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

FORM

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, 2022
☐
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
:
001-35236
Orchid Island Capital, Inc.
(Exact name of registrant as specified in its charter)
Maryland27-3269228
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) 772
)
231-1400
(Registrant'sRegistrant’s telephone number, including area code)

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

Title of Each Class

Trading Symbol:
Name of Each Exchange on Which
Registered
Common Stock, $0.01 par value
ORC
New York Stock Exchange
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.
Yesý
☒
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).
Yesý
☒
No
☐
Indicate by check mark whether the registrant is
a large accelerated filer,
an accelerated filer, a non-accelerated filer,
a smaller reporting company,
or
an emerging growth company. See the definitions of "large accelerated filer," "accelerated
"accelerated filer", "smaller reporting company", and "emerging growth
company" in Rule 12b-2 of the Exchange Act. Check one:
Large accelerated filer☐Accelerated filer☒
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
Smaller reporting company☐
Emerging growth company☒

☐
Accelerated filer
☒
Non-accelerated filer
☐
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 Exchange Act).
Yes
☐
Noý
☒
Number of shares outstanding at October 27, 2017: 46,108,208April 28, 2022:
177,117,186
ORCHID ISLAND
CAPITAL, INC.

TABLE OF CONTENTS
PART I. FINANCIAL
 
INFORMATION
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Financial Statements1
Condensed Consolidated Balance Sheets (unaudited)1
Condensed Consolidated Statements of Operations (unaudited)2
Condensed Consolidated Statement of Stockholders' Equity (unaudited)3
Condensed Consolidated Statements of Cash Flows (unaudited)4
Notes to Condensed Consolidated Financial Statements5
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations23
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk43
ITEM 4. Controls and Procedures46
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings47
ITEM 1A. Risk Factors47
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds47
ITEM 3. Defaults upon Senior Securities47
ITEM 4. Mine Safety Disclosures47
ITEM 5. Other Information47
ITEM 6. Exhibits48
SIGNATURES49
ITEM 1. Financial
Statements
1
Condensed
Balance Sheets
(unaudited)
1
Condensed
Statements
of Operations
(unaudited)
2
Condensed
Statements
of Stockholders’
Equity (unaudited)
3
Condensed
Statements
of Cash Flows
(unaudited)
4
Notes to
Condensed
Financial
Statements
(unaudited)
5
ITEM 2. Management’s
Discussion
and Analysis
of Financial
Condition
and Results
of Operations
25
ITEM 3. Quantitative
and Qualitative
Disclosures
about Market
Risk
47
ITEM 4. Controls
and Procedures
51
PART II. OTHER INFORMATION
ITEM 1. Legal
Proceedings
52
ITEM 1A.
Risk Factors
52
ITEM 2. Unregistered
Sales of Equity
Securities
and Use of
Proceeds
52
ITEM 3. Defaults
upon Senior
Securities
52
ITEM 4. Mine
Safety Disclosures
52
ITEM 5. Other
Information
52
ITEM 6. Exhibits
53
SIGNATURES
54
 
 
 
 
 
 

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED 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  $3,138,694 
See Notes to Consolidated Financial Statements 
1
ORCHID ISLAND CAPITAL, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 
(Unaudited) 
For the Nine and Three Months Ended September 30, 2017 and 2016 
($ 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 
 
 
 
2
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 
 
 
 
3
 
ORCHID ISLAND CAPITAL, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
(Unaudited) 
For the Nine Months Ended September 30, 2017 and 2016 
($ in thousands) 
       
  2017  2016 
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income $7,989  $22,397 
Adjustments to reconcile net income to net cash provided by operating activities:        
Stock based compensation  453   492 
Realized and unrealized losses (gains) on mortgage-backed securities  32,247   (10,134)
Realized and unrealized gains on interest rate swaptions  (827)  (36)
Realized and unrealized losses (gains) on interest rate swaps  1,398   (792)
Realized losses on forward settling to-be-announced securities  3,843   2,385 
Changes in operating assets and liabilities:        
Accrued interest receivable  (3,898)  (967)
Other assets  (170)  (93)
Accrued interest payable  2,989   1,010 
Other liabilities  (601)  (204)
Due to affiliates  196   15 
NET CASH PROVIDED BY OPERATING ACTIVITIES  43,619   14,073 
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
From mortgage-backed securities investments:        
Purchases  (5,079,945)  (2,184,709)
Sales  3,890,959   1,717,612 
Principal repayments  248,483   178,460 
Redemption of FHLB stock  3   3,750 
Payments on net settlement of to-be-announced securities  (7,945)  (2,145)
Purchase of interest rate swaptions, net of margin cash received  410   705 
NET CASH USED IN INVESTING ACTIVITIES  (948,035)  (286,327)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Proceeds from repurchase agreements  39,895,749   22,443,458 
Principal payments on repurchase agreements  (38,979,377)  (21,944,174)
Principal payments on FHLB advances  -   (187,500)
Cash dividends  (47,950)  (28,864)
Proceeds from issuance of common stock, net of issuance costs  122,857   47,116 
NET CASH PROVIDED BY FINANCING ACTIVITIES  991,279   330,036 
         
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH  86,863   57,782 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of the period  94,425   69,959 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of the period $181,288  $127,741 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
Cash paid during the period for:        
Interest $25,127  $9,619 
         
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:        
Securities acquired settled in later period $-  $72,343 
Securities sold settled in later period  -   27,509 
See Notes to Consolidated Financial Statements 
4
1
PART I. FINANCIAL
INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORCHID ISLAND CAPITAL, INC.
CONDENSED BALANCE SHEETS
($ in thousands, except per share data)
(Unaudited)
March 31,
December 31,
2022
2021
ASSETS:
Mortgage-backed securities, at fair value (includes pledged assets
of $
4,576,847
and $
6,506,372
, respectively)
$
4,580,594
$
6,511,095
U.S. Treasury Notes, at fair value (includes pledged assets of $
36,477
and $
29,740
, respectively)
36,477
37,175
Cash and cash equivalents
297,246
385,143
Restricted cash
130,199
65,299
Accrued interest receivable
14,853
18,859
Derivative assets
126,910
50,786
Other assets
1,153
320
Total Assets
$
5,187,432
$
7,068,677
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Repurchase agreements
$
4,464,109
$
6,244,106
Dividends payable
7,996
11,530
Derivative liabilities
25,535
7,589
Accrued interest payable
1,018
788
Due to affiliates
1,066
1,062
Other liabilities
95,290
35,505
Total Liabilities
4,595,014
6,300,580
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, 2022 and December 31, 2021
0
0
Common Stock, $
0.01
par value;
500,000,000
shares authorized,
177,117,186
shares issued and outstanding as of March 31, 2022 and
176,993,049
shares issued
and outstanding as of December 31, 2021
1,771
1,770
Additional paid-in capital
822,128
849,081
Accumulated deficit
(231,481)
(82,754)
Total Stockholders' Equity
592,418
768,097
Total Liabilities
and Stockholders' Equity
$
5,187,432
$
7,068,677
See Notes to Financial Statements
2
ORCHID ISLAND CAPITAL, INC.
CONDENSED STATEMENTS
OF OPERATIONS
(Unaudited)
For the Three Months Ended March 31, 2022 and 2021
($ in thousands, except per share data)
Three Months Ended March 31,
2022
2021
Interest income
$
41,857
$
26,856
Interest expense
(2,655)
(1,941)
Net interest income
39,202
24,915
Realized losses on mortgage-backed securities
(51,086)
(7,397)
Unrealized losses on mortgage-backed securities and U.S. Treasury
Notes
(309,962)
(88,866)
Gains on derivative and other hedging instruments
177,816
45,472
Net portfolio loss
(144,030)
(25,876)
Expenses:
Management fees
2,634
1,621
Allocated overhead
441
404
Incentive compensation
237
364
Directors' fees and liability insurance
311
272
Audit, legal and other professional fees
304
318
Direct REIT operating expenses
643
421
Other administrative
127
93
Total expenses
4,697
3,493
Net loss
$
(148,727)
$
(29,369)
Basic and diluted net loss per share
$
(0.84)
$
(0.34)
Weighted Average Shares Outstanding
176,997,566
85,344,954
Dividends declared per common share
$
0.155
$
0.195
See Notes to Financial Statements
3
ORCHID ISLAND CAPITAL, INC.
CONDENSED STATEMENTS
OF STOCKHOLDERS' EQUITY
(Unaudited)
For the Three Months Ended March 31, 2022 and 2021
(in thousands)
Additional
Retained
Common Stock
Paid-in
Earnings
Shares
Par Value
Capital
(Deficit)
Total
Balances, January 1, 2021
76,073
$
761
$
432,524
$
(17,994)
$
415,291
Net loss
-
0
0
(29,369)
(29,369)
Cash dividends declared
-
0
(17,226)
0
(17,226)
Issuance of common stock pursuant to public offerings, net
18,248
182
96,726
0
96,908
Stock based awards and amortization
90
1
571
0
572
Balances, March 31, 2021
94,411
$
944
$
512,595
$
(47,363)
$
466,176
Balances, January 1, 2022
176,993
$
1,770
$
849,081
$
(82,754)
$
768,097
Net loss
-
0
0
(148,727)
(148,727)
Cash dividends declared
-
0
(27,492)
0
(27,492)
Stock based awards and amortization
124
1
539
0
540
Balances, March 31, 2022
177,117
$
1,771
$
822,128
$
(231,481)
$
592,418
See Notes to Financial Statements
4
ORCHID ISLAND CAPITAL, INC.
CONDENSED STATEMENTS
OF CASH FLOWS
(Unaudited)
For the Three Months Ended March 31, 2022 and 2021
($ in thousands)
2022
2021
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss
$
(148,727)
$
(29,369)
Adjustments to reconcile net loss to net cash provided by operating activities:
Stock based compensation
162
259
Realized and unrealized losses on mortgage-backed securities
360,350
96,263
Unrealized losses on U.S. Treasury Notes
698
0
Realized and unrealized gains on derivative instruments
(101,921)
(45,914)
Changes in operating assets and liabilities:
Accrued interest receivable
4,006
(1,050)
Other assets
(833)
(588)
Accrued interest payable
230
(236)
Other liabilities
204
5,318
Due to affiliates
4
80
NET CASH PROVIDED BY OPERATING
ACTIVITIES
114,173
24,763
CASH FLOWS FROM INVESTING ACTIVITIES:
From mortgage-backed securities investments:
Purchases
0
(1,764,082)
Sales
1,413,039
988,523
Principal repayments
157,112
123,880
Net proceeds from (payments on) derivative instruments
103,900
(10,674)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
1,674,051
(662,353)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from repurchase agreements
12,861,900
7,517,156
Principal payments on repurchase agreements
(14,641,897)
(6,931,062)
Cash dividends
(31,010)
(16,030)
Proceeds from issuance of common stock, net of issuance costs
0
96,908
Shares withheld from employee stock awards for payment of taxes
(214)
(297)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
(1,811,221)
666,675
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS
AND RESTRICTED CASH
(22,997)
29,085
CASH, CASH EQUIVALENTS
AND RESTRICTED CASH, beginning of the period
450,442
299,506
CASH, CASH EQUIVALENTS
AND RESTRICTED CASH, end of the period
$
427,445
$
328,591
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest
$
2,425
$
2,176
SUPPLEMENTAL DISCLOSURE OF
NONCASH INVESTING ACTIVITIES:
Securities acquired settled in later period
$
0
$
217,758
Securities sold settled in later period
0
154,977
See Notes to Financial Statements
5
ORCHID ISLAND
CAPITAL, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS
(Unaudited)
MARCH 31,
SEPTEMBER 30, 20172022

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
(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 4, 2020, Orchid entered into an equity distribution agreement (the "July 2016“August
2020 Equity Distribution Agreement"Agreement”) with
four sales agents pursuant to which the Company could offer and sell, from time to time,
up to an aggregate amount of $
150,000,000
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
27,493,650
shares under the August 2020 Equity Distribution Agreement for aggregate
gross proceeds of
approximately $
150.0
million, and net proceeds of approximately $
147.4
million, after commissions and fees, prior to
its termination in June 2021.
On January 20, 2021, Orchid entered into an underwriting agreement (the “January
2021 Underwriting Agreement”) with two J.P.
Morgan Securities LLC (“J.P. Morgan”), relating to the offer and sale of
7,600,000
shares of the Company’s common stock. J.P.
Morgan purchased the shares of the Company’s common stock from the Company pursuant
to the January 2021 Underwriting
Agreement at $
5.20
per share. In addition, the Company granted J.P. Morgan a 30-day option to purchase up to an additional
1,140,000
shares of the Company’s common stock on the same terms and conditions, which
J.P.
Morgan exercised in full on January
21, 2021. The closing of the offering of
8,740,000
shares of the Company’s common stock occurred on January 25, 2021, with
proceeds to the Company of approximately $
45.2
million, net of offering expenses.
On March 2, 2021, Orchid entered into an underwriting agreement (the “March 2021
Underwriting Agreement”) with J.P. Morgan,
relating to the offer and sale of
8,000,000
shares of the Company’s common stock. J.P. Morgan purchased the shares of the
Company’s common stock from the Company pursuant to the March 2021 Underwriting
Agreement at $
5.45
per share. In addition, the
Company granted J.P. Morgan a 30-day option to purchase up to an additional
1,200,000
shares of the Company’s common stock on
the same terms and conditions, which J.P. Morgan exercised in full on March 3, 2021. The closing of the offering of
9,200,000
shares
of the Company’s common stock occurred on March 5, 2021, with proceeds to the Company
of approximately $
50.0
million, net of
offering expenses.
On June 22, 2021, Orchid entered into an equity distribution agreement (the “June
2021 Equity Distribution Agreement”) with four
sales agents pursuant to which the Company could offer and sell, from time to time, up to
an aggregate amount of $125,000,000 $
250,000,000
of
shares of the Company'sCompany’s common stock in transactions that were deemed to be "at“at the market"market” offerings and privately
negotiated
transactions. The Company issued a total of 10,174,992
49,407,336
shares under the July 2016June 2021 Equity Distribution Agreement for aggregate
gross proceeds of $110.0 approximately $
250.0
million, and net proceeds of approximately $108.2 $
246.0
million, net ofafter commissions and fees, prior to
its termination in February 2017.October 2021.

6
On February 23, 2017,October 29, 2021, Orchid entered into anotheran equity distribution agreement as amended and restated on May 10, 2017, (the "May 2017
“October 2021 Equity Distribution Agreement"Agreement”) with two
four sales agents pursuant to which the Company may offer and sell, from time to time,
up to an aggregate amount of $125,000,000 $
250,000,000
of
shares of the Company'sCompany’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, 2022, the July 2016 Equity Distribution Agreement. The Company issued a total of 12,299,032
15,835,700
shares under the May 2017October 2021 Equity Distribution
Agreement for aggregate gross proceeds of $125.0 approximately $
78.3
million, and net proceeds of approximately $122.9 $
77.0
million, net of after
commissions and fees, priorfees. Subsequent to its termination in August 2017.March 31, 2022 through April 29, 2022,

On August 2, 2017, Orchid entered into another equity distribution agreement (the "August 2017 Equity Distribution Agreement") with two sales agents pursuant to which the Company may offer and sell, from time to time, up to an aggregate amount of $125,000,000 of shares of the Company's common stock in transactions that are deemed to be "at the market" offerings and privately negotiated transactions.  The August 2017 Equity Distribution Agreement replaced the May 2017 Equity Distribution Agreement. Through September 30, 2017, the Company has not issued anyno shares under the August 2017 October 2021
Equity Distribution Agreement.

5

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
(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, 2022
are not necessarily
indicative
of the results
that may
be expected
for
the year
ending December
31, 2022.
The balance
sheet at
December
31, 2021
has been
derived from
the audited
financial
statements
at that date
but does
not include
all
of the information
and footnotes
required
by GAAP for
complete financial
statements.
For further
information,
refer to
the financial
statements
and footnotes
thereto included
in the Company’s
Annual Report
on Form 10-K
for the year ending December 31, 2017.

The balance sheet at December 31, 2016 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements.  For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December
31, 2016.2021.

The preparation
of financial
statements
in conformity
with GAAP
requires
management
to make estimates
and assumptions
that affect
the reported
amounts of
assets and
liabilities
and disclosure
of contingent
assets and
liabilities
at the date
of the financial
statements
and
the reported
amounts of
revenues
and expenses
during the
reporting
period. Actual
results could
differ from
those estimates.
The
significant
estimates
affecting the
accompanying
financial
statements
are the fair
values of RMBS
and derivatives.
Management
believes
the estimates
and assumptions
underlying
the financial
statements
are reasonable
based on
the information
available
as of March
31,
2022.

Variable Interest Entities (“VIEs”)
We obtain interests in VIEs through our investments in mortgage-backed securities.
Statement of Comprehensive Income (Loss)
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
In accordance with the Financial Accounting Standards Board (the "FASB") Accounting Standards Codification ("ASC") Topic 220, Comprehensive Income, a statement of comprehensive income (loss) has not been includedconsolidate these VIEs and we account for our interest in these VIEs as the Company has no items of other comprehensive income (loss).  Comprehensive income (loss)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 same as net income (loss) forcarrying
value of the periods presented.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.
7
(in thousands)
March 31, 2022
December 31, 2021
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.
$
297,246
$
385,143
Restricted cash includes cash pledged as collateral for repurchase agreements and other borrowings, and interest rate swaps and other derivative instruments.

130,199
The following table provides a reconciliation of65,299
Total cash, cash equivalents
and restricted cash reported within
$
427,445
$
450,442
The Company
maintains
cash balances
at three
banks and
excess margin
on account
with two
exchange clearing
members.
At times,
balances may
exceed federally
insured limits.
The Company
has not
experienced
any losses
related to
these balances.
The Federal
Deposit Insurance
Corporation
insures eligible
accounts
up to $250,000
per depositor
at each financial
institution.
Restricted
cash
balances are
uninsured,
but are held
in separate
customer accounts
that are
segregated
from the statement of financial position that sum to the total
general funds
of the same such amounts shown in the statement ofcounterparty.
The
Company limits
uninsured
balances
to only large,
well-known
banks and
exchange clearing
members and
believes that
it is not
exposed to
any significant
credit risk
on cash flows.and
cash equivalents
or restricted
cash balances.

Mortgage-Backed
Securities
(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 
and U.S.

Treasury Notes
The Company maintains cash balances at four banks, and, at times, balances may exceed federally insured limits. The Company has not experienced any losses related to these balances. The Federal Deposit Insurance Corporation insures eligible accounts up to $250,000 per depositor at each financial institution. At September 30, 2017, the Company's cash deposits exceeded federally insured limits by approximately $158.1 million. Restricted cash balances are uninsured, but are held in separate customer accounts that are segregated from the general funds of the counterparty.   The Company limits uninsured balances to only large, well-known bank and derivative counterparties and believes that it is not exposed to any significant credit risk on cash and cash equivalents or restricted cash balances.

6
Mortgage-Backed Securities

The Company invests primarily
in mortgage
pass-through ("PT"
(“PT”) certificates,residential
mortgage
backed securities
(“RMBS”)
and collateralized
mortgage
obligations and
(“CMOs”)
issued by
Freddie Mac,
Fannie Mae
or Ginnie
Mae,
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 RMBS
and CMOs as PT RMBS. We refer
to IO and IIO securities as structured RMBS. The Company also invests in U.S.
Treasury Notes, primarily to satisfy collateral
requirements of derivative counterparties. The Company has elected to account
for its investment in RMBS and U.S. Treasury Notes
under the fair value option. Electing the fair value option requires the Company
to record changes in fair value in the consolidated statement of
operations, which, in management'smanagement’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 securities
transactions
on the trade
date. Security
purchases
that have
not settled
as of the
balance sheet
date
are included
in the RMBS portfolio
balance with
an offsetting
liability
recorded,
whereas securities
sold that
have not
settled as
of the balance
sheet date
are
removed from
the RMBS portfolio
balance with
an offsetting
receivable
recorded.

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

markets.
Income on
PT RMBS securities
and U.S. Treasury
Notes is based
on the stated
interest
rate of the
security. Premiums
or discounts
present
at
the date
of purchase
are not amortized.
Premium lost
and discount
accretion
resulting
from monthly
principal
repayments
are reflected
in
unrealized
gains (losses)
on RMBS
in the 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.

8
Derivative Financialand Other Hedging Instruments
 
The Company
uses derivative
and other
hedging instruments
to manage
interest
rate risk,
facilitate
asset/liability
strategies
and
manage other
exposures,
and it may
continue to
do so in the
future. The
principal
instruments
that the
Company has
used to date
are
Treasury Note ("T-Note"
(“T-Note”),
federal funds
(“Fed Funds”)
and Eurodollar
futures contracts,
short positions
in U.S.
Treasury securities,
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 derivative
and other
hedging instruments
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.

7

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

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

Holding derivatives creates exposure to credit risk related to the potential for failure on the part of counterparties and exchanges to honor their commitments.  In addition, the Company may be required to post collateral based on any declines in the market value of the derivatives.  In the event of default by a counterparty, the Company may have difficulty recovering its collateral and may not receive payments provided for under the terms of the agreement.  To mitigate this risk, the Company uses only well-established commercial banks 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 and December 31, 2016 due to the short-term nature of these financial instruments.

Repurchase Agreements

The Company
accounts for
TBA securities
as derivative
instruments.
Gains and
losses associated
with TBA
securities
transactions
are reported
in gain (loss)
on derivative
instruments
in the accompanying
statements
of operations.
Derivative
and other
hedging instruments
are carried
at fair value,
and changes
in fair value
are recorded
in earnings
for each
period.
The Company’s
derivative
financial
instruments
are not designated
as hedge
accounting
relationships,
but rather
are used
as economic
hedges of
its portfolio
assets and
liabilities.
Gains and
losses on
derivatives,
except those
that result
in cash receipts
or payments,
are
included in
operating
activities
on the statement
of cash flows.
Cash payments
and cash receipts
from settlements
of derivatives,
including
current period
net cash settlements
on interest
rates swaps,
are classified
as an investing
activity
on the statements
of cash flows.
Holding derivatives
creates exposure
to credit
risk related
to the potential
for failure
on the part
of counterparties
and exchanges
to
honor their
commitments.
In the event
of default
by a counterparty,
the Company
may have
difficulty recovering
its collateral
and may not
receive
payments provided
for under
the terms
of the agreement.
The Company’s
derivative
agreements
require it
to post or
receive
collateral
to mitigate
such risk.
In addition,
the Company
uses only
registered
central clearing
exchanges
and well-established
commercial
banks as counterparties,
monitors
positions
with individual
counterparties
and adjusts
posted collateral
as required.
Financial
Instruments
The fair
value of financial
instruments
for which
it is practicable
to estimate
that value
is disclosed
either in
the body
of the financial
statements
or in the
accompanying
notes. RMBS,
Eurodollar,
Fed Funds
and T-Note futures
contracts,
interest
rate swaps,
interest
rate
swaptions
and TBA
securities
are accounted
for at fair
value in the
balance sheets.
The methods
and assumptions
used to
estimate fair
value for
these instruments
are presented
in Note 12
of the financial
statements.
The estimated
fair value
of cash and
cash equivalents,
restricted
cash, accrued
interest
receivable,
receivable
for securities
sold,
other assets,
due to affiliates,
repurchase
agreements,
payable for
unsettled
securities
purchased,
accrued interest
payable and
other
liabilities
generally
approximates
their carrying
values as
of March
31, 2022
and December
31, 2021 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
Repurchase
agreements
are accounted
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.

8
9

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.

Stock-Based
Compensation
The Company
may grant
equity-based
compensation
to non-employee
members of
its Board
of Directors
and to the
executive
officers
and employees
of the Manager.
Stock-based
awards issued
include performance
units, deferred
stock units
and immediately
vested
common stock
awards. Compensation
expense is
measured
and recognized
for all stock-based
payment awards
made to employees
and
non-employee
directors
based on
the fair
value of our
common stock
on the date
of grant.
Compensation
expense is
recognized
over each
award’s respective
service period
using the
graded vesting
attribution
method. We
do not estimate
forfeiture
rates; rather,
we adjust for
forfeitures
in the periods
in which
they occur.
Income Taxes

Orchid has qualifiedelected and electedis organized and operated 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”).
REITs are generally not subject to federal income tax on their REIT taxable
income provided that they distribute to their stockholders at least 90%all of their REIT taxable income
on an annual basis. In addition, aA REIT must distribute at
least 90% of its REIT taxable income, determined without regard to the
deductions for dividends paid and excluding net capital gain,
and meet other provisionsrequirements 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 uncertain tax
positions will be sustained upon examination
based on the facts, circumstances and information available at the end of each period.
All of Orchid'sOrchid’s tax positions are categorized as
highly certain.
There is no accrual for any tax, interest or penalties related to Orchid'sOrchid’s tax position
assessment.
The measurement of
uncertain tax positions is adjusted when new information is available,
or when an event occurs that requires a change.

Recent Accounting
Pronouncements

In November 2016, the FASB issued Accounting Standards Update ("ASU") 2016-18, Statement of Cash Flows – (Topic 230): Restricted Cash. ASU 2016-18 requires that restricted cash and restricted cash equivalents be included as components of total cash and cash equivalents as presented on the statement of cash flows. ASU 2016-18 is effective for fiscal years, and for interim periods within those years, beginning after December 15, 2017.  Early application is permitted.  The Company 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,March 2020, the FASB issued ASU 2016-15, Statement2020-04 “
Reference Rate Reform (Topic 848): Facilitation of Cash Flows –the Effects of Reference Rate
Reform on Financial Reporting.
”
ASU 2020-04 provides optional expedients and exceptions to GAAP requirements
for modifications
on debt instruments, leases, derivatives, and other contracts, related to the expected
market transition from the London Interbank
Offered Rate (“LIBOR”), and certain other floating rate benchmark indices, or collectively, IBORs, to alternative reference rates. ASU
2020-04 generally considers contract modifications related to reference rate reform to
be an event that does not require contract
remeasurement at the modification date nor a reassessment of a previous accounting
determination. The guidance in ASU 2020-04 is
optional and may be elected over time, through December 31, 2022, as reference
rate reform activities occur. The Company does not
believe the adoption of this ASU will have a material impact on its consolidated financial
statements.
10
In January 2021, the FASB issued ASU 2021-01 “
Reference Rate Reform (Topic 230): Classification848
).” ASU 2021-01 expands the scope of Certain Cash ReceiptsASC
848 to include all affected derivatives and Cash Payments. give market participants the ability to apply
certain aspects of the contract modification and
hedge accounting expedients to derivative contracts affected by the discounting transition. In addition,
ASU 2016-15 addresses eight specific cash flow issues with the objective2021-01 adds
implementation guidance to permit a company to apply certain optional expedients
to modifications of reducinginterest rate indexes used for
margining, discounting or contract price alignment of certain derivatives as a result
of reference rate reform initiatives and extends
optional expedients to account for a derivative contract modified as a continuation
of the existing diversitycontract and to continue hedge
accounting when certain critical terms of a hedging relationship change to
modifications made as part of the discounting transition. The
guidance in practice. ASU 2016-152021-01 is effective for fiscal years,immediately and for interim periods within those years, beginning afteravailable generally through December 15, 2017.  Early application is permitted.
31, 2022, as reference rate reform
activities occur. The Company does not believe the adoption of this ASU will have a material impact on its consolidated financial statements.

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

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

9
NOTE 2.
MORTGAGE-BACKED SECURITIES AND U.S. TREASURY NOTES

The following
table presents
the Company’s
RMBS portfolio
as of March
31, 2022
and December
31, 2021:
(in thousands)
March 31, 2022
December 31, 2021
Pass-Through RMBS Certificates:
Fixed-rate Mortgages
$
4,372,517
$
6,298,189
Total Pass-Through
Certificates
4,372,517
6,298,189
Structured RMBS Certificates:
Interest-Only Securities
206,617
210,382
Inverse Interest-Only Securities
1,460
2,524
Total Structured
RMBS Certificates
208,077
212,906
Total
$
4,580,594
$
6,511,095
As of March
31, 2022
and December
31, 2021,
the Company
held U.S.
Treasury Notes
with a fair
value of approximately
$
36.5
million
and $
37.2
million, respectively,
primarily
to satisfy
collateral
requirements
of one of
its derivative
counterparties.
The following
table is a
summary of
our net gain
(loss) from
the sale of
RMBS for
the three
months ended
March 31,
2022 and
2021.
Three Months Ended March 31,
2022
2021
Proceeds from sales of RMBS
$
1,413,039
$
988,523
Carrying value of RMBS sold
(1,464,125)
(995,920)
Net (loss) gain on sales of RMBS
$
(51,086)
$
(7,397)
Gross gain on sales of RMBS
$
709
$
2,813
Gross loss on sales of RMBS
(51,795)
(10,210)
Net (loss) gain on sales of RMBS
$
(51,086)
$
(7,397)
NOTE 3.
REPURCHASE AGREEMENTS
The following table presentsCompany
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 Company's RMBS portfolioterms
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
March 31,
2022, the
Company had
met all margin
call
requirements.
As of September March
31, 2022
and December
31, 2021,
the Company’s
repurchase
agreements
had remaining
maturities
as summarized
below:
11
($ in thousands)
OVERNIGHT
BETWEEN 2
BETWEEN 31
GREATER
(1 DAY OR
AND
AND
THAN
LESS)
30 2017DAYS
90 DAYS
90 DAYS
TOTAL
March 31, 2022
Fair market value of securities pledged, including
accrued interest receivable
$
0
$
3,966,753
$
576,875
$
48,035
$
4,591,663
Repurchase agreement liabilities associated with
these securities
$
0
$
3,848,289
$
564,223
$
51,597
$
4,464,109
Net weighted average borrowing rate
-
0.36%
0.42%
0.15%
0.37%
December 31, 2021
Fair market value of securities pledged, including
accrued interest receivable
$
0
$
4,624,396
$
1,848,080
$
52,699
$
6,525,175
Repurchase agreement liabilities associated with
these securities
$
0
$
4,403,182
$
1,789,327
$
51,597
$
6,244,106
Net weighted average borrowing rate
-
0.15%
0.13%
0.15%
0.15%
In addition, cash pledged to counterparties for repurchase agreements was approximately
$113.6 million and $57.3 million as of
March 31, 2022 and December 31, 2016:2021, respectively.

If, during
the term
of a repurchase
agreement,
a lender
files for
bankruptcy, the
Company might
experience
difficulty recovering
its
(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 
pledged assets,
which could

result in
The following table summarizes
an unsecured
claim against
the Company's RMBS portfolio as of September 30, 2017 and December 31, 2016, according lender
for the difference
between the
amount loaned
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.Company

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

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 correspondingdue to the terms of
counterparty
and 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, the Company had met all margin call requirements.

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

10

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

($ in thousands)               
   OVERNIGHT  BETWEEN 2  BETWEEN 31  GREATER    
   (1 DAY OR  AND  AND  THAN    
  LESS)  30 DAYS  90 DAYS  90 DAYS  TOTAL 
September 30, 2017 
Fair market value of securities pledged, including               
accrued interest receivable $-  $2,506,628  $941,339  $484,607  $3,932,574 
Repurchase agreement liabilities associated with                    
these securities $-  $2,358,459  $897,376  $454,242  $3,710,077 
Net weighted average borrowing rate  -   1.34%  1.34%  1.57%  1.37%
December 31, 2016 
Fair market value of securities pledged, including                    
accrued interest receivable $-  $2,284,815  $686,065  $-  $2,970,880 
Repurchase agreement liabilities associated with                    
these securities $-  $2,154,766  $638,939  $-  $2,793,705 
Net weighted average borrowing rate  -   1.01%  0.96%  -   1.00%

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, 2022,
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
(if any),
and the fair
value of securities
and cash
pledged (if
(if any),
including
accrued
interest
on such securities)
with all
counterparties
of approximately $227.9
$
240.1
million.
The Company
did not
have an amount
at risk with
any individual
counterparty
that was
greater than
10% of the Company's
Company’s equity
at September 30, 2017 March
31, 2022
and December
31, 2016.2021.

NOTE 4. DERIVATIVE FINANCIALAND OTHER HEDGING INSTRUMENTS

The table
below summarizes
fair value
information
about our
derivative
and other
hedging instruments
assets and
liabilities
as of
March 31,
2022 and
December
31, 2021.
In connection
(in thousands)
Derivative and Other Hedging Instruments
Balance Sheet Location
March 31, 2022
December 31, 2021
Assets
Interest rate swaps
Derivative assets, at fair value
$
65,194
$
29,293
Payer swaptions (long positions)
Derivative assets, at fair value
60,362
21,493
Interest rate caps
Derivative assets, at fair value
1,354
0
Total derivative
assets, at fair value
$
126,910
$
50,786
Liabilities
Interest rate swaps
Derivative liabilities, at fair value
$
0
$
2,862
Payer swaptions (short positions)
Derivative liabilities, at fair value
25,535
4,423
TBA securities
Derivative liabilities, at fair value
0
304
Total derivative
liabilities, at fair value
$
25,535
$
7,589
Margin Balances Posted to (from) Counterparties
Futures contracts
Restricted cash
$
16,610
$
8,035
TBA securities
Other liabilities
0
(856)
Interest rate swaption contracts
Other liabilities
(34,983)
(6,350)
12
Total margin
balances on derivative contracts
$
(18,373)
$
829
Eurodollar, Fed
Funds and
T-Note futures
are cash
settled futures
contracts
on an interest
rate, with its interest rate risk management strategy,
gains and
losses credited
or
charged to
the Company economically hedgesCompany’s
cash accounts
on a portion daily
basis. A
minimum balance,
or “margin”,
is required
to be maintained
in the account
on
a daily basis.
The tables
below present
information
related to
the Company’s
T-Note futures
positions
at March
31, 2022
and December
31, 2021.
($ in thousands)
March 31, 2022
Average
Weighted
Weighted
Contract
Average
Average
Notional
Entry
Effective
Open
Expiration Year
Amount
Rate
Rate
Equity
(1)
Treasury Note Futures Contracts (Short
Positions)
(2)
June 2022 5-year T-Note futures
(Jun 2022 - Jun 2027 Hedge Period)
$
1,194,000
2.25%
2.83%
$
32,928
June 2022 10-year Ultra futures
(Jun 2022 - Jun 2032 Hedge Period)
$
270,000
1.68%
2.06%
$
10,983
($ in thousands)
December 31, 2021
Average
Weighted
Weighted
Contract
Average
Average
Notional
Entry
Effective
Open
Expiration Year
Amount
Rate
Rate
Equity
(1)
Treasury Note Futures Contracts (Short
Position)
(2)
March 2022 5-year T-Note futures
(Mar 2022 - Mar 2027 Hedge Period)
$
369,000
1.56%
1.62%
$
1,013
March 2022 10-year Ultra futures
(Mar 2022 - Mar 2032 Hedge Period)
$
220,000
1.22%
1.09%
$
(3,861)
(1)
Open equity represents the cumulative gains (losses) recorded on open
futures positions from inception.
(2)
5-Year T-Note
futures contracts were valued at a price of $
114.69
at March 31, 2022 and $
120.98
at December 31, 2021.
The contract values
of the costshort positions were $
1,369.4
million and $
446.4
million at March 31, 2022 and December 31, 2021, respectively.
10-Year Ultra
futures
contracts were valued at a price of its$
135.47
at March 31, 2022 and $
146.44
at December 31, 2021. The contract value of the short position was
$
365.8
million and $
322.2
million at March 31, 2022 and December 31, 2021, respectively
Under our
interest
rate swap
agreements,
we typically
pay a fixed
rate and
receive a
floating rate
based on an
index ("payer
swaps").
The floating
rate we receive
under our
swap agreements
has the effect
of offsetting
the repricing
characteristics
of our repurchase agreement funding by entering into derivatives
agreements
and other hedging contracts.  To date, 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 has entered into Eurodollar Company’s
interest
rate swap
positions
at March
31, 2022
and T-Note futuresDecember
31, 2021.
13
($ in thousands)
Average
Net
Fixed
Average
Estimated
Average
Notional
Pay
Receive
Fair
Maturity
Amount
Rate
Rate
Value
(Years)
March 31, 2022
Expiration > 3 to ≤ 5 years
$
300,000
0.95%
0.93%
$
18,138
4.0
Expiration > 5 years
1,100,000
1.51%
0.37%
47,056
7.0
$
1,400,000
1.39%
0.49%
$
65,194
6.3
December 31, 2021
Expiration > 3 to ≤ 5 years
$
955,000
0.64%
0.16%
$
21,788
4.0
Expiration > 5 years
400,000
1.16%
0.21%
4,643
7.3
$
1,355,000
0.79%
0.18%
$
26,431
5.0
The table
below presents
information
related to
the Company’s
interest
rate cap positions
at March
31, 2022.
($ in thousands)
Net
Strike
Estimated
Notional
Swap
Curve
Fair
Expiration
Amount
Cost
Rate
Spread
Value
February 8, 2024
$
200,000
$
2,350
0.09%
10Y2Y
$
1,354
The table
below presents
information
related to
the Company’s
interest
rate swaption
positions
at March 31,
2022 and
December
31,
2021.
($ in thousands)
Option
Underlying Swap
Weighted
Average
Weighted
Average
Average
Adjustable
Average
Fair
Months to
Notional
Fixed
Rate
Term
Expiration
Cost
Value
Expiration
Amount
Rate
(LIBOR)
(Years)
March 31, 2022
Payer Swaptions - long
≤ 1 year
$
31,905
$
33,040
11.3
$
1,282,400
2.44%
3 Month
11.3
>1 year ≤ 2 years
15,300
27,322
18.8
728,400
2.52%
3 Month
10.0
$
47,205
$
60,362
14.0
$
2,010,800
2.47%
3 Month
10.8
Payer Swaptions - short
≤ 1 year
$
(19,540)
$
(25,535)
5.8
$
(1,433,000)
2.47%
3 Month
10.8
December 31, 2021
Payer Swaptions - long
≤ 1 year
$
4,000
$
1,575
3.2
$
400,000
1.66%
3 Month
5.0
>1 year ≤ 2 years
32,690
19,918
18.4
1,258,500
2.46%
3 Month
14.1
$
36,690
$
21,493
14.7
$
1,658,500
2.27%
3 Month
11.9
Payer Swaptions - short
≤ 1 year
$
(16,185)
$
(4,423)
5.3
$
(1,331,500)
2.29%
3 Month
11.4
14
The
following
table
summarizes
our
contracts
to
purchase
and
sell
TBA
securities
as
of
December
31,
2021
.
There
were
no
outstanding TBA contracts interest rate swaps, and interest rate swaptions, but may enter into other contractsas of March 31, 2022.
($ in thousands)
Notional
Net
Amount
Cost
Market
Carrying
Long (Short)
(1)
Basis
(2)
Value
(3)
Value
(4)
December 31, 2021
30-Year TBA securities:
3.0%
$
(575,000)
$
(595,630)
$
(595,934)
$
(304)
Total
$
(575,000)
$
(595,630)
$
(595,934)
$
(304)
(1)
Notional amount represents 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 earningspar value (or principal balance) of the underlying
Agency RMBS.
(2)
Cost basis represents the forward price to be paid (received) for all periods presented.the underlying
Agency RMBS.

(3)
In addition,Market value represents the Company utilizes TBA securities as a meanscurrent market value of investing in and financing Agency RMBS or as a means of reducing its exposure to Agency RMBS, and also a hedge for tax purposes. The Company accounts for TBA securities as derivative instruments if either the TBA securities do not settle in
(or of the shortest periodunderlying Agency RMBS) as of time possible or ifperiod-end.
(4)
Net carrying value represents the Company cannot assert that it is probable at inceptiondifference between the market
value and throughout the termcost basis of the TBA securities that it will take physical deliveryas of the Agency RMBS for a long position, or make delivery of the Agency RMBS for a short position, upon settlement of the trade.period-end and
is reported

11

Derivative Assets (Liabilities),in derivative assets (liabilities) at Fair Value

The table below summarizes fair value information aboutin our derivative assets and liabilities as of September 30, 2017 and December 31, 2016.balance sheets.

(in thousands)       
Derivative Instruments and Related AccountsBalance Sheet Location September 30, 2017  December 31, 2016 
Assets       
Interest rate swapsDerivative assets, at fair value $10,693  $10,302 
Payer swaptionsDerivative assets, at fair value  3,194   - 
TBA securitiesDerivative assets, at fair value  2,984   63 
Total derivative assets, at fair value  $16,871  $10,365 
          
Liabilities         
Interest rate swapsDerivative liabilities, at fair value $2,591  $802 
TBA securitiesDerivative liabilities, at fair value  -   1,180 
Total derivative liabilities, at fair value  $2,591  $1,982 
          
Margin Balances Posted to (from) Counterparties         
Futures contractsRestricted cash $6,193  $9,419 
TBA securitiesRestricted cash  -   446 
TBA securitiesOther liabilities  (1,867)  - 
Interest rate swaption contractsOther liabilities  (2,776)  - 
Interest rate swap contractsRestricted 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 cash accounts on a daily basis. A minimum balance, or "margin", is required to be maintained in the account on a daily basis. The tables below present information related to the Company's Eurodollar and T-Note futures positions at September 30, 2017 and December 31, 2016.

($ in thousands)            
  September 30, 2017 
  Average  Weighted  Weighted    
  Contract  Average  Average    
  Notional  Entry  Effective  Open 
Expiration Year 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)
2020  925,000   2.62%  2.13%  (4,505)
Total / Weighted Average $976,923   2.13%  1.91% $(7,074)
                 
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)

12

($ 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 at September 30, 2017 and $124.28 at December 31, 2016.  The notional contract values of the short positions were $144.1 million and $577.9 million at September 30, 2017 and December 31, 2016, respectively.

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

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

The table below presents information related to the Company's interest rate swaption positions at September 30, 2017.

($ in thousands)                
 OptionUnderlying Swap
       Weighted      Weighted
       Average  FixedReceiveAverage
      FairMonths toNotionalPayRateTerm
Expiration CostValueExpirationAmountRate(LIBOR)(Years)
Payer Swaptions                
≤ 1 year$2,367$3,19411.0$200,0002.16%3 Month6.0

13

The following table summarizes our contracts to purchase and sell TBA securities as of September 30, 2017 and December 31, 2016.
($ 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 and Other Hedging Instruments, Net

The table below presents the effect of the Company'sCompany’s derivative financialand other hedging instruments on the consolidated statements of operations for
the nine and three months ended September 30, 2017March 31, 2022 and 2016.2021.

(in thousands)
(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 
Three Months Ended March 31,

2022
2021
T-Note futures contracts (short position)
$
79,895
$
2,476
Eurodollar futures contracts (short positions)
0
12
Interest rate swaps
66,284
27,123
Payer swaptions (short positions)
(10,908)
(26,167)
Payer swaptions (long positions)
40,975
40,070
Interest rate caps
(996)
0
Interest rate floors
0
1,384
TBA securities (short positions)
2,539
9,133
TBA securities (long positions)
27
(8,559)
Total
$
177,816
$
45,472
Credit Risk-Related Contingent Features

The
use
of
derivatives
and
other
hedging
instruments
creates
exposure
to
credit
risk
relating
to
potential
losses
that
could
be
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
attempt to
minimize this risk
by limiting
our counterparties
for instruments which
are not centrally
cleared on a
registered exchange
to major financial
institutions
with
acceptable credit
ratings
and
monitoring positions
with
individual counterparties.
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.

It
is
the
Company's
policy
not
to
offset
assets
and
liabilities
associated
with
open
derivative
contracts.
However,
the
Chicago
Mercantile
Exchange
(“CME”)
rules
characterize
variation
margin
transfers
as
settlement
payments,
as
opposed
to
adjustments
to
collateral. As
a result,
derivative assets
and liabilities
associated with
centrally cleared
derivatives for
which the
CME serves
as the
central
clearing party are presented as if these derivatives had been settled as of the reporting
date.
14

15
NOTE 5. PLEDGED ASSETS

Assets Pledged
to Counterparties
The table
below summarizes
our assets
pledged as
collateral
under our
repurchase
agreements
and derivative
agreements
by type,
including
securities
pledged related
to securities
sold but not
yet settled,
as of March
31, 2022
and December
31, 2021.
(in thousands)
March 31, 2022
December 31, 2021
Repurchase
Derivative
Repurchase
Derivative
Assets Pledged to Counterparties

Agreements
Agreements
Total
Agreements
Agreements
Total
PT RMBS - fair value
$
4,369,564
$
0
$
4,369,564
$
6,294,102
$
0
$
6,294,102
Structured RMBS - fair value
207,283
0
207,283
212,270
0
212,270
U.S. Treasury Notes
0
36,477
36,477
0
29,740
29,740
Accrued interest on pledged securities
14,816
3
14,819
18,804
13
18,817
Restricted cash
113,589
16,610
130,199
57,264
8,035
65,299
Total
$
4,705,252
$
53,090
$
4,758,342
$
6,582,440
$
37,788
$
6,620,228
Assets Pledged
from Counterparties
The table
below summarizes our
assets pledged as collateral
to us from
counterparties
under our
repurchase
agreements prime brokerage clearing accounts, derivative agreements
and insurance capital by type, including securities pledged related to securities sold but not yet settled, derivative
agreements
as of September 30, 2017 March
31, 2022
and December
31, 2021.
(in thousands)
March 31, 2022
December 31, 2016.
2021

Repurchase
(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 
Derivative

Repurchase
(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.

Derivative
Assets Pledged from Counterpartiesto Orchid

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

Total
(in thousands)                  
 September 30, 2017  December 31, 2016 
 Repurchase Derivative   Repurchase Derivative   
Assets Pledged to OrchidAgreements 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 
Agreements

Agreements
PT RMBS and U.S. Treasury securitiesTotal
Cash
$
4,172
$
34,983
$
39,155
$
4,339
$
7,206
$
11,545
Total
$
4,172
$
34,983
$
39,155
$
$
4,339
$
7,206
$
11,545
Cash 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
as cash and
cash equivalents
with a corresponding
amount recognized
as an increase
in
repurchase
agreements
or other
liabilities
in the consolidated balance
sheets.

15

NOTE 6. OFFSETTING ASSETS AND LIABILITIES

The Company's derivatives Company’s
derivative
agreements
and repurchase
agreements
and reverse
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.

basis.
16
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, 2022
and December
31, 2021.
(in thousands)
Offsetting of Assets
Gross Amount Not
Net Amount
Offset in the Balance Sheet
of Assets
Financial
Gross Amount
Gross Amount
Presented
Instruments
Cash
of Recognized
Offset in the
in the
Received as
Received as
Net
Assets
Balance Sheet
Balance Sheet
Collateral
Collateral
Amount
March 31, 2022
Interest rate swaps
$
65,194
$
0
$
65,194
$
0
$
0
$
65,194
Interest rate swaptions
60,362
0
60,362
0
(34,983)
25,379
Interest rate caps
1,354
0
1,354
0
0
1,354
$
126,910
$
0
$
126,910
$
0
$
(34,983)
$
91,927
December 31, 2016.2021
Interest rate swaps
$
29,293
$
0
$
29,293
$
0
$
0
$
29,293
Interest rate swaptions
21,493
0
21,493
0
(6,350)
15,143
$
50,786
$
0
$
50,786
$
0
$
(6,350)
$
44,436

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

Gross Amount Not
(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 
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
as Collateral
Amount
March 31, 2022
Repurchase Agreements
$
4,464,109
$
0
$
4,464,109
$
(4,350,520)
$
(113,589)
$
0
Interest rate swaptions
25,535
0
25,535
0
0
25,535
$
4,489,644
$
0
$
4,489,644
$
(4,350,520)
$
(113,589)
$
25,535
December 31, 2021
Repurchase Agreements
$
6,244,106
$
0
$
6,244,106
$
(6,186,842)
$
(57,264)
$
0
Interest rate swaps
2,862
0
2,862
(2,862)
0
0
Interest rate swaptions
4,423
0
4,423
0
0
4,423
TBA securities
304
0
304
0
0
304
$
6,251,695
$
0
$
6,251,695
$
(6,189,704)
$
(57,264)
$
4,727
The amounts
disclosed
for collateral
received by
or posted
to the same
counterparty
up to and
not exceeding
the net amount
of the
asset or
liability
presented
in the balance
sheets.
The fair
value of
the actual
collateral
received
by or posted
to the same
counterparty 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
and other
hedging
instruments.

16

17
NOTE 7.
CAPITAL STOCK

Common Stock
Issuances

The Company
did not complete
any public
offerings of
its common
stock during
the three
months ended
March 31,
2022. During
the
During 2017 and 2016, year ended
December
31, 2021,
the Company
completed
the following
public offerings
of shares
of its common
stock.  There
($ in thousands, except per share amounts)
Weighted
Average
Price
Received
Net
Type of Offering
Period
Per Share
(1)
Shares
Proceeds
(2)
At the Market Offering Program
(3)
First Quarter
$
5.10
308,048
$
1,572
Follow-on Offerings
First Quarter
5.31
17,940,000
95,336
At the Market Offering Program
(3)
Second Quarter
5.40
23,087,089
124,746
At the Market Offering Program
(3)
Third Quarter
4.94
35,818,338
177,007
At the Market Offering Program
(3)
Fourth Quarter
4.87
23,674,698
115,398
100,828,173
$
514,059
(1)
Weighted average price received per share is after deducting the underwriters’
discount, if applicable, and other offering costs.
(2)
Net proceeds are net of the underwriters’ discount, if applicable, and other
offering costs.
(3)
The Company has entered into ten equity distribution agreements, nine of which have
either been terminated because all shares were no common stock issuances through public offerings during the three months ended March 31, 2016 and September 30, 2017.sold or
were replaced with a subsequent agreement.

($ in thousands, except per share amounts)         
   Weighted       
   Average       
   Price       
   Received     Net 
Type of OfferingPeriod 
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' discount, if applicable, and other offering costs.
(2)Net proceeds are net of the underwriters' discount, if applicable, and other offering costs.
(3)The Company has entered into five equity distribution agreements, all of which have either been terminated because all shares were sold or were replaced with a subsequent agreement.

ShareStock Repurchase Program

On July 29, 2015, the Company'sCompany’s Board of Directors authorized the repurchase of up to
2,000,000
shares of the Company’s
common stock. On February 8, 2018, the Board of Directors approved an increase
in the stock repurchase program for up to an
additional
4,522,822
shares of the Company's common stock. Coupled with the
783,757
shares remaining from the original
2,000,000
share authorization, the increased authorization brought the total authorization
to
5,306,579
shares, representing 10% of the
Company’s then outstanding share count.
On December 9, 2021, the Board of Directors approved an increase in the
number of shares of the Company’s common stock
available in the stock repurchase program for up to an additional
16,861,994
shares, bringing the remaining authorization under the
stock repurchase program to
17,699,305
shares, representing approximately 10% of the Company’s then outstanding shares
of
common stock.
As part of the sharestock 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'sCompany’s discretion
without prior notice.

18
From the inception of the sharestock repurchase program through September 30, 2017,March 31, 2022, the Company
repurchased a total of 1,216,243
5,685,511
shares at an aggregate cost of approximately $10.8 $
40.4
million, including commissions and fees, for a weighted average price
of $8.92 $
7.10
per
share. No shares were repurchased during the three months ended March
31, 2022 or during the year ended December 31, 2016 or2021. The
remaining authorization under the nine months ended September 30, 2017.stock repurchase program as of March 31, 2022 was
17,699,305
shares.

17

Cash Dividends

The table below presents the cash dividends declared on the Company'sCompany’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 - YTD(1)
  1.400   56,027 
Totals $8.555  $163,468 
(in thousands, except per share amounts)

Year
(1)On October 11, 2017, the Company declared a dividend of $0.14 per share to be paid on November 10, 2017.  The effect of this dividend is included in the table above but is not reflected in the Company's financial statements as of September 30, 2017.
Per Share

Amount
Total
2013
$
1.395
$
4,662
2014
2.160
22,643
2015
1.920
38,748
2016
1.680
41,388
2017
1.680
70,717
2018
1.070
55,814
2019
0.960
54,421
2020
0.790
53,570
2021
0.780
97,601
2022 - YTD
(1)
0.200
35,484
Totals
$
12.635
$
475,048
(1)
On
April 13, 2022
, the Company declared a dividend of $
0.045
per share to be paid on
May 27, 2022
.
The effect of this dividend is included in
the table above but is not reflected in the Company’s financial statements
as of March 31, 2022.
NOTE 8.
STOCK INCENTIVE PLAN

In October 2012, 2021,
the Company's Company’s
Board of
Directors
adopted,
and Bimini, then the Company's sole stockholder, stockholders
approved,
the Orchid
Island Capital,
Inc. 2021
Equity
Incentive
Plan (the
“2021 Incentive
Plan”) to
replace the
Orchid Island
Capital,
Inc. 2012
Equity Incentive
Plan (the "Incentive Plan") to recruit
“2012 Incentive
Plan”
and retain employees, directors and other service providers, including employees oftogether
with the Manager and other affiliates.
2021 Incentive
Plan, the
“Incentive
Plans”).
The 2021
Incentive
Plan provides
for the award
of stock options,
stock
appreciation
rights, stock
award, performance
units, other
equity-based
awards (and
dividend equivalents
with respect
to awards
of
performance
units and
other equity-based
awards) and
incentive
awards.
The 2021
Incentive
Plan is administered
by the Compensation
Committee
of the Company's 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 2021
Incentive
Plan provides
for awards
of up to
an aggregate
of
10
% 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
7,366,623
shares of
the Company’s
common stock
that may
be issued
under the
2021 Incentive
Plan. The
2021 Incentive
Plan replaces
the 2012
Incentive
Plan, and
no further
grants will
be made under
the 2012
Incentive
Plan.
However, any
outstanding
awards under
the
2012 Incentive
Plan will
continue
in accordance
with the
terms of
the 2012
Incentive
Plan and
any award
agreement
executed in
connection
with such
outstanding
awards.
19
Performance
Units
The Company
has issued,
and may
in the future
issue additional,
performance
units under
the Incentive
Plans to
certain executive
officers and
employees
of its Manager.
“Performance
Units” vest
after the
end of a
defined performance
period, based
on satisfaction
of
the performance
conditions
set forth
in the performance
unit agreement.
When earned,
each Performance
Unit will
be settled
by the
issuance of
one share
of the Company's 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
underlying
shares of
common stock.
Performance
Units are
subject to
forfeiture
should the
participant
no
longer serve
as an executive
officer or
employee of
the Company
or the Manager.
Compensation
expense for
the Performance
Units,
included in
incentive
compensation
on the statements
of operations,
is recognized
over the
remaining
vesting period
once it becomes
probable
that maythe
performance
conditions
will be issued underachieved.
The following
table presents
information
related to
Performance
Units outstanding
during the Incentive Plan.
three months
ended March
31, 2022 and

2021.
Restricted Stock Awards
($ in thousands, except per share data)

Three Months Ended March 31,
2022
2021
Weighted
Weighted
Average
Average
Grant Date
Grant Date
The table below presents information related to the Company's restricted common stock at September 30, 2017Shares
Fair Value
Shares
Fair Value
Unvested, beginning of period
133,223
$
5.88
4,554
$
7.45
Granted
175,572
3.31
137,897
5.88
Vested and 2016.issued

(13,322)
($ 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 
5.88

(2,277)
187.45
Unvested, end of period
295,473
$
4.35
140,174
$
5.91
Compensation expense during period
$
106
$
3
Unrecognized compensation expense, end of period
$
942
$
812
Intrinsic value, end of period
$
960
$
842
Weighted-average remaining vesting term (in years)
1.8
2.1

Stock Awards

The Company
has issued,
and may
in the future
issue additional,
immediately
vested common
stock under
the Incentive
Plans to
certain executive
officers and
employees
of its Manager.
The following
table presents
information
related to
fully vested
common stock
issued during
the three
months ended
March 31,
2022 and
2021. All
of the fully
vested shares
of common
stock issued
during the
three
months ended
March 31,
2022 and
2021, and
the related
compensation
expense, were
granted with
respect to
service performed
during
the fiscal
years ended
December
31, 2021
and 2020,
respectively.
The Company issues immediately
($ in thousands, except per share data)
Three Months Ended March 31,
2022
2021
Fully vested common stock under the Incentive Plan to certain executive officers, employees and directors. The following table presents informationshares granted
175,572
137,897
Weighted average grant date price per share
$
3.31
$
5.88
Compensation expense related to fully vested shares of common stock issued duringawards
$
581
$
811
20
Deferred
Stock Units
Non-employee
directors
receive a
portion of
their compensation
in the nine months ended September 30, 2017form
of deferred
stock unit
awards (“DSUs”)
pursuant to
the
Incentive
Plans.
Each DSU
represents
a right to
receive one
share of
the Company’s
common stock.
Beginning
in 2022,
each non-
employee director
can elect
to receive
all of his
or her compensation
in the form
of DSUs
The DSUs
are immediately
vested and 2016.
are

settled at
a future
($ 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 
date based

(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 may issue performance units underon the Incentive Plan to certain executive officers and employees.  "Performance Units" vest after the end of a defined performance period, based on satisfaction election
of the performance conditions set forth individual
participant.
Compensation
expense for
the DSUs
is included
in directors’
fees and
liability
insurance
in the performance unit agreement. When earned, each Performance Unit will be settled by the issuance statements
of one share of the Company's common stock, at which time the Performance Unit will be cancelled.  operations.
The Performance Units DSUs
contain dividend
equivalent
rights, which
entitle the Participants
participant
to
receive distributions
declared
by the Company
on common stock, but
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 shares.  Performance Units are subject
underlying
shares of
common stock.
The following
table presents
information
related to forfeiture should
the participant no longer serve as an executive officer or employee forDSUs
outstanding
during the Company. 
three months
ended March
31, 2022
and 2021.
($ in thousands, except per share data)
Three Months Ended March 31,
2022
2021
Weighted
Weighted
Average
Average
Grant Date
Grant Date
Shares
Fair Value
Shares
Fair Value
Outstanding, beginning of period
142,976
$
5.38
90,946
$
5.44
Granted and vested
15,273
4.39
10,422
5.31
Outstanding, end of period
158,249
$
5.29
101,368
$
5.43
Compensation expense for the Performance Units are recognized over the remaining vestingduring 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 months ended September 30, 2017.75

$
($ 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 
45

Intrinsic value, end of period
$
514
$
609
19

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, 2022.

NOTE 10. INCOME TAXES

The Company will generally not be subject to U.S. federal income tax on
its REIT taxable income to the extent that it distributes its
REIT taxable income to its stockholders and satisfies the ongoing REIT requirements,
including meeting certain asset, income and
stock ownership tests.
A REIT must generally distribute at least 90% of its REIT taxable income,
determined without regard to the
deductions for dividends paid and excluding net capital gain, to its stockholders,
annually to maintain REIT status.
An amount equal to
the sum of which 85% generallyof its REIT ordinary income and 95% of its REIT
capital gain net income, plus certain undistributed income from
prior taxable years, 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.

21
NOTE 11.
EARNINGS PER SHARE (EPS)

The Company
had dividend
eligible shares of restricted common stock and
Performance
Units and
Deferred
Stock Units
that were
outstanding
during the nine and
three months
ended September 30, 2017. March
31, 2022
and 2021.
The basic
and diluted
per share
computations
include these
unvested shares of restricted common stockPerformance
Units and performance units
Deferred
Stock Units
if there
is income
available
to common
stock, as
they have
dividend participation
rights.
The shares of restricted common stockunvested
Performance
Units and Performance
Deferred
Stock Units
have no contractual
obligation
to share
in losses.
Because there
is no such
obligation,
the shares of restricted common stockunvested
Performance
Units and Performance
Deferred
Stock 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 three
months ended
March 31,
2022 and
2021.
(in thousands, except per share information)
Three Months Ended March 31,
2022
2021
Basic and diluted EPS per common share:
Numerator for basic and diluted EPS computations when no income is available toper share of common stock:
Net loss - Basic and diluted
$
(148,727)
$
(29,369)
Weighted average shares of common stock:
Shares of common stock even though they are considered participating securities.outstanding at the balance sheet date

177,117
The table below reconciles the numerator and denominator94,411
Effect of EPS for the nine and three months ended September 30, 2017 and 2016.weighting

(119)
(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 
(9,066)

Weighted average shares-basic and diluted
176,998
85,345
Net loss per common share:
Basic and diluted
$
(0.84)
$
(0.34)
Anti-dilutive incentive shares not included in calculation
454
242
NOTE 12.
FAIR VALUE

The framework
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
(an exit price) as opposed to the price that would be paid to acquire the asset or received to assume the liability (an entry
price). A
fair value
measure should
reflect the
assumptions
that market
participants
would use
in
pricing the
asset or
liability, including
the assumptions
about the
risk inherent
in a particular
valuation
technique,
the effect of
a restriction
on the sale
or use of
an asset and
the risk of
non-performance.
Required
disclosures
include stratification
of balance
sheet amounts
measured
at fair value
based on
inputs the
Company uses
to derive
fair value
measurements.
These stratifications
are:
●
Level 1 valuations,
where the
valuation
is based on
quoted market
prices for
identical
assets or
liabilities
traded in
active markets
(which include
exchanges
and over-the-counter
markets with
sufficient
volume),
●
Level 2 valuations,
where the
valuation
is based on
quoted market
prices for
similar instruments
traded in
active markets,
quoted
prices for
identical
or similar
instruments
in markets
that are
not active
and model-based
valuation
techniques
for which
all
significant
assumptions
are observable
in the market,
and
●
Level 3 valuations,
where the
valuation
is generated
from model-based
techniques
that use
significant
assumptions
not
observable
in the market,
but observable
based on
Company-specific
data. These
unobservable
assumptions
reflect the
Company’s own
estimates
for assumptions
that market
participants
would use
in pricing
the asset
or liability. Valuation
techniques
typically
include option
pricing models,
discounted
cash flow
models and
similar techniques,
but may also
include the
use of market
prices of
assets or
liabilities
that are
not directly
comparable
to the subject
asset or
liability.
22
The Company's
RMBS and
TBA securities
are Level
2 valuations,
and such valuations
currently
are determined
by the Company
based on
independent
pricing sources
and/or third
party broker
quotes, when
available.
Because the
price estimates
may vary, the
Company must
make certain
judgments
and assumptions
about the
appropriate
price to
use to calculate
the fair
values. The
Company and
the independent
pricing sources
use various
valuation
techniques
to determine
the price
of the Company’s
securities.
These techniques
include observing
the most
recent market
for like or
identical
assets (including
security
coupon,
maturity, yield,
and prepayment
speeds),
spread pricing
techniques
to determine
market credit
spreads (option
adjusted spread,
zero volatility
spread, spread
to the U.S.
Treasury
curve or
spread to
a benchmark
such as a
TBA), 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 the
security is
determined
by using
the adjusted
spread.
The Company’s
U.S. Treasury
Notes are
based on
quoted prices
for identical
instruments
in active
markets and
are classified
as
Level 1 assets.
The Company’s
futures contracts
are Level
1 valuations,
as they are
exchange-traded
instruments
and quoted
market prices
are
readily available.
Futures contracts
are settled
daily. The Company’s
interest
rate swaps
and interest
rate swaptions
are Level
2
valuations.
The fair
value of interest
rate swaps
is determined
using a discounted
cash flow
approach
using forward
market interest
rates
and discount
rates, which
are observable
inputs. The
fair value
of interest
rate swaptions
is determined
using an option
pricing model.
RMBS (based
on the fair
value option),
derivatives
and TBA securities
were recorded
at fair value
on a recurring
basis during
the
three months
ended March
31, 2022
and 2021.
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
March 31,
2022 and
December
31, 2021.
Derivative
contracts
are reported
as a net
position by
contract
type, and
not based
on master
netting arrangements.
 
 
20
23
(in thousands)
Quoted Prices
in Active
Significant
Markets for
Other
Significant
Identical

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

Inputs
The Company's RMBS, interest(Level 1)
(Level 2)
(Level 3)
March 31, 2022
Mortgage-backed securities
$
0
$
4,580,594
$
0
U.S. Treasury Notes
36,477
0
0
Interest rate swaps
0
65,194
0
Interest rate swaptions and
0
34,827
0
Interest rate caps
0
1,354
0
December 31, 2021
Mortgage-backed securities
$
0
$
6,511,095
$
0
U.S. Treasury Notes
37,175
0
0
Interest rate swaps
0
26,431
0
Interest rate swaptions
0
17,070
0
TBA securities are valued using Level 2 valuations, and such valuations currently are determined by
0
(304)
0
During the Company based on independent pricing sources and/or third party broker quotes, when available. Because the price estimates may vary, the Company must make certain judgments and assumptions about the appropriate price to use to calculate the fair values. Alternatively, the Company could opt to have the value of all of its positions in RMBS, interest rate swaptions and TBA securities determined by either an independent third-party or could do so internally.

RMBS (based on the fair value option), interest rate swaps, interest rate swaptions, TBA securities and futures contracts were recorded at fair value on a recurring basis during the nine and three months ended September 30, 2017March 31, 2022 and 2016. 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 and December 31, 2016:

(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 and 2016,2021, there were no transfers
of financial assets or liabilities between levels 1,
2 or 3.

21

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 2023
and provides for automatic one-yearone-
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'sOne-twelfth of 1.5% of the first $250 million of the Company’s month-end equity, as defined in the management agreement,
·One-twelfth of 1.25% of the Company's equity that is greater than $250 million and less than or equal to $500 million, and
●
·One-twelfth of 1.00% of the Company'sOne-twelfth of 1.25% of the Company’s month-end equity that is greater than $250
million and less than or equal to $500 million.

million, and
●
One-twelfth of 1.00% of the Company’s month-end equity that is greater than $500
million.
On April 1, 2022, pursuant to the third amendment to the management agreement
entered into on November 16, 2021, the
Manager began providing certain repurchase agreement trading, clearing and
administrative services to the Company that had been
previously provided by AVM, L.P.
under an agreement terminated on March 31, 2022.
In consideration for such services, the Company
will pay the following fees to the Manager:
●
A daily fee equal to the outstanding principal balance of repurchase agreement funding
in place as of the end of such day
multiplied by 1.5 basis points for the amount of aggregate outstanding principal balance
less than or equal to $5 billion, and
multiplied by 1.0 basis points for any amount of aggregate outstanding principal
balance in excess of $5 billion, and
●
A fee for the clearing and operational services provided by personnel
of the Manager equal to $10,000 per month.
24
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
Total expenses recorded for the management fee and costsallocated overhead incurred
were approximately $5.4 $
3.1
million and $1.9 $
2.0
million for the nine and three months ended September 30, 2017, respectively,March 31, 2022 and approximately $3.9 million and $1.4 million for the nine and three months ended September 30, 2016,2021, respectively. At September 30, 2017March 31, 2022 and December 31, 2016, 2021,
the net amount
due to affiliates was approximately $0.8 $
1.1
million and $0.6 $
1.1
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. HunterGeorge H. Haas, IV, 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,
2022, Bimini
owned 1,520,036
2,595,357
shares, or 3.4%
1.5
%, of the Company'sCompany’s common stock.
22
25
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, ("
such as mortgage pass-through certificates
issued by Fannie Mae, Freddie Mac or Ginnie Mae (the “GSEs”) and collateralized
mortgage obligations (“CMOs”) issued by the GSEs
(“PT RMBS"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 registeredan investment adviser registered 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'sCompany’s common stock trades on the New York Stock Exchange ("NYSE") under the symbol "ORC"“ORC”.

Capital Raising Activities

On July 29, 2016,August 4, 2020, we entered into an equity distribution agreement (the "July 2016“August
2020 Equity Distribution Agreement"Agreement”) with two four
sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate
amount of $125,000,000$150,000,000 of shares of our
common stock in transactions that were deemed to be "at“at the market"market” offerings and privately
negotiated transactions. We issued a total
of 10,174,99227,493,650 shares under the July 2016August 2020 Equity Distribution Agreement for
aggregate gross proceeds of $110.0 approximately $150.0
million, and net proceeds of approximately $108.2 $147.4 million, after commissions
and fees,
prior to its termination in June 2021.
26
On January 20, 2021, we entered into an underwriting agreement (the “January 2021
Underwriting Agreement”) with J.P. Morgan
Securities LLC (“J.P. Morgan”), relating to the offer and sale of 7,600,000 shares of our common stock. J.P.
Morgan purchased the
shares of our common stock from the Company pursuant to the January 2021
Underwriting Agreement at $5.20 per share. In addition,
we granted J.P.
Morgan a 30-day option to purchase up to an additional 1,140,000 shares
of our common stock on the same terms and
conditions, which J.P. Morgan exercised in full on January 21, 2021. The closing of the offering of 8,740,000 shares of our common
stock occurred on January 25, 2021, with proceeds to us of approximately $45.2
million, net of offering expenses.
On March 2, 2021, we entered into an underwriting agreement (the “March 2021 Underwriting
Agreement”) with J.P. Morgan,
relating to the offer and sale of 8,000,000 shares of our common stock. J.P. Morgan purchased the shares of our common stock from
the Company pursuant to the March 2021 Underwriting Agreement at $5.45 per share.
In addition, we granted J.P. Morgan a 30-day
option to purchase up to an additional 1,200,000 shares of our common stock
on the same terms and conditions, which J.P. Morgan
exercised in full on March 3, 2021. The closing of the offering of 9,200,000 shares of our common
stock occurred on March 5, 2021,
with proceeds to us of approximately $50.0 million, net of offering expenses.
On June 22, 2021, we entered into an equity distribution agreement (the “June 2021
Equity Distribution Agreement”) with four
sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate
amount of $250,000,000 of shares of our
common stock in transactions that were deemed to be “at the market” offerings and privately
negotiated transactions. We issued a total
of 49,407,336 shares under the June 2021 Equity Distribution Agreement for aggregate
gross proceeds of approximately $250.0
million, and net proceeds of approximately $246.2 million, after commissions
and fees, prior to its termination.

23

termination in October 2021.
On February 23, 2017, October 29, 2021,
we entered into anotheran equity distribution agreement as amended and restated on May 10, 2017, (the "May 2017 “October 2021
Equity Distribution Agreement"Agreement”) with two
four sales agents pursuant to which we may offer and sell, from time to time, up to an aggregate
amount of $125,000,000$250,000,000 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. WeThrough March
31, 2022, we issued a total of 12,299,03215,835,700 shares under the May 2017October 2021 Equity
Distribution Agreement for aggregate gross proceeds
of $125.0approximately $78.3 million, and net proceeds of approximately $122.9$77.0 million, net of
after 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 deemedthe stock repurchase program for up to be "atan
additional 4,522,822 shares of the market" offeringsCompany’s common stock. Coupled with the 783,757 shares
remaining from the original 2,000,000
share authorization, the increased authorization brought the total authorization
to 5,306,579 shares, representing 10% of the
Company’s then outstanding share count. On December 9, 2021, the Board of Directors
approved an increase in the number of shares
of the Company’s common stock available in the stock repurchase program for up
to an additional 16,861,994 shares, bringing the
remaining authorization under the stock repurchase program to 17,699,305 shares, representing
approximately 10% of the Company’s
then outstanding shares of common stock. This stock repurchase program has no
termination date.
From the inception of the stock repurchase program through March 31, 2022, the Company
repurchased a total of 5,685,511
shares at an aggregate cost of approximately $40.4
million, including commissions and privately negotiated transactions.fees, for a weighted average price
of $7.10 per
share. The August 2017 Equity Distribution Agreement replaced the May 2017 Equity Distribution Agreement. Through September 30, 2017, we haveCompany did not issuedrepurchase any shares underof its common stock during the August 2017 Equity Distribution Agreement.
three months ended March 31, 2022 or the year

ended December 31, 2021.
27
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 investments in Agency RMBS;
the difference between Agency RMBS yields and our funding and hedging costs;
·actions taken by the new presidential administration, the Federal Reserve (the "Fed") and the U.S. Treasury;
●
·prepayment rates on mortgages underlying our Agency RMBS, and credit trends insofar as they affect prepayment rates; and
competition for, and supply of, investments in Agency RMBS;
·●
actions taken by the U.S. government, including the presidential administration,
the Federal Reserve (the “Fed”), the Federal
Housing Financing Agency (the “FHFA”), Federal Housing Administration (the “FHA”), the Federal Open
Market Committee
(the “FOMC”) and the U.S. Treasury;
●
prepayment rates on mortgages underlying our Agency RMBS and credit
trends insofar as they affect prepayment rates; and
●
other market developments.

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

●
·our degree of leverage;
·our access to funding and borrowing capacity;
●
·our borrowing costs;
our access to funding and borrowing capacity;
·our hedging activities;
●
·the market value of our investments; and
our borrowing costs;
·the requirements to qualify as a REIT and the requirements to qualify for a registration exemption under the Investment Company Act.
●

our hedging activities;
●
the market value of our investments
●
increases in our cost of funds resulting from increases in the Fed Funds rate that
are controlled by the Fed and are likely to
continue to occur in 2022; 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
Described below are
the Company's Company’s
results of
operations
for the
three months
ended March
31, 2022,
as compared
to the
Company’s results
of operations
for the nine and three
months ended September 30, 2017, as compared to the Company's results of operations for the nine and three months ended September 30, 2016.
March 31,

24

2021.
Net (Loss)
Income 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 loss
for the three
months ended September 30, 2017
March 31,
2022 was $15.2
$148.7 million,
or $0.33 $0.84
per share.
Net income loss
for the three
months ended September 30, 2016
March 31,
2021 was $20.5
$29.4 million,
or $0.85 $0.34
per share.
The components
of net income loss
for the nine and three
months ended September 30, 2017
March 31,
2022 and 2016,
2021,
along with
the changes
in those
components
are presented
in the table
below:

(in thousands)
(in thousands)                  
  Nine Months Ended September 30,  Three Months Ended, September 30, 
  2017  2016  Change  2017  2016  Change 
Interest income $105,864  $62,059  $43,805  $38,974  $22,358  $16,616 
Interest expense  (28,116)  (10,629)  (17,487)  (12,638)  (3,979)  (8,659)
Net interest income  77,748   51,430   26,318   26,336   18,379   7,957 
(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)
Expenses  (8,181)  (6,587)  (1,594)  (2,899)  (2,271)  (628)
Net income $7,989  $22,397  $(14,408) $15,183  $20,526  $(5,343)
2022

2021
Change
Interest income
$
41,857
$
26,856
$
15,001
Interest expense
(2,655)
(1,941)
(714)
Net interest income
39,202
24,915
14,287
Losses on RMBS and derivative contracts
(183,232)
(50,791)
(132,441)
Net portfolio deficiency
(144,030)
(25,876)
(118,154)
Expenses
(4,697)
(3,493)
(1,204)
Net loss
$
(148,727)
$
(29,369)
$
(119,358)
28
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 statements
of
operations.
In addition,
we have not
designated
our derivative
financial
instruments
used for
hedging purposes
as hedges
for accounting
purposes,
but rather
hold them
for economic
hedging purposes.
Changes in
fair value
of these
instruments
are presented
in a separate
line item
in the Company’s
statements
of operations
and are not
included in
interest
expense.
As such,
for financial
reporting
purposes,
interest
expense and
cost of funds
are not impacted
by the fluctuation
in value of
the derivative
instruments.
Presenting

net earnings
excluding
realized and
unrealized
gains and
losses allows
management
to: (i) isolate
the net interest
income
and other
expenses of
the Company
over time,
free of all
fair value
adjustments
and (ii)
assess the
effectiveness
of our funding
and
hedging strategies
on our capital
allocation
decisions
and our
asset allocation
performance.
Our funding
and hedging
strategies,
capital
allocation
and asset
selection
are integral
to our risk
management
strategy, and therefore
critical to
the management
of our portfolio.
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 and
losses.
Described
below are
the Company’s
results of
operations
for the
three months
ended March
31, 2022,
as compared
to the
Company’s results
of operations
for each of
the three
months ended
December
31, 2021,
September
30, 2021,
June 30,
2021 and
March
31, 2021.
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, 2022
$
(148,727)
$
(183,232)
$
34,505
$
(0.84)
$
(1.04)
$
0.20
December 31, 2021
(44,564)
(82,597)
38,033
(0.27)
(0.49)
0.22
September 30, 2021
26,038
(2,887)
28,925
0.20
(0.02)
0.22
June 30, 2021
(16,865)
(40,844)
23,979
(0.17)
(0.41)
0.24
March 31, 2021
(29,369)
(50,791)
21,422
(0.34)
(0.60)
0.26
(1)
Includes realized
and unrealized
gains (losses)
on RMBS and derivative
financial instruments,
including net
interest income
or expense on
interest
rate swaps.

29
Economic Interest
Expense and
Economic Net
Interest
Income
We use derivative
and other
hedging instruments,
specifically
Eurodollar, Fed
Funds and
T-Note futures
contracts,
short positions
in
U.S. Treasury
securities,
interest
rate swaps
and swaptions,
to hedge
a portion
of the interest
rate risk
on repurchase
agreements
in a
rising rate
environment.
We have not
elected to account
designate
our derivative
holdings for our Agency RMBS under the
hedge accounting
treatment.
Changes in
fair value option. Securities held under the fair value option are recorded at estimated fair value, with changes in the fair value recorded as unrealized gains or losses through the consolidated statements of operations.

In addition, we have not elected to designate our derivative holdings for hedge accounting treatment under the Financial Accounting Standards Board (the "FASB") Accounting Standards Codification ("ASC") Topic 815, Derivatives and Hedging. Changes in fair value of these
instruments
are presented
in a separate
line item
in the Company's consolidatedour 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
Presenting net earnings excluding has been
adjusted to
reflect the
realized and
unrealized
gains allows management to: (i) isolate or
losses on
certain derivative
instruments
the netCompany
uses, specifically
Eurodollar, Fed
Funds and
U.S. Treasury
futures,
and interest income
rate swaps
and other expenses swaptions,
that pertain
to each period
presented.
We
believe that
adjusting
our interest
expense for
the periods
presented
by the gains
or losses
on these
derivative
instruments
would not
accurately
reflect our
economic
interest
expense for
these periods.
The reason
is that these
derivative
instruments
may cover
periods that
extend into
the future,
not just the
current period.
Any realized
or unrealized
gains or
losses on
the instruments
reflect the
change in
market value
of the Company over time, free 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 mark-to-market adjustments contracts
in effect during
the reporting
period, covering
the current
period as
well
as periods
in the future.
The Company
may invest
in TBAs,
which are
forward contracts
for the purchase
or sale of
Agency RMBS
at a predetermined
price,
face amount,
issuer, coupon
and (ii) assessstated
maturity on
an agreed-upon
future date.
The specific
Agency RMBS
to be delivered
into the effectiveness
contract
are not known
until shortly
before the
settlement
date. We may
choose, prior
to settlement,
to move the
settlement
of these
securities
out to a
later date
by entering
into a dollar
roll transaction.
The Agency
RMBS purchased
or sold for
a forward
settlement
date
are typically
priced at
a discount
to equivalent
securities
settling
in the current
month. Consequently,
forward
purchases
of Agency
RMBS
and dollar
roll transactions
represent
a form of
off-balance
sheet financing.
These TBAs
are accounted
for as derivatives
and marked
to
market through
the income
statement.
Gains or losses
on TBAs
are included
with gains
or losses
on other
derivative
contracts
and are not
included in
interest
income for
purposes of
the discussions
below.
We believe
that economic
interest
expense and
economic
net interest
income provide
meaningful
information
to consider, in
addition
to the respective
amounts prepared
in accordance
with GAAP. The non-GAAP
measures help
management
to evaluate
its financial
position and
performance
without the
effects of
certain transactions
and GAAP
adjustments
that are
not necessarily
indicative
of our funding
current investment
portfolio
or operations.
The unrealized
gains or
losses on
derivative
instruments
presented
in our 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 strategies onstrategy
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 capital allocation decisions
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 our asset allocation performance. Our fundingis not
a substitute
for interest
expense and hedging strategies, capital allocation and asset selection are integral
net interest
income computed
in accordance
with GAAP.
30
The tables
below present
a reconciliation
of the adjustments
to interest
expense shown
for each
period relative
to our risk management strategy, derivative
instruments,
and therefore critical to the management of our portfolio.  We believe that the presentation of our net earnings excluding realized and unrealized income
statement
line item,
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 (losses)
on derivative
instruments,
calculated
in accordance
with GAAP
for each
quarter of
2022 to date
and net earnings excluding realized2021.
Gains (Losses) on Derivative Instruments
(in thousands)
Funding Hedges
Recognized in
Attributed to
Attributed to
Income
U.S. Treasury and unrealized gains.
TBA

Current
25Future
Statement

Securities Gain (Loss)
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 
Period

Periods
(1)Includes realized and unrealized gains (losses) on RMBS and derivative financial instruments.
(GAAP)

(Short Positions)
(Long Positions)
(Non-GAAP)
(Non-GAAP)
Three Months Ended
March 31, 2022
$
177,816
$
2,539
$
27
$
(1,287)
$
176,537
December 31, 2021
10,945
2,568
-
(7,949)
$
16,326
September 30, 2021
5,375
(2,306)
-
(1,248)
$
8,929
June 30, 2021
(34,915)
(5,963)
-
(5,104)
$
(23,848)
March 31, 2021
45,472
9,133
(8,559)
(4,044)
$
48,942
Economic Interest Expense and Economic Net Interest Income

(in thousands)
We use derivative instruments, specifically Eurodollar and Treasury Note ("T-Note") futures contracts, interest rate swaps and swaptions, Interest Expense on Borrowings
Gains
(Losses) on
Derivative
Instruments
Net Interest Income
GAAP
Attributed
Economic
GAAP
Economic
Interest
Interest
to hedge a portion of the interest rate risk on repurchase agreements in a rising rate environment.Current

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

Net Interest
For the purpose of computing economic net interest income and ratios relating to cost of funds measures, GAAP interest expense has been adjusted to reflect the realized gains or losses on specific derivative instruments that pertain to each period presented. We believe that adjusting our interest expense for the periods presented by the gains or losses on all derivative instruments would not accurately reflect our economic interest expense for these periods. For each period presented, we have combined the effects of the derivative financial instruments in place for the respective period with the actual interest expense incurred on borrowings to reflect total economic interest expense for the applicable period. Interest expense, includingIncome
Expense
Period
(1)
Expense
(2)
Income
Income
(3)
Three Months Ended
March 31, 2022
$
41,857
$
2,655
$
(1,287)
$
3,942
$
39,202
$
37,915
December 31, 2021
44,421
2,023
(7,949)
9,972
42,398
34,449
September 30, 2021
34,169
1,570
(1,248)
2,818
32,599
31,351
June 30, 2021
29,254
1,556
(5,104)
6,660
27,698
22,594
March 31, 2021
26,856
1,941
(4,044)
5,985
24,915
20,871
(1)
Reflects the effect of derivative instrumentsinstrument hedges for only the period is referred to as economic interest expense. Net interest income, when calculated to include
presented.
(2)
Calculated by adding the effect of derivative instruments forinstrument hedges attributed
to the period is referredpresented to as economicGAAP interest expense.
(3)
Calculated by adding the effect of derivative instrument hedges attributed
to the period presented to GAAP net interest income. This presentation includes gains or losses
Net Interest Income
During the
three months
ended March
31, 2022,
we generated
$39.2 million
of net interest
income, consisting
of $41.9
million
of
interest
income from
RMBS assets
offset by $2.7
million of
interest
expense on all contracts
borrowings.
For the comparable
period ended
March 31,
2021, we
generated
$24.9 million
of net interest
income, consisting
of $26.9
million of
interest
income from
RMBS assets
offset by $1.9
million of
interest
expense on
borrowings.
The $15.0
million increase
in effect interest
income was
due to a 36
basis point
("bps")
increase in
the yield
on average
RMBS,
partially
offset by the
$1,513.1
million increase
in average
RMBS. The
$0.7 million
increase in
interest
expense was
due to a
$1,465.5
million increase
in average
outstanding
borrowings.
We had more
average assets
and borrowings
during
the first
quarter of
2022 compared
to the first
quarter of
2021 as we
deployed the
proceeds
of our capital
raising activity
during the reporting period, covering
year
ended December
31, 2021.
31
On an economic
basis, our
interest
expense on
borrowings
for the current period as well as periodsthree
months ended
March 31,
2022 and
2021 was
$3.9 million
and $6.0
million, respectively,
resulting
in $37.9
million and
$20.9 million
of economic
net interest
income, respectively.
The lower
economic interest
expense during
the three
months ended
March 31,
2022 was
due to the
positive performance
of our hedging
activities
during the
period.
The tables
below provide
information
on our portfolio
average balances,
interest
income, yield
on assets,
average borrowings,
interest
expense, cost
of funds,
net interest
income and
net interest
spread for
each quarter
in 2022 to
date and
2021 on both
a GAAP and
economic basis.
($ 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
March 31, 2022
$
5,545,844
$
41,857
3.02%
$
5,354,107
$
2,655
$
3,942
0.20%
0.29%
December 31, 2021
6,056,259
44,421
2.93%
5,728,988
2,023
9,972
0.14%
0.70%
September 30, 2021
5,136,331
34,169
2.66%
4,864,287
1,570
2,818
0.13%
0.23%
June 30, 2021
4,504,887
29,254
2.60%
4,348,192
1,556
6,660
0.14%
0.61%
March 31, 2021
4,032,716
26,856
2.66%
3,888,633
1,941
5,985
0.20%
0.62%
($ in thousands)
Net Interest Income
Net Interest Spread
GAAP
Economic
GAAP
Economic
Basis
Basis
(2)
Basis
Basis
(4)
Three Months Ended
March 31, 2022
$
39,202
$
37,913
2.82%
2.73%
December 31, 2021
42,398
34,449
2.79%
2.23%
September 30, 2021
32,599
31,351
2.53%
2.43%
June 30, 2021
27,698
22,594
2.46%
1.99%
March 31, 2021
24,915
20,871
2.46%
2.04%
(1)
Portfolio yields and costs of borrowings presented in the future.tables above and the
tables on pages 32 and 33 are calculated based on the

average balances of the underlying investment portfolio/borrowings balances
and are annualized for the periods presented. Average
We believe that economicbalances for quarterly periods are calculated using two data points, the beginning
and ending balances.
(2)
Economic interest expense and economic net interest income provide meaningful information to consider,
presented in additionthe table above and the tables on page 32 include 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 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.period divided by average
RMBS.
(4)
 
26
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 and 2016.

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

Economic Interest Expense and Economic Net Interest Income 
(in thousands)                  
     Interest Expense on Borrowings       
        Gains       
        (Losses) on          
        Derivative          
        Instruments     Net Interest Income 
     GAAP  Attributed  Economic  GAAP  Economic 
  Interest  Interest  to Current  Interest  Net Interest  Net Interest 
  Income  Expense  
Period(1)
  
Expense(2)
  Income  
Income(3)
 
Three Months Ended                  
September 30, 2017 $38,974  $12,638  $(3,754) $16,392  $26,336  $22,582 
June 30, 2017  34,579   8,763   (3,654)  12,417   25,816   22,162 
March 31, 2017  32,311   6,715   (3,193)  9,908   25,596   22,403 
December 31, 2016  25,068   4,976   (2,967)  7,943   20,092   17,125 
September 30, 2016  22,358   3,979   (2,660)  6,639   18,379   15,719 
June 30, 2016  19,235   3,330   (2,210)  5,540   15,905   13,695 
March 31, 2016  20,466   3,319   (1,933)  5,252   17,147   15,214 
Nine Months Ended                        
September 30, 2017 $105,864  $28,116  $(10,601) $38,717  $77,748  $67,147 
September 30, 2016  62,059   10,629   (6,803)  17,431   51,430   44,628 
(1)Reflects the effect of derivative instrument hedges for only the period presented.
(2)Calculated by adding the effect of derivative instrument hedges attributed to the period presented to GAAP interest expense.
(3)Calculated by adding the effect of derivative instrument hedges attributed to the period presented to GAAP net interest income.
27
Net Interest Income

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

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

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

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

The tables below provide information on our portfolio average balances, interest income, yield on assets, average borrowings, interest expense, cost of funds, net interest income andEconomic net interest spread for the nine months ended September 30, 2017 and 2016 and each quarter during 2017 and 2016 on both a GAAP andis calculated by subtracting average 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%

28

($ 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 30 and 31 are calculated based on the average balances of the underlying investment portfolio/borrowings balances and are annualized for the periods presented. Average balances for quarterly periods are calculated using two data points, the beginning and ending balances.
(2)
Economic interest expense and economic net interest income presented in the table above and the tables on page 31 includes the effect of our derivative instrument hedges for only the periods presented.
(3)Represents interest cost of our borrowings and the effect of derivative instrument hedges attributed to the period divided by average RMBS.
(4)Economic net interest spread is calculated by subtracting average economic cost of funds from realized yield on average RMBS.

Interest Income and Average Asset Yield

Our interest
income for
the nine three
months ended September 30, 2017
March 31,
2022 and 2016
2021 was $105.9
$41.9 million
and $26.9
million, respectively.
We had
average RMBS
holdings of
$5,545.8
million and $62.1 million, respectively.  We had average RMBS holdings of $3,492.0 million and $2,176.7
$4,032.7
million for
the nine three
months ended September 30, 2017
March 31,
2022 and 2016, 2021,
respectively.
The
yield on our
portfolio
was 4.04% 3.02%
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.2.66%

Our interest income for the three
months ended September 30, 2017
March 31,
2022 and 2016 was $39.0 million and $22.4 million,
2021, respectively.  We had average RMBS holdings of $3,834.1 million and $2,362.4 million for the three months ended September 30, 2017 and 2016, respectively.  The yield on our portfolio was 4.07% and 3.79% for the three months ended September 30, 2017 and 2016, respectively.
For the three
months
ended September 30, 2017 March
31, 2022
as compared
to the three
months ended September 30, 2016,
March 31,
2021, there
was a $16.6 $15.0
million increase
in interest
income due
to a $1,471.7 36 bps
increase in
the yield
on average
RMBS,
combined with
a $1,513.1
million increase
in average RMBS, combined with a 28 bps increase in the yield on average
RMBS.  The increase in average RMBS during the three months ended September 30, 2017, as compared to the three months ended September 30, 2016, reflects the deployment of the proceeds of our net capital raising activities.

29

32
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 2022 to
date and 2016.
2021.

($ in thousands)
($ 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%
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, 2022
$
5,335,353
$
210,491
$
5,545,844
$
40,066
$
1,791
$
41,857
3.00%
3.40%
3.02%
December 31, 2021
5,878,376
177,883
6,056,259
42,673
1,748
44,421
2.90%
3.93%
2.93%
September 30, 2021
5,016,550
119,781
5,136,331
33,111
1,058
34,169
2.64%
3.53%
2.66%
June 30, 2021
4,436,135
68,752
4,504,887
29,286
(32)
29,254
2.64%
(0.18)%
2.60%
March 31, 2021
3,997,965
34,751
4,032,716
26,869
(13)
26,856
2.69%
(0.15)%
2.66%
Interest Expense and the Cost of Funds

We had average
outstanding
borrowings
of $3,193.7 $5,354.1
million and $2,047.5
$3,888.6
million and
total interest
expense of $28.1
$2.7 million
and $10.6 $1.9
million for
the nine three
months ended September 30, 2017
March 31,
2022 and 2016,
2021, respectively.
Our average
cost of funds
was 1.17% 0.20%
for both the nine
three months
ended September 30, 2017, compared to 0.69% for the comparable period in 2016.  There was a $1,146.1 million increase in average outstanding borrowings during the nine months ended September 30, 2017 as compared March
31, 2022
and 2021.
Contributing
to the nineincrease
in interest
expense was
a $1,465.5
million increase
in average
outstanding
borrowings
during the
three months
ended September 30, 2016.  The higher cost of funds for the nine months ended September 30, 2017,March
31, 2022
as compared
to the same period in 2016, 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.three
months ended

March 31,
2021.
Our economic
interest
expense
was $38.7 $3.9
million and $17.4
$6.0 million for the nine months ended September 30, 2017 and 2016, respectively. There was a 48 bps increase in the average economic cost of funds to 1.62% for the nine months ended September 30, 2017 from 1.14% for the nine months ended September 30, 2016.  The increase in economic interest expense was due to the increase in average outstanding borrowings during the nine months ended September 30, 2017, combined with the negative performance of our derivative agreements attributed to the current period.

We had average outstanding borrowings of $3,494.3 million and $2,179.5 million and total interest expense of $12.6 million and $4.0 million for the three
months ended September 30, 2017
March 31,
2022 and 2016,
2021, respectively. Our
There was
a 33 bps
decrease in
the average
economic 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 0.29%
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.
March 31,
2022 from
0.62% for

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.
March 31,

2021.
30

Since all
of our repurchase
agreements
are short-term,
changes in
market rates
directly affect
our interest
expense. Our
average
cost
of funds
calculated
on a GAAP
basis was 25
5 bps below
the average
one-month
LIBOR and
56 bps below
the average
six-month
LIBOR for
the quarter
ended March
31, 2022.
Our average
economic cost
of funds
was 4 bps
above the
average one-month
LIBOR and 0
47 bps
below the
average six-month
LIBOR for
the quarter
ended September 30, 2017.  Our average economic cost of funds was 68 bps above the average one-month LIBOR and 43 bps above the average six-month LIBOR for the quarter ended September 30, 2017. March
31, 2022.
The average
term to maturity
of the outstanding
repurchase
agreements increased to 59
was 22 days
at September 30, 2017 from 15March
31, 2022
and 27 days
at December
31, 2016.

2021.
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
2022 to date
and 2016 2021
on both a
GAAP and
economic basis.

($ in thousands)
($ 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%
Average

Interest Expense
        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%
Average Cost of Funds

Balance of
GAAP
Economic
GAAP
Economic
Three Months Ended
Borrowings
Basis
Basis
Basis
Basis
March 31, 2022
$
5,354,107
$
2,655
$
3,942
0.20%
0.29%
December 31, 2021
5,728,988
2,023
9,972
0.14%
0.70%
September 30, 2021
4,864,287
1,570
2,818
0.13%
0.23%
June 30, 2021
4,348,192
1,556
6,660
0.14%
0.61%
March 31, 2021
3,888,633
1,941
5,985
0.20%
0.62%
31

33
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, 2022
0.25%
0.76%
(0.05)%
(0.56)%
0.04%
(0.47)%
December 31, 2021
0.09%
0.23%
0.05%
(0.09)%
0.61%
0.47%
September 30, 2021
0.09%
0.16%
0.04%
(0.03)%
0.14%
0.07%
June 30, 2021
0.10%
0.18%
0.04%
(0.04)%
0.51%
0.43%
March 31, 2021
0.13%
0.23%
0.07%
(0.03)%
0.49%
0.39%
Gains or Losses

The table
below presents
our gains
or losses
for the nine and three
months ended September 30, 2017
March 31,
2022 and 2016.
2021.

(in thousands)
(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)
2022

2021
Change
We invest in RMBS with the intent to earn net income from the realized yieldRealized losses on those assets over their related funding and hedging costs, and not for purposes 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 months ended September 30, 2017 and 2016, we received proceeds of $3,891.0 million and $1,717.6 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(51,086)
$
(7,397)
$
(43,689)
Unrealized losses on RMBS are driven in part by changes in yields and interest rates, which affect the pricing of the securities in our portfolio. 
(309,962)
(88,866)
(221,096)
Total losses on
RMBS
(361,048)
(96,263)
(264,785)
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
79,895
2,488
77,407
Gains on interest rate dataswaps
66,284
27,123
39,161
Losses on payer swaptions (short positions)
(10,908)
(26,167)
15,259
Gains on payer swaptions (long positions)
40,975
40,070
905
Losses on interest rate caps
(996)
-
(996)
Gains on interest rate floors
-
1,384
(1,384)
Gains (losses) on TBA securities (long positions)
27
(8,559)
8,586
Gains on TBA securities (short positions)
2,539
9,133
(6,594)
Total
$
(183,232)
$
(50,791)
$
(132,441)
We invest in
RMBS with
the intent
to earn net
income from
the realized
yield on those
assets over
their related
funding and
hedging
costs, and
not for the
purpose of
making short
term gains
from sales.
However, we
have sold,
and may continue
to sell,
existing
assets to
acquire new
assets, which
our management
believes might
have higher
risk-adjusted
returns in
light of current
or anticipated
interest
rates,
federal government
programs
or general
economic conditions
or to manage
our balance
sheet as part
of our asset/liability
management
strategy. During
the three
months ended
March 31,
2022 and
2021, we
received proceeds
of $1,413.0
million and
$988.5 million,
respectively, from
the sales
of RMBS.
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.
As rates
increased
during the
three months
ended March
31, 2021,
it had a
negative impact
on our RMBS
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 20172022
to date and 2016.
2021.

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

32

34
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, 2022
2.42%
2.33%
3.39%
4.17%
0.84%
December 31, 2021
1.26%
1.51%
2.35%
3.10%
0.21%
September 30, 2021
1.00%
1.53%
2.18%
2.90%
0.12%
June 30, 2021
0.87%
1.44%
2.27%
2.98%
0.13%
March 31, 2021
0.94%
1.75%
2.39%
3.08%
0.19%
(1)
Historical 5 and 10 Year
U.S. Treasury Rates are obtained from quoted end
of day prices on the Chicago Board Options Exchange.
(2)
Historical 30 Year and
15 Year Fixed
Rate Mortgage Rates are obtained from Freddie Mac’s Primary
Mortgage Market Survey.
(3)
Historical LIBOR is obtained from the Intercontinental Exchange Benchmark
Administration Ltd.
Expenses

Total operating expenses
were approximately
$4.7 million
For
and $3.5
million for
the nine and three
months ended September 30, 2017,
March 31,
2022 and
2021,
respectively.
The table
below presents
a breakdown
of operating
expenses for
the Company's totalthree
months ended
March 31,
2022 and
2021.
(in thousands)
2022
2021
Change
Management fees
$
2,634
$
1,621
$
1,013
Overhead allocation
441
404
37
Accrued incentive compensation
237
364
(127)
Directors fees and liability insurance
311
272
39
Audit, legal and other professional fees
304
318
(14)
Other direct REIT operating expenses were approximately $8.2 million and $2.9 million, respectively, compared to approximately $6.6 million and $2.3 million, respectively, for the nine and three months ended September 30, 2016.   The table below presents a breakdown of operating
643
421
222
Other expenses for the nine and three months ended September 30, 2017 and 2016.

127
(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 
93

34
Total expenses
$
4,697
$
3,493
$
1,204
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, 20182023 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'sOne-twelfth of 1.5% of the first $250 million of the Company’s month end equity, as defined in the management agreement,
·One-twelfth of 1.25% of the Company's equity that is greater than $250 million and less than or equal to $500 million, and
·One-twelfth of 1.00% of the Company's equity that is greater than $500 million.

We are obligated to reimburse Bimini Advisors for any direct expenses incurred on its behalf.  In addition, beginning July 1, 2014, Bimini Advisors began allocating to us its pro rata portion of certain overhead costs in accordance with the management agreement. agreement,
●
One-twelfth of 1.25% of the Company’s month end equity that is greater than $250 million
and less than or equal to $500
million, and
●
One-twelfth of 1.00% of the Company’s month end equity that is greater than $500 million.
Should wethe Company terminate the management agreement without cause, we
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.

The Company is obligated to reimburse the Manager for any direct expenses
incurred on its behalf and to pay the Manager the
Financial Condition:Company’s pro rata portion of certain overhead costs set forth in the management agreement.

Mortgage-Backed Securities

As
35
On April 1, 2022, pursuant to the third amendment to the management agreement
entered into on November 16, 2021, the
Manager began providing certain repurchase agreement trading, clearing and
administrative services to the Company that had been
previously provided by AVM, L.P.
under an agreement terminated on March 31, 2022.
In consideration for such services, the Company
will pay the following fees to the Manager:
●
A daily fee equal to the outstanding principal balance of September 30, 2017, our RMBS portfolio consistedrepurchase agreement funding
in place as of $3,930.3 millionthe end of Agency RMBS at fair value and had a weighted average coupon on assets of 4.34%.  During the nine months ended September 30, 2017, we received principal repayments of $248.5 million compared to $178.5 millionsuch day
multiplied by 1.5 basis points for the nine months ended September 30, 2016.  The average prepayment speedsamount of aggregate outstanding principal balance
less than or equal to $5 billion, and
multiplied by 1.0 basis points for any amount of aggregate outstanding principal
balance in excess of $5 billion, and
●
A fee for the quarters ended September 30, 2017clearing and 2016 were 10.3% and 11.7%, respectively.operational services provided by personnel

33

of the Manager equal to $10,000 per month.
The following table presentssummarizes the constant prepayment rate ("CPR") experienced on our structuredmanagement fee and PT RMBS sub-portfolios, on an annualized basis,overhead allocation
expenses for the quarterly periods presented. CPR is a method of expressing the prepayment rate for a mortgage pool that assumes that a constant fraction of the remaining principal is prepaid each month or year. Specifically, the CPRquarter in the chart below represents the three month prepayment rate of the securities2022 to date and
2021.
($ 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.thousands)

Average
     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 
Average

Advisory Services
The following tables summarize certain characteristics of the Company's PT RMBS and structured RMBS as of Orchid
Orchid
Management
Overhead
Three Months Ended
MBS
Equity
Fee
Allocation
Total
March 31, 2022
$
5,545,844
$
853,576
$
2,634
$
441
$
3,075
December 31, 2021
6,056,259
806,382
2,587
443
3,030
September 30, 2017 and December2021
5,136,331
672,384
2,156
390
2,546
June 30, 2021
4,504,887
542,679
1,792
395
2,187
March 31, 2016:2021

4,032,716
($ in thousands)         
     Weighted Weighted  
   Percentage Average AverageWeightedWeighted
   ofWeightedMaturity CouponAverageAverage
  FairEntireAverageinLongestReset inLifetimePeriodic
Asset Category ValuePortfolioCouponMonthsMaturityMonthsCapCap
September 30, 2017         
Adjustable Rate RMBS$1,7830.0%3.90%2091-Sep-357.8510.05%2.00%
Fixed Rate RMBS 3,740,65895.2%4.37%3411-Sep-47NANANA
Hybrid Adjustable Rate RMBS 42,2011.1%2.55%3041-Aug-4364.077.55%2.00%
Total Mortgage-backed Pass-through 3,784,64296.3%4.35%3411-Sep-47NANANA
Interest-Only Securities 90,5512.3%3.75%26315-Apr-47NANANA
Inverse Interest-Only Securities 55,1471.4%4.43%33015-Jul-47NA5.37%NA
Total Structured RMBS 145,6983.7%4.00%28815-Jul-47NANANA
Total Mortgage Assets$3,930,340100.0%4.34%3391-Sep-47NANANA
December 31, 2016         
Adjustable Rate RMBS$2,0620.1%3.50%2191-Sep-355.6710.05%2.00%
Fixed Rate RMBS 2,826,69493.5%4.21%3251-Dec-46NANANA
Hybrid Adjustable Rate RMBS 45,4591.5%2.55%3131-Aug-4373.087.55%2.00%
Total Mortgage-backed Pass-through 2,874,21595.1%4.19%3241-Dec-46NANANA
Interest-Only Securities 69,7262.3%3.59%23525-Apr-45NANANA
Inverse Interest-Only Securities 78,2332.6%5.40%33825-Dec-46NA6.14%NA
Total Structured RMBS 147,9594.9%4.55%29025-Dec-46NANANA
Total Mortgage Assets$3,022,174100.0%4.20%32325-Dec-46NANANA
456,687

1,621
34404
2,025

Financial
Condition:
($ 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%

  September 30, 2017  December 31, 2016 
Weighted Average Pass-through Purchase Price $108.23  $108.64 
Weighted Average Structured Purchase Price $14.19  $15.39 
Weighted Average Pass-through Current Price $108.03  $107.14 
Weighted Average Structured Current Price $13.18  $15.49 
Effective Duration (1)
  2.603   4.579 

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

The following table presents a summary of portfolio assets acquired during the nine months ended September 30, 2017 and 2016.

($ 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, 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 20 of these counterparties.  None of these lenders are affiliated with the Company. These borrowings are secured by the Company's RMBS and cash, and bear interest at the prevailing market rates.  We believe our established repurchase agreement borrowing facilities provide borrowing capacity in excess of our needs.

Mortgage-Backed Securities
As of March
31, 2022,
our RMBS
portfolio
consisted
of $4,580.6
million of
Agency RMBS
at fair value
and had a
weighted
average
coupon on
assets of
3.11%.
During the
three months
ended March
31, 2022,
we received
principal
repayments
of $157.1
million
compared
to $123.9
million for
the three
months ended
March 31,
2021.
The average
three month
prepayment
speeds for
the quarters
ended March
31, 2022
and 2021
were 10.7%
and 12.0%,
respectively.
The following
table presents
the 3-month
constant prepayment
rate (“CPR”)
experienced
on our structured
and PT RMBS
sub-
portfolios,
on an annualized
basis, for
the quarterly
periods presented.
CPR is a
method of
expressing
the prepayment
rate for
a mortgage
pool that
assumes that
a constant
fraction
of the remaining
principal
is prepaid
each month
or year. Specifically,
the CPR
in the chart
below represents
the three
month prepayment
rate of the
securities
in the respective
asset category.
Structured
PT RMBS
RMBS
Total
Three Months Ended
Portfolio (%)
Portfolio (%)
Portfolio (%)
March 31, 2022
8.1
19.5
10.7
December 31, 2021
9.0
24.6
11.4
September 30, 2017, 2021
9.8
25.1
12.4
June 30, 2021
10.9
29.9
12.9
March 31, 2021
9.9
40.3
12.0
36
The following
tables summarize
certain characteristics
of the Company’s
PT RMBS
and structured
RMBS as of
March 31,
2022 and
December
31, 2021:
($ in thousands)
Weighted
Percentage
Average
of
Weighted
Maturity
Fair
Entire
Average
in
Longest
Asset Category
Value
Portfolio
Coupon
Months
Maturity
March 31, 2022
Fixed Rate RMBS
$
4,372,517
95.5%
3.01%
336
1-Dec-51
Interest-Only Securities
206,617
4.5%
3.42%
257
25-Jan-52
Inverse Interest-Only Securities
1,460
0.0%
3.75%
297
15-Jun-42
Total Mortgage Assets
$
4,580,594
100.0%
3.11%
318
25-Jan-52
December 31, 2021
Fixed Rate RMBS
$
6,298,189
96.7%
2.93%
342
1-Dec-51
Interest-Only Securities
210,382
3.2%
3.40%
263
25-Jan-52
Inverse Interest-Only Securities
2,524
0.1%
3.75%
300
15-Jun-42
Total Mortgage Assets
$
6,511,095
100.0%
3.03%
325
25-Jan-52
($ in thousands)
March 31, 2022
December 31, 2021
Percentage of
Percentage of
Agency
Fair Value
Entire Portfolio
Fair Value
Entire Portfolio
Fannie Mae
$
3,016,954
65.9%
$
4,719,349
72.5%
Freddie Mac
1,563,640
34.1%
1,791,746
27.5%
Total Portfolio
$
4,580,594
100.0%
$
6,511,095
100.0%
March 31, 2022
December 31, 2021
Weighted Average Pass-through Purchase Price
$
107.82
$
107.19
Weighted Average Structured Purchase Price
$
15.25
$
15.21
Weighted Average Pass-through Current Price
$
98.85
$
105.31
Weighted Average Structured Current Price
$
15.61
$
14.08
Effective Duration
(1)
4.890
3.390
(1)
Effective duration is the approximate percentage change in price
for a 100 bps change in rates.
An effective duration of 4.890 indicates that an
interest rate increase of 1.0% would be expected to cause a 4.890% decrease in the value
of the RMBS in the Company’s investment portfolio
at March 31, 2022.
An effective duration of 3.390 indicates that an interest rate increase
of 1.0% would be expected to cause a 3.390%
decrease in the value of the RMBS in the Company’s investment portfolio
at December 31, 2021. These figures include the structured securities
in the portfolio, but do not include the effect of the Company’s funding
cost hedges.
Effective duration quotes for individual investments are
obtained from The Yield Book, Inc.
The following
table presents
a summary
of portfolio
assets acquired
during the
three months
ended March
31, 2022
and 2021,
including
securities
purchased
during the
period that
settled after
the end of
the period,
if any.
37
($ in thousands)
2022
2021
Total Cost
Average
Price
Weighted
Average
Yield
Total Cost
Average
Price
Weighted
Average
Yield
Pass-through RMBS
$
-
$
-
-
$
1,971,296
$
107.09
1.38%
Structured RMBS
-
-
-
4,807
6.93
14.21%
Borrowings
As of March
31, 2022,
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
22 of these
counterparties.
None of these
lenders are
affiliated
with
the Company. These
borrowings
are secured
by the Company’s
RMBS and
cash, and
bear interest
at prevailing
market rates.
We believe
our established
repurchase
agreement
borrowing
facilities
provide borrowing
capacity in
excess of
our needs.
As of March
31, 2022,
we had obligations
outstanding
under the
repurchase
agreements
of approximately $3,710.1
$4,464.1
million with
a net
weighted
average borrowing
cost of 1.37%0.37%.
The remaining
maturity of
our outstanding
repurchase
agreement
obligations
ranged from 2
6 to 318
167 days,
with a weighted
average remaining
maturity of 59
22 days.
Securing
the repurchase
agreement
obligations
as of September 30, 2017 March
31, 2022
are RMBS
with an estimated
fair value,
including
accrued interest,
of approximately $3,932.6
$4,591.7
million and
a weighted
average
maturity of
340 months,
and cash pledged
to counterparties
of approximately $12.0
$113.6 million.
Through October 27, 2017, April
28, 2022,
we have been
able to maintain
our repurchase
facilities
with comparable
terms to
those that
existed at
March 31,
2022 with
maturities
through September 30, 2017 with maturities through August
14, 2018.

35

2022.
The table below presents information about our period end,
maximum and average repurchase agreement obligationsbalances of borrowings for each quarter in 2017
2022 to date and 2016.2021.

($ in thousands)
($ 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)%
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, 2022
$
4,464,109
$
6,244,106
$
5,354,107
$
(889,998)
(16.62)%
(1)
December 31, 2021
6,244,106
6,419,689
5,728,988
515,118
8.99%
September 30, 2021
5,213,869
5,214,254
4,864,287
349,582
7.19%
June 30, 2021
4,514,704
4,517,953
4,348,192
166,512
3.83%
March 31, 2021
4,181,680
4,204,935
3,888,633
293,047
7.54%
(1)
The lower ending balance relative to the average balance during the quarter
ended March 31, 2022 reflects the disposal of RMBS pledged as
collateral. During the quarter ended March 31, 2022, the Company’s investment
in RMBS decreased $510.4 million.
Liquidity and Capital Resources

Liquidity
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
We have both
internal
and external
sources of
liquidity. However,
our material
unused 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 ability
to sell encumbered
assets varies.  to
raise cash.
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.

38
Internal
Sources of
Liquidity
Our internal
sources of
liquidity
include our
cash balances,
unencumbered
assets and
our ability
to liquidate
our encumbered
security
holdings.
Our balance
sheet also
generates
liquidity
on an on-going
basis through
payments
of principal
and interest
we receive
on our
RMBS portfolio.
Because our
PT RMBS portfolio
consists entirely
of government
and agency
securities,
we do not
anticipate
having
difficulty converting
our assets
to cash should
our liquidity
needs ever
exceed our
immediately
available
sources of
cash.
Our structured
RMBS portfolio
also consists
entirely of
governmental
agency securities,
although
they typically
do not trade
with comparable
bid / ask
spreads as
PT RMBS.
However, we anticipate
that we would
be able to
liquidate
such securities
readily, even in
distressed
markets,
although
we would
likely do
so at prices
below where
such securities
could be sold
in a more
stable market.
To enhance our liquidity
even
further, we may
pledge a
portion of
our structured
RMBS as
part of a
repurchase
agreement
funding,
but retain
the cash in
lieu of acquiring
additional
assets.
In this way
we can, at
a modest
cost, retain
higher levels
of cash on
hand and
decrease
the likelihood
we will have
to
sell assets
in a distressed
market in
order to
raise cash.

Our strategy
for hedging
our funding
costs typically
involves
taking short
positions
in interest
rate futures,
treasury
futures,
interest
rate
swaps, interest
rate swaptions
or other
instruments. 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.

External
Sources of
Liquidity
Our primary
external
sources of
liquidity
are our ability
to (i) borrow
under master
repurchase
agreements,
(ii) use
the TBA
security
market and
(iii) sell
our equity
or debt
securities
in public
offerings
or private
placements.
Our borrowing
capacity will
vary over
time as the
market value
of our interest
earning assets
varies.
Our master
repurchase
agreements
have no
stated expiration,
but can be
terminated
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.

36

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 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, 2022,
haircuts on
our pledged
collateral
remained
stable and
as of September 30, 2017, March
31, 2022,
our weighted
average haircut
was
approximately 5.5%
5.0% of the
value of
our collateral.
TBAs represent
a form of
off-balance
sheet financing
and are
accounted
for as derivative
instruments.
(See Note
4 to our
Financial
Statements
in this Form
10-Q for additional
details on
our TBAs).
Under certain
market conditions,
it may be
uneconomical
for us to
roll our
TBAs into
future months
and we may
need to take
or make physical
delivery
of the underlying
securities.
If we were
required to
take
physical delivery
to settle
a long TBA,
we would
have to fund
our total
purchase
commitment
with cash
or other
financing sources
and our
liquidity
position could
be negatively
impacted.
39
Our TBAs
are also
subject to
margin requirements
governed
by the Mortgage-Backed
Securities
Division ("MBSD")
of the FICC
and
by our Master
Securities
Forward
Transaction
Agreements
(“MSFTAs”), which
may establish
margin levels
in excess
of the MBSD.
Such
provisions
require that
we establish
an initial
margin based
on the notional
value of the
TBA, which
is subject
to increase
if the estimated
fair value
of our TBAs
or the estimated
fair value
of our pledged
collateral
declines.
The MBSD
has the sole
discretion
to determine
the
value of our collateral.
TBAs and
of the pledged
collateral
securing such
contracts.
In the event
of a margin
call, we
must generally
provide additional

collateral
on the same
business
day.
Settlement
of our TBA
obligations
by taking
delivery of
the underlying
securities
as well as
satisfying
margin requirements
could
negatively
impact our
liquidity
position.
However, since
we do not
use TBA dollar
roll transactions
as our primary
source of
financing,
we
believe that
we will have
adequate
sources of
liquidity
to meet
such obligations.
As discussed
earlier, we invest
a portion
of our capital
in structured
Agency RMBS.
We generally
do not apply
leverage
to this portion
of our portfolio.
The leverage
inherent
in structured
securities
replaces the
leverage
obtained
by acquiring
PT securities
and funding
them
in the repurchase
market.
This structured
RMBS strategy
has been a
core element
of the Company's 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 $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 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, 2022,
we had cash
and cash equivalents
of $161.7 $297.2
million.
We generated
cash flows
of $350.4 $202.9
million from
principal
and interest
payments on
our RMBS
and had average
repurchase
agreements
outstanding
of $3,193.7 $5,354.1
million during
the nine three
months ended September 30, 2017.
March 31,
2022.

As described
more fully
below, we may
also access
liquidity
by selling
our equity
or debt securities
in public
offerings or
private
Stockholders' Equityplacements.

Stockholders’
Equity
On July 29, 2016,August 4, 2020, we entered into an equity distribution agreement (the "July 2016the August 2020 Equity Distribution Agreement")Agreement with two
four sales agents pursuant to which we
could offer and sell, from time to time, up to an aggregate amount of $125,000,000$150,000,000 of
shares of our common stock in transactions that
were deemed to be "at“at the market"market” offerings and privately negotiated transactions. We issued a total
of 10,174,99227,493,650 shares under the July 2016
August 2020 Equity Distribution Agreement for aggregate gross proceeds of $110.0approximately
$150.0 million, and net proceeds of
approximately $108.2$147.4 million, after commissions and fees,
prior to its termination in June 2021.
On January 20, 2021, we entered into the January 2021 Underwriting Agreement
with J.P. Morgan Securities LLC (“J.P.
Morgan”),
relating to the offer and sale of 7,600,000 shares of our common stock. J.P. Morgan purchased the shares of our common stock from
the Company pursuant to the January 2021 Underwriting Agreement at $5.20 per
share. In addition, we granted J.P. Morgan a 30-day
option to purchase up to an additional 1,140,000 shares of our common stock
on the same terms and conditions, which J.P. Morgan
exercised in full on January 21, 2021. The closing of the offering of 8,740,000 shares of our
common stock occurred on January 25,
2021, with proceeds to us of approximately $45.2 million, net of offering expenses.
On March 2, 2021, we entered into the March 2021 Underwriting Agreement with
J.P.
Morgan, relating to the offer and sale of
8,000,000 shares of our common stock. J.P. Morgan purchased the shares of our common stock from the Company pursuant to the
March 2021 Underwriting Agreement at $5.45 per share. In addition, we granted
J.P.
Morgan a 30-day option to purchase up to an
additional 1,200,000 shares of our common stock on the same terms and
conditions, which J.P. Morgan exercised in full on March 3,
2021. The closing of the offering of 9,200,000 shares of our common stock occurred on March
5, 2021, with proceeds to us of
approximately $50.0
million, net of offering expenses payable.
40
On June 22, 2021, we entered into the June 2021 Equity Distribution Agreement with four
sales agents pursuant to which we may
could offer and sell, from time to time, up to an aggregate amount of $250,000,000 of
shares of our common stock in transactions that
were deemed to be “at the market” offerings and privately negotiated transactions. We issued a total
of 49,407,336 shares under the
June 2021 Equity Distribution Agreement for aggregate gross proceeds of approximately
$250.0 million, and net proceeds of
approximately $246.2 million, after commissions and fees, prior to its termination.termination in October

2021.
On February 23, 2017,October 29, 2021, we entered into another equity distribution agreement, as amended and restated on May 10, 2017, (the "May 2017the October 2021 Equity Distribution Agreement")
Agreement with twofour sales agents pursuant to which
we may offer and sell, from time to time, up to an aggregate amount of $125,000,000$250,000,000 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. WeThrough
March 31, 2022, we issued a total of 12,299,032
15,835,700 shares under the May 2017October 2021 Equity Distribution Agreement for aggregate
gross proceeds of $125.0approximately $78.3 million,
and net proceeds of approximately $122.9$77.0 million, net ofafter commissions and fees, prior fees.
Outlook
Economic Summary
The first
quarter of
2022 was
a transition
period whereby
the Fed migrated
from reluctantly
acknowledging
they needed
to its termination.start

removing the
emergency
monetary
policy regime
in place
since the
COVID-19
pandemic emerged
in the U.S.
during the
first quarter
of
2020 towards
a more aggressive
tightening
cycle.
The Fed announced
the first
rate hike
at their
March 2022
meeting and
simultaneously
announced
quantitative
tightening
would begin
soon, likely
in May 2022.
The acceleration
in the rate
of inflation
that first
emerged during
the second
quarter of
2021, and
was deemed
“transitory”
by the Fed
at the time,
accelerated
even further
into 2022
and has continued
to
do so in the
second quarter
of 2022 to
date.
All measures
of inflation
– personal
consumption
expenditures,
the consumer
price index
and
the producer
price index
– are the
highest levels
seen since
the early
1980s.
Inflation
has been
exacerbated,
both in the
U.S. and
globally,
by the war
in Ukraine
and COVID
related lock-downs
in China.
The war
in Ukraine
in particular
has caused
global inflationary
pressures
that may have
yet to peak.
As the war
in Ukraine
began in
late February
2022, western
nations began
to impose
progressively
more
severe sanctions
on Russia.
These sanctions,
and related
boycotts
of Russian
goods,
have created
shortages
of many commodities.
Ukraine is
also a major
global supplier
of many commodities
as well,
particularly
food.
As cases
of COVID-19
increased
in many
population
centers in
China, authorities
imposed lock-downs
aggressively
which led
to the closure
of many manufacturing
operations,
further exacerbating
the many
supply chain
constraints
across the
world.
In the U.S.,
the economy
continues
to grow
and,
in particular,
the
labor market
continues
to tighten.
The unemployment
rate appears
poised to
drop below
the pre-pandemic
lows, unemployment
claims
are at the
lowest levels
since the
1950s and
wages are
growing rapidly,
although
still less
than the
rate of inflation.
All of these
factors have
led the Fed,
and most market
participants,
to anticipate
that inflation,
particularly
food and
energy inflation,
will not
recede in
the near
term and
may even accelerate
further.
Inflation
for goods
other than
food and
energy may
moderate,
as the
necessities
of life cannot
be ignored
and other
goods can,
potentially
lessening
price pressures
for these
goods.
The cost
of housing
and
rents are
expected to
remain elevated
as affordability
continues
to deteriorate
due to higher
mortgage
rates and
inflated home
prices.
In
sum, inflation
is very far
above the
Fed’s target
level of 2%
and not likely
to recede
in the near-term.
Given the
outlook for
inflation
and the
Fed’s anticipated
response,
interest
rate volatility
has become
very elevated
and is not
far below
the extreme
peak seen
in March
of 2020 when
the COVID-19
pandemic first
emerged in
the U.S.
Given the
magnitude
of the forces
driving the
market and
the uncertainty
that exists
with respect
to the war
in Ukraine,
COVID related
lockdowns
in China
and the uncertain
capacity
of the U.S.
economy to
weather
these forces,
it is likely
that volatility
will remain
very elevated
until these
forces subside.
The
outlook for
the remainder
of 2022 hinges
on how these
developments
unfold, the
extent to
which the
Fed has to
raise rates
and possibly
sell assets
from their
portfolio,
and the impact
these factors
have on
the growth
rate of the
U.S. economy
and the unemployment
rate.
37
41
Interest
Rates
As the outlook
for inflation
changed materially
to the upside
and the
resulting
change in
monetary
policy by the
Fed unfolded
over the
course of
the first
quarter of
2022, interest
rates moved
much higher
and the curve
flattened.
During the
first quarter
of 2022, the
yield on
the 2-year
U.S. Treasury
Note increased
by over 160
basis points,
the yield
on the 5-year
U.S. Treasury
Note increased
by almost
120
basis points
and the yield
on the 10-year
U.S. Treasury
Note increased
by 82.8 basis
points.
The spread
between the
2-year and
10-year
points thus
declined, or
flattened,
by almost
80 basis points.
In early
April of
2022 the yield
curve actually
inverted
by approximately
7.5
basis points,
albeit for
only a brief
period.
Since then,
the yield
curve has
re-steepened
and was just
above 20
basis points
on April
28,
2022.
The impetus
for the re-steepening
was the release
of the FOMC
minutes from
the Fed’s January
2022 meeting
which strongly
implied the
Fed may actually
sell assets
from their
portfolio.
The market
expects this
may occur
as early as
the third
quarter of
2022.
The
minutes also
revealed that
the Fed
viewed such
asset sales
were akin
to 100 to
150 basis
points of
tightening
to the Fed
Funds rate,
thus
the market
reduced the
number of
hikes priced
in over the
course of
the next
year and
the curve
steepened.
As of April
28th, 2022
market
pricing, as
reflected
in the Fed
Funds futures
market, anticipates
between 225
and 250 basis
points of
additional
hikes by the
end of the
year.
The Agency
RMBS Market
The sharp
increase in
interest
rates, the
end of net
Agency RMBS
purchases
by the Fed
and the pending
run-off of
the Fed’s Agency
RMBS portfolio,
with the
potential for
outright
sales in addition
to the prepayment
related run-off,
resulted
in poor returns
for the sector.
The
poor performance
has continued
into the
second quarter
as all of
these factors
remain.
The Agency
RMBS market
is transitioning
away
from a prolonged
period of
support.
The market
benefited
from not only
daily purchases
by the Fed
- $40 billion
per month
in addition
to
the reinvestment
of all paydowns
on their
existing holdings
– but also
by the bank
community. Demand
from the
bank community
is a
byproduct
of their
deposit base
growth resulting
from asset
purchases.
Going forward
the RMBS
market faces
meaningful
headwinds
as
the Fed is
only purchasing
enough RMBS
to replace
a decreasing
portion of
their monthly
pay-downs
and eventually
may consider
outright
sales, and
the banking
community
will likely
buy fewer
RMBS assets
as their
deposit base
shrinks
as the Fed
removes reserves
from the
system.
The total
return for
Agency RMBS
for the first
quarter of
2022 was -5.0%
and the excess
return versus
U.S. Treasuries
was -1.2%.
Longer duration/lower
coupon mortgages
underperformed
higher coupon/lower
duration
as 30-year
underperformed
15-year maturities
and lower
coupons of
each tenor
underperformed
higher coupons.
The same pattern
held for
excess returns
versus comparable
duration
U.S. Treasuries.
The trend
has also continued
into the
second quarter
as interest
rates continue
to rise and
volatility
remains at
or near
multi-year
highs.
Recent Legislative
and Regulatory
Developments
The Fed has
taken a number
of actions
to stabilize
markets as
a result
of the impacts
of the COVID-19
pandemic.
On March 15,
2020, the
Fed announced
a $700 billion
asset purchase
program
to provide
liquidity
to the U.S.
Treasury and
Agency RMBS
markets.
Specifically, the
Fed announced
that it would
purchase
at least $500
billion of
U.S. Treasuries
and at least
$200 billion
of Agency
RMBS.
The Fed also
lowered the
Fed Funds
rate to a
range of
0.0% – 0.25%,
after having
already lowered
the Fed Funds
rate by 50
bps on
March 3,
2020. On
June 30,
2020, Fed
Chairman
Powell announced
expectations
to maintain
interest
rates at
this level
until the
Fed is
confident
that the
economy has
weathered
recent events
and is on
track to
achieve maximum
employment
and price
stability
goals. The
FOMC continued
to reaffirm
this commitment
at all subsequent
meetings through
December
of 2021,
as well as
an intention
to allow
inflation
to climb modestly
above their
2% target
and maintain
that level
for a period
sufficient for
inflation
to average
2% long term.
On
January 26,
2022, the
FOMC reiterated
its goals
of maximum
employment
and a 2%
long-run
inflation
rate and
stated that,
with a strong
labor market
and inflation
well above
2%, it expected
it would
soon be appropriate
to raise
the target
Fed Funds
rate.
42
In response
to the deterioration
in the markets
for U.S.
Treasuries, Agency
RMBS and
other mortgage
and fixed
income markets
as
investors
liquidated
investments
in response
to the economic
crisis resulting
from the
actions to
contain and
minimize the
impacts of
the
COVID-19
pandemic,
on the morning
of Monday, March
23, 2020,
the Fed announced
a program
to acquire
U.S. Treasuries
and Agency
RMBS in
the amounts
needed to
support smooth
market functioning.
With these
purchases,
market conditions
improved
substantially.
Through November
of 2021,
the Fed was
committed
to purchasing
$80 billion
of U.S.
Treasuries and
$40 billion
of Agency
RMBS each
month. In
November
of 2021,
it began
tapering
its net asset
purchases
each month
and ended
net asset
purchases
entirely
by early March
of 2022.
The minutes
to the March
16, 2022
FOMC meeting
implied that
the Fed would
begin reducing
its balance
sheet by
a maximum
of
$60 billion
of U.S.
Treasuries and
$35 billion
of Agency
RMBS each
month, phased
in over three
months and
likely beginning
in May 2022.
The CARES
Act was passed
by Congress
and signed
into law
by President
Trump on March
27, 2020.
The CARES
Act provided
many forms
of direct
support to
individuals
and small
businesses
in order
to stem the
steep decline
in economic
activity.
The
$2 trillion
COVID-19
relief bill,
among other
things, provided
for direct
payments to
each American
making up
to $75,000
a year, increased
unemployment
benefits for
up to four
months (on
top of state
benefits),
funding to
hospitals
and health
providers,
loans and
investments
to
businesses,
states and
municipalities
and grants
to the airline
industry. On April
24, 2020,
President
Trump signed
an additional
funding
bill into
law that
provides an
additional
$484 billion
of funding
to individuals,
small businesses,
hospitals,
health care
providers
and
additional
coronavirus
testing efforts.
Various provisions
of the CARES
Act began
to expire
in July 2020,
including
a moratorium
on
evictions
(July 25,
2020), expanded
unemployment
benefits (July
31, 2020),
and a moratorium
on foreclosures
(August 31,
2020). On
August 8,
2020, President
Trump issued Executive
Order 13945,
directing
the Department
of Health
and Human
Services,
the Centers
for
Disease Control
and Prevention
(“CDC”),
the Department
of Housing
and Urban
Development,
and Department
of the Treasury
to take
measures to
temporarily
halt residential
evictions
and foreclosures,
including
through temporary
financial
assistance.
On August 2, 2017, we entered December
27, 2020,
President
Trump signed
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 law
an aggregate amountadditional
$900 billion
coronavirus
aid package
as part 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.

Consolidated
Appropriations
Outlook
Act, 2021,
providing

Interest Rates and the MBS Market

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 come to an end and the continued in-fighting among Republicans called into question the ability extensions
of the Trump Administration to accomplish anything meaningful. The Federal Reserve (the "Fed") raised their target for the Federal Funds rate in March and June, and announced a tapering of their asset purchases in September. However, the market remained skeptical the Fed would be able to follow through with as many additional hikes as the Fed was expecting as core inflation readings continued to 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 CARES
Act policies
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 in the markets programs
as well as three major hurricanes made landfall – one each in Texas, Florida
additional
relief. On
January 29,
2021, the
CDC issued
guidance extending
eviction moratoriums
for covered
persons through
March 31,
2021. The
FHFA subsequently
extended
the foreclosure
moratorium
begun under
the CARES
Act for loans
backed by
Fannie Mae
and Puerto Rico. In the case of Texas, Hurricane Harvey caused unprecedented flooding and disrupted the Nation's oil refining capacity for several days.Freddie
Mac

However, there was a perceptible change in market sentiment in early September,and the market reversed course into eviction
moratorium
for real
estate owned
by Fannie
Mae and Freddie
Mac until
July 31,
2021 and
September
30, 2021,
respectively. The
U.S. Housing
and Urban
Development
Department
subsequently
extended
the FHA
foreclosure
and eviction
moratoria
to
July 31, 2021
and September
30, 2021,
respectively.
Despite the
expirations
of these
foreclosure
moratoria,
a final rule
adopted by
the
CFPB on
June 28,
2021 effectively
prohibited
servicers
from initiating
a foreclosure
before January
1, 2022 in
most instances.
Following
the end of
this limitation,
foreclosure
starts for
January and
February
of 2022 were
up 29% and
40% month-over-month
and 126%
and
176% year-over-year,
respectively, although
they remain
below pre-pandemic
levels.
In January
2019, the third quarter
Trump administration
made statements
of its plans
to work with
Congress to
overhaul
Fannie Mae
and early fourth quarter. Geo-political events calmed down,Freddie
Mac and expectations
to announce
a framework
for the development
of a policy
for comprehensive
housing finance
reform soon.
On
September
30, 2019,
the FHFA announced
that Fannie
Mae and Freddie
Mac were
allowed to
increase their
capital buffers
to $25 billion
and $20 billion,
respectively, from
the prior
limit of $3
billion each.
This step
could ultimately
lead to
Fannie Mae
and Freddie
Mac being
privatized
and represents
the first
concrete
step on the
road to GSE
reform.
On June 30,
2020, the
FHFA released
a proposed
rule on a
new regulatory
framework
for the GSEs
which seeks
to implement
both a risk-based
capital framework
and minimum
leverage
capital
requirements.
The final
rule on the
new capital
framework
for the GSEs
was published
in the federal
register
in December
2020.
On
January 14,
2021, the
U.S. Treasury
and the FHFA
executed letter
agreements
allowing
the GSEs
to continue
to retain
capital up
to their
regulatory
minimums,
including
buffers, as
prescribed
in the December
rule.
These letter
agreements
provide,
in part,
(i) there
will be no
exit from
conservatorship
until all
material litigation
is settled
and the GSE
has common
equity Tier
1 capital of
at least 3%
of its assets,
(ii)
the GSEs
will comply
with the
FHFA’s regulatory capital
framework,
(iii) higher-risk
single-family
mortgage
acquisitions
will be
restricted
to
current levels,
and (iv)
the U.S.
Treasury and
the FHFA will
establish
a timeline
and process
for future
GSE reform.
However, no definitive
proposals
or legislation
have been
released
or enacted
with respect
to ending
the conservatorship,
unwinding
the GSEs,
or materially
reducing
the roles
of the GSEs
in the U.S.
mortgage
market. On
September
14, 2021,
the U.S.
Treasury and
the FHFA suspended
certain
policy provisions
in the January
agreement,
including
limits on
loans acquired
for cash
consideration,
multifamily
loans, loans
with higher
risk characteristics
and second
homes and
investment
properties.
On February
25, 2022,
the FHFA published
a final rule,
effective as
of
43
April 26,
2022, amending
the GSE capital
framework
established
in December
2020 by, among
other things,
replacing
the fixed
leverage
buffer equal
to 1.5% of
a GSE’s adjusted
total assets
with a dynamic
leverage
buffer equal
to 50% of
a GSE’s stability
capital buffer,
reducing
the risk weight
floor from
10% to 5%,
and removing
the flight-to-quality induced demand requirement
that the
GSEs must
apply an overall
effectiveness
adjustment
to their
credit risk
transfer
exposures.
In 2017,
policymakers
announced
that LIBOR
will be replaced
by December
31, 2021.
The directive
was spurred
by the fact
that
banks are
uncomfortable
contributing
to the LIBOR
panel given
the shortage
of underlying
transactions
on which
to base levels
and the
liability
associated
with submitting
an unfounded
level. However,
the ICE Benchmark
Administration,
in its capacity
as administrator
of
USD LIBOR,
has announced
that it intends
to extend
publication
of USD LIBOR
(other than
one-week and
two-month
tenors) by
18
months to
June 2023.
Notwithstanding
this possible
extension,
a joint statement
by key regulatory
authorities
calls on banks
to cease
entering
into new
contracts
that use
USD LIBOR
as a reference
rate by no
later than
December
31, 2021.
The ARRC,
a steering
committee
comprised
of large
U.S. financial
institutions,
has proposed
replacing
USD-LIBOR
with a new
SOFR, a rate
based on U.S.
repo
trading.
We will monitor
the emergence
of SOFR
carefully
as it appears
likely to
become the
new benchmark
for safe-haven assets,hedges
and economic news strengthened.  Eventsa range
of
interest
rate investments.
At this time,
however, no consensus
exists as
to what rate
or rates
may become
accepted alternatives
to LIBOR.
On December
7, 2021,
the CFPB
released
a final rule
that amends
Regulation
Z, which
implemented
the Truth in Washington turned mildly positive
Lending Act,
aimed
at addressing
cessation
of LIBOR
for both
closed-end
(e.g., home
mortgage)
and open-end
(e.g., home
equity line
of credit)
products.
The
rule, which
mostly becomes
effective
in April of
2022, establishes
requirements
for the selection
of replacement
indices for
existing
LIBOR-
linked consumer
loans. Although
the rule
does not
mandate the
use of SOFR
as the Trump Administration pivoted away alternative
rate, it
identifies
SOFR as a
comparable
rate for
closed-end
products
and states
that for
open-end products,
the CFPB
has determined
that ARRC’s
recommended
spread-adjusted
indices based
on SOFR
for consumer
products
to replace
the one-month,
three-month,
or six-month
USD LIBOR
index “have
historical
fluctuations
that are
substantially
similar to
those of
the LIBOR
indices that
they are
intended
to replace.”
The CFPB
reserved
judgment,
however, on a
SOFR-based
spread-adjusted
replacement
index to
replace the
one-year USD
LIBOR until
it obtained
additional
information.
On December
8, 2021,
the House
of Representatives
passed the
Adjustable
Interest
Rate (LIBOR)
Act of 2021
(H.R. 4616)
(the
“LIBOR Act”),
which provides
for a statutory
replacement
benchmark
rate for
contracts
that use
LIBOR as
a benchmark
and do not
contain
any fallback
mechanism
independent
of LIBOR.
Pursuant
to the LIBOR
Act, SOFR
becomes the
new benchmark
rate by operation
of law
for any such
contract.
The LIBOR
Act establishes
a safe harbor
from health care reform litigation
for claims
arising out
of or related
to tax reform, with what the market perceived use
of SOFR
as the
recommended
benchmark
replacement.
The LIBOR
Act makes
clear that
it should
not be construed
to disfavor
the use of
any benchmark
on a prospective
basis.
The LIBOR
Act also
attempts
to forestall
challenges
that it is
impairing
contracts.
It provides
that the
discontinuance
of LIBOR
and the
automatic
statutory
transition
to a replacement
rate neither
impairs or
affects the
rights of
a party to
receive payment
under such
contracts,
nor allows
a party to
discharge
their performance
obligations
or to declare
a breach
of contract.
It amends
the Trust Indenture
Act of 1939
to state
that the
“the right
of any holder
of any indenture
security
to receive
payment of
the principal
of and interest
on such indenture
security shall
not be deemed
to be slightly better prospects impaired
or affected”
by application
of the LIBOR
Act to any
indenture
security.
On December
9, 2021,
the United
States Senate
referred the
LIBOR Act
to the Committee
on Banking,
Housing and
Urban Affairs.
One-week and
two-month
U.S. dollar
LIBOR rates
phased out
on December
31, 2021,
but other
U.S. dollar
tenors may
continue until
June 30,
2023. We will
monitor the
emergence
of SOFR
carefully
as it appears
likely to
become the
new benchmark
for success. Inflation data finally met expectations hedges
and showed signsa
range of reversing
interest
rate investments.
At this time,
however, no consensus
exists as
to what rate
or rates
may become
accepted
alternatives
to LIBOR.
44
Effective January
1, 2021,
Fannie Mae,
in alignment
with Freddie
Mac, extended
the timeframe
for its decline delinquent
loan buyout
policy
for Single-Family
Uniform Mortgage-Backed
Securities
(UMBS) and
Mortgage-Backed
Securities
(MBS) from
four consecutively
missed
monthly payments
to twenty-four
consecutively
missed monthly
payments (i.e.,
24 months
past due).
This new
timeframe
applied to
outstanding
single-family
pools and
newly issued
single-family
pools and
was first
reflected
when January
2021 factors
were released
on
the 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 fourth
business day
in December. The market responded as Fed Funds futures pricing impliedFebruary
2021.
For Agency
RMBS investors,
when a 70-80% probabilitydelinquent
loan is bought
out of a 25 basis point increase in
pool of mortgage
loans, the Federal Funds rate in December.  The September economic data released in early October has also been very strong, and
removal of
the anticipated short-term effects loan
from the
pool
is the same
as a total
prepayment
of the hurricanes appearsloan.
The respective
GSEs anticipated,
however, that
delinquent
loans will
be repurchased
in
most cases
before the
24-month
deadline under
one of the
following
exceptions
listed below.
•
a loan that
is paid in
full, or
where the
related lien
is released
and/or the
note debt
is satisfied
or forgiven;
•
a loan repurchased
by a seller/servicer
under applicable
selling
and servicing
requirements;
•
a loan entering
a permanent
modification,
which generally
requires
it to have been less than feared. Further, be
removed from
the repair work associated withMBS.
During any
modification
trial
period, the hurricanes should put even
loan will
remain in
the MBS until
the trial
period ends;
•
a loan subject
to a short
sale or
deed-in-lieu
of foreclosure;
or
•
a loan referred
to foreclosure.
Because of
these exceptions,
the GSEs
believe based
on prevailing
assumptions
and market
conditions
this change
will have
only a
marginal impact
on prepayment
speeds, in
aggregate.
Cohort level
impacts may
vary. For example,
more upward pressurethan
half of loans
referred
to
foreclosure
are historically
referred
within six
months of
delinquency. The
degree to
which speeds
are affected
depends on economic activity.
delinquency

levels, borrower
response,
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
and referral
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.foreclosure

38
The mortgage market closed the quarter with the current coupon, 30-year fixed rate Agency RMBS trading at the tightest spread to comparable duration U.S. Treasuries since early 2014.  As has been the case for much of the year, lower coupon RMBS outperformed high coupon RMBS versus their comparable duration U.S. Treasury benchmarks.  As we approach the winter months and the seasonal slowdown in prepayment activity, coupled with the increase in rates that began in early September, speeds should continue to moderate.

Recent Regulatory Developments

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

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

timelines.
The scope
and nature
of the actions
the U.S.
government
or the Fed
will ultimately
undertake
are unknown
and will
continue to evolve.  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 and beyond.  The Fed also announced that it will begin to reduce its holdings of Agency MBS and U.S. treasuries.

evolve
Effect on Us

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

our Assets
A change
in or elimination
of the guarantee
structure
of Agency
RMBS may
increase our
costs (if,
for example,
guarantee
fees
increase)
or require
us to change
our investment
strategy
altogether.
For example,
the elimination
of the guarantee
structure
of Agency
RMBS may
cause us to
change our
investment
strategy
to focus
on non-Agency
RMBS, which
in turn would
require us
to significantly
increase our
monitoring
of the credit
risks of our
investments
in addition
to interest
rate and
prepayment
risks.
Lower long-term
interest
rates can
affect the
value of our
Agency RMBS
in a number
of ways. If
prepayment
rates are
relatively
low
(due, in
part, to
the refinancing
problems described
above), lower
long-term
interest
rates can
increase the
value of higher-coupon
Agency
RMBS. This
is because
investors
typically
place a premium
on assets
with yields
that are
higher than
market yields.
Although lower
long-
term interest
rates may
increase
asset values
in our portfolio,
we may not
be able to
invest new
funds in similarly-yielding
assets.
45
If prepayment
levels increase,
the value
of our Agency
RMBS affected
by such prepayments
may decline.
This is because
a principal
prepayment
accelerates
the effective
term of an
Agency RMBS,
which would
shorten the
period during
which an
investor would
receive
above-market
returns (assuming
the yield
on the prepaid
asset is
higher than
market yields).
Also, prepayment
proceeds
may not
be able
to be reinvested
in similar-yielding
assets. Agency
RMBS backed
by mortgages
with high
interest
rates are
more susceptible
to
prepayment
risk because
holders
of those
mortgages
are most
likely to
refinance
to a lower
rate. IOs
and IIOs,
however, may
be the types
of Agency
RMBS most
sensitive
to increased
prepayment
rates. Because
the holder
of an IO
or IIO receives
no principal
payments,
the
values of
IOs and IIOs
are entirely
dependent
on the existence
of a principal
balance on
the underlying
mortgages.
If the principal
balance
is eliminated
due to prepayment,
IOs and IIOs
essentially
become worthless.
Although
increased
prepayment
rates can
negatively
affect
the value
of our IOs
and IIOs,
they have
the opposite
effect on
POs. Because
POs act like
zero-coupon
bonds, meaning
they are
purchased
at a discount
to their
par value
and have an
effective
interest
rate based
on the discount
and the term
of the underlying
loan, an
increase in
prepayment
rates would
reduce the
effective term
of our POs
and accelerate
the yields
earned on
those assets,
which would
increase our
net income.
Higher long-term
rates can
also affect
the value
of our Agency
RMBS.
As long-term
rates rise,
rates available
to borrowers
also rise.
This tends
to cause prepayment
activity to
slow and
extend the
expected average
life of mortgage
cash flows.
As the expected
average
life of the
mortgage
cash flows
increases,
coupled with
higher discount
rates, the
value of Agency
RMBS declines.
Some of the
instruments
the Company
uses to hedge
our Agency
RMBS assets,
such as interest
rate futures,
swaps and
swaptions,
are stable
average life
instruments.
This means
that to the
extent we
use such instruments
to hedge
our Agency
RMBS assets,
our hedges
may not
adequately
protect us
from price
declines,
and therefore
may negatively
impact our
book value.
It is for
this reason
we use interest
only
securities
in our portfolio.
As interest
rates rise,
the expected
average life
of these
securities
increases,
causing generally
positive
price
movements
as the number
and size
of the cash
flows increase
the longer
the underlying
mortgages
remain outstanding.
This makes
interest
only securities
desirable
hedge instruments
for pass-through
Agency RMBS.
As described
above, the
Agency RMBS
market began
to experience
severe dislocations
in mid-March
2020 as a
result of
the
economic,
health and
market turmoil
brought about
by COVID-19.
On March 23,
2020, the
Fed announced
that it would
purchase
Agency
RMBS and
U.S. Treasuries
in the amounts
needed to
support smooth
market functioning,
which largely
stabilized
the Agency
RMBS
market, but
ended these
purchases
in March 2022
and announced
plans to reduce
its balance
sheet.
The Fed’s planned
reduction
of its
balance sheet
could negatively
impact our
investment
portfolio.
Further, the
moratoriums
on foreclosures
and evictions
described
above
will likely
delay potential
defaults
on loans that
would otherwise
be bought
out of Agency
RMBS pools
as described
above.
Depending
on
the ultimate
resolution
of the foreclosure
or evictions,
when and
if it occurs,
these loans
may be removed
from the
pool into which
they
were securitized.
If this were
to occur, it would
have the
effect of delaying
a prepayment
on the Company’s
securities
until such
time. As
the majority
of the Company’s
Agency RMBS
assets were
acquired
at a premium
to par, this will
tend to increase
the realized
yield on the
asset in question.
Because we
base our
investment
decisions
on risk management
principles
rather than
anticipated
movements
in interest
rates, in
a
volatile interest
rate environment
we may allocate
more capital
to structured
Agency RMBS
with shorter
durations.
We believe
these
securities
have a lower
sensitivity
to changes
in long-term
interest
rates than
other asset
classes.
We may attempt
to mitigate
our
exposure
to changes
in long-term
interest
rates by
investing
in IOs and
IIOs, which
typically
have different
sensitivities
to changes
in long-
term interest
rates than
PT RMBS,
particularly
PT RMBS backed
by fixed-rate
mortgages.
Effects on
our Assetsborrowing
costs

We leverage
our PT RMBS
portfolio and
a portion
of our structured
Agency RMBS
with principal
balances through
the use of
short-
term repurchase
agreement
transactions.
The interest
rates on
our debt
are determined
by the short
term interest
rate markets.
Increases
in the Fed
Funds rate
or LIBOR
typically 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.
A change
46
In order
to protect
our net interest
margin against
increases
in short-term
interest
rates, we
may enter
into interest
rate swaps,
which
economically
convert our
floating-rate
repurchase
agreement
debt to fixed-rate
debt, or
utilize other
hedging instruments
such as
Eurodollar, Fed
Funds and
T-Note futures
contracts
or elimination interest
rate swaptions.
Summary
The first
quarter of
2022 was
extremely volatile
as the Fed
pivoted
quickly from
unprecedented
monetary
policy accommodation
to the
rapid removal
of the guarantee structureaccommodation.
Current
market pricing
in the futures
markets implies
the Fed
will raise
the target
for the Fed
Funds
rate to approximately
3.25% by
the third
quarter of
2023 and
to over 2.5%
by the end
of 2022.
The U.S.
economy has
recovered
quickly
from
the COVID-19
induced downturn
with the
help of the
Fed’s monetary
policy and
equally
unprecedented
fiscal stimulus
from the
government.
As the economy
recovered
rapidly, inflationary
pressures
emerged and
were exacerbated
by numerous
supply constraints,
including
the supply
of labor, resulting
in a sub-4%
unemployment
rate which
continues
to fall and
wage growth
above 5%.
The war in
Ukraine has
further stimulated
inflationary
pressures
as Russia
and Ukraine
are leading
suppliers
of food,
energy and
many other
commodities.
COVID-19
induced shutdowns
in China
have also
increased
supply constraints,
another source
of inflationary
pressure.
As
the second
quarter of
2022 unfolds,
these trends
have intensified
and the Fed
appears even
more intent
on removing
their accommodation
as quickly
as possible.
The Fed
may even begin
outright
sales of U.S.
Treasury and
Agency RMBS
assets later
this year.
For the Company,
this means
our funding
costs are
likely to
rise materially
over the
course of
2022 and
possibly into
2023.
As interest
rates have
risen the
prices of
the Company’s
assets have
fallen.
Investors
fear possible
outright
sales of Agency
RMBS by
the
Fed, in
addition to
the Fed and
most banks
buying far
fewer Agency
RMBS as
well.
During the
first quarter
of 2022,
these securities
have
underperformed
the hedge
instruments
the Company
has employed
and they
may increasecontinue
to do so.
This puts
downward
pressure on
the
Company’s shareholders
equity and
book value
per share.
As interest
rates have
risen,
refinancing
and purchase
activity
in the residential
housing market
has slowed.
However, as the
Company’s Agency
RMBS assets
are trading
at discounts,
this lowers
the yield
the Company
realizes.
In sum, the
current market
environment
is challenging
for the Company’s
portfolio
and all Agency
RMBS and/or
mortgage
focused and
levered investors.
To counter these challenging
market conditions,
the Company
continues
to take steps
to minimize
their
impact through
asset selection
and the lower
use of leverage.
The Company’s
share prices
have traded
below our costs (if, for example, guarantee fees increase) or require us
book value
per share
since late
in 2021.
The Company
increased
the size of
the share
buy-back program
in late 2021
and has the
option to change our investment strategy altogether. For example, the elimination of the guarantee structure of Agency RMBS may cause us
repurchase
up 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
10% of our investments
outstanding
shares, which
could result
in addition accretive
purchases
to interest rate and prepayment risks.book value
per share
owing to
the common
stock price
trading

39

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.

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

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

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 Funds Rate and LIBOR. An increase in the Fed Funds Rate or LIBOR would increase our borrowing costs, which could affect our interest rate spread if there is no corresponding increase in the interest we earn on our assets. This would be most prevalent with respect to our Agency RMBS backed by fixed rate mortgage loans because the interest rate on a fixed-rate mortgage loan does not change even though market rates may change.

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

40

Summary

As we entered the first quarter of 2017, risk assets were performing very well as the Trump administration took office and appeared to be very pro-business.  The markets looked forward to a roll back of recently expanding regulations across many industries, a new and hopefully improved health care act, tax reform and possibly much needed infrastructure spending to refurbish the nation's aging roads, highways, bridges and airports.  While the Administration made bold promises, there has been very little delivered.  Market 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 case of the core Consumer Price Index, ("CPI") measure, 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.Company’s

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.

book value.
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.

2021.
Capital Expenditures

At September 30, 2017, March
31, 2022,
we had no
material commitments
for capital
expenditures.

Off-Balance
Sheet Arrangements
Off-Balance Sheet Arrangements

At September 30, 2017, March
31, 2022,
we did not
have any off-balance
sheet arrangements.

41

47
Dividends

In addition
to other
requirements
that must
be satisfied
to continue
to qualify
as a REIT, we must
pay annual
dividends
to our
stockholders
of at least
90% of our
REIT taxable
income, determined
without regard
to the 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 of at least 90%
and have
declared
the following
dividends since
the completion
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)
(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 
Year

Per Share
(1)On October 11, 2017, the Company declared a dividend of $0.14 per share to be paid on November 10, 2017.  The effect of this dividend is included in Amount
Total
2013
$
1.395
$
4,662
2014
2.160
22,643
2015
1.920
38,748
2016
1.680
41,388
2017
1.680
70,717
2018
1.070
55,814
2019
0.960
54,421
2020
0.790
53,570
2021
0.780
97,601
2022 - YTD
(1)
0.200
35,484
Totals
$
12.635
$
475,048
(1)
On April 13, 2022, the Company declared a dividend of $0.045 per share
to be paid on May 27, 2022.
The effect of this dividend is included in
the table above, but is not reflected in the Company's financial statements as of September 30, 2017.

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 ActCompany’s financial statements
as 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.

42

March 31, 2022.
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
Interest Rate Risk

Interest
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.

48
We may utilize
a variety
of financial
instruments
in order
to limit
the effects
of changes
in interest
rates on
our operations.
The principal
instruments
that we use
are futures
contracts,
interest
rate swaps
and options to enter into interest rate swaps. swaptions.
These instruments
are intended
to serve
as a an economic
hedge against
future interest
rate increases
on our repurchase
agreement
borrowings.
Hedging techniques
are partly
based on
assumed
levels of
prepayments
of our Agency
RMBS.
If prepayments
are slower
or faster
than assumed,
the life of
the Agency
RMBS will
be
longer or
shorter, which
would reduce
the effectiveness
of any hedging
strategies
we may use
and may cause
losses on
such
transactions.
Hedging strategies
involving
the use of
derivative
securities
are highly
complex
and may produce
volatile returns.
Hedging
techniques
are also
limited by
the rules
relating
to REIT
qualification.
In order
to preserve
our REIT
status, we
may be forced
to terminate
a hedging
transaction
at a time
when the
transaction
is most needed.

Our profitability
and the value
of our investment
portfolio (including
(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
that 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, and
borrowers
paying more
than
their scheduled
loan payments,
which accelerates
the amortization
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.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
43

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, 2022
and December
31, 2016, 2021,
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. We

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 and December 31, 2016. 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 negatively
convex asset
profile and
a certain level.linear
to slightly

positively
convex hedge
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
portfolio
(short positions).
It is likelynot
uncommon for
us to have
losses 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.
both directions.

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.
 
 

 
44
49
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 March
31,
2022 and
December
31, 2021.
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 the 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, 2022
-200 Basis Points
(2.12)%
(16.38)%
-100 Basis Points
(0.24)%
(1.89)%
-50 Basis Points
0.16%
1.27%
+50 Basis Points
(0.10)%
(0.80)%
+100 Basis Points
(0.50)%
(3.84)%
+200 Basis Points
(1.80)%
(13.88)%
As of December 31, 2021
-200 Basis Points
(2.01)%
(17.00)%
-100 Basis Points
(0.33)%
(2.76)%
-50 Basis Points
0.19%
1.59%
+50 Basis Points
(0.48)%
(4.04)%
+100 Basis Points
(1.64)%
(13.91)%
+200 Basis Points
(4.79)%
(40.64)%
(1)
Interest rate
sensitivity is
derived from models
that are dependent
on inputs and
assumptions provided
by third parties
as well as by
our Manager,
and assumes
there are no
changes in
mortgage spreads
and assumes a
static portfolio.
Actual results
could differ
materially from
these estimates.
(2)
Includes the
effect of derivatives
and other securities
used for hedging
purposes.
(3)
Estimated dollar
change in investment
portfolio value
expressed as a
percent of
the total fair
value of our
investment portfolio
as of such date.
(4)
Estimated dollar
change in portfolio
value expressed
as a percent
of stockholders'
equity as of
such date.
In addition
to changes
in interest
rates, other
factors impact
the fair
value of our
interest
rate-sensitive
investments,
such as the
shape
of the yield
curve, market
expectations
as to future
interest
rate changes
and other
market conditions.
Accordingly, in
the event
of changes
in actual
interest
rates, the
change in
the fair
value of our
assets would
likely differ
from that
shown above
and such difference
might be
material and
adverse to
our stockholders.

Prepayment
Risk

Because residential
borrowers
have the
option to
prepay their
mortgage
loans at par
at any time,
we face the
risk that
we will
experience
a return
of principal
on our investments
faster than
anticipated.
Various factors
affect the rate
at which
mortgage
prepayments
occur, including
changes in
the level
of and directional
trends in
housing prices,
interest
rates, general
economic conditions,
loan age
and
size, loan-to-value
ratio, the
location
of the property
and social
and demographic
conditions.
Additionally, changes
to GSEgovernment
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.

50
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
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,
2022, we
had unrestricted
cash and cash
equivalents
of $161.7 $297.2
million and
unpledged
securities
of approximately $12.9
$3.7 million (not
(not including
unsettled
securities
purchases
or securities
pledged
to us) available
to meet margin
calls on our
repurchase
agreements
and derivative
contracts,
and for other
corporate
purposes.
However, should
the value
of our Agency
RMBS pledged
as collateral
or the value
of our derivative
instruments
suddenly decrease,
margin calls
relating
to our repurchase
and derivative
agreements
could increase,
causing an
adverse change
in our
liquidity
position.
Further, there
is no assurance
that we will
always be
able to renew (or
(or roll)
our repurchase
agreements.
In addition,
our
counterparties
have the option
to increase
our haircuts (margin
(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
45

Extension Risk

The projected
weighted
average life
and the duration (or
(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 securitiesAgency
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.

51
Counterparty
Credit Risk

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

ITEM 4. CONTROLS
AND PROCEDURES

Evaluation
Evaluation of Disclosure
Controls
and Procedures

As of the
end of the
period covered
by this report (the "evaluation date"
(the “evaluation
date”), we
carried out
an evaluation,
under the
supervision
and with
the participation
of our management,
including
our Chief
Executive
Officer (the "CEO"
“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 itsour 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
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 most
recent fiscal
quarter that
have materially
affected, or
are reasonably
likely to
materially
affect, the
Company’s internal
control over
financial reporting that occurred during the Company's most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial
reporting.
46
52
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 theA description of certain factors that may affect our future results and risk factors disclosed
is set forth in the "Risk Factors" section of our Annual Report on Form 10-K filed with for
the SECyear ended December 31, 2021. As of March 31, 2022, there have been
no material changes in our risk factors from those set forth
in our Annual Report on February 17, 2017.

Form 10-K for the year ended December 31, 2021.
ITEM 2. UNREGISTERED
SALES OF
EQUITY SECURITIES
AND USE
OF PROCEEDS

The table below presents share repurchase activity for the three months ended September 30, 2017.

        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 shares of the 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.
(2)On June 29, 2015, the Board of Directors authorized the purchase of up to 2,000,000 shares of common stock repurchase beginning July 1, 2016. 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, 2022.

The table below presents the Company’s share repurchase activity for the three months
ended March 31, 2022.
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
the Authorization
January 1, 2022 - January 31, 2022
-
$
-
-
17,699,305
February 1, 2022 - February 28, 2022
-
-
-
17,699,305
March 1, 2022 - March 31, 2022
64,753
3.31
-
17,699,305
Totals / Weighted Average
64,753
$
3.31
-
17,699,305
(1)
Includes shares
of the Company’s
common stock
acquired by
the Company
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.
ITEM 3.
DEFAULTS UPON SENIOR
SECURITIES

None.

None.
ITEM 4.
MINE SAFETY
DISCLOSURES

Not Applicable.

ITEM 5.
OTHER INFORMATION

None.
None.
47
53
ITEM 6.6. EXHIBITS

Exhibit No.

3.1
Articles ofAmendmentand Restatementof OrchidIsland Capital,Inc. (filedas Exhibit3.1
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 XBRLInstance Document ***
Exhibit 101.SCH XBRLTaxonomy Extension Schema Document ***
Exhibit 101.CAL XBRLTaxonomy Extension Calculation Linkbase Document***
Exhibit 101.DEF XBRLAdditional Taxonomy Extension Definition Linkbase Document Created***
Exhibit 101.LAB XBRLTaxonomy Extension Label Linkbase Document ***
Exhibit 101.PRE XBRLTaxonomy Extension Presentation Linkbase Document ***

*Filed herewith.
**Furnished herewith.
***Submitted electronically herewith.

48
Signatures
Pursuant to the requirements Company’s
3.2
3.3
4.1
10.1
31.1
31.2
32.1
32.2
Exhibit 101.INS XBRL
Inline XBRL Instance Document – the instance document does not appear
in the
Interactive Data File because its behalf byXBRL tags are embedded within the undersigned, thereunto duly authorized.Inline XBRL

document.***
Orchid Island Capital, Inc.
Registrant
Date:October 27, 2017
By:/s/ Robert E. Cauley
Robert E. Cauley
Chief Executive Officer, President and Chairman of the Board
Date:October 27, 2017
By:/s/ G. Hunter Haas, IV
G. Hunter Haas, IV
Secretary, Chief Financial Officer, Chief Investment Officer and Director (Principal Financial and Accounting Officer)
Exhibit 101.SCH XBRL
49Taxonomy Extension Schema Document ***
Exhibit 101.CAL XBRL
INDEX TO EXHIBITSTaxonomy Extension Calculation Linkbase Document***

Exhibit 101.DEF XBRL
Additional Taxonomy Extension Definition Linkbase Document Created***
Exhibit No.101.LAB XBRL

Taxonomy Extension Label Linkbase Document ***
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.PRE XBRL
Taxonomy Extension Presentation Linkbase Document ***
Exhibit 104
Cover Page Interactive Data File (embedded within the Inline XBRL document)
*
Filed herewith.
**
Furnished
herewith.
***
Submitted
electronically
herewith.
†
Management
contract
or compensatory
plan.
Exhibit 101.INS XBRLInstance Document ***
Exhibit 101.SCH XBRLTaxonomy Extension Schema Document ***
Exhibit 101.CAL XBRLTaxonomy Extension Calculation Linkbase Document***
Exhibit 101.DEF XBRLAdditional Taxonomy Extension Definition Linkbase Document Created***
Exhibit 101.LAB XBRLTaxonomy Extension Label Linkbase Document ***
Exhibit 101.PRE XBRLTaxonomy Extension Presentation Linkbase Document ***

*Filed herewith.
**Furnished herewith.
***Submitted electronically herewith.

 
 
54
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
50this report
to be signed
on its behalf
by the undersigned,
thereunto
duly authorized.
Orchid Island Capital, Inc
.
Registrant
Date:
April 29, 2022
By:
/s/ Robert E. Cauley
Robert E. Cauley
Chief Executive Officer, President and Chairman of the Board
(Principal Executive Officer)
Date:
April 29, 2022
By:
/s/ George H. Haas, IV
George H. Haas, IV
Secretary, Chief Financial Officer, Chief Investment Officer and
Director (Principal Financial and Accounting Officer)