respectively, and approximately $3.9 million and $1.4 million for the nine and three months ended September 30, 2016,~~ respectively. At ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the net amount due to affiliates was approximately $0.8 million and ~~$0.6~~$0.8 million, respectively.

Robert Cauley, our Chief Executive Officer and Chairman of our Board of Directors, also serves as Chief Executive Officer and Chairman of the Board of Directors of Bimini and owns shares of common stock of Bimini. ~~Hunter~~George H. Haas, our Chief Financial Officer, Chief Investment Officer, Secretary and a member of our Board of Directors, also serves as the Chief Financial Officer, Chief Investment Officer and Treasurer of Bimini and owns shares of common stock of Bimini. In addition, as of ~~September 30, 2017,~~March 31, 2018, Bimini owned 1,520,036 shares, or ~~3.4%~~2.9%, of the Company's common stock.

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

We are a specialty finance company that invests in residential mortgage-backed securities ("RMBS") which are issued and guaranteed by a federally chartered corporation or agency ("Agency RMBS"). Our investment strategy focuses on, and our portfolio consists of, two categories of Agency RMBS: (i) traditional pass-through Agency RMBS ("PT RMBS") and (ii) structured Agency RMBS, such as collateralized mortgage obligations ("CMOs"), interest-only securities ("IOs"), inverse interest-only securities ("IIOs") and principal only securities ("POs"), among other types of structured Agency RMBS. We were formed by Bimini in August 2010, commenced operations on November 24, 2010 and completed our initial public offering ("IPO") on February 20, 2013. We are externally managed by Bimini Advisors, a registered investment adviser with the Securities and Exchange Commission (the "SEC").

Our business objective is to provide attractive risk-adjusted total returns over the long term through a combination of capital appreciation and the payment of regular monthly distributions. We intend to achieve this objective by investing in and strategically allocating capital between the two categories of Agency RMBS described above. We seek to generate income from (i) the net interest margin on our leveraged PT RMBS portfolio and the leveraged portion of our structured Agency RMBS portfolio, and (ii) the interest income we generate from the unleveraged portion of our structured Agency RMBS portfolio. We intend to fund our PT RMBS and certain of our structured Agency RMBS through short-term borrowings structured as repurchase agreements. PT RMBS and structured Agency RMBS typically exhibit materially different sensitivities to movements in interest rates. Declines in the value of one portfolio may be offset by appreciation in the other. The percentage of capital that we allocate to our two Agency RMBS asset categories will vary and will be actively managed in an effort to maintain the level of income generated by the combined portfolios, the stability of that income stream and the stability of the value of the combined portfolios. We believe that this strategy will enhance our liquidity, earnings, book value stability and asset selection opportunities in various interest rate environments.

We operate so as to qualify to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"). We generally will not be subject to U.S. federal income tax to the extent that we currently distribute all of our REIT taxable income (as defined in the Code) to our stockholders and maintain our REIT qualification.

The Company's common stock trades on the New York Stock Exchange ("NYSE") under the symbol "ORC".

On July 29, 2016, we entered into an equity distribution agreement (the "July 2016 Equity Distribution Agreement") with two sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $125,000,000 of shares of our common stock in transactions that were deemed to be "at the market" offerings and privately negotiated transactions. We issued a total of 10,174,992 shares under the July 2016 Equity Distribution Agreement for aggregate gross proceeds of $110.0 million, and net proceeds of approximately $108.2 million, net of commissions and fees, prior to its termination.

On February 23, 2017, we entered into another equity distribution agreement, as amended and restated on May 10, 2017, (the "May 2017 Equity Distribution Agreement") with two sales agents pursuant to which we ~~may~~could offer and sell, from time to time, up to an aggregate amount of $125,000,000 of shares of our common stock in transactions that ~~are~~were deemed to be "at the market" offerings and privately negotiated transactions. The May 2017 Equity Distribution Agreement replaced the July 2016 Equity Distribution Agreement. We issued a total of 12,299,032 shares under the May 2017 Equity Distribution Agreement for aggregate gross proceeds of $125.0 million, and net proceeds of approximately $122.9 million, net of commissions and fees, prior to its termination.

On August 2, 2017, we entered into another equity distribution agreement (the "August 2017 Equity Distribution Agreement") with two sales agents pursuant to which we may offer and sell, from time to time, up to an aggregate amount of $125,000,000 of shares of our common stock in transactions that are deemed to be "at the market" offerings and privately negotiated transactions. The August 2017 Equity Distribution Agreement replaced the May 2017 Equity Distribution Agreement. Through ~~September 30, 2017,~~March 31, 2018, we ~~have not~~ issued ~~any~~a total of 7,746,052 shares under the August 2017 Equity Distribution ~~Agreement.~~Agreement for aggregate gross proceeds of $76.0 million, and net proceeds of approximately $74.7 million, net of commissions and fees.

On July 29, 2015, the Company's Board of Directors authorized the repurchase of up to 2,000,000 shares of our common stock. The timing, manner, price and amount of any repurchases is determined by the Company in its discretion and is subject to economic and market conditions, stock price, applicable legal requirements and other factors. The authorization does not obligate the Company to acquire any particular amount of common stock and the program may be suspended or discontinued at the Company's discretion without prior notice. From the inception of the stock repurchase program through December 31, 2015, we repurchased a total of 1,216,243 shares at an aggregate cost of approximately $10.8 million, including commissions and fees, for a weighted average price of $8.92 per share. No shares of common stock were repurchased during 2017 or 2016. On February 8, 2018, the Board of Directors approved an increase in the stock repurchase program for up to an additional 4,522,822 shares of the Company's common stock, which results in a total authorization under the repurchase program for up to 5,306,579 shares of our common stock. This stock repurchase program has no termination date. There were no shares purchased under this program during the three months ended March 31, 2018.

A variety of industry and economic factors may impact our results of operations and financial condition. These factors include:

·	interest rate trends;

·	the difference between Agency RMBS yields and our funding and hedging costs;

·	competition for, and supply of, investments in Agency RMBS;

·	actions taken by the ~~new~~U.S. government, including the presidential administration, the Federal Reserve (the "Fed"), the Federal Open Market Committee (the "FOMC") and the U.S. Treasury;

·	prepayment rates on mortgages underlying our Agency RMBS, and credit trends insofar as they affect prepayment rates; and

·	other market developments.

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

·	our degree of leverage;

·	our access to funding and borrowing capacity;

·	our borrowing costs;

·	our hedging activities;

·	the market value of our investments; and

·	the requirements to qualify as a REIT and the requirements to qualify for a registration exemption under the Investment Company Act.

Described below are the Company's results of operations for the ~~nine and~~ three months ended ~~September 30, 2017,~~March 31, 2018, as compared to the Company's results of operations for the ~~nine and~~ three months ended ~~September 30, 2016.~~March 31, 2017.

Net (Loss) Income Summary

Net ~~Income Summary~~

~~Net income~~loss for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 was ~~$8.0~~$16.4 million, or ~~$0.21 per share. Net income for the nine months ended September 30, 2016 was $22.4 million, or $0.99~~$0.31 per share. Net income for the three months ended ~~September 30,~~March 31, 2017 was ~~$15.2~~$2.4 million, or ~~$0.33~~$0.07 per share. ~~Net~~The components of net (loss) income for the three months ended ~~September 30, 2016 was $20.5 million, or $0.85 per share. The components of net income for the nine~~March 31, 2018 and ~~three months ended September 30,~~ 2017, ~~and 2016,~~ along with the changes in those components are presented in the table below:

(in thousands)
	Nine Months Ended September 30,									Three Months Ended, September 30,
	2017			2016			Change			2017			2016			Change			2018			2017			Change
Interest income	$	105,864		$	62,059		$	43,805		$	38,974		$	22,358		$	16,616		$	39,935		$	32,311		$	7,624
Interest expense		(28,116	)		(10,629	)		(17,487	)		(12,638	)		(3,979	)		(8,659	)		(15,149	)		(6,715	)		(8,434	)
Net interest income		77,748			51,430			26,318			26,336			18,379			7,957			24,786			25,596			(810	)
(Losses) gains on RMBS and derivative contracts		(61,578	)		(22,446	)		(39,132	)		(8,254	)		4,418			(12,672	)
Net portfolio income		16,170			28,984			(12,814	)		18,082			22,797			(4,715	)
Losses on RMBS and derivative contracts																				(38,056	)		(20,727	)		(17,329	)
Net portfolio (deficiency) income																				(13,270	)		4,869			(18,139	)
Expenses		(8,181	)		(6,587	)		(1,594	)		(2,899	)		(2,271	)		(628	)		(3,107	)		(2,420	)		(687	)
Net income	$	7,989		$	22,397		$	(14,408	)	$	15,183		$	20,526		$	(5,343	)
Net (loss) income																			$	(16,377	)	$	2,449		$	(18,826	)

GAAP and Non-GAAP Reconciliations

In addition to the results presented in accordance with GAAP, our results of operations discussed below include certain non-GAAP financial information, including "Net Earnings Excluding Realized and Unrealized Gains and Losses", "Economic Interest Expense" and "Economic Net Interest Income."

Net Earnings Excluding Realized and Unrealized Gains and Losses

We have elected to account for our Agency RMBS under the fair value option. Securities held under the fair value option are recorded at estimated fair value, with changes in the fair value recorded as unrealized gains or losses through the consolidated statements of operations.

In addition, we have not elected to designate our derivative holdings for hedge accounting treatment under the Financial Accounting Standards Board (the "FASB") Accounting Standards Codification ("ASC") Topic 815, Derivatives and Hedging. Changes in fair value of these instruments are presented in a separate line item in the Company's consolidated statements of operations and not included in interest expense. As such, for financial reporting purposes, interest expense and cost of funds are not impacted by the fluctuation in value of the derivative instruments.

Presenting net earnings excluding realized and unrealized gains allows management to: (i) isolate the net interest income and other expenses of the Company over time, free of all mark-to-market adjustments and (ii) assess the effectiveness of our funding and hedging strategies on our capital allocation decisions and our asset allocation performance. Our funding and hedging strategies, capital allocation and asset selection are integral to our risk management strategy, and therefore critical to the management of our portfolio. We believe that the presentation of our net earnings excluding realized and unrealized gains is useful to investors because it provides a means of comparing our results of operations to those of our peers who have not elected the same accounting treatment. Our presentation of net earnings excluding realized and unrealized gains and losses may not be comparable to similarly-titled measures of other companies, who may use different calculations. As a result, net earnings excluding realized and unrealized gains and losses should not be considered as a substitute for our GAAP net income (loss) as a measure of our financial performance or any measure of our liquidity under GAAP. The table below presents a reconciliation of our net income (loss) determined in accordance with GAAP and net earnings excluding realized and unrealized gains.

(1)	Includes realized and unrealized gains (losses) on RMBS and derivative financial ~~instruments.~~instruments, including net interest expense on interest rate swaps.

Economic Interest Expense and Economic Net Interest Income

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

We have not elected to designate our derivative holdings for hedge accounting treatment under the Financial Accounting Standards Board (the "FASB"), Accounting Standards Codification ("ASC"), Topic 815, Derivatives and Hedging. Changes in fair value of these instruments are presented in a separate line item in our consolidated statements of operations and not included in interest expense. As such, for financial reporting purposes, interest expense and cost of funds are not impacted by the fluctuation in value of the derivative instruments.

For the purpose of computing economic net interest income and ratios relating to cost of funds measures, GAAP interest expense has been adjusted to reflect the realized gains or losses on specific derivative instruments that pertain to each period presented. We believe that adjusting our interest expense for the periods presented by the gains or losses on all derivative instruments would not accurately reflect our economic interest expense for these periods. For each period presented, we have combined the effects of the derivative financial instruments in place for the respective period with the actual interest expense incurred on borrowings to reflect total economic interest expense for the applicable period. Interest expense, including the effect of derivative instruments for the period, is referred to as economic interest expense. Net interest income, when calculated to include the effect of derivative instruments for the period, is referred to as economic net interest income. This presentation includes gains or losses on all contracts in effect during the reporting period, covering the current period as well as periods in the future.

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

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

The tables below present a reconciliation of the adjustments to interest expense shown for each period relative to our derivative instruments, and the income statement line item, gains (losses) on derivative instruments, calculated in accordance with GAAP for each quarter during ~~2017~~2018 and ~~2016.~~2017.

Gains (Losses) on Derivative Instruments
(in thousands)
Funding Hedges
Recognized in Attributed to Attributed to
Income TBA Current Future
Statement Securities Period Periods
(GAAP) Income (Non-GAAP) (Non-GAAP)
Three Months Ended
September 30, 2017 $ (5,470 ) $ (1,459 ) $ (3,754 ) $ (257 )
June 30, 2017 (19,442 ) (2,384 ) (3,654 ) (13,404 )
March 31, 2017 (4,419 ) - (3,193 ) (1,226 )
December 31, 2016 23,207 (133 ) (2,967 ) 26,307
September 30, 2016 6,587 (474 ) (2,660 ) 9,721
June 30, 2016 (11,591 ) (786 ) (2,210 ) (8,595 )
March 31, 2016 (27,590 ) (1,125 ) (1,933 ) (24,532 )
Nine Months Ended
September 30, 2017 $ (29,331 ) $ (3,843 ) $ (10,601 ) $ (14,887 )
September 30, 2016 (32,594 ) (2,385 ) (6,803 ) (23,406 )

Economic Interest Expense and Economic Net Interest Income
(in thousands)
Interest Expense on Borrowings
Gains
(Losses) on
Derivative
Instruments Net Interest Income
GAAP Attributed Economic GAAP Economic
Interest Interest to Current Interest Net Interest Net Interest
Income Expense
Period⁽¹⁾

Expense⁽²⁾
Income
Income⁽³⁾

Three Months Ended
September 30, 2017 $ 38,974 $ 12,638 $ (3,754 ) $ 16,392 $ 26,336 $ 22,582
June 30, 2017 34,579 8,763 (3,654 ) 12,417 25,816 22,162
March 31, 2017 32,311 6,715 (3,193 ) 9,908 25,596 22,403
December 31, 2016 25,068 4,976 (2,967 ) 7,943 20,092 17,125
September 30, 2016 22,358 3,979 (2,660 ) 6,639 18,379 15,719
June 30, 2016 19,235 3,330 (2,210 ) 5,540 15,905 13,695
March 31, 2016 20,466 3,319 (1,933 ) 5,252 17,147 15,214
Nine Months Ended
September 30, 2017 $ 105,864 $ 28,116 $ (10,601 ) $ 38,717 $ 77,748 $ 67,147
September 30, 2016 62,059 10,629 (6,803 ) 17,431 51,430 44,628

(1)	Reflects the effect of derivative instrument hedges for only the period presented.

(2)	Calculated by adding the effect of derivative instrument hedges attributed to the period presented to GAAP interest expense.

(3)	Calculated by adding the effect of derivative instrument hedges attributed to the period presented to GAAP net interest income.

During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2018, we generated ~~$77.7~~$24.8 million of net interest income, consisting of ~~$105.9~~$39.9 million of interest income from RMBS assets offset by ~~$28.1~~$15.1 million of interest expense on borrowings. For the comparable period ended ~~September 30, 2016,~~March 31, 2017, we generated ~~$51.4~~$25.6 million of net interest income, consisting of ~~$62.1~~$32.3 million of interest income from RMBS assets offset by ~~$10.6~~$6.7 million of interest expense on borrowings. The ~~$43.8~~$7.6 million increase in interest income and ~~$17.5~~$8.4 million increase in interest expense for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 primarily reflects the growth of our portfolio fueled by our net capital raising activities, combined with increased yields earned on our portfolio and increased costs and amounts of our borrowings.

On an economic basis, our interest expense on borrowings for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ was ~~$38.7~~$18.2 million and ~~$17.4~~$9.9 million, respectively, resulting in ~~$67.1~~$21.8 million and ~~$44.6 million of economic net interest income, respectively.~~

During the three months ended September 30, 2017, we generated $26.3 million of net interest income, consisting of $39.0 million of interest income from RMBS assets offset by $12.6 million of interest expense on borrowings. For the three months ended September 30, 2016, we generated $18.4 million of net interest income, consisting of $22.4 million of interest income from RMBS assets offset by $4.0 million of interest expense on borrowings. As in the nine months ended September 30, 2017, the increased interest income and interest expense for the three months ended September 30, 2017, as compared to the same period in 2016, reflects a combination of the growth of our portfolio and increased yields on the portfolio and costs of borrowings.

On an economic basis, our interest expense on repurchase liabilities for the three months ended September 30, 2017 and 2016 was $16.4 million and $6.6 million, respectively, resulting in $22.6 million and $15.7 million of economic net interest income, respectively.

The tables below provide information on our portfolio average balances, interest income, yield on assets, average borrowings, interest expense, cost of funds, net interest income and net interest spread for ~~the nine months ended September 30, 2017 and 2016 and~~ each quarter ~~during~~in 2018 and 2017 ~~and 2016~~ on both a GAAP and economic basis.

(1)

Portfolio yields and costs of borrowings presented in the tables above, below and ~~the tables~~ on ~~pages 30 and~~page 31 are calculated based on the average balances of the underlying investment portfolio/borrowings balances and are annualized for the periods presented. Average balances for quarterly periods are calculated using two data points, the beginning and ending balances.

(2)	Economic interest expense and economic net interest income presented in the table above and the tables on page 31 includes the effect of our derivative instrument hedges for only the periods presented.

(3)	Represents interest cost of our borrowings and the effect of derivative instrument hedges attributed to the period divided by average RMBS.

(4)	Economic net interest spread is calculated by subtracting average economic cost of funds from realized yield on average RMBS.

Interest Income and Average Asset Yield

Our interest income for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ was ~~$105.9~~$39.9 million and ~~$62.1~~$32.3 million, respectively. We had average RMBS holdings of ~~$3,492.0~~$3,745.3 million and ~~$2,176.7~~$3,142.1 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ respectively. The yield on our portfolio was ~~4.04%~~4.27% and ~~3.80%~~4.11% for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ respectively. For the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 as compared to the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017, there was a ~~$43.8~~$7.6 million increase in interest income due to a ~~$1,315.3~~$603.2 million increase in average RMBS, combined with a 2416 basis point ("bps") increase in the yield on average RMBS. The increase in average RMBS during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 reflects the deployment of the proceeds of our net capital raising activities, on a leveraged basis.

Our interest income for the three months ended September 30, 2017 and 2016 was $39.0 million and $22.4 million, respectively. We had average RMBS holdings of $3,834.1 million and $2,362.4 million for the three months ended September 30, 2017 and 2016, respectively. The yield on our portfolio was 4.07% and 3.79% for the three months ended September 30, 2017 and 2016, respectively. For the three months ended September 30, 2017 as compared to the three months ended September 30, 2016, there was a $16.6 million increase in interest income due to a $1,471.7 million increase in average RMBS, combined with a 28 bps increase in the yield on average RMBS. The increase in average RMBS during the three months ended September 30, 2017, as compared to the three months ended September 30, 2016, reflects the deployment of the proceeds of our net capital raising activities.

The table below presents the average portfolio size, income and yields of our respective sub-portfolios, consisting of structured RMBS and PT RMBS for ~~the nine months ended September 30, 2017 and 2016, and for~~ each quarter ~~during 2017~~in 2018 and ~~2016.~~2017.

Interest Expense and the Cost of Funds

We had average outstanding borrowings of ~~$3,193.7~~$3,576.5 million and ~~$2,047.5~~$2,922.2 million and total interest expense of ~~$28.1~~$15.1 million and ~~$10.6~~$6.7 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ respectively. Our average cost of funds was ~~1.17%~~1.69% and 0.92% for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017, ~~compared~~respectively. Contributing to ~~0.69% for~~ the ~~comparable period~~increase in ~~2016. There~~interest expense was a ~~$1,146.1~~77 bps increase in the average cost of funds and a $654.4 million increase in average outstanding borrowings during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 as compared to the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2017. The higher cost of funds for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2018, compared to the same period in ~~2016,~~2017, reflects the higher short-term rates as presented in the table below. The increase in average outstanding borrowings reflects the investment, on a leveraged basis, of the proceeds of our net capital raising activities.

Our economic interest expense was ~~$38.7~~$18.2 million and ~~$17.4~~$9.9 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ respectively. There was a 4867 bps increase in the average economic cost of funds to ~~1.62%~~2.03% for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 from ~~1.14%~~1.36% for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2017. The reason for the increase in economic ~~interest expense was~~cost of funds is primarily due to the ~~increase~~increases in our average outstanding borrowings ~~during~~and the ~~nine months ended September 30, 2017,~~cost of our borrowings noted above, combined with the negative performance of our derivative ~~agreements attributed to~~financial instruments during the ~~current~~ period.

We had average outstanding borrowings of $3,494.3 million and $2,179.5 million and total interest expense of $12.6 million and $4.0 million for the three months ended September 30, 2017 and 2016, respectively. Our average cost of funds was 1.45% and 0.73% for three months ended September 30, 2017 and 2016, respectively. There was a 72 bps increase in the average cost of funds and a $1,314.8 million increase in average outstanding borrowings during the three months ended September 30, 2017, compared to the three months ended September 30, 2016. As in the nine months ended September 30, 2017, the higher cost of funds for the three months ended September 30, 2017, compared to the same period in 2016, reflects higher short-term rates, and the increase in average outstanding borrowings reflects the investment, on a leveraged basis, of the proceeds of our net capital raising activities.

Our economic interest expense was $16.4 million and $6.6 million for the three months ended September 30, 2017 and 2016, respectively. There was a 66 bps increase in the average economic cost of funds to 1.88% for the three months ended September 30, 2017 from 1.22% for the three months ended September 30, 2016. The increase in economic interest expense during the three months ended September 30, 2017 was due to a combination of the increase in average outstanding borrowings, higher average interest rates charged for those borrowings, and the negative performance of our derivative 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 ~~25 bps above~~equal to the average one-month LIBOR and 042 bps below the average six-month LIBOR for the quarter ended ~~September 30, 2017.~~March 31, 2018. Our average economic cost of funds was 6834 bps above the average one-month LIBOR and 438 bps ~~above~~below the average six-month LIBOR for the quarter ended ~~September 30, 2017.~~March 31, 2018. The average term to maturity of the outstanding repurchase agreements ~~increased to 59~~was 40 days at ~~September 30, 2017 from 15~~March 31, 2018 and 52 days at December 31, ~~2016.~~2017.

The tables below present the average balance of ~~repurchase agreements~~borrowings outstanding, interest expense and average cost of funds, and average one-month and six-month LIBOR rates for ~~the nine months ended September 30, 2017 and 2016, and for~~ each quarter in ~~2017~~2018 and ~~2016~~2017 on both a GAAP and economic basis.

Average GAAP Cost of Funds Average Economic Cost of Funds
Relative to Average Relative to Average
Average LIBOR One-Month Six-Month One-Month Six-Month
One-Month Six-Month LIBOR LIBOR LIBOR LIBOR
Three Months Ended
September 30, 2017 1.20 % 1.45 % 0.25 % (0.00 )% 0.68 % 0.43 %
June 30, 2017 1.05 % 1.43 % 0.06 % (0.32 )% 0.52 % 0.14 %
March 31, 2017 0.82 % 1.37 % 0.10 % (0.45 )% 0.54 % (0.01 )%
December 31, 2016 0.62 % 1.28 % 0.16 % (0.50 )% 0.63 % (0.03 )%
September 30, 2016 0.49 % 1.09 % 0.24 % (0.36 )% 0.73 % 0.13 %
June 30, 2016 0.44 % 0.92 % 0.23 % (0.25 )% 0.67 % 0.19 %
March 31, 2016 0.40 % 0.84 % 0.28 % (0.16 )% 0.67 % 0.23 %
Nine Months Ended
September 30, 2017 1.03 % 1.42 % 0.14 % (0.25 )% 0.59 % 0.20 %
September 30, 2016 0.44 % 0.95 % 0.25 % (0.26 )% 0.70 % 0.19 %

The table below presents our gains or losses for the ~~nine and~~ three months ended ~~September 30, 2017~~March 31, 2018 and ~~2016.~~2017.

(in thousands)
Nine Months Ended September 30, Three Months Ended September 30,
2017 2016 Change 2017 2016 Change
Realized gains on sales of RMBS $ 3,354 $ 4,482 $ (1,128 ) $ 769 $ 229 $ 540
Unrealized (losses) gains on RMBS (35,601 ) 5,652 (41,253 ) (3,553 ) (2,398 ) (1,155 )
Total (losses) gains on RMBS (32,247 ) 10,134 (42,381 ) (2,784 ) (2,169 ) (615 )
Losses on interest rate futures (23,145 ) (29,795 ) 6,650 (5,843 ) 2,882 (8,725 )
Losses on interest rate swaps (3,170 ) (450 ) (2,720 ) 1,005 4,179 (3,174 )
Gains on receiver swaptions 827 36 791 827 - 827
Losses on TBA securities (3,843 ) (2,385 ) (1,458 ) (1,459 ) (474 ) (985 )

We invest in RMBS with the intent to earn net income from the realized yield on those assets over their related funding and hedging costs, and not for ~~purposes~~the purpose of making short term gains from sales. However, we have sold, and may continue to sell, existing assets to acquire new assets, which our management believes might have higher risk-adjusted returns in light of current or anticipated interest rates, federal government programs or general economic conditions or to manage our balance sheet as part of our asset/liability management strategy. During the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ we received proceeds of ~~$3,891.0~~$228.7 million and ~~$1,717.6~~$1,407.7 million, respectively, from the sales of RMBS. During the three months ended September 30, 2017 and 2016, we received proceeds of $826.0 million and $418.2 million, respectively, from the sales of RMBS, including sales settling in subsequent periods.

Realized and unrealized gains and losses on RMBS are driven in part by changes in yields and interest rates, which affect the pricing of the securities in our portfolio. Gains and losses on interest rate futures contracts are affected by changes in implied forward rates during the reporting period. The table below presents historical interest rate data for each quarter end during ~~2017~~2018 and ~~2016.~~2017.

15 Year 30 Year Three
5 Year 10 Year Fixed-Rate Fixed-Rate Month

Treasury Rate⁽¹⁾

Treasury Rate⁽¹⁾

Mortgage Rate⁽²⁾

Mortgage Rate⁽²⁾

LIBOR⁽³⁾

September 30, 2017 1.93 % 2.33 % 3.11 % 3.81 % 1.32 %
June 30, 2017 1.88 % 2.30 % 3.17 % 3.90 % 1.26 %
March 31, 2017 1.93 % 2.40 % 3.41 % 4.20 % 1.13 %
December 31, 2016 1.93 % 2.45 % 3.43 % 4.20 % 0.98 %
September 30, 2016 1.16 % 1.61 % 2.76 % 3.46 % 0.85 %
June 30, 2016 1.01 % 1.49 % 2.84 % 3.57 % 0.65 %
March 31, 2016 1.22 % 1.79 % 2.97 % 3.69 % 0.63 %

Mortgage Rate⁽²⁾

(1)	Historical 5 and 10 Year U.S. Treasury Rates are obtained from quoted end of day prices on the Chicago Board Options Exchange.

(2)	Historical 30 Year and 15 Year Fixed Rate Mortgage Rates are obtained from Freddie Mac's Primary Mortgage Market Survey.

(3)	Historical LIBOR ~~are~~is obtained from the Intercontinental Exchange Benchmark Administration Ltd.

~~For the nine and three months ended September 30, 2017, the Company's total~~Total operating expenses were approximately ~~$8.2~~$3.1 million and ~~$2.9~~$2.4 million ~~respectively, compared to approximately $6.6 million and $2.3 million, respectively,~~ for the ~~nine and~~ three months ended ~~September 30, 2016.~~March 31, 2018 and 2017, respectively. The table below presents a breakdown of operating expenses for the ~~nine and~~ three months ended ~~September 30, 2017~~March 31, 2018 and ~~2016.~~2017.

We are externally managed and advised by Bimini Advisors, LLC (the "Manager") pursuant to the terms of a management agreement. The management agreement has been renewed through February 20, ~~2018~~2019 and provides for automatic one-year extension options thereafter and is subject to certain termination rights. Under the terms of the management agreement, the Manager is responsible for administering the business activities and day-to-day operations of the Company. The Manager receives a monthly management fee in the amount of:

·	One-twelfth of 1.5% of the first $250 million of the Company's equity, as defined in the management agreement,

·	One-twelfth of 1.25% of the Company's equity that is greater than $250 million and less than or equal to $500 million, and

·	One-twelfth of 1.00% of the Company's equity that is greater than $500 million.

We are obligated to reimburse Bimini Advisors for any direct expenses incurred on its behalf. In addition, beginning July 1, 2014, Bimini Advisors began allocating to us its pro rata portion of certain overhead costs in accordance with the management agreement. Should we terminate the management agreement without cause, we will pay to the Manager a termination fee equal to three times the average annual management fee, as defined in the management agreement, before or on the last day of term of the agreement.

Mortgage-Backed Securities

As of ~~September 30, 2017,~~March 31, 2018, our RMBS portfolio consisted of ~~$3,930.3~~$3,745.8 million of Agency RMBS at fair value and had a weighted average coupon on assets of ~~4.34%~~4.24%. During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2018, we received principal repayments of ~~$248.5~~$78.7 million compared to ~~$178.5~~$73.3 million for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2017. The average prepayment speeds for the quarters ended ~~September 30,~~March 31, 2018 and 2017 were 7.7% and ~~2016 were 10.3% and 11.7%~~9.9%, respectively.

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

Structured
PT RMBS RMBS Total
Three Months Ended Portfolio (%) Portfolio (%) Portfolio (%)
September 30, 2017 8.3 14.9 10.3
June 30, 2017 7.0 12.7 9.5
March 31, 2017 7.5 14.3 9.9
December 31, 2016 9.7 18.4 12.2
September 30, 2016 8.9 17.9 11.7
June 30, 2016 8.4 15.9 11.0
March 31, 2016 5.5 12.4 8.2

The following tables summarize certain characteristics of the Company's PT RMBS and structured RMBS as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016:~~2017:

($ in thousands)
					Weighted		Weighted
			Percentage		Average		Average	Weighted	Weighted
			of	Weighted	Maturity		Coupon	Average	Average
		Fair	Entire	Average	in	Longest	Reset in	Lifetime	Periodic
Asset Category		Value	Portfolio	Coupon	Months	Maturity	Months	Cap	Cap
March 31, 2018
Adjustable Rate RMBS	$	1,754	0.0%	3.94%	203	1-Sep-35	3.17	10.05%	2.00%
Fixed Rate RMBS		3,569,133	95.3%	4.27%	327	1-Jan-48	NA	NA	NA
Hybrid Adjustable Rate RMBS		26,482	0.7%	2.59%	298	1-Aug-43	56.76	7.59%	2.00%
Total Mortgage-backed Pass-through		3,597,369	96.0%	4.25%	327	1-Jan-48	NA	NA	NA
Interest-Only Securities		120,199	3.2%	3.82%	281	25-Feb-48	NA	NA	NA
Inverse Interest-Only Securities		28,216	0.8%	3.80%	313	15-Jul-47	NA	5.25%	NA
Total Structured RMBS		148,415	4.0%	3.82%	287	25-Feb-48	NA	NA	NA
Total Mortgage Assets	$	3,745,784	100.0%	4.24%	326	25-Feb-48	NA	NA	NA
December 31, 2017
Adjustable Rate RMBS	$	1,754	0.0%	3.95%	206	1-Sep-35	5.50	10.05%	2.00%
Fixed Rate RMBS		3,594,533	96.0%	4.25%	338	1-Dec-47	NA	NA	NA
Hybrid Adjustable Rate RMBS		27,398	0.8%	2.59%	301	1-Aug-43	59.77	7.59%	2.00%
Total Mortgage-backed Pass-through		3,623,685	96.8%	4.24%	338	1-Dec-47	NA	NA	NA
Interest-Only Securities		86,918	2.3%	3.75%	262	15-Apr-47	NA	NA	NA
Inverse Interest-Only Securities		34,208	0.9%	4.02%	318	15-Jul-47	NA	5.11%	NA
Total Structured RMBS		121,126	3.2%	3.82%	278	15-Jul-47	NA	NA	NA
Total Mortgage Assets	$	3,744,811	100.0%	4.23%	336	1-Dec-47	NA	NA	NA

($ in thousands)
Weighted Weighted
Percentage Average Average Weighted Weighted
of Weighted Maturity Coupon Average Average
Fair Entire Average in Longest Reset in Lifetime Periodic
Asset Category Value Portfolio Coupon Months Maturity Months Cap Cap
September 30, 2017
Adjustable Rate RMBS $ 1,783 0.0% 3.90% 209 1-Sep-35 7.85 10.05% 2.00%
Fixed Rate RMBS 3,740,658 95.2% 4.37% 341 1-Sep-47 NA NA NA
Hybrid Adjustable Rate RMBS 42,201 1.1% 2.55% 304 1-Aug-43 64.07 7.55% 2.00%
Total Mortgage-backed Pass-through 3,784,642 96.3% 4.35% 341 1-Sep-47 NA NA NA
Interest-Only Securities 90,551 2.3% 3.75% 263 15-Apr-47 NA NA NA
Inverse Interest-Only Securities 55,147 1.4% 4.43% 330 15-Jul-47 NA 5.37% NA
Total Structured RMBS 145,698 3.7% 4.00% 288 15-Jul-47 NA NA NA
Total Mortgage Assets $ 3,930,340 100.0% 4.34% 339 1-Sep-47 NA NA NA
December 31, 2016
Adjustable Rate RMBS $ 2,062 0.1% 3.50% 219 1-Sep-35 5.67 10.05% 2.00%
Fixed Rate RMBS 2,826,694 93.5% 4.21% 325 1-Dec-46 NA NA NA
Hybrid Adjustable Rate RMBS 45,459 1.5% 2.55% 313 1-Aug-43 73.08 7.55% 2.00%
Total Mortgage-backed Pass-through 2,874,215 95.1% 4.19% 324 1-Dec-46 NA NA NA
Interest-Only Securities 69,726 2.3% 3.59% 235 25-Apr-45 NA NA NA
Inverse Interest-Only Securities 78,233 2.6% 5.40% 338 25-Dec-46 NA 6.14% NA
Total Structured RMBS 147,959 4.9% 4.55% 290 25-Dec-46 NA NA NA
Total Mortgage Assets $ 3,022,174 100.0% 4.20% 323 25-Dec-46 NA NA NA

($ in thousands)
September 30, 2017 December 31, 2016
Percentage of Percentage of
Agency Fair Value Entire Portfolio Fair Value Entire Portfolio
Fannie Mae $ 2,580,973 65.7 % $ 2,226,893 73.7 %
Freddie Mac 1,342,803 34.2 % 785,496 26.0 %
Ginnie Mae 6,564 0.1 % 9,785 0.3 %
Total Portfolio $ 3,930,340 100.0 % $ 3,022,174 100.0 %

Effective Duration ⁽¹⁾

(1)

Effective duration is the approximate percentage change in price for a 100 bps change in rates. An effective duration of ~~2.603~~3.769 indicates that an interest rate increase of 1.0% would be expected to cause a ~~2.603%~~3.769% decrease in the value of the RMBS in the Company's investment portfolio at ~~September 30, 2017.~~March 31, 2018. An effective duration of ~~4.579~~2.989 indicates that an interest rate increase of 1.0% would be expected to cause a ~~4.579%~~2.989% decrease in the value of the RMBS in the Company's investment portfolio at December 31, ~~2016.~~2017. These figures include the structured securities in the portfolio, but do not include the effect of the Company's funding cost hedges. Effective duration quotes for individual investments are obtained from The Yield Book, Inc.

The following table presents a summary of portfolio assets acquired during the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016.~~including securities purchased during the period that settled after the end of the period.

As of ~~September 30, 2017,~~March 31, 2018, 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 2022 of these counterparties. None of these lenders are affiliated with the Company. These borrowings are secured by the Company's RMBS and cash, and bear interest at ~~the~~ prevailing market rates. We believe our established repurchase agreement borrowing facilities provide borrowing capacity in excess of our needs.

As of ~~September 30, 2017,~~March 31, 2018, we had obligations outstanding under the repurchase agreements of approximately ~~$3,710.1~~$3,619.3 million with a net weighted average borrowing cost of ~~1.37%~~1.86%. The remaining maturity of our outstanding repurchase agreement obligations ranged from 2 to ~~318~~136 days, with a weighted average remaining maturity of 5940 days. Securing the repurchase agreement obligations as of ~~September 30, 2017~~March 31, 2018 are RMBS with an estimated fair value, including accrued interest, of approximately ~~$3,932.6~~$3,818.6 million and a weighted average maturity of ~~340~~328 months, and cash pledged to counterparties of approximately ~~$12.0~~$28.6 million. Through ~~October~~April 27, ~~2017,~~2018, we have been able to maintain our repurchase facilities with comparable terms to those that existed at ~~September 30, 2017~~March 31, 2018 with maturities through August 14, 2018.

The table below presents information about our period end and average repurchase agreement obligations for each quarter in ~~2017~~2018 and ~~2016.~~2017.

Liquidity is our ability to turn non-cash assets into cash, purchase additional investments, repay principal and interest on borrowings, fund overhead, fulfill margin calls and pay dividends. Our principal immediate sources of liquidity include cash balances, unencumbered assets and borrowings under repurchase agreements. Our borrowing capacity will vary over time as the market value of our interest earning assets varies. Our balance sheet also generates liquidity on an on-going basis through payments of principal and interest we receive on our RMBS portfolio. Management believes that we currently have sufficient liquidity and capital resources available for (a) the acquisition of additional investments consistent with the size and nature of our existing RMBS portfolio, (b) the repayments on borrowings and (c) the payment of dividends to the extent required for our continued qualification as a REIT. We may also generate liquidity from time to time by selling our equity or debt securities in public offerings or private placements.

Because our PT RMBS portfolio consists entirely of government and agency securities, we do not anticipate having difficulty converting our assets to cash should our liquidity needs ever exceed our immediately available sources of cash. Our structured RMBS portfolio also consists entirely of governmental agency securities, although they typically do not trade with comparable bid / ask spreads as PT RMBS. However, we anticipate that we would be able to liquidate such securities readily, even in distressed markets, although we would likely do so at prices below where such securities could be sold in a more stable market. To enhance our liquidity even further, we may pledge a portion of our structured RMBS as part of a repurchase agreement funding, but retain the cash in lieu of acquiring additional assets. In this way we can, at a modest cost, retain higher levels of cash on hand and decrease the likelihood we will have to sell assets in a distressed market in order to raise cash.

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

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

Under our repurchase agreement funding arrangements, we are required to post margin at the initiation of the borrowing. The margin posted represents the haircut, which is a percentage of the market value of the collateral pledged. To the extent the market value of the asset collateralizing the financing transaction declines, the market value of our posted margin will be insufficient and we will be required to post additional collateral. Conversely, if the market value of the asset pledged increases in value, we would be over collateralized and we would be entitled to have excess margin returned to us by the counterparty. Our lenders typically value our pledged securities daily to ensure the adequacy of our margin and make margin calls as needed, as do we. Typically, but not always, the parties agree to a minimum threshold amount for margin calls so as to avoid the need for nuisance margin calls on a daily basis. Our master repurchase agreements do not specify the haircut; rather haircuts are determined on an individual repurchase transaction basis. Throughout the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2018, haircuts on our pledged collateral remained stable and as of ~~September 30, 2017,~~March 31, 2018, our weighted average haircut was approximately 5.5% of the value of our collateral.

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

The following table summarizes the effect on our liquidity and cash flows from contractual obligations for repurchase agreements and interest expense on repurchase agreements.

Interest expense on repurchase agreements⁽¹⁾

(1)	Interest expense on repurchase agreements is based on current interest rates as of ~~September 30, 2017~~March 31, 2018 and the remaining term of the liabilities existing at that date.

In future periods, we expect to continue to finance our activities in a manner that is consistent with our current operations through repurchase agreements. As of ~~September 30, 2017,~~March 31, 2018, we had cash and cash equivalents of ~~$161.7~~$127.2 million. We generated cash flows of ~~$350.4~~$117.6 million from principal and interest payments on our RMBS and had average repurchase agreements outstanding of ~~$3,193.7~~$3,576.5 million during the ~~nine~~three months ended ~~September 30, 2017.~~March 31, 2018.

Stockholders' Equity

Interest Rates and the MBS Market

~~In many respects~~The beginning of 2018 was punctuated by two key events that impacted the ~~third~~rates and risk asset markets. The first of these to occur, which took place early in the quarter, was a ~~repeat~~combination of strong economic data – pointing to a potential outbreak to the upside in inflation – coupled with strong rhetoric from various Federal Reserve ("Fed") officials hinting at rate hikes in line with prior guidance. The significance of these statements lies in the degree to which the market had ignored these projections until now. Market pricing in the Fed funds futures markets implied a path of rate hikes well below those of the ~~first and second. Economic and market developments continued the trend in place since March. Inflation data continued~~Fed. Adding to ~~come in below market expectations. Optimism stemming from the surprise outcome of the U.S. Presidential election last November and~~ the markets' ~~expectations for progress~~concern with the emerging inflation data was the federal government's passage of a budget deal during the quarter that is expected to increase deficit spending by approximately $300 billion over the next two years. This is in addition to the Tax Cuts and Jobs Act passed in late 2017 that is projected to add $1.5 trillion to the deficit over the next ten years – or approximately $150 billion per year on ~~health care, regulatory and tax reform, infrastructure spending, etc.~~average. Finally, in early February, the January non-farm payroll report indicated average hourly earnings were ~~not realized. In contrast, events in Washington were chaotic~~starting to accelerate at ~~times as the Trump Administration struggled with~~close to a Republican party rife with internal struggles and political infighting inside the White House itself. Efforts to repeal and replace the Affordable Care Act seemed to come to an end and the continued in-fighting among Republicans called into question the ability of the Trump Administration to accomplish anything meaningful. The Federal Reserve (the "Fed") raised their target for the Federal Funds rate in March and June, and announced a tapering of their asset purchases in September. However, the market remained skeptical the Fed would be able to follow through with as many additional hikes as the Fed was expecting as core inflation readings continued to show3% year over year ~~declines~~rate. In response, ~~with many of~~ the ~~elements of the index exhibiting persistent weakness. Geopolitical events – particularly with respect to North Korea – keep the world and markets on edge. The~~ yield on the 10-year USU.S. treasury note moved from just over 2.4% at year-end 2017 to nearly 3% by mid-February – its highest level since early 2017.

These developments had many ramifications. Market volatility, benign for the latter half of 2017, spiked. This was the case for both interest rate volatility and equity market volatility. The U.S. treasury curve steepened as long rates moved higher. All of this occurred as the federal government was about to run progressively higher deficits over the next several years, which would necessitate higher borrowing needs and U.S. treasury issuances. Exacerbating this development was the Fed simultaneously reducing asset purchases – a process put in place in October 2017 – and dissipating a major source of demand for U.S. treasuries.

The U.S. Treasury ~~rate hit its year~~responded to ~~date low~~the need for higher borrowing needs by increasing U.S. treasury bill issuances. This put immediate pressure on ~~September 7,~~funding levels such as LIBOR – still the primary benchmark for short-term funding instruments. Another source of upward pressure on LIBOR was the repatriation of corporate cash balances - triggered by the tax legislation passed late in 2017 ~~closing at 2.04%~~, ~~and nearly broke below~~- that reduced the ~~psychologically important 2% level intra-day. Mother nature had a hand~~supply of funds available to borrowers in ~~shaping~~the short-term funding markets such as prime money market funds.

The developments in the rates market impacted the equity markets ~~as well, as three major hurricanes made landfall – one each~~and triggered sporadic sell-offs and increased volatility. For a while the rate and equity markets became highly, negatively correlated. As rates would move higher, the equity market would drop in ~~Texas, Florida and Puerto Rico. In~~response to the ~~case~~prospect of ~~Texas, Hurricane Harvey caused unprecedented flooding and disrupted~~higher funding markets for corporations. When the ~~Nation's oil refining capacity~~equity market moved lower, the rates market would respond with a risk off/flight to quality rally, which in turn would allow the equity market to stabilize. This condition persisted for several ~~days.~~weeks mid-quarter.

~~However, there was a perceptible~~This all started to change ~~in market sentiment in early September~~when the Trump administration announced potential tariffs on aluminum and steel imports to the U,.S. This announcement drew immediate responses and counter-threats by trading partners across the globe – Mexico, Canada, the E.U. and China. This was also followed by additional threats of tariffs on other goods, with the ~~market reversed course into~~same counter-threats following shortly thereafter. This caused the equity markets to move lower and interest rates to rally to lower yields. By early April, the yield on the 10-year U.S. treasury note had moved form 2.951% on February 21, 2018 to less than 2.75%. The threat of a global trade war was viewed as a threat to the economic expansion underway. Fed public pronouncements noted the potential negative impact on their growth outlook. Since the end of the ~~third~~first quarter ~~and early fourth quarter. Geo-political events calmed down, removing the flight-to-quality induced demand for safe-haven assets~~, these tensions appear to have diminished meaningfully, and the equity market has stabilized.

As trade war fears ebbed and the economic ~~news strengthened. Events~~data releases remained strong, the Fed felt comfortable raising rates again at their March meeting and appear to be intent on raising rates three times in ~~Washington turned mildly positive as the Trump Administration pivoted away from health care reform to tax reform~~, ~~with what~~2018, even though the market perceived to be slightly better prospects for success. Inflation data finally met expectations and showed signs of reversing its decline when the August data was released on September 14th. Finally, on September 20th, Fed Chairwomen Yellen sounded quite hawkish and reiterated her belief that recent inflation data represented temporary or transitory effects and would reverse soon enough back towards their 2% target. It was quite clear the Fed intended to raise the Federal Funds rate again in December. The market responded as Fed Funds futures pricing impliedis only expecting two, with a ~~70-80%~~modest probability of a ~~25 basis point increase~~third. This was still enough impetus for the curve steepening that occurred into mid-February to reverse dramatically, and the curve has flattened to new multi-year lows in April. LIBOR and other short-term rates remain elevated, and the 10-year U.S. treasury rate, having reversed direction in early April, surpassed the February 21, 2018 high and moved closer to 3%.

With the exception of equities, risk assets had a poor performance in the ~~Federal Funds~~first quarter of 2018. The 30-year, fixed rate current coupon mortgage, which had traded at the tightest level to the 10-year U.S. treasury note in ~~December. The September economic data released~~many years in early ~~October has also been very~~January, traded at a spread of nearly 0.74% above the U.S. treasury note – versus approximately 0.56% on January 3, 2018. Whereas mortgages benefitted from the strong, ~~and the anticipated short-term effects~~ performance of ~~the hurricanes appears to have been less than feared. Further, the repair work associated with the hurricanes should put even more upward pressure on economic activity.~~

~~As we move into~~other risk assets in the fourth quarter ~~market pricing~~ of ~~additional policy accommodation removal is far less than~~2017 (investment and sub-investment grade corporates, non-agency mortgages and other structured products), the exact opposite was true during the first quarter of 2018. During the fourth quarter of 2017, mortgages appeared slightly cheap to these other risk assets, and thus appealing on a relative value basis. In the first quarter of 2018, these other assets cheapened, and mortgages appeared relatively expensive on a relative value basis. Buyers disappeared and mortgages performed poorly. Since the start of the second quarter this trend has reversed to some extent and mortgages have outperformed comparable duration treasuries and the 10-year U.S. treasury note. The higher rates have significantly reduced both prepayment activity and expectations for prepayment activity in the future. Yield oriented fixed income investors generally see mortgages as attractive investments and have begun buying again, although only when rates appear to have stabilized. With rates higher, the supply of new mortgages has decreased and the feared impact of reduced purchases by the Fed ~~anticipates. The latest reads on inflation returned to its aforementioned string~~has become less of ~~below expectations readings. The perceived lack of meaningful inflation, coupled with~~ a ~~hawkish fed, has caused~~concern for mortgage investors. Going forward, the U.S. Treasury curve to flatten, as the spread between 5-year Treasury Notes and 30-year Treasury Bonds is at multi-year lows. The market is also faced with uncertainty surrounding President Trump's appointmentcontinued flattening of the ~~next Fed chair, with many of the leading candidates perceived to be more hawkish~~yield curve and additional rate hikes by the ~~markets than~~Fed will act as a meaningful headwind to the current chairwoman, even though she remains a candidate herself. Regardless of the uncertainty in the bond market, the equity markets, and risk markets generally, continue to hit all-time high closes almost daily, ~~and the combination of robust economic data, low inflation and the prospects for tax reform make for an ideal environment for risk assets.~~mortgage asset class as returns available will likely deteriorate.

The mortgage market closed the quarter with the current coupon, 30-year fixed rate Agency RMBS trading at the tightest spread to comparable duration U.S. Treasuries since early 2014. As has been the case for much of the year, lower coupon RMBS outperformed high coupon RMBS versus their comparable duration U.S. Treasury benchmarks. As we approach the winter months and the seasonal slowdown in prepayment activity, coupled with the increase in rates that began in early September, speeds should continue to moderate.

Recent Regulatory Developments

On January 12, 2016, the FHFA issued RIN 2590-AA39, Members of Federal Home Loan Banks (the "Final Rule"). The Final Rule, among other things, expressly excludes captive insurance companies, such as our wholly-owned captive insurance subsidiary, Orchid Island Casualty, LLC ("Orchid Island Casualty"), from being eligible for membership in the Federal Home Loan Bank ("FHLB") system. Under the Final Rule, there was a one-year transition period from the effective date of February 19, 2016 within which the FHLBs were required to wind down their relationships with any captive insurance companies that had been admitted to membership on or after September 12, 2014, including Orchid Island Casualty ("Post-NPR Captives"). The Final Rule also precludes the FHLBs from making any new advances or extending existing advances to Post-NPR Captives. In addition, upon the termination of membership, the FHLBs were required to liquidate all outstanding advances to Post-NPR Captives, settle all other business transactions, and repurchase or redeem all FHLB stock held by the terminated Post-NPR Captive in accordance with the Final Rule. Therefore, Orchid Island Casualty, along with all other Post-NPR Captives, was required to completely wind down all business relationships with the ~~FHLBC,~~FHLB, including the repayment of all outstanding advances, prior to or simultaneously with the termination of Orchid Island Casualty's membership with the ~~FHLBC.~~FHLB.

The adopting release for the Final Rule expressly invited Congress to address the treatment of Post-NPR Captives with respect to membership in the FHLB. In October 2015, Reps. Blaine Luetkemeyer (R-Mo.), Denny Heck (D-Wash.), Patrick McHenry (R-N.C.) and John Carney (D-Del.) introduced H.R. 3808, a bill that would have preemptively prevented the FHFA from adopting the Final Rule in such a way that would foreclose membership in the FHLB to captive insurance companies. There can be no way of predicting if any subsequent legislation addressing the status of Post-NPR Captives with respect to the FHLB will be proposed in either house of Congress, the likelihood of passage of any such legislation, and the ultimate effects, if any, on the availability of short-term, low-cost funding provided by the FHLBs to Post-NPR Captives subsequent to the enactment of any such legislation.

The scope and nature of the actions the U.S. government or the Fed will ultimately undertake are unknown and will continue to evolve. Although the Trump administration has made statements of its intentions to reform housing finance and tax policy, many of these potential policy changes will require congressional action. In addition, the Fed has made statements regarding additional increases to the Federal Funds Rate ~~over~~in 2018 and beyond.

In June 2017, the ~~balance of 2017 and beyond. The Fed also~~FOMC announced that it would implement a balance sheet normalization policy by gradually decreasing the Fed's reinvestment of U.S. Treasuries and Agency RMBS. More specifically, principal payments received by the Fed will ~~begin~~be reinvested only to ~~reduce~~the extent they exceed gradually rising caps until the FOMC determines that the Fed is holding no more securities than necessary to implement monetary policy efficiently and effectively. In October 2017, the FOMC commenced this balance sheet normalization program. During the January 2018 meeting, the FOMC reaffirmed this plan.

On January 30, 2018, legislation was introduced in the United States Senate that would permit captive insurance companies that were FHLB members prior to January 19, 2016 to restore or continue their membership in the FHLB. In June 2017, legislation was introduced in the United States House of Representatives that would permit a captive insurance company that was admitted to the FHLB prior to September 12, 2014 to continue its ~~holdings~~membership in the FHLB. The Company joined the FHLBC after September 12, 2014, so the House version of ~~Agency MBS~~the legislation would not permit the Company to rejoin the FHLBC. It is still uncertain whether legislation on FHLB membership will be adopted, and ~~U.S. treasuries.~~if so, whether it would permit us to rejoin the FHLB.

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

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

If prepayment levels increase, the value of our Agency RMBS affected by such prepayments may decline. This is because a principal prepayment accelerates the effective term of an Agency RMBS, which would shorten the period during which an investor would receive above-market returns (assuming the yield on the prepaid asset is higher than market yields). Also, prepayment proceeds may not be able to be reinvested in similar-yielding assets. Agency RMBS backed by mortgages with high interest rates are more susceptible to prepayment risk because holders of those mortgages are most likely to refinance to a lower rate. IOs and IIOs, however, may be the types of Agency RMBS most sensitive to increased prepayment rates. Because the holder of an IO or IIO receives no principal payments, the values of IOs and IIOs are entirely dependent on the existence of a principal balance on the underlying mortgages. If the principal balance is eliminated due to prepayment, IOs and IIOs essentially become worthless. Although increased prepayment rates can negatively affect the value of our IOs and IIOs, they have the opposite effect on POs. Because POs act like zero-coupon bonds, meaning they are purchased at a discount to their par value and have an effective interest rate based on the discount and the term of the underlying loan, an increase in prepayment rates would reduce the effective term of our POs and accelerate the yields earned on those assets, which would increase our net income.

Higher long-term rates can also affect the value of our Agency RMBS. As long-term rates rise, rates available to borrowers also rise. This tends to cause prepayment activity to slow and extend the expected average life of mortgage cash flows. As the expected average life of the mortgage cash flows increases, coupled with higher discount rates, the value of Agency RMBS declines. Some of the instruments the Company uses to hedge our Agency RMBS assets, such as Euro Dollar futures, swaps, interest rate futures and swaptions, are stable average life instruments. This means that to the extent we use such instruments to hedge our Agency RMBS assets, our hedges may not adequately protect us from price declines, and therefore may negatively impact our book value. It is for this reason we use interest only securities in our portfolio. As interest rates rise, the expected average life of these securities increases, causing generally positive price movements as the number and size of the cash flows increase the longer the underlying mortgages remain outstanding. This makes interest only securities desirable hedge instruments for pass-through Agency RMBS.

As the economy has rebounded from the financial crisis, the Fed has taken steps to remove the considerable accommodation that was employed to combat the crisis. At the conclusion of its meeting in September 2017, the Fed announced it would implement caps on the amount of Agency RMBS assets it would allow to run off, or not be re-invested, starting in October 2017. Previously the Fed would re-invest all of the principal repayments it received each month on the Agency RMBS assets it had acquired during its quantitative easing programs. By capping the amount they would allow to run off each month, the Fed was effectively limiting the amount it would re-invest. Per the Fed's September 2017 announcement, the cap would eventually reach $20 billion per month by the end of 2018. At the time of the Fed's announcement, its monthly re-investments were approximately $20 billion per month as well, so this implied the Fed would stop, or nearly stop, re-investing its monthly pay-downs by the end of 2018. The purchases each month by the Fed have been a significant source of demand in the Agency RMBS market and as it is reduced slowly over the course of 2018 and essentially eliminated beyond 2018, the removal of this source of demand could negatively impact Agency RMBS prices. The extent this negatively impacts the Agency RMBS market will be a function of the level of supply each month – as the supply/demand balance affects the price of any asset – and whether or not another source of demand emerges to replace the Fed.

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

If Fannie Mae and Freddie Mac were to modify or end their repurchase programs, our investment portfolio could be negatively impacted.

We leverage our PT RMBS portfolio and a portion of our structured Agency RMBS with principal balances through the use of short-term repurchase agreement transactions. The interest rates on our debt are determined by market levels of both the ~~Fed~~Federal Funds Rate and LIBOR. An increase in the ~~Fed~~Federal Funds Rate or LIBOR would increase our borrowing costs, which could affect our interest rate spread if there is no corresponding increase in the interest we earn on our assets. This would be most prevalent with respect to our Agency RMBS backed by fixed rate mortgage loans because the interest rate on a fixed-rate mortgage loan does not change even though market rates may change.

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

Summary

~~As we entered~~The market environment changed in the first quarter of 2018. Starting in January, the specter of inflation may have finally appeared, and the rates market reacted forcefully. Evidence of pricing pressures in the economic data and federal legislation that will add materially to the budget deficit over the next few years caught the market by surprise and interest rates rose quickly over the first six weeks of the quarter. The 10-year U.S. treasury came within a few basis points of 3% for the first time since early 2014. The U.S. treasury curve steepened and market participants reconsidered their expectations for future rate hikes by the Fed. For their part, Fed officials were very consistent in support of continued gradual rate hikes. While last Labor Day the 10-year U.S. treasury was close to 2%, and the market was only expecting one more rate hike by the end of 2018, the outlook was much different in February 2018. As reflected in Fed funds futures, the market expects two more rate hikes in 2018, in addition to the hike in March. Funding pressures in the short-term funding markets emerged and LIBOR, the primary floating rate index, moved from less than 1.70% (3-month LIBOR) at the end of 2017 ~~risk assets were performing very well~~to approximately 2.31% by March 31, 2018.

The sell-off in the rates market reversed in late February/early March as the Trump administration ~~took office~~initially announced potential tariffs on imported steel and ~~appeared to be very pro-business.~~aluminum. This was followed in short order by counter-threats from essentially all U.S. trading partners and, in turn, more threats from the administration. The latter were met with even more counter-threats. The prospect of a meaningful trade war spooked the markets ~~looked forward to~~and equities sold off as interest rates rallied. These fears diminished meaningfully in April and the markets have stabilized. With these fears reduced, coupled with a roll back of recently expanding regulations across many industries, a new and hopefully improved health care act, tax reform and possibly much needed infrastructure spending to refurbish the nation's aging roads, highways, bridges and airports. While the Administration made bold promises, there has been very little delivered. Market optimismbrief flair up in Syria that was quickly replaced with pessimism. Political infighting among the Administration and congressional republicans has generally been the cause, as has turmoil within the White House itself. Geopolitical events surfaced in early April, specifically the Korean peninsula. These events keptshort lived, the market has once again focused on ~~edge~~the economic data. The data remains generally very strong and ~~induced sporadic flight to quality rallies as headlines hit~~public pronouncements by Fed officials support market expectations of at least two more rate hikes in 2018. Equity markets have recovered and with early first quarter earnings announcements coming in quite strong, fear has left the market. Volatility – both in the equity market ~~from time to time. Incoming inflation data~~and rates market – spiked mid-quarter, but has since ~~March was below expectations. In~~come back down, and in a substantial way in the case of the ~~core Consumer Price Index, ("CPI") measure,~~rates market.

The mortgage market suffered throughout the ~~year over year figure moved from 2.3%~~quarter and most agency mortgages performed far worse than comparable duration U.S. treasuries. While the fourth quarter of 2017 was a great quarter for agency MBS, as other risk assets appeared quite rich on a relative basis and mortgages benefitted, this trend reversed in ~~January 2017 to 1.7%~~the first quarter of 2018. Going forward, prepayment fears are very benign and the resulting drop-off in the supply of new mortgages should help off-set reduced purchases by ~~May and has stayed there through September. Despite these readings,~~ the Federal Reserve remains convinced these readings are being driven by temporary or transitory phenomenon and that inflation will reverse and head back towards their two percent target over the medium term. To wit, the Fed appearsFed. However, as if they will hike their target rate again at the December meeting baring surprise outcomes to the downside. The market accepts this outcome as highly likely – as reflected in Fed Funds futures pricing. However, using the same measure, the market does not expect the Fed to raise rates in 2018 and beyond to the extent the Fed expects to. As a result, the combination of benign inflation readings currently coupled with hawkish Fed expectation has caused the yield curve continues to flatten, ~~significantly – to multi-year lows. A second order effect of these developments has occurred~~driven by progressively higher funding rates for levered mortgage investors, returns in the ~~equity and risk markets as they continue to perform exceedingly well. The major equity indices in the US make record new highs almost daily.~~

~~The RMBS~~mortgage market has performed well in this environment as the resulting low volatility, tight trading spreads across most comparable asset classes and with demand from asset managers and REIT's easily replacing the lost demand expected from the Fed's tapering of their asset purchases. Current coupon, 30-year fixed rate mortgage are ~~trading at their tightest spread to comparable duration treasuries since early 2014. If these conditions persist we do not believe that the market will be~~ likely to suffer a material widening of spreads to comparable duration U.S. treasuries, even as the Fed has started to trim their asset purchases. The risk to this outcome appears to be inflation exceeding market expectations which should allow the Fed to carry out their professed intentions to raise rates three times in 2018 and more so in the years after. This would also put upward pressure on volatility and longer-term rates, both negatively impacting MBS performance.remain weak.

Our condensed 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. There have been no changes to our critical accounting policies as discussed in our annual report on Form 10-K for the year ended December 31, ~~2016.~~2017.

At ~~September 30, 2017,~~March 31, 2018, we had no material commitments for capital expenditures.

Off-Balance Sheet Arrangements

At ~~September 30, 2017,~~March 31, 2018, we did not have any off-balance sheet arrangements.

In addition to other requirements that must be satisfied to qualify as a REIT, we must pay annual dividends to our stockholders of at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gains. REIT taxable income (loss) is computed in accordance with the Code, and can be greater than or less than our financial statement net income (loss) computed in accordance with GAAP. These book to tax differences primarily relate to the recognition of interest income on RMBS, unrealized gains and losses on RMBS, and the amortization of losses on derivative instruments that are treated as funding hedges for tax purposes.

We intend to pay regular monthly dividends to our stockholders and have declared the following dividends since the completion of our IPO.

(1)

On ~~October~~April 11, ~~2017,~~2018, the Company declared a dividend of ~~$0.14~~$0.09 per share to be paid on ~~November~~May 10, ~~2017.~~2018. The effect of this dividend is included in the table above but is not reflected in the Company's financial statements as of ~~September 30, 2017.~~March 31, 2018.

Virtually all of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors influence our performance far more so than does inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. Our consolidated financial statements are prepared in accordance with GAAP and our distributions will be determined by our Board of Directors consistent with our obligation to distribute to our stockholders at least 90% of our REIT taxable income on an annual basis in order to maintain our REIT qualification; in each case, our activities and balance sheet are measured with reference to historical cost and/or fair market value without considering inflation.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	☐
		Emerging growth company	☒

(in thousands)
	March 31, 2018									December 31, 2017
	Repurchase			Derivative						Repurchase			Derivative
Assets Pledged to Counterparties	Agreements			Agreements			Total			Agreements			Agreements			Total
PT RMBS - fair value		$	3,529,357		$	-		$	3,529,357		$	3,612,244		$	-		$	3,612,244
Structured RMBS - fair value			114,361			-			114,361			100,317			-			100,317
Accrued interest on pledged securities			14,568			-			14,568			13,962			-			13,962
Receivable for securities sold			160,304			-			160,304			-			-			-
Restricted cash			28,565			8,272			36,837			25,296			7,053			32,349
Total		$	3,847,155		$	8,272		$	3,855,427		$	3,751,819		$	7,053		$	3,758,872

($ in thousands, except per share amounts)	($ in thousands, except per share amounts)							($ in thousands, except per share amounts)
		Weighted												Weighted
		Average												Average
		Price												Price
		Received				Net			Book Value Per Share					Received				Net
Type of Offering	Period	Per Share⁽¹⁾		Shares		Proceeds⁽²⁾		Period		Beginning		Ending		Per Share⁽¹⁾		Shares		Proceeds⁽²⁾
2017
At the Market Offering Program⁽³⁾	First Quarter	$	10.13		1,286,196	$	12,792	First Quarter		$	10.10	$	9.75	$	10.13		1,286,196	$	12,792
At the Market Offering Program⁽³⁾	Second Quarter		10.17		11,012,836		110,065	Second Quarter			9.75		9.23		10.17		11,012,836		110,065
					12,299,032	$	122,857
2016
At the Market Offering Program⁽³⁾	Second Quarter	$	10.48		646,753	$	6,591
At the Market Offering Program⁽³⁾	Third Quarter		10.80		3,818,802		40,525
At the Market Offering Program⁽³⁾	Fourth Quarter		10.79		6,707,101		71,212	Fourth Quarter			9.15		8.71		9.81		7,746,052		74,750
					11,172,656	$	118,328										20,045,084	$	197,607

(in thousands, except per share amounts)	(in thousands, except per share amounts)					(in thousands, except per share amounts)
Year		Per Share Amount		Total			Per Share Amount		Total
2013		$	1.395	$	4,662		$	1.395	$	4,662
2014			2.160		22,643			2.160		22,643
2015			1.920		38,748			1.920		38,748
2016			1.680		41,388			1.680		41,388
2017 - YTD⁽¹⁾			1.400		56,027
2017								1.680		70,717
2018 - YTD⁽¹⁾								0.400		21,249
Totals		$	8.555	$	163,468		$	9.235	$	199,407

($ in thousands)
		Average RMBS Held						Interest Income						Realized Yield on Average RMBS									Average RMBS Held						Interest Income						Realized Yield on Average RMBS
		PT		Structured				PT		Structured				PT			Structured						PT		Structured				PT		Structured				PT			Structured
		RMBS		RMBS		Total		RMBS		RMBS		Total		RMBS			RMBS			Total
Three Months Ended	Three Months Ended																						RMBS		RMBS		Total		RMBS		RMBS		Total		RMBS			RMBS			Total
March 31, 2018																							$	3,610,527	$	134,771	$	3,745,298	$	38,725	$	1,210	$	39,935		4.29	%		3.59	%		4.27	%
December 31, 2017																								3,704,163		133,412		3,837,575		38,927		1,171		40,098		4.20	%		3.51	%		4.18	%
September 30, 2017		$	3,687,533	$	146,550	$	3,834,083	$	38,476	$	498	$	38,974		4.17	%		1.36	%		4.07	%		3,687,533		146,550		3,834,083		38,476		498		38,974		4.17	%		1.36	%		4.07	%
June 30, 2017			3,349,042		150,880		3,499,922		32,479		2,100		34,579		3.88	%		5.57	%		3.95	%		3,349,042		150,880		3,499,922		32,479		2,100		34,579		3.88	%		5.57	%		3.95	%
March 31, 2017			2,990,937		151,158		3,142,095		29,772		2,539		32,311		3.98	%		6.72	%		4.11	%		2,990,937		151,158		3,142,095		29,772		2,539		32,311		3.98	%		6.72	%		4.11	%
December 31, 2016			2,628,967		132,869		2,761,836		23,647		1,421		25,068		3.60	%		4.28	%		3.63	%
September 30, 2016			2,257,480		104,897		2,362,377		21,898		460		22,358		3.88	%		1.75	%		3.79	%
June 30, 2016			2,006,392		93,759		2,100,151		19,072		163		19,235		3.80	%		0.70	%		3.66	%
March 31, 2016			1,968,690		98,837		2,067,527		19,682		784		20,466		4.00	%		3.17	%		3.96	%
Nine Months Ended
September 30, 2017		$	3,342,504	$	149,529	$	3,492,033	$	100,727	$	5,137	$	105,864		4.02	%		4.58	%		4.04	%
September 30, 2016			2,077,521		99,164		2,176,685		60,652		1,407		62,059		3.89	%		1.89	%		3.80	%

Maryland		27-3269228
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

(in thousands)
	Nine Months Ended September 30,						Three Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2018			2017
Eurodollar futures contracts (short positions)	$	(6,955	)	$	(17,507	)	$	607		$	1,194		$	14,541		$	(571	)
T-Note futures contracts (short position)		(16,190	)		(12,288	)		(6,450	)		1,688			6,821			(3,851	)
Interest rate swaps		(3,170	)		(450	)		1,005			4,179			10,508			3
Receiver swaptions		-			36			-			-			(349	)		-
Payer swaptions		827			-			827			-			2,066			-
Net TBA securities		(3,843	)		(2,385	)		(1,459	)		(474	)		8,407			-
Total	$	(29,331	)	$	(32,594	)	$	(5,470	)	$	6,587		$	41,994		$	(4,419	)

(in thousands)
Offsetting of Assets
							Net Amount			Gross Amount Not Offset in the
							of Assets			Consolidated Balance Sheet
				Gross Amount			Presented			Financial
	Gross Amount			Offset in the			in the			Instruments			Cash
	of Recognized			Consolidated			Consolidated			Received as			Received as				Net
	Assets			Balance Sheet			Balance Sheet			Collateral			Collateral				Amount
March 31, 2018
Interest rate swaps		$	25,107		$	-		$	25,107		$	-		$	-			$	25,107
Interest rate swaptions			11,056			-			11,056			-			(7,169	)			3,887
TBA securities			16			-			16			-			-				16
		$	36,179		$	-		$	36,179		$	-		$	(7,169	)		$	29,010
December 31, 2017
Interest rate swaps		$	13,745		$	-		$	13,745		$	-		$	-			$	13,745
Interest rate swaptions			3,405			-			3,405			-			(3,405	)			-
TBA securities			10			-			10			-			(10	)			-
		$	17,160		$	-		$	17,160		$	-		$	(3,415	)		$	13,745

(in thousands)
Offsetting of Liabilities	Offsetting of Liabilities																				Offsetting of Liabilities
							Net Amount			Gross Amount Not Offset in the																	Net Amount			Gross Amount Not Offset in the
							of Assets			Consolidated Balance Sheet																	of Assets			Consolidated Balance Sheet
				Gross Amount			Presented			Financial														Gross Amount			Presented			Financial
	Gross Amount			Offset in the			in the			Instruments											Gross Amount			Offset in the			in the			Instruments
	of Recognized			Consolidated			Consolidated			Posted as				Cash Posted				Net			of Recognized			Consolidated			Consolidated			Posted as				Cash Posted				Net
	Liabilities			Balance Sheet			Balance Sheet			Collateral				Collateral				Amount			Liabilities			Balance Sheet			Balance Sheet			Collateral				Collateral				Amount
September 30, 2017
March 31, 2018
Repurchase Agreements		$	3,710,077		$	-		$	3,710,077		$	(3,698,078	)		$	(11,999	)		$	-		$	3,619,280		$	-		$	3,619,280		$	(3,590,715	)		$	(28,565	)		$	-
Interest rate swaps			2,591			-			2,591			-				(1,437	)			1,154
TBA securities																							2,582			-			2,582			-				(2,582	)			-
		$	3,712,668		$	-		$	3,712,668		$	(3,698,078	)		$	(13,436	)		$	1,154		$	3,621,862		$	-		$	3,621,862		$	(3,590,715	)		$	(31,147	)		$	-
December 31, 2016
December 31, 2017
Repurchase Agreements		$	2,793,705		$	-		$	2,793,705		$	(2,782,870	)		$	(10,835	)		$	-		$	3,533,786		$	-		$	3,533,786		$	(3,508,490	)		$	(25,296	)		$	-
Interest rate swaps			802			-			802			-				(802	)			-			215			-			215			-				-				215
TBA securities			1,180			-			1,180			-				(848	)			332			1,823			-			1,823			-				(1,508	)			315
		$	2,795,687		$	-		$	2,795,687		$	(2,782,870	)		$	(12,485	)		$	332		$	3,535,824		$	-		$	3,535,824		$	(3,508,490	)		$	(26,804	)		$	530

($ in thousands, except per share data)
	Nine Months Ended September, 30,										Three Months Ended March 31,
	2017					2016					2018					2017
				Weighted					Weighted					Weighted					Weighted
				Average					Average					Average					Average
				Grant Date					Grant Date					Grant Date					Grant Date
	Shares			Fair Value		Shares			Fair Value		Shares			Fair Value		Shares			Fair Value
Unvested, beginning of period		45,305		$	10.33		7,508		$	13.32		41,693		$	9.95		45,305		$	10.33
Granted		15,707			9.55		41,500			10.00		-			-		15,707			9.55
Forfeited		-			-		(100	)		10.00
Vested and issued		(14,490	)		10.52		(2,252	)		13.32		(6,406	)		10.28		(4,830	)		10.52
Unvested, end of period		46,522		$	10.01		46,656		$	10.37		35,287		$	9.89		56,182		$	10.10

Compensation expense during period				$	188				$	148				$	45				$	62
Unrecognized compensation expense, end of period				$	217				$	320				$	121				$	344
Intrinsic value, end of period				$	474				$	486				$	260				$	561
Weighted-average remaining vesting term (in years)					1.2					1.6					0.9					1.5

(in thousands)
				Quoted Prices										Quoted Prices
				in Active		Significant								in Active		Significant
				Markets for		Other			Significant					Markets for		Other			Significant
				Identical		Observable			Unobservable					Identical		Observable			Unobservable
	Fair Value			Assets		Inputs			Inputs		Fair Value			Assets		Inputs			Inputs
	Measurements			(Level 1)		(Level 2)			(Level 3)		Measurements			(Level 1)		(Level 2)			(Level 3)
September 30, 2017
March 31, 2018
Mortgage-backed securities	$	3,930,340		$	-	$	3,930,340		$	-	$	3,745,784		$	-	$	3,745,784		$	-
Interest rate swaps		8,102			-		8,102			-		25,107			-		25,107			-
Interest rate swaptions		3,194			-		3,194			-		11,056			-		11,056			-
TBA securities		2,984			-		2,984			-		(2,566	)		-		(2,566	)		-
December 31, 2016
December 31, 2017
Mortgage-backed securities	$	3,022,174		$	-	$	3,022,174		$	-	$	3,744,811		$	-	$	3,744,811		$	-
Interest rate swaps		9,500			-		9,500			-		13,530			-		13,530			-
Interest rate swaptions												3,405			-		3,405			-
TBA securities		(1,117	)		-		(1,117	)		-		(1,813	)		-		(1,813	)		-

Gains (Losses) on Derivative Instruments
(in thousands)
							Funding Hedges
	Recognized in						Attributed to			Attributed to
	Income			TBA			Current			Future
	Statement			Securities			Period			Periods
	(GAAP)			Income (Loss)			(Non-GAAP)			(Non-GAAP)
Three Months Ended
March 31, 2018	$	41,994		$	8,407		$	(3,011	)	$	36,598
December 31, 2017		13,982			(2,094	)		(3,763	)	$	19,839
September 30, 2017		(5,470	)		(1,459	)		(3,761	)	$	(250	)
June 30, 2017		(19,442	)		(2,384	)		(3,654	)	$	(13,404	)
March 31, 2017		(4,419	)		-			(3,193	)	$	(1,226	)

Economic Interest Expense and Economic Net Interest Income
(in thousands)
			Interest Expense on Borrowings
					Gains
					(Losses) on
					Derivative
					Instruments					Net Interest Income
			GAAP		Attributed			Economic		GAAP		Economic
	Interest		Interest		to Current			Interest		Net Interest		Net Interest
	Income		Expense		Period⁽¹⁾			Expense⁽²⁾		Income		Income⁽³⁾
Three Months Ended
March 31, 2018	$	39,935	$	15,149	$	(3,011	)	$	18,160	$	24,786	$	21,775
December 31, 2017		40,098		13,554		(3,763	)		17,317		26,544		22,781
September 30, 2017		38,974		12,638		(3,761	)		16,399		26,336		22,575
June 30, 2017		34,579		8,763		(3,654	)		12,417		25,816		22,162
March 31, 2017		32,311		6,715		(3,193	)		9,908		25,596		22,403

($ in thousands)
		Average				Yield on					Interest Expense				Average Cost of Funds							Average				Yield on					Interest Expense				Average Cost of Funds
		RMBS		Interest		Average			Average		GAAP		Economic		GAAP			Economic				RMBS		Interest		Average			Average		GAAP		Economic		GAAP			Economic
		Held⁽¹⁾		Income		RMBS			Borrowings⁽¹⁾		Basis		Basis⁽²⁾		Basis			Basis⁽³⁾				Held⁽¹⁾		Income		RMBS			Borrowings⁽¹⁾		Basis		Basis⁽²⁾		Basis			Basis⁽³⁾
Three Months Ended	Three Months Ended																				Three Months Ended
March 31, 2018																						$	3,745,298	$	39,935		4.27	%	$	3,576,533	$	15,149	$	18,160		1.69	%		2.03	%
December 31, 2017																							3,837,575		40,098		4.18	%		3,621,931		13,554		17,317		1.50	%		1.91	%
September 30, 2017		$	3,834,083	$	38,974		4.07	%	$	3,494,266	$	12,638	$	16,392		1.45	%		1.88	%			3,834,083		38,974		4.07	%		3,494,266		12,638		16,399		1.45	%		1.88	%
June 30, 2017			3,499,922		34,579		3.95	%		3,164,532		8,763		12,417		1.11	%		1.57	%			3,499,922		34,579		3.95	%		3,164,532		8,763		12,417		1.11	%		1.57	%
March 31, 2017			3,142,095		32,311		4.11	%		2,922,157		6,715		9,908		0.92	%		1.36	%			3,142,095		32,311		4.11	%		2,922,157		6,715		9,908		0.92	%		1.36	%
December 31, 2016			2,761,836		25,068		3.63	%		2,545,901		4,974		7,943		0.78	%		1.25	%
September 30, 2016			2,362,377		22,358		3.79	%		2,179,462		3,979		6,639		0.73	%		1.22	%
June 30, 2016			2,100,151		19,235		3.66	%		2,000,158		3,330		5,540		0.67	%		1.11	%
March 31, 2016			2,067,527		20,466		3.96	%		1,962,901		3,319		5,252		0.68	%		1.07	%
Nine Months Ended
September 30, 2017		$	3,492,033	$	105,864		4.04	%	$	3,193,652	$	28,116	$	38,717		1.17	%		1.62	%
September 30, 2016			2,176,685		62,059		3.80	%		2,047,507		10,629		17,431		0.69	%		1.14	%

($ in thousands)
		Net Interest Income				Net Interest Spread							Net Interest Income				Net Interest Spread
		GAAP		Economic		GAAP			Economic				GAAP		Economic		GAAP			Economic
		Basis		Basis⁽²⁾		Basis			Basis⁽⁴⁾				Basis		Basis⁽²⁾		Basis			Basis⁽⁴⁾
Three Months Ended	Three Months Ended											Three Months Ended
March 31, 2018													$	24,786	$	21,775		2.58	%		2.24	%
December 31, 2017														26,544		22,781		2.68	%		2.27	%
September 30, 2017		$	26,336	$	22,582		2.62	%		2.19	%			26,336		22,575		2.62	%		2.19	%
June 30, 2017			25,816		22,162		2.84	%		2.38	%			25,816		22,162		2.84	%		2.38	%
March 31, 2017			25,596		22,403		3.19	%		2.75	%			25,596		22,403		3.19	%		2.75	%
December 31, 2016			20,092		17,125		2.85	%		2.38	%
September 30, 2016			18,379		15,719		3.06	%		2.57	%
June 30, 2016			15,905		13,695		2.99	%		2.55	%
March 31, 2016			17,147		15,214		3.28	%		2.89	%
Nine Months Ended
September 30, 2017		$	77,748	$	67,147		2.87	%		2.42	%
September 30, 2016			51,430		44,628		3.11	%		2.66	%

							Average GAAP Cost of Funds						Average Economic Cost of Funds
							Relative to Average						Relative to Average
	Average LIBOR						One-Month			Six-Month			One-Month			Six-Month
	One-Month			Six-Month			LIBOR			LIBOR			LIBOR			LIBOR
Three Months Ended
September 30, 2017		1.20	%		1.45	%		0.25	%		(0.00	)%		0.68	%		0.43	%
June 30, 2017		1.05	%		1.43	%		0.06	%		(0.32	)%		0.52	%		0.14	%
March 31, 2017		0.82	%		1.37	%		0.10	%		(0.45	)%		0.54	%		(0.01	)%
December 31, 2016		0.62	%		1.28	%		0.16	%		(0.50	)%		0.63	%		(0.03	)%
September 30, 2016		0.49	%		1.09	%		0.24	%		(0.36	)%		0.73	%		0.13	%
June 30, 2016		0.44	%		0.92	%		0.23	%		(0.25	)%		0.67	%		0.19	%
March 31, 2016		0.40	%		0.84	%		0.28	%		(0.16	)%		0.67	%		0.23	%
Nine Months Ended
September 30, 2017		1.03	%		1.42	%		0.14	%		(0.25	)%		0.59	%		0.20	%
September 30, 2016		0.44	%		0.95	%		0.25	%		(0.26	)%		0.70	%		0.19	%

							15 Year			30 Year			Three
	5 Year			10 Year			Fixed-Rate			Fixed-Rate			Month
	Treasury Rate⁽¹⁾			Treasury Rate⁽¹⁾			Mortgage Rate⁽²⁾			Mortgage Rate⁽²⁾			LIBOR⁽³⁾
September 30, 2017		1.93	%		2.33	%		3.11	%		3.81	%		1.32	%
June 30, 2017		1.88	%		2.30	%		3.17	%		3.90	%		1.26	%
March 31, 2017		1.93	%		2.40	%		3.41	%		4.20	%		1.13	%
December 31, 2016		1.93	%		2.45	%		3.43	%		4.20	%		0.98	%
September 30, 2016		1.16	%		1.61	%		2.76	%		3.46	%		0.85	%
June 30, 2016		1.01	%		1.49	%		2.84	%		3.57	%		0.65	%
March 31, 2016		1.22	%		1.79	%		2.97	%		3.69	%		0.63	%

			Structured
	PT RMBS		RMBS		Total
Three Months Ended	Portfolio (%)		Portfolio (%)		Portfolio (%)
March 31, 2018		6.5		11.6		7.7
December 31, 2017		7.0		13.6		9.1
September 30, 2017		8.3		14.9		10.3
June 30, 2017		7.0		12.7		9.5
March 31, 2017		7.5		14.3		9.9

(in thousands)
	Obligations Maturing										Obligations Maturing
	Within One Year		One to Three Years		Three to Five Years		More than Five Years		Total		Within One Year		One to Three Years		Three to Five Years		More than Five Years		Total
Repurchase agreements	$	3,710,077	$	-	$	-	$	-	$	3,710,077	$	3,619,280	$	-	$	-	$	-	$	3,619,280
Interest expense on repurchase agreements⁽¹⁾		13,672		-		-		-		13,672		14,120		-		-		-		14,120
Totals	$	3,723,749	$	-	$	-	$	-	$	3,723,749	$	3,633,400	$	-	$	-	$	-	$	3,633,400

Interest Rate Sensitivity⁽¹⁾	Interest Rate Sensitivity⁽¹⁾							Interest Rate Sensitivity⁽¹⁾
		Portfolio							Portfolio
		Market			Book				Market			Book
Change in Interest Rate		Value⁽²⁾⁽³⁾			Value⁽²⁾⁽⁴⁾				Value⁽²⁾⁽³⁾			Value⁽²⁾⁽⁴⁾
As of September 30, 2017
As of March 31, 2018
-200 Basis Points										(1.65	)%		(14.37	)%
-100 Basis Points			(0.32	)%		(3.06	)%			(0.19	)%		(1.65	)%
-50 Basis Points			(0.11	)%		(1.05	)%			0.12	%		1.09	%
+50 Basis Points			(0.44	)%		(4.20	)%			(0.45	)%		(3.90	)%
+100 Basis Points			(1.53	)%		(14.47	)%			(1.10	)%		(9.60	)%
As of December 31, 2016
+200 Basis Points										(3.04	)%		(26.48	)%
As of December 31, 2017
-200 Basis Points										(0.94	)%		(7.62	)%
-100 Basis Points			0.55	%		4.96	%			(0.32	)%		(2.63	)%
-50 Basis Points			0.55	%		4.97	%			(0.21	)%		(1.73	)%
+50 Basis Points			(0.95	)%		(8.61	)%			(0.59	)%		(4.82	)%
+100 Basis Points			(2.20	)%		(19.98	)%			(1.61	)%		(13.05	)%
+200 Basis Points										(4.67	)%		(37.84	)%

					Shares Purchased		Maximum Number
	Total Number		Weighted-Average		as Part of Publicly		of Shares That May Yet
	of Shares		Price Paid		Announced		Be Repurchased Under
	Repurchased⁽¹⁾		Per Share		Programs⁽²⁾		the Authorization⁽²⁾
July		-	$	-		-		783,757
August		-		-		-		783,757
September		482		10.19		-		783,757
Totals / Weighted Average		482	$	10.19		-		783,757

3.1	Articles of Amendment and Restatement of Orchid Island Capital, Inc. (filed as Exhibit 3.1 to the Company's Registration Statement on Amendment No. 1 to Form S-11 (File No.333-184538) filed on November 28, 2012 and incorporated herein by reference).
3.2	Amended and Restated Bylaws of Orchid Island Capital, Inc. (filed as Exhibit 3.2 to the Company's Registration Statement on Amendment No. 1 to Form S-11 (File No.333-184538) filed on November 28, 2012 and incorporated herein by ~~reference~~reference).).
10.1^†	~~Amended~~Management Agreement between Orchid Island Capital, Inc. and ~~Restated Equity Distribution Agreement dated August 2, 2017, by and between the Company,~~ Bimini Advisors, LLC, ~~Ladenburg Thalman & Co. Inc and MUFG Securities Americas Inc.~~dated as of February 20, 2013 (filed as Exhibit ~~1.1~~10.2 to the Company's Current Report on Form ~~8-K~~8 K filed on ~~August 2, 2017~~April 3, 2014 and incorporated herein by ~~reference~~reference).)
10.2^†	First Amendment to Management Agreement, effective as of April 1, 2014 (filed as Exhibit 10.1 to the Company's Current Report on Form 8‑K filed on April 3, 2014 and incorporated herein by reference).
10.3^†	Second Amendment to Management Agreement, effective as of June 30, 2014 (filed as Exhibit 10.1 to the Company's Current Report on Form 8‑K filed on July 3, 2014 and incorporated herein by reference).
10.4*^†	2017 Long Term Incentive Compensation Plan.
10.5*^†	2018 Long Term Incentive Compensation Plan.
10.6*^†	Form of Deferred Stock Unit Grant Notice and Agreement.
31.1	Certification of Robert E. Cauley, Chief Executive Officer and President of the Registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2	Certification of ~~G. Hunter~~George H. Haas, IV, Chief Financial Officer of the Registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Certification of Robert E. Cauley, Chief Executive Officer and President of the Registrant, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
32.2	Certification of ~~G. Hunter~~George H. Haas, IV, Chief Financial Officer of the Registrant, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

Exhibit 101.INS XBRL	Instance Document ***
Exhibit 101.SCH XBRL	Taxonomy Extension Schema Document ***
Exhibit 101.CAL XBRL	Taxonomy Extension Calculation Linkbase Document***
Exhibit 101.DEF XBRL	Additional Taxonomy Extension Definition Linkbase Document Created***
Exhibit 101.LAB XBRL	Taxonomy Extension Label Linkbase Document ***
Exhibit 101.PRE XBRL	Taxonomy Extension Presentation Linkbase Document ***

		Orchid Island Capital, Inc.
		Registrant


Date: ~~October~~April 27, ~~2017~~2018	By:	/s/ Robert E. Cauley
		Robert E. Cauley Chief Executive Officer, President and Chairman of the Board

Date: ~~October~~April 27, ~~2017~~2018	By:	/s/ ~~G. Hunter~~George H. Haas, IV
		~~G. Hunter~~George H. Haas, IV Secretary, Chief Financial Officer, Chief Investment Officer and Director (Principal Financial and Accounting Officer)