UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑ 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, 2019

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

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to ___________

Commission File Number: 001-35236

Orchid Island Capital, Inc.

(Exact name of registrant as specified in its charter)

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

3305 Flamingo Drive, Vero Beach, Florida 32963

(Address of principal executive offices) (Zip Code)

(772) 231-1400

(~~Registrant's~~Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ý No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act. Check one:


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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ý

Number of shares outstanding at ~~October 27, 2017: 46,108,208~~April 26, 2019: 51,370,166

ORCHID ISLAND CAPITAL, INC.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1. ~~Condensed~~ Financial Statements		1
	1
Condensed ~~Consolidated~~ Balance Sheets (unaudited)	1
	1
Condensed ~~Consolidated~~ Statements of Operations (unaudited)	2
	2
Condensed ~~Consolidated~~ Statement of ~~Stockholders'~~Stockholders’ Equity (unaudited)	3
	3
Condensed ~~Consolidated~~ Statements of Cash Flows (unaudited)	4
	4
Notes to Condensed ~~Consolidated~~ Financial Statements			5
ITEM 2. ~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations				23	25
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk				43	44
ITEM 4. Controls and Procedures				46	48

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings				47	49
ITEM 1A. Risk Factors				47	49
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds				47	49
ITEM 3. Defaults upon Senior Securities				47	49
ITEM 4. Mine Safety Disclosures				47	49
ITEM 5. Other Information				47	49
ITEM 6. Exhibits				48	50
SIGNATURES				49	51

PART I. FINANCIAL INFORMATION

ITEM 1. ~~CONDENSED~~ FINANCIAL STATEMENTS

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

	(Unaudited)
	March 31, 2019			December 31, 2018
ASSETS:
Mortgage-backed securities, at fair value
Pledged to counterparties	$	3,029,117		$	2,991,586
Unpledged		59,397			22,917
Total mortgage-backed securities		3,088,514			3,014,503
Cash and cash equivalents		125,933			108,282
Restricted cash		16,998			17,981
Accrued interest receivable		12,585			13,241
Derivative assets, at fair value		13,199			16,885
Receivable for securities sold, pledged to counterparties		-			221,746
Other assets		518			2,993
Total Assets	$	3,257,747		$	3,395,631

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
Repurchase agreements	$	2,866,738		$	3,025,052
Payable for unsettled securities purchased		35,026			-
Dividends payable		3,995			3,931
Derivative liabilities, at fair value		5,346			5,947
Accrued interest payable		5,146			6,445
Due to affiliates		541			654
Other liabilities		541			17,523
Total Liabilities		2,917,333			3,059,552

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 100,000,000 shares authorized; no shares issued
and outstanding as of March 31, 2019 and December 31, 2018		-			-
Common Stock, $0.01 par value; 500,000,000 shares authorized, 49,937,700
shares issued and outstanding as of March 31, 2019 and 49,132,423 shares issued
and outstanding as of December 31, 2018		499			491
Additional paid-in capital		373,705			379,975
Accumulated deficit		(33,790	)		(44,387	)
Total Stockholders' Equity		340,414			336,079
Total Liabilities and Stockholders' Equity	$	3,257,747		$	3,395,631
See Notes to Financial Statements

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

(Unaudited)
September 30, 2017 December 31, 2016
ASSETS:
Mortgage-backed securities, at fair value
Pledged to counterparties $ 3,917,425 $ 2,972,290
Unpledged 12,915 49,884
Total mortgage-backed securities 3,930,340 3,022,174
Cash and cash equivalents 161,659 73,475
Restricted cash 19,629 20,950
Accrued interest receivable 15,410 11,512
Derivative assets, at fair value 16,871 10,365
Other assets 475 218
Total Assets $ 4,144,384 $ 3,138,694

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
Repurchase agreements $ 3,710,077 $ 2,793,705
Dividends payable 6,343 4,616
Derivative liabilities, at fair value 2,591 1,982
Accrued interest payable 4,815 1,826
Due to affiliates 762 566
Other liabilities 5,395 3,220
Total Liabilities 3,729,983 2,805,915

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
Additional paid-in capital 413,948 332,449
Retained earnings (accumulated deficit) - -
Total Stockholders' Equity 414,401 332,779
Total Liabilities and Stockholders' Equity $ 4,144,384 $ 3,138,694
See Notes to Consolidated Financial Statements

ORCHID ISLAND CAPITAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended March 31, 2019 and 2018
($ in thousands, except per share data)

	2019			2018
Interest income	$	32,433		$	39,935
Interest expense		(18,892	)		(15,149	)
Net interest income		13,541			24,786
Realized gains (losses) on mortgage-backed securities		243			(8,338	)
Unrealized gains (losses) on mortgage-backed securities		18,041			(71,712	)
(Losses) gains on derivative instruments		(19,032	)		41,994
Net portfolio income (loss)		12,793			(13,270	)

Expenses:
Management fees		1,285			1,712
Allocated overhead		323			382
Accrued incentive compensation		(408	)		11
Directors' fees and liability insurance		253			252
Audit, legal and other professional fees		301			296
Direct REIT operating expenses		375			403
Other administrative		67			51
Total expenses		2,196			3,107

Net income (loss)	$	10,597		$	(16,377	)

Basic and diluted net income (loss) per share	$	0.22		$	(0.31	)

Weighted Average Shares Outstanding		48,904,587			53,065,845

Dividends declared per common share	$	0.24		$	0.31
See Notes to 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 STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
For the Three Months Ended March 31, 2019 and 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

Balances, January 1, 2019	$	491		$	379,975		$	(44,387	)	$	336,079
Net income		-			-			10,597			10,597
Cash dividends declared, $0.24 per share		-			(11,824	)		-			(11,824	)
Issuance of common stock pursuant to public offerings, net		13			8,490			-			8,503
Issuance of common stock pursuant to stock based
compensation plan		-			41			-			41
Amortization of stock based compensation		-			42			-			42
Shares repurchased and retired		(5	)		(3,019	)		-			(3,024	)
Balances, March 31, 2019	$	499		$	373,705		$	(33,790	)	$	340,414
See Notes to 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.	ORCHID ISLAND CAPITAL, INC.							ORCHID ISLAND CAPITAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
CONDENSED STATEMENTS OF CASH FLOWS								CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)	(Unaudited)							(Unaudited)
For the Nine Months Ended September 30, 2017 and 2016
For the Three Months Ended March 31, 2019 and 2018								For the Three Months Ended March 31, 2019 and 2018
($ in thousands)	($ in thousands)							($ in thousands)

		2017			2016				2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	7,989		$	22,397
Adjustments to reconcile net income to net cash provided by operating activities:
Net income (loss)									$	10,597		$	(16,377	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Stock based compensation			453			492				83			80
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 (gains) losses on mortgage-backed securities										(18,284	)		80,050
Realized and unrealized losses (gains) on interest rate swaptions										378			(1,717	)
Realized and unrealized losses (gains) on interest rate swaps			1,398			(792	)			2,522			(11,576	)
Realized losses on forward settling to-be-announced securities			3,843			2,385
Realized losses (gains) on forward settling to-be-announced securities										4,641			(8,407	)
Changes in operating assets and liabilities:
Accrued interest receivable			(3,898	)		(967	)			696			(1,105	)
Other assets			(170	)		(93	)			(339	)		(251	)
Accrued interest payable			2,989			1,010				(1,299	)		636
Other liabilities			(601	)		(204	)			(477	)		218
Due to affiliates			196			15
NET CASH PROVIDED BY OPERATING ACTIVITIES			43,619			14,073
Due from affiliates										(113	)		(1	)
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES										(1,595	)		41,550

CASH FLOWS FROM INVESTING ACTIVITIES:
From mortgage-backed securities investments:
Purchases			(5,079,945	)		(2,184,709	)			(547,417	)		(517,829	)
Sales			3,890,959			1,717,612				655,359			228,691
Principal repayments			248,483			178,460				94,785			78,720
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	)
(Payments on) proceeds from net settlement of to-be-announced securities										(11,146	)		9,161
Purchase of derivative financial instruments, net of margin cash received										(8,723	)		10,622
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES										182,858			(190,635	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from repurchase agreements			39,895,749			22,443,458				11,573,937			13,098,449
Principal payments on repurchase agreements			(38,979,377	)		(21,944,174	)			(11,732,251	)		(13,012,955	)
Principal payments on FHLB advances			-			(187,500	)
Cash dividends			(47,950	)		(28,864	)			(11,760	)		(19,116	)
Proceeds from issuance of common stock, net of issuance costs			122,857			47,116				8,503			-
NET CASH PROVIDED BY FINANCING ACTIVITIES			991,279			330,036
Common stock repurchases										(3,024	)		-
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES										(164,595	)		66,378

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH			86,863			57,782
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH										16,668			(82,707	)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of the period			94,425			69,959				126,263			246,712
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of the period		$	181,288		$	127,741			$	142,931		$	164,005

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest		$	25,127		$	9,619			$	20,190		$	14,513

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Securities acquired settled in later period		$	-		$	72,343			$	35,026		$	32,054
Securities sold settled in later period			-			27,509				-			159,300
See Notes to Consolidated Financial Statements
See Notes to Financial Statements								See Notes to Financial Statements

ORCHID ISLAND CAPITAL, INC.

NOTES TO CONDENSED ~~CONSOLIDATED~~ FINANCIAL STATEMENTS

(Unaudited)

~~SEPTEMBER 30, 2017~~

MARCH 31, 2019

NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization and Business Description

Orchid Island Capital, Inc. ~~("Orchid"~~(“Orchid” or the ~~"Company"~~“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"~~(“RMBS”). From incorporation to February 20, 2013 Orchid was a wholly owned subsidiary of Bimini Capital Management, Inc. ~~("Bimini"~~(“Bimini”). Orchid began operations on November 24, 2010 (the date of commencement of operations). From incorporation through November 24, 2010, ~~Orchid's~~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,~~August 2, 2017, 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~~“August 2017 Equity Distribution ~~Agreement"~~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~~Company’s common stock in transactions that are deemed to be ~~"at~~“at the ~~market"~~market” offerings and privately negotiated transactions. ~~The May 2017 Equity Distribution Agreement replaced~~Through March 31, 2019, the ~~July 2016 Equity Distribution Agreement. The~~ Company issued a total of ~~12,299,032~~9,013,946 shares under the ~~May~~August 2017 Equity Distribution Agreement for aggregate gross proceeds of ~~$125.0~~approximately $84.6 million, and net proceeds of approximately ~~$122.9~~$83.3 million, net of commissions and ~~fees, prior~~fees.Subsequent 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~~March 31, 2019, the Company ~~may offer and sell, from time to time, up to~~issued 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, the Company has not issued anyadditional 1,432,466 shares under the August 2017 Equity Distribution ~~Agreement.~~Agreement for aggregate gross proceeds of approximately $9.6 million, and net proceeds of approximately $9.5 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"~~(“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, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2019.

The balance sheet at December 31, ~~2016~~2018 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~~Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018.

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"~~“FASB”) Accounting Standards Codification ~~("ASC"~~(“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.

Variable Interest Entities (“VIEs”)

We obtain interests in VIEs through our investments in mortgage-backed securities. Our interests in these VIEs are passive in nature and are not expected to result in us obtaining a controlling financial interest in these VIEs in the future. As a result, we do not consolidate these VIEs and we account for our interest in these VIEs as mortgage-backed securities. See Note 2 for additional information regarding our investments in mortgage-backed securities. Our maximum exposure to loss for these VIEs is the carrying value of the mortgage-backed securities.

Cash and Cash Equivalents and Restricted Cash

Cash and cash equivalents include cash on deposit with financial institutions and highly liquid investments with original maturities 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)
	March 31, 2019			December 31, 2018
Cash and cash equivalents		$	125,933		$	108,282
Restricted cash			16,998			17,981
Total cash, cash equivalents and restricted cash		$	142,931		$	126,263

(in thousands)
September 30, 2017 December 31, 2016
Cash and cash equivalents $ 161,659 $ 73,475
Restricted cash 19,629 20,950
Total cash, cash equivalents and restricted cash $ 181,288 $ 94,425

The Company maintains cash balances at ~~four~~three banks and atexcess margin on account with two exchange clearing members. At times, balances may exceed federally insured limits. The Company has not experienced any losses related to these balances. The Federal Deposit Insurance Corporation insures eligible accounts up to $250,000 per depositor at each financial institution. At ~~September 30, 2017,~~March 31, 2019, the ~~Company's~~Company’s cash deposits exceeded federally insured limits by approximately ~~$158.1~~$123.5 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~~banks and ~~derivative counterparties~~exchange clearing members and believes that it is not exposed to any significant credit risk on cash and cash equivalents or restricted cash balances.

Mortgage-Backed Securities

The Company invests primarily in mortgage pass-through ~~("PT"~~(“PT”) residential mortgage backed certificates issued by Freddie Mac, Fannie Mae or Ginnie Mae (“RMBS”), collateralized mortgage obligations ~~and~~(“CMOs”), interest-only ~~("IO"~~(“IO”) securities and inverse interest-only ~~("IIO"~~(“IIO”) securities representing interest in or obligations backed by pools of RMBS. We refer to IO and IIO securities as structured 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~~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~~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~~asset’s carrying value. At each reporting date, the effective yield is adjusted prospectively ~~from the~~for future reporting ~~period~~periods based on the new estimate of prepayments and the contractual terms of the security. For IIO securities, effective yield and income recognition calculations also take into account the index value applicable to the security. Changes in fair value of RMBS during each reporting period are recorded in earnings and reported as unrealized gains or losses on mortgage-backed securities in the accompanying ~~consolidated~~ statements of operations.

Derivative Financial Instruments

The Company uses derivative instruments to manage interest rate risk, facilitate asset/liability strategies and manage other exposures, and it may continue to do so in the future. The principal instruments that the Company has used to date are Treasury Note ~~("T-Note"~~(“T-Note”) and Eurodollar futures contracts, interest rate swaps, ~~and~~ options to enter in interest rate swaps ("(“interest rate ~~swaptions"~~swaptions”), and “to-be-announced” (“TBA”) securities transactions, but the Company 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") 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~~losses 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, 2019 and December 31, ~~2016~~2018 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"~~“Manager” or ~~"Bimini Advisors"~~“Bimini Advisors”), a Maryland limited liability company and wholly-owned subsidiary of Bimini. The ~~Company's~~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"~~(“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"~~(“REIT”) under the Internal Revenue Code of 1986, as amended (the ~~"Code"~~“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~~Orchid’s tax positions are categorized as highly certain. There is no accrual for any tax, interest or penalties related to ~~Orchid's~~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"~~(“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 adoption of this ASU will 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~~expect that the adoption of this ASU will have a ~~material impact~~significant effect on its ~~consolidated~~ financial statements.

NOTE 2. MORTGAGE-BACKED SECURITIES

The following table presents the ~~Company's~~Company’s RMBS portfolio as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016:~~2018:

(in thousands)
	March 31, 2019		December 31, 2018
Pass-Through RMBS Certificates:
Adjustable-rate Mortgages	$	1,217	$	1,437
Fixed-rate Mortgages		2,245,280		2,130,974
Fixed-rate CMOs		717,995		741,926
Total Pass-Through Certificates		2,964,492		2,874,337
Structured RMBS Certificates:
Interest-Only Securities		99,804		116,415
Inverse Interest-Only Securities		24,218		23,751
Total Structured RMBS Certificates		124,022		140,166
Total	$	3,088,514	$	3,014,503

(in thousands)
September 30, 2017 December 31, 2016
Pass-Through RMBS Certificates:
Hybrid Adjustable-rate Mortgages $ 42,201 $ 45,459
Adjustable-rate Mortgages 1,783 2,062
Fixed-rate Mortgages 3,740,658 2,826,694
Total Pass-Through Certificates 3,784,642 2,874,215
Structured RMBS Certificates:
Interest-Only Securities 90,551 69,726
Inverse Interest-Only Securities 55,147 78,233
Total Structured RMBS Certificates 145,698 147,959
Total $ 3,930,340 $ 3,022,174

The following table summarizes the ~~Company's~~Company’s RMBS portfolio as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, 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)
	September 30, 2017		December 31, 2016		March 31, 2019			December 31, 2018
Greater than one year and less than five years	$	52	$	157
Greater than five years and less than ten years		2,771		277		$	2,681		$	5,696
Greater than or equal to ten years		3,927,517		3,021,740			3,085,833			3,008,807
Total	$	3,930,340	$	3,022,174		$	3,088,514		$	3,014,503

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, 2019, the Company had met all margin call requirements.

As of ~~September 30, 2017,~~March 31, 2019, the Company had outstanding repurchase obligations of approximately ~~$3,710.1~~$2,866.7 million with a net weighted average borrowing rate of ~~1.37%~~2.70%. 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~~$3,041.4 million, and cash pledged to the counterparties of approximately ~~$12.0~~$6.8 million. As of December 31, ~~2016,~~2018, the Company had outstanding repurchase obligations of approximately ~~$2,793.7~~$3,025.1 million with a net weighted average borrowing rate of ~~1.00%~~2.65%. These agreements were collateralized by RMBS with a fair value, including accrued interest, of approximately ~~$2,970.9~~$3,214.4 million, and cash pledged to the counterparties of approximately ~~$10.8~~$7.0 million.

109

As of ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, the ~~Company's~~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, 2019															March 31, 2019
Fair market value of securities pledged, including
accrued interest receivable	$	-	$	2,506,628		$	941,339		$	484,607		$	3,932,574			$	85,828		$	1,109,913		$	1,845,628		$	-	$	3,041,369
Repurchase agreement liabilities associated with
these securities	$	-	$	2,358,459		$	897,376		$	454,242		$	3,710,077			$	82,642		$	1,038,199		$	1,745,897		$	-	$	2,866,738
Net weighted average borrowing rate		-		1.34	%		1.34	%		1.57	%		1.37	%			2.85	%		2.73	%		2.67	%		-		2.70	%
December 31, 2016
December 31, 2018															December 31, 2018
Fair market value of securities pledged, including
accrued interest receivable	$	-	$	2,284,815		$	686,065		$	-		$	2,970,880			$	-		$	1,720,804		$	1,493,565		$	-	$	3,214,369
Repurchase agreement liabilities associated with
these securities	$	-	$	2,154,766		$	638,939		$	-		$	2,793,705			$	-		$	1,611,185		$	1,413,867		$	-	$	3,025,052
Net weighted average borrowing rate		-		1.01	%		0.96	%		-			1.00	%			-			2.72	%		2.57	%		-		2.65	%

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, 2019, 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~~$176.3 million. The Company did not have an amount at risk with any individual counterparty greater than 10% of the ~~Company's~~Company’s equity at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016.~~2018.

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~~PT RMBS or as a means of reducing its exposure to ~~Agency RMBS, and also a hedge for tax purposes.~~PT 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.

1110

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, 2019 and December 31, ~~2016.~~2018.

(in thousands)
Derivative Instruments and Related Accounts	Balance Sheet Location	March 31, 2019		December 31, 2018
Assets
Interest rate swaps	Derivative assets, at fair value	$	13,146	$	16,762
Payer swaptions	Derivative assets, at fair value		53		123
Total derivative assets, at fair value		$	13,199	$	16,885

Liabilities
Interest rate swaps	Derivative liabilities, at fair value	$	1,111	$	2,205
TBA securities	Derivative liabilities, at fair value		4,235		3,742
Total derivative liabilities, at fair value		$	5,346	$	5,947

Margin Balances Posted to (from) Counterparties
Futures contracts	Restricted cash	$	2,347	$	4,711
TBA securities	Restricted cash		3,064		6,236
Interest rate swaption contracts	Other liabilities		-		(268	)
Interest rate swap contracts	Restricted cash		4,812		-
Interest rate swap contracts	Other liabilities		-		(14,308	)
Total margin balances on derivative contracts		$	10,223	$	(3,629	)

(in thousands)
Derivative Instruments and Related Accounts Balance Sheet Location September 30, 2017 December 31, 2016
Assets
Interest rate swaps Derivative assets, at fair value $ 10,693 $ 10,302
Payer swaptions Derivative assets, at fair value 3,194 -
TBA securities Derivative assets, at fair value 2,984 63
Total derivative assets, at fair value $ 16,871 $ 10,365

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

Margin Balances Posted to (from) Counterparties
Futures contracts Restricted cash $ 6,193 $ 9,419
TBA securities Restricted cash - 446
TBA securities Other liabilities (1,867 ) -
Interest rate swaption contracts Other liabilities (2,776 ) -
Interest rate swap contracts Restricted cash 1,437 -
Total margin balances on derivative contracts $ 2,987 $ 9,865

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~~Company’s cash accounts on a daily basis. A minimum balance, or ~~"margin"~~“margin”, is required to be maintained in the account on a daily basis. The tables below present information related to the ~~Company's~~Company’s Eurodollar and T-Note futures positions at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016.~~2018.

($ in thousands)
	September 30, 2017											March 31, 2019
	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	)
2019		1,000,000		2.09	%		1.98	%		(1,138	)	$	400,000		2.76	%		2.46	%	$	(909	)
2020		925,000		2.62	%		2.13	%		(4,505	)		500,000		2.97	%		2.21	%		(3,799	)
Total / Weighted Average	$	976,923		2.13	%		1.91	%	$	(7,074	)	$	457,143		2.89	%		2.31	%	$	(4,708	)

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 2019 5-year T-Note futures
(Jun 2019 - Dec 2024 Hedge Period)												$	165,000		2.86	%		2.62	%	$	(1,789	)

1211

($ in thousands)
	December 31, 2018
	Average		Weighted			Weighted
	Contract		Average			Average
	Notional		Entry			Effective			Open
Expiration Year	Amount		Rate			Rate			Equity⁽¹⁾
Eurodollar Futures Contracts (Short Positions)
2019	$	1,650,000		2.25	%		2.64	%	$	7,036
2020		1,800,000		2.74	%		2.45	%		(4,503	)
Total / Weighted Average	$	1,725,000		2.51	%		2.54	%	$	2,533

Treasury Note Futures Contracts (Short Position)⁽²⁾
March 2019 5 year T-Note futures
(Mar 2019 - Mar 2024 Hedge Period)	$	165,000		3.22	%		2.83	%	$	(3,185	)

($ in thousands)
December 31, 2016
Average Weighted Weighted
Contract Average Average
Notional Entry Effective Open
Expiration Year 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
2019 675,000 2.00 % 2.21 % 1,429
2020 700,000 2.65 % 2.45 % (1,394 )
Total / Weighted Average $ 643,750 2.01 % 1.97 % $ (1,095 )

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 )

(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~~$115.83 at ~~September 30, 2017~~March 31, 2019 and ~~$124.28~~$114.69 at December 31, ~~2016.~~2018. The notional contract values of the short positions were ~~$144.1~~$191.1 million and ~~$577.9~~$185.6 million at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, 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"~~(“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~~Company’s interest rate swap positions at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016.~~2018.

($ in thousands)
			Average						Net
			Fixed			Average			Estimated		Average
	Notional		Pay			Receive			Fair		Maturity
	Amount		Rate			Rate			Value		(Years)
March 31, 2019
Expiration > 1 to ≤ 3 years	$	1,100,000		1.67	%		2.69	%	$	8,757		1.3
Expiration > 3 to ≤ 5 years		660,000		2.15	%		2.63	%		3,278		4.6
	$	1,760,000		1.85	%		2.66	%	$	12,035		2.5
December 31, 2018
Expiration > 1 to ≤ 3 years	$	1,000,000		1.62	%		2.63	%	$	10,365		1.4
Expiration > 3 to ≤ 5 years		260,000		2.01	%		2.68	%		4,192		3.4
	$	1,260,000		1.70	%		2.64	%	$	14,557		1.8

($ 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~~Company’s interest rate swaption positions at ~~September 30, 2017.~~

($ in thousands)
Option Underlying Swap
      Weighted      Weighted
      Average    Fixed Receive Average
    Fair Months to Notional Pay Rate Term
Expiration Cost Value Expiration Amount Rate (LIBOR) (Years)
Payer Swaptions
≤ 1 year $2,367 $3,194 11.0 $200,000 2.16% 3 Month 6.0

March 31, 2019 and December 31, 2018.

($ in thousands)

Option

Underlying Swap

Weighted

Average

Weighted

Average

Adjustable

Average

Fair

Months to

Notional

Fixed

Rate

Term

Expiration

Cost

Value

Expiration

Amount

Rate

(LIBOR)

(Years)

March 31, 2019

≤ 1 year

Payer Swaptions

308

2.3

100,000

2.71%

3 Month

7.0

December 31, 2018

≤ 1 year

Payer Swaptions

7,805

123

1.4

700,000

3.20%

3 Month

9.0

The following table summarizes our contracts to purchase and sell TBA securities as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016.~~2018.

($ in thousands)
			Notional									Net
			Amount			Cost			Market			Carrying
			Long (Short)⁽¹⁾			Basis⁽²⁾			Value⁽³⁾			Value⁽⁴⁾
March 31, 2019
30-Year TBA securities:
	3.0	%	$	(200,000	)	$	(194,896	)	$	(199,131	)	$	(4,235	)
Total			$	(200,000	)	$	(194,896	)	$	(199,131	)	$	(4,235	)
December 31, 2018
30-Year TBA securities:
	3.0	%	$	(250,000	)	$	(240,164	)	$	(243,906	)	$	(3,742	)
Total			$	(250,000	)	$	(240,164	)	$	(243,906	)	$	(3,742	)

($ in thousands)
Notional Net
Amount Cost Market Carrying

Long (Short)⁽¹⁾

Basis⁽²⁾

Value⁽³⁾

Value⁽⁴⁾
September 30, 2017
30-Year TBA securities:
3.0% $ (300,000) $ (303,773) $ (300,789) $ 2,984
December 31, 2016
30-Year TBA securities:
3.0% $ (100,000) $ (99,406) $ (99,344) $ 62
4.0% (100,000) (103,898) (105,078) (1,180)
Total $ (200,000) $ (203,304) $ (204,422) $ (1,118)

(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~~Company’s derivative financial instruments on the ~~consolidated~~ statements of operations for the ~~nine and~~ three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016.~~2018.

(in thousands)
	2019			2018
Eurodollar futures contracts (short positions)	$	(10,041	)	$	14,541
T-Note futures contracts (short position)		(1,677	)		6,821
Interest rate swaps		(2,295	)		10,508
Receiver swaptions		-			(349	)
Payer swaptions		(378	)		2,066
Net TBA securities		(4,641	)		8,407
Total	$	(19,032	)	$	41,994

(in thousands)
Nine Months Ended September 30, Three Months Ended September 30,
2017 2016 2017 2016
Eurodollar futures contracts (short positions) $ (6,955 ) $ (17,507 ) $ 607 $ 1,194
T-Note futures contracts (short position) (16,190 ) (12,288 ) (6,450 ) 1,688
Interest rate swaps (3,170 ) (450 ) 1,005 4,179
Receiver swaptions - 36 - -
Payer swaptions 827 - 827 -
Net TBA securities (3,843 ) (2,385 ) (1,459 ) (474 )
Total $ (29,331 ) $ (32,594 ) $ (5,470 ) $ 6,587

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, 2019 and December 31, ~~2016.~~2018.

(in thousands)
	March 31, 2019									December 31, 2018
	Repurchase			Derivative						Repurchase			Derivative
Assets Pledged to Counterparties	Agreements			Agreements			Total			Agreements			Agreements			Total
PT RMBS - fair value		$	2,918,623		$	-		$	2,918,623		$	2,854,540		$	10,776		$	2,865,316
Structured RMBS - fair value			110,494			-			110,494			126,270			-			126,270
Accrued interest on pledged securities			12,253			-			12,253			12,904			35			12,939
Receivable for securities sold			-			-			-			220,654			-			220,654
Restricted cash			6,775			10,223			16,998			7,034			10,947			17,981
Total		$	3,048,145		$	10,223		$	3,058,368		$	3,221,402		$	21,758		$	3,243,160

(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 and derivative agreements as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016.~~2018.

(in thousands)
	March 31, 2019										December 31, 2018
	Repurchase			Derivative						Repurchase			Derivative
Assets Pledged to Orchid	Agreements			Agreements			Total			Agreements			Agreements			Total
Cash		$	4,201		$	-		$	4,201		$	3,852		$	14,576		$	18,428
PT RMBS - fair value			-			-			-			1,557			-			1,557
U.S. Treasury securities - fair value			954			-			954			180			-			180
Total		$	5,155		$	-		$	5,155		$	5,589		$	14,576		$	20,165

(in thousands)
September 30, 2017 December 31, 2016
Repurchase Derivative Repurchase Derivative
Assets Pledged to Orchid Agreements Agreements Total Agreements Agreements Total
Cash $ 253 $ 4,643 $ 4,896 $ 1,029 $ - $ 1,029
PT RMBS - fair value 1,768 - 1,768 - - -
U.S. Treasury securities - fair value - - - 3,438 - 3,438
Total $ 2,021 $ 4,643 $ 6,664 $ 4,467 $ - $ 4,467

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.

1514

NOTE 6. OFFSETTING ASSETS AND LIABILITIES

The ~~Company's~~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, 2019 and December 31, ~~2016.~~2018.

(in thousands)
Offsetting of Assets	Offsetting of Assets																			Offsetting of Assets
							Net Amount			Gross Amount Not Offset in the																			Gross Amount Not
							of Assets			Consolidated Balance Sheet																Net Amount			Offset in the Balance Sheet
				Gross Amount			Presented			Financial																of Assets			Financial
	Gross Amount			Offset in the			in the			Instruments			Cash							Gross Amount			Gross Amount			Presented			Instruments			Cash
	of Recognized			Consolidated			Consolidated			Received as			Received as				Net			of Recognized			Offset in the			in the			Received as			Received as				Net
	Assets			Balance Sheet			Balance Sheet			Collateral			Collateral				Amount			Assets			Balance Sheet			Balance Sheet			Collateral			Collateral				Amount
September 30, 2017
March 31, 2019
Interest rate swaps		$	10,693		$	-		$	10,693		$	-		$	-			$	10,693		$	13,146		$	-		$	13,146		$	-		$	-			$	13,146
Interest rate swaptions			3,194			-			3,194			-			(2,776	)			418			53			-			53			-			-				53
TBA securities			2,984			-			2,984			-			(1,867	)			1,117
		$	16,871		$	-		$	16,871		$	-		$	(4,643	)		$	12,228		$	13,199		$	-		$	13,199		$	-		$	-			$	13,199
December 31, 2016
December 31, 2018
Interest rate swaps		$	10,302		$	-		$	10,302		$	-		$	-			$	10,302		$	16,762		$	-		$	16,762		$	-		$	(14,308	)		$	2,454
TBA securities			63			-			63			-			(63	)			-
Interest rate swaptions																						123			-			123			-			(123	)			-
		$	10,365		$	-		$	10,365		$	-		$	(63	)		$	10,302		$	16,885		$	-		$	16,885		$	-		$	(14,431	)		$	2,454

(in thousands)
Offsetting of Liabilities
										Gross Amount Not
							Net Amount			Offset in the Balance Sheet
							of Liabilities			Financial
	Gross Amount			Gross Amount			Presented			Instruments
	of Recognized			Offset in the			in the			Posted as				Cash Posted				Net
	Liabilities			Balance Sheet			Balance Sheet			Collateral				Collateral				Amount
March 31, 2019
Repurchase Agreements		$	2,866,738		$	-		$	2,866,738		$	(2,859,963	)		$	(6,775	)		$	-
Interest rate swaps			1,111			-			1,111			-				(1,111	)			-
TBA securities			4,235			-			4,235			-				(3,064	)			1,171
		$	2,872,084		$	-		$	2,872,084		$	(2,859,963	)		$	(10,950	)		$	1,171
December 31, 2018
Repurchase Agreements		$	3,025,052		$	-		$	3,025,052		$	(3,018,018	)		$	(7,034	)		$	-
Interest rate swaps			2,205			-			2,205			-				-				2,205
TBA securities			3,742			-			3,742			-				(3,742	)			-
		$	3,030,999		$	-		$	3,030,999		$	(3,018,018	)		$	(10,776	)		$	2,205

(in thousands)
Offsetting of Liabilities
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
of Recognized Consolidated Consolidated Posted as Cash Posted Net
Liabilities Balance Sheet Balance Sheet Collateral Collateral Amount
September 30, 2017
Repurchase Agreements $ 3,710,077 $ - $ 3,710,077 $ (3,698,078 ) $ (11,999 ) $ -
Interest rate swaps 2,591 - 2,591 - (1,437 ) 1,154
$ 3,712,668 $ - $ 3,712,668 $ (3,698,078 ) $ (13,436 ) $ 1,154
December 31, 2016
Repurchase Agreements $ 2,793,705 $ - $ 2,793,705 $ (2,782,870 ) $ (10,835 ) $ -
Interest rate swaps 802 - 802 - (802 ) -
TBA securities 1,180 - 1,180 - (848 ) 332
$ 2,795,687 $ - $ 2,795,687 $ (2,782,870 ) $ (12,485 ) $ 332

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.

1615

NOTE 7. CAPITAL STOCK

Common Stock Issuances

During ~~2017 and 2016,~~the three months ended March 31, 2019, 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 and September 30, 2017.~~2018.

($ in thousands, except per share amounts)
		Weighted
		Average
		Price
		Received				Net
Type of Offering	Period	Per Share⁽¹⁾		Shares		Proceeds⁽²⁾
2019
At the Market Offering Program⁽³⁾	First Quarter	$	6.84		1,267,894	$	8,503
At the Market Offering Program⁽³⁾⁽⁴⁾	Second Quarter		6.74		1,432,466		9,504
Total					2,700,360	$	18,007

($ in thousands, except per share amounts)
Weighted
Average
Price
Received Net
Type of Offering Period
Per Share⁽¹⁾
Shares
Proceeds⁽²⁾

2017
At the Market Offering Program⁽³⁾
First Quarter $ 10.13 1,286,196 $ 12,792
At the Market Offering Program⁽³⁾
Second Quarter 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
11,172,656 $ 118,328

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

(2)	Net proceeds are net of the ~~underwriters'~~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.

(4)	Shares issued in the second quarter of 2019 are not reflected in the Company's financial statements as of March 31, 2019.

~~Share~~

Stock Repurchase Program

On July 29, 2015, the ~~Company's~~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"~~“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~~Company’s discretion without prior notice.

From the inception of the ~~share~~stock repurchase program through ~~September 30, 2017,~~March 31, 2019, the Company repurchased a total of ~~1,216,243~~5,665,620 shares at an aggregate cost of approximately ~~$10.8~~$40.3 million, including commissions and fees, for a weighted average price of ~~$8.92~~$7.11 per share. ~~No shares were repurchased during~~During the ~~year ended December 31, 2016 or the nine~~three months ended ~~September 30, 2017.~~March 31, 2019, the Company repurchased a total of 469,975 shares at an aggregate cost of approximately $3.0 million, including commissions and fees, for a weighted average price of $6.43 per share. The remaining authorization under the repurchase program as of March 31, 2019 was 857,202 shares.

1716

Cash Dividends

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

(in thousands, except per share amounts)
Year	Per Share Amount		Total
2013	$	1.395	$	4,662
2014		2.160		22,643
2015		1.920		38,748
2016		1.680		41,388
2017		1.680		70,717
2018		1.070		55,814
2019 - YTD⁽¹⁾		0.320		15,824
Totals	$	10.225	$	249,796

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

(1)

On ~~October 11, 2017,~~April 17, 2019, the Company declared a dividend of ~~$0.14~~$0.08 per share to be paid on ~~November 10, 2017.~~May 31, 2019. The effect of this dividend is included in the table above, but is not reflected in the ~~Company's~~Company’s financial statements as of ~~September 30, 2017.~~March 31, 2019.

NOTE 8. STOCK INCENTIVE PLAN

In October 2012, the ~~Company's~~Company’s Board of Directors adopted and Bimini, then the ~~Company's~~Company’s sole stockholder, approved, the Orchid Island Capital, Inc. 2012 Equity Incentive Plan (the ~~"Incentive Plan"~~“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~~Company’s Board of Directors except that the ~~Company's~~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~~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 and 2016.~~

($ 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

Stock Awards

The Company ~~issues~~has issued, and may in the future issue additional, immediately vested common stock under the Incentive Plan to certain executive officers and employees ~~and directors.~~of its Manager. The Company’s non-employee directors received grants of immediately vested common stock for their service to the Company during the first quarter of 2018. The following table presents information related to fully vested common stock issued during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016.~~2018.

($ in thousands, except per share data)
	Three Months Ended March 31,
	2019		2018
Fully vested shares granted		-		3,886
Weighted average grant date price per share	$	-	$	9.28
Compensation expense related to fully vested shares of common stock awards	$	-	$	36

($ in thousands, except per share data)
Nine Months Ended September 30,
2017 2016
Fully vested shares granted⁽¹⁾
25,848 37,695
Weighted average grant date price per share $ 9.76 $ 10.05
Compensation expense related to fully vested common share awards⁽²⁾
$ 252 $ 379

~~(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.

Performance Units

The Company has issued, and may in the future issue additional, performance units under the Incentive Plan to certain executive officers and ~~employees. "Performance Units"~~employees of its Manager. “Performance Units” vest after the end of a defined performance period, based on satisfaction of the performance conditions set forth in the performance unit agreement. When earned, each Performance Unit will be settled by the issuance of one share of the ~~Company's~~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~~of the Company. Compensation expense for the Performance Units ~~are~~is recognized over the remaining vesting period once it becomes probable that the performance conditions will be achieved.

The following table presents information related to Performance Units outstanding during the ~~nine~~three months ended ~~September 30, 2017.~~March 31, 2019 and 2018.

($ in thousands, except per share data)
	Three Months Ended March 31,
	2019					2018
				Weighted					Weighted
				Average					Average
				Grant Date					Grant Date
	Shares			Fair Value		Shares			Fair Value
Unvested, beginning of period		43,672		$	8.34		41,693		$	9.95
Vested and issued		(8,173	)		9.08		(6,406	)		10.28
Unvested, end of period		35,499		$	8.17		35,287		$	9.89

Compensation expense during period				$	42				$	45
Unrecognized compensation expense, end of period				$	115				$	121
Intrinsic value, end of period				$	234				$	260
Weighted-average remaining vesting term (in years)					1.0					0.9

($ 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 45,305 $ 10.33 7,508 $ 13.32
Granted 15,707 9.55 41,500 10.00
Forfeited - - (100 ) 10.00
Vested and issued (14,490 ) 10.52 (2,252 ) 13.32
Unvested, end of period 46,522 $ 10.01 46,656 $ 10.37

Compensation expense during period $ 188 $ 148
Unrecognized compensation expense, end of period $ 217 $ 320
Intrinsic value, end of period $ 474 $ 486
Weighted-average remaining vesting term (in years) 1.2 1.6

Deferred Stock Units

Beginning with the second quarter of 2018, non-employee directors received a portion of their compensation in the form of deferred stock unit awards (“DSUs”) pursuant to the Incentive Plan. Each DSU represents a right to receive one share of the Company’s common stock. The DSUs are immediately vested and are settled at a future date based on the election of the individual participant. The DSUs contain dividend equivalent rights, which entitle the participant to receive distributions declared by the Company on common stock. These dividend equivalent rights are settled in cash or additional DSUs at the participant’s election. The DSUs do not include the right to vote the underlying shares of common stock.

1918

The following table presents information related to the DSUs outstanding during the three months ended March 31, 2019.

($ in thousands, except per share data)
	Three Months Ended March 31,
	2019				2018
			Weighted				Weighted
			Average				Average
			Grant Date				Grant Date
	Shares		Fair Value		Shares		Fair Value
Outstanding, beginning of period		12,434	$	-		-	$	-
Granted and vested		7,350		6.41		-		-
Issued		-		-		-		-
Outstanding, end of period		19,784	$	7.01		-	$	-

Compensation expense during period			$	45			$	-
Intrinsic value, end of period			$	130			$	-

There were no DSUs issued during the three months ended March 31, 2018.

NOTE 9. COMMITMENTS AND CONTINGENCIES

From time to time, the Company may become involved in various claims and legal actions arising in the ordinary course of business. Management is not aware of any reported or unreported contingencies at ~~September 30, 2017.~~March 31, 2019.

NOTE 10. INCOME TAXES

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.

NOTE 11. EARNINGS PER SHARE (EPS)

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, 2017.~~March 31, 2019 and 2018. The basic and diluted per share computations include these unvested ~~shares of restricted common stock and performance units~~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, 2019 and ~~2016.~~2018.

(in thousands, except per-share information)
	Three Months Ended March 31,
	2019			2018
Basic and diluted EPS per common share:
Numerator for basic and diluted EPS per share of common stock:
Net income (loss) - Basic and diluted	$	10,597		$	(16,377	)
Weighted average shares of common stock:
Shares of common stock outstanding at the balance sheet date		49,938			53,072
Unvested dividend eligible share based compensation
outstanding at the balance sheet date		55			-
Effect of weighting		(1,088	)		(6	)
Weighted average shares-basic and diluted		48,905			53,066
Net income (loss) per common share:
Basic and diluted	$	0.22		$	(0.31	)
Anti-dilutive incentive shares not included in calculation.		-			42

(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

NOTE 12. FAIR VALUE

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~~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 and the ~~Company could opt~~independent pricing sources use various valuation techniques to ~~have~~determine the price of the Company’s securities. These techniques include observing the most recent market for like or identical assets, spread pricing techniques (option adjusted spread, zero volatility spread, spread to the U.S. Treasury curve or spread to a benchmark such as a TBA), and model driven approaches (the discounted cash flow method, Black Scholes and SABR models which rely upon observable market rates such as the term structure of interest rates and volatility). The appropriate spread pricing method used is based on market convention. The pricing source determines the spread of recently observed trade activity or observable markets for assets similar to those being priced. The spread is then adjusted based on variances in certain characteristics between the market observation and the asset being priced. Those characteristics include: type of asset, the expected life of the asset, the stability and predictability of the expected future cash flows of the asset, whether the coupon of the asset is fixed or adjustable, the guarantor of the security if applicable, the coupon, the maturity, the issuer, size of the underlying loans, year in which the underlying loans were originated, loan to value ratio, state in which the underlying loans reside, credit score of the underlying borrowers and other variables if appropriate. The fair value of ~~all of its positions in RMBS, interest rate swaptions and TBA securities~~the security is determined by ~~either an independent third-party or could do so internally.~~using the adjusted spread.

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, 2019 and ~~2016.~~2018. 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, 2019 and December 31, ~~2016:~~2018. Derivative contracts are reported as a net position by contract type, and not based on master netting arrangements.

(in thousands)
				Quoted Prices
				in Active		Significant
				Markets for		Other			Significant
				Identical		Observable			Unobservable
	Fair Value			Assets		Inputs			Inputs
	Measurements			(Level 1)		(Level 2)			(Level 3)
March 31, 2019
Mortgage-backed securities	$	3,088,514		$	-	$	3,088,514		$	-
Interest rate swaps		12,036			-		12,036			-
Interest rate swaptions		53			-		53			-
TBA securities		(4,235	)		-		(4,235	)		-
December 31, 2018
Mortgage-backed securities	$	3,014,503		$	-	$	3,014,503		$	-
Interest rate swaps		14,557			-		14,557			-
Interest rate swaptions		123			-		123			-
TBA securities		(3,742	)		-		(3,742	)		-

(in thousands)
Quoted Prices
in Active Significant
Markets for Other Significant
Identical Observable Unobservable
Fair Value Assets Inputs Inputs
Measurements (Level 1) (Level 2) (Level 3)
September 30, 2017
Mortgage-backed securities $ 3,930,340 $ - $ 3,930,340 $ -
Interest rate swaps 8,102 - 8,102 -
Interest rate swaptions 3,194 - 3,194 -
TBA securities 2,984 - 2,984 -
December 31, 2016
Mortgage-backed securities $ 3,022,174 $ - $ 3,022,174 $ -
Interest rate swaps 9,500 - 9,500 -
TBA securities (1,117 ) - (1,117 ) -

During the ~~nine and~~ three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, there were no transfers of financial assets or liabilities between levels 1, 2 or 3.

NOTE 13. RELATED PARTY TRANSACTIONS

Management Agreement

The Company is externally managed and advised by Bimini Advisors, LLC (the ~~"Manager"~~“Manager”) pursuant to the terms of a management agreement. The management agreement has been renewed through February 20, ~~2018~~2020 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~~Company’s month-end equity, as defined in the management agreement,

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

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

The Company is obligated to reimburse the Manager for any direct expenses incurred on its behalf and to pay the Manager the ~~Company's~~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~~$1.6 million and ~~$1.9~~$2.1 million for the ~~nine and~~ three months ended ~~September 30, 2017, respectively,~~March 31, 2019 and ~~approximately $3.9 million and $1.4 million for the nine and three months ended September 30, 2016,~~2018, respectively. At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, the net amount due to affiliates was approximately ~~$0.8~~$0.5 million and ~~$0.6~~$0.7 million, respectively.

Other Relationships with Bimini

Robert Cauley, our Chief Executive Officer and Chairman of our Board of Directors, also serves as Chief Executive Officer and Chairman of the Board of Directors of Bimini and owns shares of common stock of Bimini. ~~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, 2019, Bimini owned 1,520,036 shares, or ~~3.4%~~3.0%, of the ~~Company's~~Company’s common stock.

ITEM 2. ~~MANAGEMENT'S~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with the ~~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"~~“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.

Overview

We are a specialty finance company that invests in residential mortgage-backed securities ~~("RMBS"~~(“RMBS”) which are issued and guaranteed by a federally chartered corporation or agency ("(“Agency ~~RMBS"~~RMBS”). Our investment strategy focuses on, and our portfolio consists of, two categories of Agency RMBS: (i) traditional pass-through Agency RMBS, ("consisting of mortgage pass-through certificates issued by Fannie Mae, Freddie Mac or Ginnie Mae (the “GSEs”) and collateralized mortgage obligations (“CMOs”) issued by the GSEs (“PT ~~RMBS"~~RMBS”) and (ii) structured Agency RMBS, such as ~~collateralized mortgage obligations ("CMOs"),~~ interest-only securities ~~("IOs"~~(“IOs”), inverse interest-only securities ~~("IIOs"~~(“IIOs”) and principal only securities ~~("POs"~~(“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"~~(“IPO”) on February 20, 2013. We are externally managed by Bimini Advisors, a registered investment adviser with the Securities and Exchange Commission (the ~~"SEC"~~“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"~~(“REIT”) under the Internal Revenue Code of 1986, as amended (the ~~"Code"~~“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~~Company’s common stock trades on the New York Stock Exchange ~~("NYSE")~~ under the symbol ~~"ORC"~~“ORC”.

Capital Raising Activities

On ~~July 29, 2016,~~August 2, 2017, 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~~“August 2017 Equity Distribution ~~Agreement"~~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~~“at the ~~market"~~market” offerings and privately negotiated transactions. ~~The May 2017 Equity Distribution Agreement replaced the July 2016 Equity Distribution Agreement. We~~Through March 31, 2019, we issued a total of ~~12,299,032~~9,013,946 shares under the ~~May~~August 2017 Equity Distribution Agreement for aggregate gross proceeds of ~~$125.0~~$84.6 million, and net proceeds of approximately ~~$122.9~~$83.3 million, net of commissions and ~~fees, prior to its termination.~~fees.

Stock Repurchase Agreement

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,July 29, 2015, the Company’s Board of Directors authorized the repurchase of up to ~~an aggregate amount of $125,000,000 of~~2,000,000 shares of our common stock. The timing, manner, price and amount of any repurchases is determined by the Company in its discretion and is subject to economic and market conditions, stock price, applicable legal requirements and other factors. The authorization does not obligate the Company to acquire any particular amount of common stock and the program may be suspended or discontinued at the Company’s discretion without prior notice.On February 8, 2018, the Board of Directors approved an increase in ~~transactions that are deemed~~the stock repurchase program for up to ~~be "at~~an additional 4,522,822 shares of the ~~market" offerings and privately negotiated transactions. The August 2017 Equity Distribution Agreement replaced~~Company’s common stock.This stock repurchase program has no termination date.

From the ~~May 2017 Equity Distribution Agreement. Through September 30, 2017,~~inception of the stock repurchase program through March 31, 2019, we have ~~not issued any~~repurchased a total of 5,665,620 shares at an aggregate cost of approximately $40.3 million, including commissions and fees, for a weighted average price of $7.11 per share. During the three months ended March 31, 2019, we repurchased a total of 469,975 shares at an aggregate cost of approximately $3.0 million, including commissions and fees, for a weighted average price of $6.43 per share. The remaining authorization under the ~~August 2017 Equity Distribution Agreement.~~repurchase program as of March 31, 2019 was 857,202 shares.

Factors that Affect our Results of Operations and Financial Condition

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

·	interest rate trends;

·	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"~~“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.

Results of Operations

Described below are the ~~Company's~~Company’s results of operations for the ~~nine and~~ three months ended ~~September 30, 2017,~~March 31, 2019, as compared to the ~~Company's~~Company’s results of operations for the ~~nine and~~ three months ended ~~September 30, 2016.~~March 31, 2018.

Net Income (Loss) Summary

~~Net income for the nine months ended September 30, 2017 was $8.0 million, or $0.21 per share. Net income for the nine months ended September 30, 2016 was $22.4 million, or $0.99 per share.~~

Net income for the three months ended ~~September 30, 2017~~March 31, 2019 was ~~$15.2~~$10.6 million, or ~~$0.33~~$0.22 per share. Net ~~income~~loss for the three months ended ~~September 30, 2016~~March 31, 2018 was ~~$20.5~~$16.4 million, or ~~$0.85~~$0.31 per share. The components of net income (loss) for the ~~nine and~~ three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, 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			2019			2018			Change
Interest income	$	105,864		$	62,059		$	43,805		$	38,974		$	22,358		$	16,616		$	32,433		$	39,935		$	(7,502	)
Interest expense		(28,116	)		(10,629	)		(17,487	)		(12,638	)		(3,979	)		(8,659	)		(18,892	)		(15,149	)		(3,743	)
Net interest income		77,748			51,430			26,318			26,336			18,379			7,957			13,541			24,786			(11,245	)
(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																				(748	)		(38,056	)		37,308
Net portfolio income (deficiency)																				12,793			(13,270	)		26,063
Expenses		(8,181	)		(6,587	)		(1,594	)		(2,899	)		(2,271	)		(628	)		(2,196	)		(3,107	)		911
Net income	$	7,989		$	22,397		$	(14,408	)	$	15,183		$	20,526		$	(5,343	)
Net income (loss)																			$	10,597		$	(16,377	)	$	26,974

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~~“Net Earnings Excluding Realized and Unrealized Gains and ~~Losses"~~Losses”, ~~"Economic~~“Economic Interest ~~Expense"~~Expense” and ~~"Economic~~“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"~~“FASB”) Accounting Standards Codification ~~("ASC"~~(“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~~Company’s 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.

Net Earnings Excluding Realized and Unrealized Gains and Losses
(in thousands, except per share data)
									Per Share
							Net Earnings								Net Earnings
							Excluding								Excluding
				Realized and			Realized and					Realized and			Realized and
	Net			Unrealized			Unrealized		Net			Unrealized			Unrealized
	Income			Gains and			Gains and		Income			Gains and			Gains and
	(GAAP)			Losses⁽¹⁾			Losses		(GAAP)			Losses			Losses
Three Months Ended
March 31, 2019	$	10,597		$	(748	)	$	11,345	$	0.22		$	(0.02	)	$	0.24
December 31, 2018		(26,397	)		(40,707	)		14,310		(0.52	)		(0.80	)		0.28
September 30, 2018		(2,959	)		(20,150	)		17,191		(0.06	)		(0.39	)		0.33
June 30, 2018		1,346			(17,734	)		19,080		0.03			(0.34	)		0.37
March 31, 2018		(16,377	)		(38,055	)		21,678		(0.31	)		(0.72	)		0.41

Net Earnings Excluding Realized and Unrealized Gains and Losses
(in thousands, except per share data)
Per Share
Net Earnings Net Earnings
Excluding Excluding
Realized and Realized and Realized and Realized and
Net Unrealized Unrealized Net Unrealized Unrealized
Income Gains and Gains and Income Gains and Gains and
(GAAP)
Losses⁽¹⁾
Losses (GAAP) Losses Losses
Three Months Ended
September 30, 2017 $ 15,183 $ (8,254 ) $ 23,437 $ 0.33 $ (0.18 ) $ 0.52
June 30, 2017 (9,643 ) (32,597 ) 22,954 (0.26 ) (0.88 ) 0.62
March 31, 2017 2,449 (20,727 ) 23,176 0.07 (0.63 ) 0.70
December 31, 2016 (20,419 ) (38,003 ) 17,584 (0.72 ) (1.33 ) 0.62
September 30, 2016 20,526 4,418 16,108 0.85 0.18 0.67
June 30, 2016 6,463 (7,319 ) 13,782 0.29 (0.33 ) 0.63
March 31, 2016 (4,591 ) (19,561 ) 14,970 (0.21 ) (0.90 ) 0.69
Nine Months Ended
September 30, 2017 $ 7,989 $ (61,578 ) $ 69,567 $ 0.21 $ (1.59 ) $ 1.80
September 30, 2016 22,397 �� (22,460 ) 44,857 0.99 (0.99 ) 1.98

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

Economic Interest Expense and Economic Net Interest Income

We use derivative instruments, specifically Eurodollar and Treasury Note ~~("T-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"),~~FASB 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 and unrealized gains or losses on ~~specific~~certain derivative instruments the Company uses, specifically Eurodollar and U.S. Treasury futures, and interest rate swaps and swaptions, that pertain to each period presented. We believe that adjusting our interest expense for the periods presented by the gains or losses on ~~all~~these derivative instruments would not accurately reflect our economic interest expense for these periods. The reason is that these derivative instruments may cover periods that extend into the future, not just the current period. Any realized or unrealized gains or losses on the instruments reflect the change in market value of the instrument caused by changes in underlying interest rates applicable to the term covered by the instrument, not just the current period. For each period presented, we have combined the effects of the derivative financial instruments in place for the respective period with the actual interest expense incurred on borrowings to reflect total economic interest expense for the applicable period. Interest expense, including the effect of derivative instruments for the period, is referred to as economic interest expense. Net interest income, when calculated to include the effect of derivative instruments for the period, is referred to as economic net interest income. This presentation includes gains or losses on all contracts in effect during the reporting period, covering the current period as well as periods in the future.

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~~2019 to date and ~~2016.~~2018.

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 )

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, 2019	$	(19,032	)	$	(4,641	)	$	2,427		$	(16,818	)
December 31, 2018		(45,235	)		(8,737	)		784		$	(37,282	)
September 30, 2018		12,693			3,293			272		$	9,128
June 30, 2018		14,859			1,564			(852	)	$	14,147
March 31, 2018		41,994			8,407			(3,011	)	$	36,598

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, 2019	$	32,433	$	18,892	$	2,427		$	16,465	$	13,541	$	15,968
December 31, 2018		37,002		19,739		784			18,955		17,263		18,047
September 30, 2018		39,054		18,893		272			18,621		20,161		20,433
June 30, 2018		38,590		16,579		(852	)		17,431		22,011		21,159
March 31, 2018		39,935		15,149		(3,011	)		18,160		24,786		21,775

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.

Net Interest Income

During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2019, we generated ~~$77.7~~$13.5 million of net interest income, consisting of ~~$105.9~~$32.4 million of interest income from RMBS assets offset by ~~$28.1~~$18.9 million of interest expense on borrowings. For the comparable period ended ~~September 30, 2016,~~March 31, 2018, we generated ~~$51.4~~$24.8 million of net interest income, consisting of ~~$62.1~~$39.9 million of interest income from RMBS assets offset by ~~$10.6~~$15.1 million of interest expense on borrowings. The ~~$43.8~~$7.5 million ~~increase~~decrease in interest income ~~and $17.5~~was due to the $693.8 million decrease in average RMBS, combined with a 2 basis point ("bps") decrease in the yield on average RMBS. The $3.7 million increase in interest expense ~~for~~was due to an 88 bps increase in the ~~nine months ended September 30, 2017 primarily reflects~~average cost of funds, partially offset by a $630.6 million decrease in average outstanding borrowings. We had fewer assets and borrowings during the ~~growth~~first quarter of 2019 compared to the first quarter of 2018 as a result of stock repurchases and a reduction in the valuation of our ~~portfolio fueled by~~assets, while our ~~net capital raising activities, combined with increased yields earned on our portfolio and increased costs and amounts~~leverage ratio was nearly the same during the first quarter of ~~our borrowings.~~2019 as it was during the same period in 2018.

On an economic basis, our interest expense on borrowings for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018 was ~~$38.7~~$16.5 million and ~~$17.4~~$18.2 million, respectively, resulting in ~~$67.1~~$16.0 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$21.8 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 2017~~in 2019 and ~~2016~~2018 on both a GAAP and economic basis.

($ in thousands)
Average Yield on Interest Expense Average Cost of Funds
RMBS Interest Average Average GAAP Economic GAAP Economic

Held⁽¹⁾
Income RMBS
Borrowings⁽¹⁾
Basis
Basis⁽²⁾
Basis
Basis⁽³⁾

Three Months Ended
September 30, 2017 $ 3,834,083 $ 38,974 4.07 % $ 3,494,266 $ 12,638 $ 16,392 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 %
March 31, 2017 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)
	Average				Yield on					Interest Expense				Average Cost of Funds
	RMBS		Interest		Average			Average		GAAP		Economic		GAAP			Economic
	Held⁽¹⁾		Income		RMBS			Borrowings⁽¹⁾		Basis		Basis⁽²⁾		Basis			Basis⁽³⁾
Three Months Ended
March 31, 2019	$	3,051,509	$	32,433		4.25	%	$	2,945,895	$	18,892	$	16,465		2.57	%		2.24	%
December 31, 2018		3,264,230		37,002		4.53	%		3,173,428		19,739		18,955		2.49	%		2.39	%
September 30, 2018		3,601,776		39,054		4.34	%		3,385,829		18,893		18,621		2.23	%		2.20	%
June 30, 2018		3,717,690		38,590		4.15	%		3,534,567		16,579		17,431		1.88	%		1.97	%
March 31, 2018		3,745,298		39,935		4.27	%		3,576,533		15,149		18,160		1.69	%		2.03	%

($ in thousands)
	Net Interest Income				Net Interest Spread
	GAAP		Economic		GAAP			Economic
	Basis		Basis⁽²⁾		Basis			Basis⁽⁴⁾
Three Months Ended
March 31, 2019	$	13,541	$	15,968		1.68	%		2.01	%
December 31, 2018		17,263		18,047		2.04	%		2.14	%
September 30, 2018		20,161		20,433		2.11	%		2.14	%
June 30, 2018		22,011		21,159		2.27	%		2.18	%
March 31, 2018		24,786		21,775		2.58	%		2.24	%

($ in thousands)
Net Interest Income Net Interest Spread
GAAP Economic GAAP Economic
Basis
Basis⁽²⁾
Basis
Basis⁽⁴⁾

Three Months Ended
September 30, 2017 $ 26,336 $ 22,582 2.62 % 2.19 %
June 30, 2017 25,816 22,162 2.84 % 2.38 %
March 31, 2017 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 %

(1)

Portfolio yields and costs of borrowings presented in the tables above and the tables on pages 3029 and 3130 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 3130 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 months ended September 30, 2017 and 2016 was $105.9 million and $62.1 million, respectively. We had average RMBS holdings of $3,492.0 million and $2,176.7 million for the nine months ended September 30, 2017 and 2016, respectively. The yield on our portfolio was 4.04% and 3.80% for the nine months ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, there was a $43.8 million increase in interest income due to a $1,315.3 million increase in average RMBS, combined with a 24 basis point ("bps") increase in the yield on average RMBS. The increase in average RMBS during the nine months ended September 30, 2017 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~~March 31, 2019 and ~~2016~~2018 was ~~$39.0~~$32.4 million and ~~$22.4~~$39.9 million, respectively. We had average RMBS holdings of ~~$3,834.1~~$3,051.5 million and ~~$2,362.4~~$3,745.3 million for the three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, respectively. The yield on our portfolio was ~~4.07%~~4.25% and ~~3.79%~~4.27% for the three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, respectively. For the three months ended ~~September 30, 2017~~March 31, 2019 as compared to the three months ended ~~September 30, 2016,~~March 31, 2018, there was a ~~$16.6~~$7.5 million ~~increase~~decrease in interest income due to a ~~$1,471.7~~$693.8 million ~~increase~~decrease in average RMBS, combined with a 282 bps ~~increase~~decrease 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 2019 and ~~2016.~~2018.

($ in thousands)
	Average RMBS Held						Interest Income						Realized Yield on Average RMBS
	PT		Structured				PT		Structured				PT			Structured
Three Months Ended	RMBS		RMBS		Total		RMBS		RMBS		Total		RMBS			RMBS			Total
March 31, 2019	$	2,919,415	$	132,094	$	3,051,509	$	30,328	$	2,105	$	32,433		4.16	%		6.37	%		4.25	%
December 31, 2018		3,126,639		137,591		3,264,230		34,648		2,354		37,002		4.43	%		6.84	%		4.53	%
September 30, 2018		3,463,325		138,451		3,601,776		36,716		2,338		39,054		4.24	%		6.76	%		4.34	%
June 30, 2018		3,572,540		145,150		3,717,690		36,273		2,317		38,590		4.06	%		6.38	%		4.15	%
March 31, 2018		3,610,527		134,771		3,745,298		38,725		1,210		39,935		4.29	%		3.59	%		4.27	%

($ in thousands)
Average RMBS Held Interest Income Realized Yield on Average RMBS
PT Structured PT Structured PT Structured
RMBS RMBS Total RMBS RMBS Total RMBS RMBS Total
Three Months Ended
September 30, 2017 $ 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 %
March 31, 2017 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 %

Interest Expense and the Cost of Funds

We had average outstanding borrowings of ~~$3,193.7~~$2,945.9 million and ~~$2,047.5~~$3,576.5 million and total interest expense of ~~$28.1~~$18.9 million and ~~$10.6~~$15.1 million for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, respectively. Our average cost of funds was ~~1.17%~~2.57% and 1.69% for the ~~nine~~three months ended ~~September 30, 2017, compared~~March 31, 2019 and 2018, respectively. Contributing to ~~0.69% for~~ the ~~comparable period~~increase in ~~2016. There~~interest expense was an 88 bps increase in the average cost of funds, partially offset by a ~~$1,146.1~~$630.6 million ~~increase~~decrease in average outstanding borrowings during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 as compared to the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2018. The higher cost of funds for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2019, compared to the same period in ~~2016,~~2018, 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~~$16.5 million and ~~$17.4~~$18.2 million for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, respectively. There was a 4821 bps increase in the average economic cost of funds to ~~1.62%~~2.24% for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 from ~~1.14%~~2.03% for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2018. The reason for the increase in economic ~~interest expense was~~cost of funds is primarily due to the increase in ~~average outstanding borrowings during~~ the ~~nine months ended September 30, 2017, combined with the negative performance~~cost of our ~~derivative agreements attributed to the current period.~~borrowings noted above.

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 256 bps above the average one-month LIBOR and 020 bps below the average six-month LIBOR for the quarter ended ~~September 30, 2017.~~March 31, 2019. Our average economic cost of funds was 6827 bps ~~above~~below the average one-month LIBOR and 4353 bps ~~above~~below the average six-month LIBOR for the quarter ended ~~September 30, 2017.~~March 31, 2019. The average term to maturity of the outstanding repurchase agreements ~~increased to 59~~was 35 days at ~~September 30, 2017 from 15~~March 31, 2019 and 31 days at December 31, ~~2016.~~2018.

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~~2019 and ~~2016~~2018 on both a GAAP and economic basis.

($ in thousands)
Average Interest Expense Average Cost of Funds
Balance of GAAP Economic GAAP Economic
Borrowings Basis Basis Basis Basis
Three Months Ended
September 30, 2017 $ 3,494,266 $ 12,638 $ 16,392 1.45 % 1.88 %
June 30, 2017 3,164,532 8,763 12,417 1.11 % 1.57 %
March 31, 2017 2,922,157 6,715 9,908 0.92 % 1.36 %
December 31, 2016 2,545,901 4,974 7,943 0.78 % 1.25 %
September 30, 2016 2,179,462 3,979 6,639 0.73 % 1.22 %
June 30, 2016 2,000,158 3,330 5,540 0.67 % 1.11 %
March 31, 2016 1,962,901 3,319 5,252 0.68 % 1.07 %
Nine Months Ended
September 30, 2017 $ 3,193,652 $ 28,116 $ 38,717 1.17 % 1.62 %
September 30, 2016 2,047,507 10,628 17,431 0.69 % 1.14 %

($ in thousands)
	Average		Interest Expense				Average Cost of Funds
	Balance of		GAAP		Economic		GAAP			Economic
Three Months Ended	Borrowings		Basis		Basis		Basis			Basis
March 31, 2019	$	2,945,895	$	18,892	$	16,465		2.57	%		2.24	%
December 31, 2018		3,173,428		19,739		18,955		2.49	%		2.39	%
September 30, 2018		3,385,829		18,893		18,621		2.23	%		2.20	%
June 30, 2018		3,534,567		16,579		17,431		1.88	%		1.97	%
March 31, 2018		3,576,533		15,149		18,160		1.69	%		2.03	%

							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
March 31, 2019		2.51	%		2.77	%		0.06	%		(0.20	)%		(0.27	)%		(0.53	)%
December 31, 2018		2.39	%		2.74	%		0.10	%		(0.25	)%		0.00	%		(0.35	)%
September 30, 2018		2.17	%		2.55	%		0.06	%		(0.32	)%		0.03	%		(0.35	)%
June 30, 2018		1.99	%		2.48	%		(0.11	)%		(0.60	)%		(0.02	)%		(0.51	)%
March 31, 2018		1.69	%		2.11	%		0.00	%		(0.42	)%		0.34	%		(0.08	)%

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 %

Gains or Losses

The table below presents our gains or losses for the ~~nine and~~ three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016.~~2018.

(in thousands)
	2019			2018			Change
Realized gains (losses) on sales of RMBS	$	243		$	(8,338	)	$	8,581
Unrealized gains (losses) on RMBS		18,041			(71,712	)		89,753
Total gains (losses) on RMBS		18,284			(80,050	)		98,334
(Losses) gains on interest rate futures		(11,718	)		21,362			(33,080	)
(Losses) gains on interest rate swaps		(2,295	)		10,508			(12,803	)
Losses on receiver swaptions		-			(349	)		349
(Losses) gains on payer swaptions		(378	)		2,066			(2,444	)
(Losses) gains on TBA securities		(4,641	)		8,407			(13,048	)

(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, 2017~~March 31, 2019 and ~~2016,~~2018, we received proceeds of ~~$3,891.0~~$655.4 million and ~~$1,717.6~~$228.7 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~~2019 and ~~2016.~~2018.

	5 Year			10 Year			15 Year			30 Year			Three
	U.S. Treasury			U.S. Treasury			Fixed-Rate			Fixed-Rate			Month
	Rate⁽¹⁾			Rate⁽¹⁾			Mortgage Rate⁽²⁾			Mortgage Rate⁽²⁾			LIBOR⁽³⁾
March 31, 2019		2.24	%		2.41	%		3.72	%		4.27	%		2.61	%
December 31, 2018		2.51	%		2.69	%		4.09	%		4.64	%		2.80	%
September 30, 2018		2.95	%		3.06	%		4.08	%		4.63	%		2.40	%
June 30, 2018		2.73	%		2.85	%		4.04	%		4.57	%		2.34	%
March 31, 2018		2.56	%		2.74	%		3.91	%		4.44	%		2.31	%

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 %

(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~~Mac’s Primary Mortgage Market Survey.

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

Expenses

~~For the nine and three months ended September 30, 2017, the Company's total~~

Total operating expenses were approximately ~~$8.2~~$2.2 million and ~~$2.9~~$3.1 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, 2019 and 2018, respectively. The table below presents a breakdown of operating expenses for the ~~nine and~~ three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016.~~2018.

(in thousands)
	2019			2018		Change
Management fees	$	1,285		$	1,712	$	(427	)
Overhead allocation		323			382		(59	)
Accrued incentive compensation		(408	)		11		(419	)
Directors fees and liability insurance		253			252		1
Audit, legal and other professional fees		301			296		5
Other direct REIT operating expenses		375			403		(28	)
Other expenses		67			51		16
Total expenses	$	2,196		$	3,107	$	(911	)

(in thousands)
Nine Months Ended September 30, Three Months Ended September 30,
2017 2016 Change 2017 2016 Change
Management fees $ 4,230 $ 2,968 $ 1,262 $ 1,528 $ 1,052 $ 476
Overhead allocation 1,168 963 205 412 336 76
Accrued incentive compensation 439 598 (159 ) 209 212 (3 )
Directors fees and liability insurance 722 763 (41 ) 215 236 (21 )
Audit, legal and other professional fees 547 654 (107 ) 157 193 (36 )
Direct REIT operating expenses 816 426 390 320 187 133
Other administrative 259 215 44 58 55 3
Total expenses $ 8,181 $ 6,587 $ 1,594 $ 2,899 $ 2,271 $ 628

We are externally managed and advised by Bimini Advisors, LLC (the ~~"Manager"~~“Manager”) pursuant to the terms of a management agreement. The management agreement has been renewed through February 20, ~~2018~~2020 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~~Company’s month end equity, as defined in the management agreement,

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

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

~~We are~~The Company is obligated to reimburse ~~Bimini Advisors~~the Manager for any direct expenses incurred on its ~~behalf. In addition, beginning July 1, 2014, Bimini Advisors began allocating~~behalf and to ~~us its~~pay the Manager the Company’s pro rata portion of certain overhead costs set forth in ~~accordance with~~ the management agreement. Should wethe Company terminate the management agreement without cause, weit 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.

The following table summarizes the management fee and overhead allocation expenses for each quarter in 2019 and 2018.

($ in thousands)
	Average		Average		Advisory Services
	Orchid		Orchid		Management		Overhead
Three Months Ended	MBS		Equity		Fee		Allocation		Total
March 31, 2019	$	3,051,509	$	363,204	$	1,285	$	323	$	1,608
December 31, 2018		3,264,230		395,911		1,404		433		1,837
September 30, 2018		3,601,776		431,962		1,482		391		1,873
June 30, 2018		3,717,690		469,974		1,606		361		1,967
March 31, 2018		3,745,298		488,906		1,712		382		2,094

Financial Condition:

Mortgage-Backed Securities

As of ~~September 30, 2017,~~March 31, 2019, our RMBS portfolio consisted of ~~$3,930.3~~$3,088.5 million of Agency RMBS at fair value and had a weighted average coupon on assets of ~~4.34%~~4.12%. During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2019, we received principal repayments of ~~$248.5~~$94.8 million compared to ~~$178.5~~$78.7 million for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2018. The average prepayment speeds for the quarters ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018 were ~~10.3%~~9.2% and ~~11.7%~~7.7%, respectively.

The following table presents the 3-month constant prepayment rate ~~("CPR"~~(“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 (%)
March 31, 2019		9.5		8.4		9.2
December 31, 2018		6.7		9.0		7.2
September 30, 2018		7.5		11.5		8.6
June 30, 2018		8.7		11.8		9.8
March 31, 2018		6.5		11.6		7.7

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~~Company’s PT RMBS and structured RMBS as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016:~~

($ 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

2018:

($ 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 %

($ 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, 2019
Adjustable Rate RMBS	$	1,217	0.0%	4.78%	186	1-Sep-35	2.16	10.10%	2.89%
Fixed Rate RMBS		2,245,280	72.7%	4.35%	297	1-Mar-49	NA	NA	NA
Fixed Rate CMOs		717,995	23.2%	4.26%	344	15-Oct-44	NA	NA	NA
Total Mortgage-backed Pass-through		2,964,492	95.9%	4.33%	308	1-Mar-49	NA	NA	NA
Interest-Only Securities		99,804	3.2%	3.74%	252	15-Jul-47	NA	NA	NA
Inverse Interest-Only Securities		24,218	0.9%	2.64%	294	25-Jul-48	NA	4.51%	NA
Total Structured RMBS		124,022	4.1%	3.49%	261	25-Jul-48	NA	NA	NA
Total Mortgage Assets	$	3,088,514	100.0%	4.12%	296	1-Mar-49	NA	NA	NA
December 31, 2018
Adjustable Rate RMBS	$	1,437	0.0%	4.75%	190	1-Sep-35	4.51	10.04%	2.76%
Fixed Rate RMBS		2,130,974	70.7%	4.28%	275	1-Nov-48	NA	NA	NA
Fixed Rate CMOs		741,926	24.6%	4.27%	348	15-Oct-44	NA	NA	NA
Total Mortgage-backed Pass-through		2,874,337	95.3%	4.27%	294	1-Nov-48	NA	NA	NA
Interest-Only Securities		116,415	3.9%	3.74%	254	25-Jul-48	NA	NA	NA
Inverse Interest-Only Securities		23,751	0.8%	2.65%	297	15-Jul-47	NA	4.52%	NA
Total Structured RMBS		140,166	4.7%	3.55%	264	25-Jul-48	NA	NA	NA
Total Mortgage Assets	$	3,014,503	100.0%	4.06%	286	1-Nov-48	NA	NA	NA

($ in thousands)
	March 31, 2019					December 31, 2018
			Percentage of					Percentage of
Agency	Fair Value		Entire Portfolio			Fair Value		Entire Portfolio
Fannie Mae	$	1,527,470		49.5	%	$	1,527,055		50.7	%
Freddie Mac		1,557,610		50.4	%		1,483,406		49.2	%
Ginnie Mae		3,434		0.1	%		4,042		0.1	%
Total Portfolio	$	3,088,514		100.0	%	$	3,014,503		100.0	%

	September 30, 2017		December 31, 2016		March 31, 2019		December 31, 2018
Weighted Average Pass-through Purchase Price	$	108.23	$	108.64	$	104.59	$	104.57
Weighted Average Structured Purchase Price	$	14.19	$	15.39	$	15.14	$	15.14
Weighted Average Pass-through Current Price	$	108.03	$	107.14	$	105.11	$	103.64
Weighted Average Structured Current Price	$	13.18	$	15.49	$	12.89	$	14.04
Effective Duration ⁽¹⁾		2.603		4.579		1.450		2.078

(1)

Effective duration is the approximate percentage change in price for a 100 bps change in rates. An effective duration of ~~2.603~~1.450 indicates that an interest rate increase of 1.0% would be expected to cause a ~~2.603%~~1.450% decrease in the value of the RMBS in the ~~Company's~~Company’s investment portfolio at ~~September 30, 2017.~~March 31, 2019. An effective duration of ~~4.579~~2.078 indicates that an interest rate increase of 1.0% would be expected to cause a ~~4.579%~~2.078% decrease in the value of the RMBS in the ~~Company's~~Company’s investment portfolio at December 31, ~~2016.~~2018. These figures include the structured securities in the portfolio, but do not include the effect of the ~~Company's~~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, 2017~~March 31, 2019 and ~~2016.~~2018, including securities purchased during the period that settled after the end of the period, if any.

($ in thousands)
	2019								2018
		Total Cost		Average Price		Weighted Average Yield				Total Cost		Average Price		Weighted Average Yield
Pass-through RMBS		$	582,403	$	105.37		3.51	%		$	520,778	$	106.30		3.01	%
Structured RMBS			-		-		-				27,729		21.50		5.39	%

($ in thousands)
2017 2016
Total Cost Average Price Weighted Average Yield Total Cost Average Price Weighted Average Yield
Pass-through RMBS $ 5,007,614 $ 108.16 2.75 % $ 2,204,085 $ 109.70 2.24 %
Structured RMBS 72,331 14.46 6.21 % 52,897 18.03 5.46 %

Borrowings

As of ~~September 30, 2017,~~March 31, 2019, 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 2021 of these counterparties. None of these lenders are affiliated with the Company. These borrowings are secured by the ~~Company's~~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, 2019, we had obligations outstanding under the repurchase agreements of approximately ~~$3,710.1~~$2,866.7 million with a net weighted average borrowing cost of ~~1.37%~~2.70%. The remaining maturity of our outstanding repurchase agreement obligations ranged from 21 to ~~318~~87 days, with a weighted average remaining maturity of 5935 days. Securing the repurchase agreement obligations as of ~~September 30, 2017~~March 31, 2019 are RMBS with an estimated fair value, including accrued interest, of approximately ~~$3,932.6~~$3,041.4 million and a weighted average maturity of ~~340~~299 months, and cash pledged to counterparties of approximately ~~$12.0~~$6.8 million. Through ~~October 27, 2017,~~April 26, 2019, we have been able to maintain our repurchase facilities with comparable terms to those that existed at ~~September 30, 2017~~March 31, 2019 with maturities through ~~August 14, 2018.~~

April 9, 2020.

The table below presents information about our period end, maximum and average ~~repurchase agreement obligations~~balances of borrowings for each quarter in ~~2017~~2019 and ~~2016.~~2018.

($ in thousands)
							Difference Between Ending
	Ending		Maximum		Average		Borrowings and
	Balance of		Balance of		Balance of		Average Borrowings
Three Months Ended	Borrowings		Borrowings		Borrowings		Amount			Percent
March 31, 2019	$	2,866,738	$	3,022,771	$	2,945,895	$	(79,157	)		(2.69	)%
December 31, 2018		3,025,052		3,356,691		3,173,428		(148,376	)		(4.68	)%
September 30, 2018		3,321,803		3,532,904		3,385,829		(64,026	)		(1.89	)%
June 30, 2018		3,449,854		3,637,286		3,534,567		(84,713	)		(2.40	)%
March 31, 2018		3,619,280		3,931,856		3,576,533		42,747			1.20	%

($ in thousands)
Difference Between Ending
Ending Average Borrowings and
Balance of Balance of Average Borrowings
Three Months Ended Borrowings Borrowings Amount Percent
September 30, 2017 $ 3,710,077 $ 3,494,266 $ 215,811 6.18 %
June 30, 2017 3,278,456 3,164,532 113,924 3.60 %
March 31, 2017 3,050,608 2,922,157 128,451 4.40 %
December 31, 2016 2,793,705 �� 2,545,901 247,804 9.73 %
September 30, 2016 2,298,097 2,179,462 118,635 5.44 %
June 30, 2016 2,060,827 2,000,158 60,669 3.03 %
March 31, 2016 1,939,489 1,962,901 (23,412 ) (1.19 )%

Liquidity and Capital Resources

Liquidity is our ability to turn non-cash assets into cash, purchase additional investments, repay principal and interest on borrowings, fund overhead, fulfill margin calls and pay dividends. 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, 2019, haircuts on our pledged collateral remained stable and as of ~~September 30, 2017,~~March 31, 2019, our weighted average haircut was approximately ~~5.5%~~5.2% of the value of our collateral.

As discussed earlier, we invest a portion of our capital in structured Agency RMBS. We generally do not apply leverage to this portion of our portfolio. The leverage inherent in structured securities replaces the leverage obtained by acquiring PT securities and funding them in the repurchase market. This structured RMBS strategy has been a core element of the ~~Company's~~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.

(in thousands)
	Obligations Maturing
	Within One Year		One to Three Years		Three to Five Years		More than Five Years		Total
Repurchase agreements	$	2,866,738	$	-	$	-	$	-	$	2,866,738
Interest expense on repurchase agreements⁽¹⁾		12,363		-		-		-		12,363
Totals	$	2,879,101	$	-	$	-	$	-	$	2,879,101

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

(1)	Interest expense on repurchase agreements is based on current interest rates as of ~~September 30, 2017~~March 31, 2019 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, 2019, we had cash and cash equivalents of ~~$161.7~~$125.9 million. We generated cash flows of ~~$350.4~~$127.2 million from principal and interest payments on our RMBS and had average repurchase agreements outstanding of ~~$3,193.7~~$2,945.9 million during the ~~nine~~three months ended ~~September 30, 2017.~~March 31, 2019.

~~Stockholders'~~

Stockholders’ Equity

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, we have not issued any shares under the August 2017 Equity Distribution Agreement.

~~Outlook~~

~~Interest Rates and the MBS Market~~

Outlook

In many respects the third quarter was a repeat of the first and second. Economic and market developments continued the trend in place since March. Inflation data continued 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 on health care, regulatory and tax reform, infrastructure spending, etc. were not realized. In contrast, events in Washington were chaotic at times as the Trump Administration struggled with 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 comeThe turmoil that swept global markets came to an end ~~and~~during the ~~continued in-fighting among Republicans called into question the ability~~first quarter of ~~the Trump Administration to accomplish anything meaningful.~~2019. 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 show year over year declines, 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 US Treasury rate hit its year to date low on September 7, 2017, closing at 2.04%, ~~and nearly broke below the psychologically important 2% level intra-day. Mother nature had a hand in shaping developments~~central banks in the ~~markets~~United States, the European Union and China, as well as ~~three~~Japan, appear now to be aligned in their monetary policy. The major ~~hurricanes made landfall – one each in Texas, Florida and Puerto Rico.~~central banks across the globe now have an accommodative stance. In the case of ~~Texas, Hurricane Harvey caused unprecedented flooding~~the U.S. Federal Reserve (the “Fed”), this meant the bank ended a prolonged tightening cycle in December 2018 and ~~disrupted~~moved to a balanced outlook. The Fed communicated its pivot away from tightening over the ~~Nation's oil refining capacity for several days.~~course of the three meetings in December 2018, January 2019 and March 2019. Public comments by various Fed officials between these meetings reinforced the message. At the March 2019 meeting, the Fed finally made it definitive that the tightening cycle was over, surprising the market somewhat and leading to a renewed rally lower in interest rates in the U.S. and triggering a further rally in risk assets across the globe. The Fed also announced it intends to slow the reduction of its balance sheet beginning later this year. This means it will resume larger reinvestment of principal and interest payments on its portfolio, but reinvest in U.S. Treasury securities.

~~However,~~Growth in the U.S. economy during the first quarter of 2019 was much slower than the rate of growth experienced in 2018, but was not as low as was feared in December 2018. Incoming domestic economic data has rebounded as financial conditions have eased and there ~~was~~appear to be green shoots in China and Europe, indicating that the worst may be over in those two very important economies. The markets now appear comfortable in the assumptions that central banks will respond quickly to signs of economic distress and will not remove accommodation over the foreseeable future. This outlook has allowed risk assets to perform very well and interest rates to stabilize as volatility recedes.

As the second quarter of 2019 gets underway, signs of the economic recovery across the globe continue to appear and risk assets have continued to perform well. Interest rates have drifted higher, although, in the case of the U.S., short maturity U.S. Treasury securities, out to the five-year point, remain at or below the effective Federal Funds level of 2.41%. This is consistent with the notion that there will be no further rate increases from the Fed this cycle.

The Agency RMBS market generated a ~~perceptible change~~return of 2.3% during the first quarter of 2019 (per ICE Data indices). This compares with 13.6% for the S&P 500, 7.4% for the high yield corporate index, 5.0% for the investment grade corporate index, and 2.2% for the U.S. Treasury index. Various components of the credit sensitive RMBS markets generated returns between 1.0% for floating rate agency credit risk transfer (“CRT”) M1 tranches to 5.4% for longer duration, fixed rate agency CRT B1 tranches. This relative performance clearly demonstrates the markets’ preference for risky assets during the quarter. Within the Agency RMBS market, returns were generally a function of the duration of the security, with 30-year, fixed rate securities outperforming 15-year, fixed rate securities and lower coupon securities outperforming higher coupon securities. With interest rates still materially below levels seen during the fall of 2018, and seasonal prepayment activity expected to accelerate into the spring and summer, prepayment considerations are paramount in security selection and expected returns. The reduction of purchases by the Fed represents another source of concern for Agency RMBS investors. The market ~~sentiment~~expects refinancing activity and seasonal home turnover to lead to increases in ~~early September~~the supply of Agency RMBS. The extent to which sufficient demand materializes to meet the increased supply will likely be the primary driver of Agency RMBS performance for the second quarter of 2019, and the ~~market reversed course into the end of the third quarter and early fourth quarter. Geo-political events calmed down, removing the flight-to-quality induced demand for safe-haven assets~~, ~~and economic news strengthened. Events in Washington turned mildly positive as the Trump Administration pivoted away from health care reform to tax reform~~, with what 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 implied a 70-80% probability of a 25 basis point increase in the Federal Funds rate in December. The September economic data released in early October has also been very strong, and the anticipated short-term effects 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 the fourth quarter, market pricing of additional policy accommodation removal is far less than the Fed anticipates. The latest reads on inflation returned to its aforementioned string of below expectations readings. The perceived lack of meaningful inflation, coupled with a hawkish fed, has caused 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 appointment of the next Fed chair, with many of the leading candidates perceived to be more hawkish by the markets than 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.~~

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 muchrest 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.as well.

Recent Regulatory Developments

On January 12, 2016, the FHFA issued RIN 2590-AA39, Members of Federal Home Loan Banks (the ~~"Final Rule"~~“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"~~Casualty”), from being eligible for membership in the Federal Home Loan Bank ~~("FHLB"~~(“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"~~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~~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.)~~On January 30, 2018, legislation was introduced ~~H.R. 3808, a bill~~in the United States Senate that would ~~have preemptively prevented the FHFA from adopting the Final Rule in such a way~~permit captive insurance companies that ~~would foreclose~~were FHLB members prior to January 19, 2016 to restore or continue their membership in the ~~FHLB to~~FHLB. In June 2017, legislation was introduced in the United States House of Representatives that would permit a captive insurance ~~companies.~~company that was admitted to the FHLB prior to September 12, 2014 to continue its membership in the FHLB. The Company joined the FHLB of Cincinnati after September 12, 2014, so the House version of the legislation would not permit the Company to rejoin the FHLB of Cincinnati. It is still uncertain whether legislation on FHLB membership will be adopted, and if so, whether it would permit us to rejoin the FHLB. 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.

In September 2017, the 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 be reinvested only to 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. At the conclusion of the March 2019 FOMC meeting, the Fed said that the FOMC intends to slow the pace of the decline in its holdings of U.S. Treasuries and Agency RMBS over coming quarters provided that the economy and money market conditions evolve about as expected. The Fed specified that the FOMC intends to reduce the run-off of its holdings of U.S. Treasury securities by reducing the cap on monthly redemptions from the current level of $30 billion to $15 billion beginning in May 2019, and continue to allow its holdings of Agency RMBS to decline, consistent with the aim of holding primarily U.S. Treasury securities in the long run. Beginning in October 2019 principal payments from Agency RMBS or agency debt will be reinvested in U.S. Treasury securities subject to a maximum of $20 billion per month, with any principal payments in excess of that maximum reinvested in Agency RMBS.

In 2017, policymakers announced that LIBOR will be replaced by 2021. The directive was spurred by the fact that banks are uncomfortable contributing to the LIBOR panel given the shortage of underlying transactions on which to base levels and the liability associated with submitting an unfounded level. LIBOR will be replaced with a new SOFR, a rate based on U.S. repo trading. The new benchmark rate will be based on overnight Treasury General Collateral repo rates. The rate-setting process will be managed and published by the Fed and the Treasury’s Office of Financial Research. Many banks believe that it may take four to five years to complete the transition to SOFR, despite the 2021 deadline. We will monitor the emergence of this new rate carefully as it will likely become the new benchmark for hedges and a range of interest rate investments.

In January 2019, the Trump administration made statements of its plans to work with Congress to overhaul Fannie Mae and Freddie Mac and expectations to announce a framework for the development of a policy for comprehensive housing finance reform soon. At this time, however, no decisions have been made on any reform plan.

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 the balance of 2017~~in 2019 and beyond. ~~The Fed also announced that it will begin to reduce its holdings of Agency MBS and U.S. treasuries.~~

Effect on Us

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

Effects on our Assets

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

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

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

Higher long-term rates can also affect the value of our Agency RMBS. As long-term rates rise, rates available to borrowers also rise. This tends to cause prepayment activity to slow and extend the expected average life of mortgage cash flows. As the expected average life of the mortgage cash flows increases, coupled with higher discount rates, the value of Agency RMBS declines. Some of the instruments the Company uses to hedge our Agency RMBS assets, such as 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 reached $20 billion per month in October 2018. At the time of the Fed’s announcement in September 2017, 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 beyond October 2018. The purchases each month by the Fed have been a significant source of demand in the Agency RMBS market and as it was reduced slowly over the course of 2018 and essentially eliminated beyond October 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. At the conclusion of the March 2019 FOMC meeting, the Fed said that the FOMC intends to slow the pace of the decline in its holdings of U.S. Treasuries and Agency RMBS over coming quarters provided that the economy and money market conditions evolve about as expected. The Fed specified that the FOMC intends to reduce the run-off of its holdings of U.S. Treasury securities by reducing the cap on monthly redemptions from the current level of $30 billion to $15 billion beginning in May 2019, and continue to allow its holdings of Agency RMBS to decline, consistent with the aim of holding primarily U.S. Treasury securities in the long run. Beginning in October 2019 principal payments from Agency RMBS or agency debt will be reinvested in U.S. Treasury securities subject to a maximum of $20 billion per month, with any principal payments in excess of that maximum reinvested in Agency RMBS.

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.~~durations. We believe these securities have a lower sensitivity to changes in long-term interest rates than other asset classes. We may attempt to mitigate our exposure to changes in long-term interest rates by investing in IOs and IIOs, which typically have different sensitivities to changes in long-term interest rates than PT RMBS, particularly PT RMBS backed by fixed-rate mortgages.

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

Effects on our borrowing costs

We leverage our PT RMBS portfolio and a portion of our structured Agency RMBS with principal balances through the use of short-term repurchase agreement transactions. The interest rates on our debt are determined by 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~~economically 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 severe market volatility that began in the fourth quarter of 2018 ended in early January 2019. The catalyst was a sharp reversal in the monetary policy bias of the Fed. The Fed ended a multi-year tightening cycle in December 2018, even though the Fed itself had expected to continue tightening into 2020, per its previous guidance. Coupled with the European Central banks much more modest pivot away from potential tightening in 2019, the Fed’s actions brought all of the world’s major central banks into alignment with respect to their monetary policy. The market sensed central banks would be there to backstop the global economy should economic weakness emerge, and there would be no further removal of accommodation over the foreseeable future. This allowed risk assets to recover quickly during the first quarter and into the second quarter of 2019. Economic data in the U.S. has recovered since December 2018 and January 2019 and, at least for now, appears to have stabilized. Growth in the U.S. is expected to return to trend growth levels over the course of the year. In Europe, the situation is a little more precarious, although Germany and the major economies of the European Union appear to have stopped deteriorating. The People’s Bank of China continues to introduce stimulus into the Chinese economy, and the growth slowdown in China that occurred in 2018 appears to be bottoming out. Combined, these developments reflect a global economy that is not as bad as feared in late 2018, and it is clear the world’s central banks are ready to supply further accommodation if needed.

The risk on tone to the market during the first quarter of ~~2017, risk assets were performing very~~2019 led to the more credit sensitive sectors of the structured securities market to outperform. This was consistent with other markets as well, as the ~~Trump administration took office~~S&P 500 generated a 13.6% return, while the high yield corporate and ~~appeared~~investment grade corporate indices generated returns of 7.4% and 5.0%, respectively. The Agency RMBS index generated a return of 2.3%, as duration was the primary driver of relative performance within the sector. Returns by agency, maturity tenor and coupon ranged from approximately 1.4% to ~~be very pro-business. The markets looked~~2.8%. Going forward, the Agency RMBS market faces potential headwinds as the rally in rates since last fall, coupled with the turn in seasonal housing activity, should lead to a ~~roll back~~significant increase in the supply 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~~Agency RMBS, all in the nation's aging roads, highways, bridges and airports. While the Administration made bold promises, there has been very little delivered. Market optimism 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 kept the market on edge and induced sporadic flight to quality rallies as headlines hit the market from time to time. Incoming inflation data since March was below expectations. In the caseabsence of the ~~core Consumer Price Index, ("CPI") measure,~~largest source of demand, the year over year figure moved from 2.3% in January 2017 to 1.7% 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 appears 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 to flatten significantly – to multi-year lows. A second order effect of these developments has occurred 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.Fed.

The RMBS 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.

Critical Accounting ~~Policies~~Estimates

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~~estimates involve decisions and assessments which could significantly affect reported assets, liabilities, revenues and expenses. There have been no changes to our critical accounting ~~policies~~estimates as discussed in our annual report on Form 10-K for the year ended December 31, ~~2016.~~2018.

Capital Expenditures

At ~~September 30, 2017,~~March 31, 2019, we had no material commitments for capital expenditures.

Off-Balance Sheet Arrangements

At ~~September 30, 2017,~~March 31, 2019, we did not have any off-balance sheet arrangements.

41Dividends

~~Dividends~~

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.

(in thousands, except per share amounts)
Year	Per Share Amount		Total
2013	$	1.395	$	4,662
2014		2.160		22,643
2015		1.920		38,748
2016		1.680		41,388
2017		1.680		70,717
2018		1.070		55,814
2019 - YTD⁽¹⁾		0.320		15,824
Totals	$	10.225	$	249,796

(1)

On ~~October 11, 2017,~~April 17, 2019, the Company declared a dividend of ~~$0.14~~$0.08 per share to be paid on ~~November 10, 2017.~~May 31, 2019. The effect of this dividend is included in the table above but is not reflected in the ~~Company's~~Company’s financial statements as of ~~September 30, 2017.~~March 31, 2019.

Inflation

Virtually all of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors influence our performance far more so than does inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. Our ~~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.

~~Jumpstart Our Business Startups Act of 2012~~

We are an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"). The JOBS Act permits emerging growth companies to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to "opt out" of this provision and, as a result, we will be required to comply with new or revised accounting standards as required when they are adopted. The decision to opt out of the extended transition period under the JOBS Act is irrevocable.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the exposure to loss resulting from changes in market factors such as interest rates, foreign currency exchange rates, commodity prices and equity prices. The primary market risks that we are exposed to are interest rate risk, prepayment risk, spread risk, liquidity risk, extension risk and counterparty credit risk.

Interest Rate Risk

Interest rate risk is highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control.

Changes in the general level of interest rates can affect our net interest income, which is the difference between the interest income earned on interest-earning assets and the interest expense incurred in connection with our interest-bearing liabilities, by affecting the spread between our interest-earning assets and interest-bearing liabilities. Changes in the level of interest rates can also affect the rate of prepayments of our securities and the value of the RMBS that constitute our investment portfolio, which affects our net income, ~~and~~ ability to realize gains from the sale of these assets and ~~impacts our~~ ability to borrow, and the amount that we can borrow against these securities.

We may utilize a variety of financial instruments in order to limit the effects of changes in interest rates on our operations. The principal instruments that we use are futures contracts and options to enter into interest rate swaps. These instruments are intended to serve as a hedge against future interest rate increases on our repurchase agreement borrowings. Hedging techniques are partly based on assumed levels of prepayments of our Agency RMBS. If prepayments are slower or faster than assumed, the life of the Agency RMBS will be longer or shorter, which would reduce the effectiveness of any hedging strategies we may use and may cause losses on such transactions. Hedging strategies involving the use of derivative securities are highly complex and may produce volatile returns. Hedging techniques are also limited by the rules relating to REIT qualification. In order to preserve our REIT status, we may be forced to terminate a hedging transaction at a time when the transaction is most needed.

Our profitability and the value of our investment portfolio (including derivatives used for hedging purposes) may be adversely affected during any period as a result of changing interest rates, including changes in the forward yield curve.

Our portfolio of PT RMBS is typically comprised of adjustable-rate RMBS ~~("ARMs"~~(“ARMs”), fixed-rate RMBS and hybrid adjustable-rate RMBS. We generally seek to acquire low duration assets that offer high levels of protection from mortgage prepayments provided they are reasonably priced by the market. Although the duration of an individual asset can change as a result of changes in interest rates, we strive to maintain a hedged PT RMBS portfolio with an effective duration of less than 2.0. The stated contractual final maturity of the mortgage loans underlying our portfolio of PT RMBS generally ranges up to 30 years. However, the effect of prepayments of the underlying mortgage loans tends to shorten the resulting cash flows from our investments substantially. Prepayments occur for various reasons, including refinancing of underlying mortgages and loan payoffs in connection with home ~~sales.~~sales, and borrowers paying more than their scheduled loan payments, which accelerates the amortization of the loans.

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

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

We face the risk that the market value of our PT RMBS assets will increase or decrease at different rates than that of our structured RMBS or liabilities, including our hedging instruments. Accordingly, we assess our interest rate risk by estimating the duration of our assets and the duration of our liabilities. We generally calculate duration using various third party models. However, empirical results and various third party models may produce different duration numbers for the same securities.

The following sensitivity analysis shows the estimated impact on the fair value of our interest rate-sensitive investments and hedge positions as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, assuming rates instantaneously fall 200 bps, fall 100 bps, fall 50 bps, rise 50 bps, rise 100 bps and rise ~~100~~200 bps, adjusted to reflect the impact of convexity, which is the measure of the sensitivity of our hedge positions and Agency ~~RMBS'~~RMBS’ effective duration to movements in interest rates.

All changes in value in the table below are measured as percentage changes from the investment portfolio value and net asset value at the base interest rate scenario. The base interest rate scenario assumes interest rates and prepayment projections as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016.~~2018. We apply a floor of 0% for the down rate scenarios on our interest bearing liabilities and hedge positions, such that any hypothetical interest rate decrease would have a limited positive impact on our funding costs beyond a certain level.

Actual results could differ materially from estimates, especially in the current market environment. To the extent that these estimates or other assumptions do not hold true, which is likely in a period of high price volatility, actual results will likely differ materially from projections and could be larger or smaller than the estimates in the table below. Moreover, if different models were employed in the analysis, materially different projections could result. Lastly, while the table below reflects the estimated impact of interest rate increases and decreases on a static portfolio, we may from time to time sell any of our agency securities as a part of our overall management of our investment portfolio.

Interest Rate Sensitivity⁽¹⁾
	Portfolio
	Market			Book
Change in Interest Rate	Value⁽²⁾⁽³⁾			Value⁽²⁾⁽⁴⁾
As of March 31, 2019
-200 Basis Points		(2.29	)%		(20.77	)%
-100 Basis Points		(1.27	)%		(11.49	)%
-50 Basis Points		(0.58	)%		(5.27	)%
+50 Basis Points		0.27	%		2.46	%
+100 Basis Points		0.06	%		0.53	%
+200 Basis Points		(1.62	)%		(14.65	)%
As of December 31, 2018
-200 Basis Points		(2.73	)%		(24.48	)%
-100 Basis Points		(1.30	)%		(11.62	)%
-50 Basis Points		(0.49	)%		(4.43	)%
+50 Basis Points		0.32	%		2.84	%
+100 Basis Points		0.89	%		8.00	%
+200 Basis Points		1.33	%		11.96	%

Interest Rate Sensitivity⁽¹⁾

Portfolio
Market Book
Change in Interest Rate
Value⁽²⁾⁽³⁾

Value⁽²⁾⁽⁴⁾

As of September 30, 2017
-100 Basis Points (0.32 )% (3.06 )%
-50 Basis Points (0.11 )% (1.05 )%
+50 Basis Points (0.44 )% (4.20 )%
+100 Basis Points (1.53 )% (14.47 )%
As of December 31, 2016
-100 Basis Points 0.55 % 4.96 %
-50 Basis Points 0.55 % 4.97 %
+50 Basis Points (0.95 )% (8.61 )%
+100 Basis Points (2.20 )% (19.98 )%

(1)	Interest rate sensitivity is derived from models that are dependent on inputs and assumptions provided by third parties as well as by our Manager, and assumes there are no changes in mortgage spreads and assumes a static portfolio. Actual results could differ materially from these estimates.

(2)	Includes the effect of derivatives and other securities used for hedging purposes.

(3)	Estimated dollar change in investment portfolio value expressed as a percent of the total fair value of our investment portfolio as of such date.

(4)	Estimated dollar change in portfolio value expressed as a percent of stockholders' equity as of such date.

4443

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

Prepayment Risk

Because residential borrowers have the option to prepay their mortgage loans at par at any time, we face the risk that we will experience a return of principal on our investments faster than anticipated. Various factors affect the rate at which mortgage prepayments occur, including changes in the level of and directional trends in housing prices, interest rates, general economic conditions, loan age and size, loan-to-value ratio, the location of the property and social and demographic conditions. Additionally, changes to ~~GSE~~government sponsored entity underwriting practices or other governmental programs could also significantly impact prepayment rates or expectations. Generally, prepayments on Agency RMBS increase during periods of falling mortgage interest rates and decrease during periods of rising mortgage interest rates. However, this may not always be the case. We may reinvest principal repayments at a yield that is lower or higher than the yield on the repaid investment, thus affecting our net interest income by altering the average yield on our assets.

Spread Risk

When the market spread widens between the yield on our Agency RMBS and benchmark interest rates, our net book value could decline if the value of our Agency RMBS ~~fall~~falls by more than the offsetting fair value increases on our hedging instruments tied to the underlying benchmark interest rates. We refer to this as "spread risk" or "basis risk." The spread risk associated with our mortgage assets and the resulting fluctuations in fair value of these securities can occur independent of changes in benchmark interest rates and may relate to other factors impacting the mortgage and fixed income markets, such as actual or anticipated monetary policy actions by the Fed, market liquidity, or changes in required rates of return on different assets. Consequently, while we use futures contracts and interest rate swaps and swaptions to attempt to protect against moves in interest rates, such instruments typically will not protect our net book value against spread risk.

Liquidity Risk

The primary liquidity risk for us arises from financing long-term assets with shorter-term borrowings through repurchase agreements. Our assets that are pledged to secure repurchase agreements are Agency RMBS and cash. As of ~~September 30, 2017,~~March 31, 2019, we had unrestricted cash and cash equivalents of ~~$161.7~~$125.9 million and unpledged securities of approximately ~~$12.9~~$59.4 million (not including securities pledged to us) available to meet margin calls on our repurchase agreements and derivative contracts, and for other corporate purposes. However, should the value of our Agency RMBS pledged as collateral or the value of our derivative instruments suddenly decrease, margin calls relating to our repurchase and derivative agreements could increase, causing an adverse change in our liquidity position. Further, there is no assurance that we will always be able to renew (or roll) our repurchase agreements. In addition, our counterparties have the option to increase our haircuts (margin requirements) on the assets we pledge against repurchase agreements, thereby reducing the amount that can be borrowed against an asset even if they agree to renew or roll the repurchase agreement. Significantly higher haircuts can reduce our ability to leverage our portfolio or even force us to sell assets, especially if correlated with asset price declines or faster prepayment rates on our assets.

Extension Risk

The projected weighted average life and the duration (or interest rate sensitivity) of our investments is based on our Manager's assumptions regarding the rate at which the borrowers will prepay the underlying mortgage loans. In general, we use futures contracts and interest rate swaps and swaptions to help manage our funding cost on our investments in the event that interest rates rise. These hedging instruments allow us to reduce our funding exposure on the notional amount of the instrument for a specified period of time.

However, if prepayment rates decrease in a rising interest rate environment, the average life or duration of our fixed-rate assets or the fixed-rate portion of the ARMs or other assets generally extends. This could have a negative impact on our results from operations, as our hedging instrument expirations are fixed and will, therefore, cover a smaller percentage of our funding exposure on our mortgage assets to the extent that their average lives increase due to slower prepayments. This situation may also cause the market value of our ~~agency securities~~Agency RMBS and CMOs collateralized by fixed rate mortgages or hybrid ARMs to decline by more than otherwise would be the case while most of our hedging instruments would not receive any incremental offsetting gains. In extreme situations, we may be forced to sell assets to maintain adequate liquidity, which could cause us to incur realized losses.

Counterparty Credit Risk

We are exposed to counterparty credit risk relating to potential losses that could be recognized in the event that the counterparties to our repurchase agreements and derivative contracts fail to perform their obligations under such agreements. The amount of assets we pledge as collateral in accordance with our agreements varies over time based on the market value and notional amount of such assets as well as the value of our derivative contracts. In the event of a default by a counterparty, we may not receive payments provided for under the terms of our agreements and may have difficulty obtaining our assets pledged as collateral under such agreements. Our credit risk related to certain derivative transactions is largely mitigated through daily adjustments to collateral pledged based on changes in market value and we limit our counterparties to major financial institutions with acceptable credit ratings. However, there is no guarantee our efforts to manage counterparty credit risk will be successful and we could suffer significant losses if unsuccessful.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Controls over Financial Reporting

There were no significant changes in the ~~Company's~~Company’s internal control over financial reporting that occurred during the ~~Company's~~Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the ~~Company's~~Company’s internal control over financial reporting.

4645

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors disclosed in the ~~"Risk Factors"~~“Risk Factors” section of our Annual Report on Form 10-K filed with the SEC on February ~~17, 2017.~~22, 2019.

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

The table below presents the Company’s share repurchase activity for the three months ended ~~September 30, 2017.~~March 31, 2019.

					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⁾
January 1, 2019 - January 31, 2019		469,975	$	6.43		469,975		857,202
February 1, 2019 - February 28, 2019		-		-		-		857,202
March 1, 2019 - March 31, 2019		813		6.58		-		857,202
Totals / Weighted Average		470,788	$	6.43		469,975		857,202

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

(1)

~~The only~~Includes shares of the ~~Company's~~Company’s common stock acquired by the Company ~~were~~ in connection with the satisfaction of tax withholding obligations on vested employment-related awards under equity incentive plans. These repurchases do not reduce the number of shares available under the stock repurchase program authorization.

(2)

On ~~June~~July 29, 2015, the Company's Board of Directors authorized the ~~purchase~~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 ~~beginning July 1, 2016.~~program for up to an additional 4,522,822 shares of the Company's common stock. Unless modified or revoked by the Board, the authorization does not expire.

The Company did not have any unregistered sales of its equity securities during the three months ended ~~September 30, 2017.~~March 31, 2019.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

4746

ITEM 6. EXHIBITS

Exhibit No.

3.1	Articles of Amendment and Restatement of Orchid Island Capital, Inc. (filed as Exhibit 3.1 to the ~~Company's~~Company’s Registration Statement on Amendment No. 1 to Form S-11 (File ~~No.333-184538)~~No. 333-184538) filed on November 28, 2012 and incorporated herein by reference).
3.2	Certificate of Correction of Orchid Island Capital, Inc. (filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K filed on February 22, 2019 and incorporated herein by reference).
3.3	Amended and Restated Bylaws of Orchid Island Capital, Inc. (filed as Exhibit ~~3.2~~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~~).
~~10.1~~	Amended 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. (filed as Exhibit 1.1 to the Company'sCompany’s Current Report on Form 8-K filed on ~~August 2, 2017~~March 19, 2019 and incorporated herein by ~~reference~~reference).).
10.1	2019 Long Term Incentive Compensation Plan.*†
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 ***

*	Filed herewith.

**	Furnished herewith.

***	Submitted electronically herewith.

†	Management contract or compensatory plan.

4847

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		Orchid Island Capital, Inc.
		Registrant


Date: ~~October 27, 2017~~April 26, 2019	By:	/s/ Robert E. Cauley
		Robert E. Cauley Chief Executive Officer, President and Chairman of the Board

Date: ~~October 27, 2017~~April 26, 2019	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)

~~INDEX TO EXHIBITS~~

~~Exhibit No.~~

~~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).
~~10.1~~	Amended 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. (filed as Exhibit 1.1 to the Company's Current Report on Form 8-K filed on August 2, 2017 and incorporated herein by reference).
~~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 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 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 ***

*	~~Filed herewith.~~

**	~~Furnished herewith.~~

~~***~~

~~Submitted electronically herewith.~~

5048

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

	(Unaudited)
	September 30, 2017		December 31, 2016
ASSETS:
Mortgage-backed securities, at fair value
Pledged to counterparties	$	3,917,425	$	2,972,290
Unpledged		12,915		49,884
Total mortgage-backed securities		3,930,340		3,022,174
Cash and cash equivalents		161,659		73,475
Restricted cash		19,629		20,950
Accrued interest receivable		15,410		11,512
Derivative assets, at fair value		16,871		10,365
Other assets		475		218
Total Assets	$	4,144,384	$	3,138,694

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
Repurchase agreements	$	3,710,077	$	2,793,705
Dividends payable		6,343		4,616
Derivative liabilities, at fair value		2,591		1,982
Accrued interest payable		4,815		1,826
Due to affiliates		762		566
Other liabilities		5,395		3,220
Total Liabilities		3,729,983		2,805,915

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
Additional paid-in capital		413,948		332,449
Retained earnings (accumulated deficit)		-		-
Total Stockholders' Equity		414,401		332,779
Total Liabilities and Stockholders' Equity	$	4,144,384	$	3,138,694
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 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

($ 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		45,305		$	10.33		7,508		$	13.32
Granted		15,707			9.55		41,500			10.00
Forfeited		-			-		(100	)		10.00
Vested and issued		(14,490	)		10.52		(2,252	)		13.32
Unvested, end of period		46,522		$	10.01		46,656		$	10.37

Compensation expense during period				$	188				$	148
Unrecognized compensation expense, end of period				$	217				$	320
Intrinsic value, end of period				$	474				$	486
Weighted-average remaining vesting term (in years)					1.2					1.6