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Actionable news in ORC: ORCHID ISLAND CAPITAL Inc,

SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended September 30, 2017

For the transition period from __________ to ___________

Orchid Island Capital, Inc.

(Exact name of registrant as specified in its charter)

3305 Flamingo Drive, Vero Beach, Florida 32963

(Address of principal executive offices) (Zip Code)

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

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

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

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

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

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

ORCHID ISLAND CAPITAL, INC.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Financial Statements 1
Condensed Consolidated Balance Sheets (unaudited) 1
Condensed Consolidated Statements of Operations (unaudited) 2
Condensed Consolidated Statement of Stockholders' Equity (unaudited) 3
Condensed Consolidated Statements of Cash Flows (unaudited) 4
Notes to Condensed Consolidated Financial Statements 5
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 23
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 43
ITEM 4. Controls and Procedures 46
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 47
ITEM 1A. Risk Factors 47
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 47
ITEM 3. Defaults upon Senior Securities 47
ITEM 4. Mine Safety Disclosures 47
ITEM 5. Other Information 47
ITEM 6. Exhibits 48
SIGNATURES 49

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
ORCHID ISLAND CAPITAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Nine and Three Months Ended September 30, 2017 and 2016
($ in thousands, except per share data)
Nine Months Ended September 30, Three Months Ended September 30,
2017 2016 2017 2016
Interest income $ 105,864 $ 62,059 $ 38,974 $ 22,358
Interest expense (28,116 ) (10,629 ) (12,638 ) (3,979 )
Net interest income 77,748 51,430 26,336 18,379
Realized gains on mortgage-backed securities 3,354 4,482 769 229
Unrealized (losses) gains on mortgage-backed securities (35,601 ) 5,652 (3,553 ) (2,398 )
(Losses) gains on derivative instruments (29,331 ) (32,594 ) (5,470 ) 6,587
FHLB stock dividends - 14 - -
Net portfolio income 16,170 28,984 18,082 22,797
Expenses:
Management fees 4,230 2,968 1,528 1,052
Allocated overhead 1,168 963 412 336
Accrued incentive compensation 439 598 209 212
Directors' fees and liability insurance 722 763 215 236
Audit, legal and other professional fees 547 654 157 193
Direct REIT operating expenses 816 426 320 187
Other administrative 259 215 58 55
Total expenses 8,181 6,587 2,899 2,271
Net income $ 7,989 $ 22,397 $ 15,183 $ 20,526
Basic and diluted net income per share $ 0.21 $ 0.99 $ 0.33 $ 0.85
Weighted Average Shares Outstanding 38,608,053 22,619,293 45,355,124 24,133,343
Dividends declared per common share $ 1.26 $ 1.26 $ 0.42 $ 0.42
See Notes to Consolidated Financial Statements
ORCHID ISLAND CAPITAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
For the Nine Months Ended September 30, 2017
($ in thousands, except per share data)
Additional Retained
Common Paid-in Earnings
Stock Capital (Deficit) Total
Balances, January 1, 2017 $ 330 $ 332,449 $ - $ 332,779
Net income - - 7,989 7,989
Cash dividends declared, $1.26 per share - (41,688 ) (7,989 ) (49,677 )
Issuance of common stock pursuant to public offerings, net 123 122,734 - 122,857
Issuance of common stock pursuant to stock based
compensation plan - 232 - 232
Amortization of stock based compensation - 221 - 221
Balances, September 30, 2017 $ 453 $ 413,948 $ - $ 414,401
See Notes to Consolidated Financial Statements
ORCHID ISLAND CAPITAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended September 30, 2017 and 2016
($ in thousands)
2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,989 $ 22,397
Adjustments to reconcile net income to net cash provided by operating activities:
Stock based compensation 453 492
Realized and unrealized losses (gains) on mortgage-backed securities 32,247 (10,134 )
Realized and unrealized gains on interest rate swaptions (827 ) (36 )
Realized and unrealized losses (gains) on interest rate swaps 1,398 (792 )
Realized losses on forward settling to-be-announced securities 3,843 2,385
Changes in operating assets and liabilities:
Accrued interest receivable (3,898 ) (967 )
Other assets (170 ) (93 )
Accrued interest payable 2,989 1,010
Other liabilities (601 ) (204 )
Due to affiliates 196 15
NET CASH PROVIDED BY OPERATING ACTIVITIES 43,619 14,073
CASH FLOWS FROM INVESTING ACTIVITIES:
From mortgage-backed securities investments:
Purchases (5,079,945 ) (2,184,709 )
Sales 3,890,959 1,717,612
Principal repayments 248,483 178,460
Redemption of FHLB stock 3 3,750
Payments on net settlement of to-be-announced securities (7,945 ) (2,145 )
Purchase of interest rate swaptions, net of margin cash received 410 705
NET CASH USED IN INVESTING ACTIVITIES (948,035 ) (286,327 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from repurchase agreements 39,895,749 22,443,458
Principal payments on repurchase agreements (38,979,377 ) (21,944,174 )
Principal payments on FHLB advances - (187,500 )
Cash dividends (47,950 ) (28,864 )
Proceeds from issuance of common stock, net of issuance costs 122,857 47,116
NET CASH PROVIDED BY FINANCING ACTIVITIES 991,279 330,036
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 86,863 57,782
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of the period 94,425 69,959
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of the period $ 181,288 $ 127,741
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 25,127 $ 9,619
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Securities acquired settled in later period $ - $ 72,343
Securities sold settled in later period - 27,509
See Notes to Consolidated Financial Statements

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

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

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

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

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

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

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.

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

Cash and cash equivalents include cash on deposit with financial institutions and highly liquid investments with original maturities of three months or less at the time of purchase. Restricted cash includes cash pledged as collateral for repurchase agreements and other borrowings, and interest rate swaps and other derivative instruments.

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

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

The Company maintains cash balances at four 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.

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

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

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

Income on PT RMBS securities is based on the stated interest rate of the security. Premiums or discounts present at the date of purchase are not amortized. Premium lost and discount accretion resulting from monthly principal repayments are reflected in unrealized gains (losses) on RMBS in the consolidated statements of operations. For IO securities, the income is accrued based on the carrying value and the effective yield. The difference between income accrued and the interest received on the security is characterized as a return of investment and serves to reduce the asset's carrying value. At each reporting date, the effective yield is adjusted prospectively from the reporting period based on the new estimate of prepayments and the contractual terms of the security. For IIO securities, effective yield and income recognition calculations also take into account the index value applicable to the security. Changes in fair value of RMBS during each reporting period are recorded in earnings and reported as unrealized gains or losses on mortgage-backed securities in the accompanying consolidated statements of operations.

The Company uses derivative instruments to manage interest rate risk, facilitate asset/liability strategies and manage other exposures, and it may continue to do so in the future. The principal instruments that the Company has used to date are Treasury Note ("T-Note") and Eurodollar futures contracts, interest rate swaps, and options to enter in interest rate swaps ("interest rate swaptions"), but may enter into other derivatives in the future.

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

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

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

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

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.

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

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

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

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

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

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

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

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

NOTE 2. MORTGAGE-BACKED SECURITIES

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

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

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

(in thousands)
September 30, 2017 December 31, 2016
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 corresponding to the terms of the borrowings, and interest is generally paid at the termination of a borrowing. If the fair value of the pledged securities declines, lenders will typically require the Company to post additional collateral or pay down borrowings to re-establish agreed upon collateral requirements, referred to as "margin calls." Similarly, if the fair value of the pledged securities increases, lenders may release collateral back to the Company. As of September 30, 2017, 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.

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, the Company had an aggregate amount at risk (the difference between the amount loaned to the Company, including interest payable and securities posted by the counterparty (if any), and the fair value of securities and cash pledged (if any), including accrued interest on such securities) with all counterparties of approximately $227.9 million. The Company did not have an amount at risk with any individual counterparty greater than 10% of the Company's equity at September 30, 2017 and December 31, 2016.

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

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

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

(in thousands)
Derivative Instruments and Related Accounts Balance Sheet Location September 30, 2017 December 31, 2016
Assets
Interest rate swaps Derivative assets, at fair value $ 10,693 $ 10,302
Payer swaptions Derivative assets, at fair value 3,194 -
TBA securities Derivative assets, at fair value 2,984 63
Total derivative assets, at fair value $ 16,871 $ 10,365
Liabilities
Interest rate swaps Derivative liabilities, at fair value $ 2,591 $ 802
TBA securities Derivative liabilities, at fair value - 1,180
Total derivative liabilities, at fair value $ 2,591 $ 1,982
Margin Balances Posted to (from) Counterparties
Futures contracts Restricted cash $ 6,193 $ 9,419
TBA securities Restricted cash - 446
TBA securities Other liabilities (1,867 ) -
Interest rate swaption contracts Other liabilities (2,776 ) -
Interest rate swap contracts Restricted cash 1,437 -
Total margin balances on derivative contracts $ 2,987 $ 9,865

Eurodollar and T-Note futures are cash settled futures contracts on an interest rate, with gains and losses credited or charged to the Company's 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 )
($ 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 )

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

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)

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

(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

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

The table below summarizes our assets pledged as collateral 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, as of September 30, 2017 and December 31, 2016.

(in thousands)
September 30, 2017
Repurchase Derivative
Assets Pledged to Counterparties Agreements Agreements Total
PT RMBS - fair value $ 3,779,375 $ - $ 3,779,375
Structured RMBS - fair value 138,050 - 138,050
Accrued interest on pledged securities 15,150 - 15,150
Restricted cash 11,999 7,630 19,629
Total $ 3,944,574 $ 7,630 $ 3,952,204
(in thousands)
December 31, 2016
Repurchase Clearing Derivative Insurance
Assets Pledged to Counterparties Agreements Margin Agreements Capital(1) Total
PT RMBS - fair value $ 2,854,062 $ - $ - $ 1,065 $ 2,855,127
Structured RMBS - fair value 106,195 10,968 - - 117,163
Accrued interest on pledged securities 10,623 266 - 4 10,893
Restricted cash 10,835 - 9,865 250 20,950
Total $ 2,981,715 $ 11,234 $ 9,865 $ 1,319 $ 3,004,133

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

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

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

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

The following table presents information regarding those assets and liabilities subject to such arrangements as if the Company had presented them on a net basis as of September 30, 2017 and December 31, 2016.

(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
(in thousands)
Offsetting of Liabilities
Net Amount Gross Amount Not Offset in the
of Assets Consolidated Balance Sheet
Gross Amount Presented Financial
Gross Amount Offset in the in the Instruments
of Recognized Consolidated Consolidated Posted as Cash Posted Net
Liabilities Balance Sheet Balance Sheet Collateral Collateral Amount
September 30, 2017
Repurchase Agreements $ 3,710,077 $ - $ 3,710,077 $ (3,698,078 ) $ (11,999 ) $ -
Interest rate swaps 2,591 - 2,591 - (1,437 ) 1,154
$ 3,712,668 $ - $ 3,712,668 $ (3,698,078 ) $ (13,436 ) $ 1,154
December 31, 2016
Repurchase Agreements $ 2,793,705 $ - $ 2,793,705 $ (2,782,870 ) $ (10,835 ) $ -
Interest rate swaps 802 - 802 - (802 ) -
TBA securities 1,180 - 1,180 - (848 ) 332
$ 2,795,687 $ - $ 2,795,687 $ (2,782,870 ) $ (12,485 ) $ 332

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

NOTE 7. CAPITAL STOCK

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

($ in thousands, except per share amounts)
Weighted
Average
Price
Received Net
Type of Offering Period Per Share(1) Shares Proceeds(2)
2017
At the Market Offering Program(3) First Quarter $ 10.13 1,286,196 $ 12,792
At the Market Offering Program(3) Second Quarter 10.17 11,012,836 110,065
12,299,032 $ 122,857
2016
At the Market Offering Program(3) Second Quarter $ 10.48 646,753 $ 6,591
At the Market Offering Program(3) Third Quarter 10.80 3,818,802 40,525
At the Market Offering Program(3) Fourth Quarter 10.79 6,707,101 71,212
11,172,656 $ 118,328

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

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

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

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

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

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

($ in thousands, except per share data)
Nine Months Ended September 30,
2017 2016
Weighted Weighted
Average Average
Grant Date Grant Date
Shares Fair Value Shares Fair Value
Unvested, beginning of period 8,000 $ 12.23 16,000 $ 12.23
Granted - - - -
Vested and issued (8,000 ) 12.23 (8,000 ) 12.23
Unvested, end of period - $ - 8,000 $ 12.23
Compensation expense during period $ 33 $ 73
Unrecognized compensation expense, end of period $ - $ 57
Intrinsic value, end of period $ - $ 83
Weighted-average remaining vesting term (in years) - 0.6

The Company issues immediately vested common stock under the Incentive Plan to certain executive officers, employees and directors. The following table presents information related to fully vested common stock issued during the nine months ended September 30, 2017 and 2016.

($ 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

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

The following table presents information related to Performance Units outstanding during the nine months ended September 30, 2017.

($ in thousands, except per share data)
Nine Months Ended September, 30,
2017 2016
Weighted Weighted
Average Average
Grant Date Grant Date
Shares Fair Value Shares Fair Value
Unvested, beginning of period 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

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.

NOTE 10. INCOME TAXES

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

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

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

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

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

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

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

RMBS (based on the fair value option), interest rate swaps, interest rate swaptions, TBA securities and futures contracts were recorded at fair value on a recurring basis during the nine and three months ended September 30, 2017 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, there were no transfers of financial assets or liabilities between levels 1, 2 or 3.

The Company is externally managed and advised by Bimini Advisors, LLC (the "Manager") pursuant to the terms of a management agreement. The management agreement has been renewed through February 20, 2018 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:

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

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

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

ITEM 2. 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" in our most recent Annual Report on Form 10-K, our actual results may differ materially from those anticipated in such forward-looking statements.

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

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

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

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

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

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

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

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:

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

Described below are 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.

Net income for the nine months ended September 30, 2017 was $8.0 million, or $0.21 per share. Net income for the nine months ended September 30, 2016 was $22.4 million, or $0.99 per share. Net income for the three months ended September 30, 2017 was $15.2 million, or $0.33 per share. Net income for the three months ended September 30, 2016 was $20.5 million, or $0.85 per share. The components of net income for the nine and three months ended September 30, 2017 and 2016, along with the changes in those components are presented in the table below:

(in thousands)
Nine Months Ended September 30, Three Months Ended, September 30,
2017 2016 Change 2017 2016 Change
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 )

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

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

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

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

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

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

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

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

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

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

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

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 and net interest spread for the nine months ended September 30, 2017 and 2016 and each quarter during 2017 and 2016 on both a GAAP and economic basis.

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

Our interest income for the nine months ended September 30, 2017 and 2016 was $105.9 million and $62.1 million, respectively. We had average RMBS holdings of $3,492.0 million and $2,176.7 million for the nine months ended September 30, 2017 and 2016, respectively. The yield on our portfolio was 4.04% and 3.80% for the nine months ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, there was a $43.8 million increase in interest income due to a $1,315.3 million increase in average RMBS, combined with a 24 basis point ("bps") increase in the yield on average RMBS. The increase in average RMBS during the nine months ended September 30, 2017 reflects the deployment of the proceeds of our net capital raising activities, on a leveraged basis.

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

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

($ 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 %

We had average outstanding borrowings of $3,193.7 million and $2,047.5 million and total interest expense of $28.1 million and $10.6 million for the nine months ended September 30, 2017 and 2016, respectively. Our average cost of funds was 1.17% for the nine 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 to the nine months ended September 30, 2016. The higher cost of funds for the nine months ended September 30, 2017, 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.

Our economic interest expense was $38.7 million and $17.4 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 and 2016, respectively. Our average cost of funds was 1.45% and 0.73% for three months ended September 30, 2017 and 2016, respectively. There was a 72 bps increase in the average cost of funds and a $1,314.8 million increase in average outstanding borrowings during the three months ended September 30, 2017, compared to the three months ended September 30, 2016. As in the nine months ended September 30, 2017, the higher cost of funds for the three months ended September 30, 2017, compared to the same period in 2016, reflects higher short-term rates, and the increase in average outstanding borrowings reflects the investment, on a leveraged basis, of the proceeds of our net capital raising activities.

Our economic interest expense was $16.4 million and $6.6 million for the three months ended September 30, 2017 and 2016, respectively. There was a 66 bps increase in the average economic cost of funds to 1.88% for the three months ended September 30, 2017 from 1.22% for the three months ended September 30, 2016. The increase in economic interest expense during the three months ended September 30, 2017 was due to a combination of the increase in average outstanding borrowings, higher average interest rates charged for those borrowings, and the negative performance of our derivative agreements attributed to the current period.

Since all of our repurchase agreements are short-term, changes in market rates directly affect our interest expense. Our average cost of funds calculated on a GAAP basis was 25 bps above the average one-month LIBOR and 0 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. The average term to maturity of the outstanding repurchase agreements increased to 59 days at September 30, 2017 from 15 days at December 31, 2016.

The tables below present the average balance of repurchase agreements 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 and 2016 on both a GAAP and economic basis.

($ in thousands)
Average Interest Expense Average Cost of Funds
Balance of GAAP Economic GAAP Economic
Borrowings Basis Basis Basis Basis
Three Months Ended
September 30, 2017 $ 3,494,266 $ 12,638 $ 16,392 1.45 % 1.88 %
June 30, 2017 3,164,532 8,763 12,417 1.11 % 1.57 %
March 31, 2017 2,922,157 6,715 9,908 0.92 % 1.36 %
December 31, 2016 2,545,901 4,974 7,943 0.78 % 1.25 %
September 30, 2016 2,179,462 3,979 6,639 0.73 % 1.22 %
June 30, 2016 2,000,158 3,330 5,540 0.67 % 1.11 %
March 31, 2016 1,962,901 3,319 5,252 0.68 % 1.07 %
Nine Months Ended
September 30, 2017 $ 3,193,652 $ 28,116 $ 38,717 1.17 % 1.62 %
September 30, 2016 2,047,507 10,628 17,431 0.69 % 1.14 %
Average GAAP Cost of Funds Average Economic Cost of Funds
Relative to Average Relative to Average
Average LIBOR One-Month Six-Month One-Month Six-Month
One-Month Six-Month LIBOR LIBOR LIBOR LIBOR
Three Months Ended
September 30, 2017 1.20 % 1.45 % 0.25 % (0.00 )% 0.68 % 0.43 %
June 30, 2017 1.05 % 1.43 % 0.06 % (0.32 )% 0.52 % 0.14 %
March 31, 2017 0.82 % 1.37 % 0.10 % (0.45 )% 0.54 % (0.01 )%
December 31, 2016 0.62 % 1.28 % 0.16 % (0.50 )% 0.63 % (0.03 )%
September 30, 2016 0.49 % 1.09 % 0.24 % (0.36 )% 0.73 % 0.13 %
June 30, 2016 0.44 % 0.92 % 0.23 % (0.25 )% 0.67 % 0.19 %
March 31, 2016 0.40 % 0.84 % 0.28 % (0.16 )% 0.67 % 0.23 %
Nine Months Ended
September 30, 2017 1.03 % 1.42 % 0.14 % (0.25 )% 0.59 % 0.20 %
September 30, 2016 0.44 % 0.95 % 0.25 % (0.26 )% 0.70 % 0.19 %

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

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

We invest in RMBS with the intent to earn net income from the realized yield on those assets over their related funding and hedging costs, and not for purposes 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 losses on RMBS are driven in part by changes in yields and interest rates, which affect the pricing of the securities in our portfolio. Gains and losses on interest rate futures contracts are affected by changes in implied forward rates during the reporting period. The table below presents historical interest rate data for each quarter end during 2017 and 2016.

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 %

For the nine and three months ended September 30, 2017, the Company's total 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 expenses for the nine and three months ended September 30, 2017 and 2016.

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

We are externally managed and advised by Bimini Advisors, LLC (the "Manager") pursuant to the terms of a management agreement. The management agreement has been renewed through February 20, 2018 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:

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

As of September 30, 2017, our RMBS portfolio consisted of $3,930.3 million 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 million for the nine months ended September 30, 2016. The average prepayment speeds for the quarters ended September 30, 2017 and 2016 were 10.3% and 11.7%, respectively.

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

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

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

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

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.

As of September 30, 2017, we had obligations outstanding under the repurchase agreements of approximately $3,710.1 million with a net weighted average borrowing cost of 1.37%. The remaining maturity of our outstanding repurchase agreement obligations ranged from 2 to 318 days, with a weighted average remaining maturity of 59 days. Securing the repurchase agreement obligations as of September 30, 2017 are RMBS with an estimated fair value, including accrued interest, of approximately $3,932.6 million and a weighted average maturity of 340 months, and cash pledged to counterparties of approximately $12.0 million. Through October 27, 2017, we have been able to maintain our repurchase facilities with comparable terms to those that existed at September 30, 2017 with maturities through August 14, 2018.

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

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

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

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

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

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

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

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

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

(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

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, we had cash and cash equivalents of $161.7 million. We generated cash flows of $350.4 million from principal and interest payments on our RMBS and had average repurchase agreements outstanding of $3,193.7 million during the nine months ended September 30, 2017.

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

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

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

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 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 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 as well, as three major hurricanes made landfall – one each in Texas, Florida and Puerto Rico. In the case of Texas, Hurricane Harvey caused unprecedented flooding and disrupted the Nation's oil refining capacity for several days.

However, there was a perceptible change in market sentiment in early September, and the market reversed course into the end of the third quarter and early fourth quarter. Geo-political events calmed down, removing the flight-to-quality induced demand for safe-haven assets, and economic news strengthened. Events in Washington turned mildly positive as the Trump Administration pivoted away from health care reform to tax reform, with what the market perceived to be slightly better prospects for success. Inflation data finally met expectations and showed signs of reversing its decline when the August data was released on September 14th. Finally, on September 20th, Fed Chairwomen Yellen sounded quite hawkish and reiterated her belief that recent inflation data represented temporary or transitory effects and would reverse soon enough back towards their 2% target. It was quite clear the Fed intended to raise the Federal Funds rate again in December. The market responded as Fed Funds futures pricing implied a 70-80% probability of a 25 basis point increase in the Federal Funds rate in December. The September economic data released in early October has also been very strong, and the anticipated short-term effects of the hurricanes appears to have been less than feared. Further, the repair work associated with the hurricanes should put even more upward pressure on economic activity.

As we move into the fourth quarter, market pricing of additional policy accommodation removal is far less than the Fed anticipates. The latest reads on inflation returned to its aforementioned string of below expectations readings. The perceived lack of meaningful inflation, coupled with a hawkish fed, has caused the U.S. Treasury curve to flatten, as the spread between 5-year Treasury Notes and 30-year Treasury Bonds is at multi-year lows. The market is also faced with uncertainty surrounding President Trump's appointment of the next Fed chair, with many of the leading candidates perceived to be more hawkish by the markets than the current chairwoman, even though she remains a candidate herself. Regardless of the uncertainty in the bond market, the equity markets, and risk markets generally, continue to hit all-time high closes almost daily, and the combination of robust economic data, low inflation and the prospects for tax reform make for an ideal environment for risk assets.

The mortgage market closed the quarter with the current coupon, 30-year fixed rate Agency RMBS trading at the tightest spread to comparable duration U.S. Treasuries since early 2014. As has been the case for 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.

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.

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.

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

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

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

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

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

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

We leverage our PT RMBS portfolio and a portion of our structured Agency RMBS with principal balances through the use of short-term repurchase agreement transactions. The interest rates on our debt are determined by market levels of both the Fed 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.

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.

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.

Our condensed consolidated financial statements are prepared in accordance with GAAP. GAAP requires our management to make some complex and subjective decisions and assessments. Our most critical accounting policies involve decisions and assessments which could significantly affect reported assets, liabilities, revenues and expenses. There have been no changes to our critical accounting policies as discussed in our annual report on Form 10-K for the year ended December 31, 2016.

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

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

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

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.

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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

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

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

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

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 their price movements, and model duration, to be affected by changes in both prepayments and one month LIBOR, both current and anticipated levels. As a result, the duration of IIO securities will also vary greatly.

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

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

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

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 a certain level.

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

Interest Rate Sensitivity(1)
Portfolio
Market Book
Change in Interest Rate Value(2)(3) Value(2)(4)
As of 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 )%

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.

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

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 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.

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

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

However, if prepayment rates decrease in a rising interest rate environment, the average life or duration of our fixed-rate assets or the fixed-rate portion of the ARMs or other assets generally extends. This could have a negative impact on our results from operations, as our hedging instrument expirations are fixed and will, therefore, cover a smaller percentage of our funding exposure on our mortgage assets to the extent that their average lives increase due to slower prepayments. This situation may also cause the market value of our agency securities 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.

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

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

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

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

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

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

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

3.1 Articles of Amendment and Restatement of Orchid Island Capital, Inc. (filed as Exhibit 3.1 to the Company's Registration Statement on Amendment No. 1 to Form S-11 (File No.333-184538) filed on November 28, 2012 and incorporated herein by reference).
3.2 Amended and Restated Bylaws of Orchid Island Capital, Inc. (filed as Exhibit 3.2 to the Company's Registration Statement on Amendment No. 1 to Form S-11 (File No.333-184538) filed on November 28, 2012 and incorporated herein by reference).
10.1 Amended and Restated Equity Distribution Agreement dated August 2, 2017, by and between the Company, Bimini Advisors, LLC, Ladenburg Thalman & Co. Inc and MUFG Securities Americas Inc. (filed as Exhibit 1.1 to the Company's Current Report on Form 8-K filed on August 2, 2017 and incorporated herein by reference).
31.1 Certification of Robert E. Cauley, Chief Executive Officer and President of the Registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2 Certification of G. Hunter Haas, IV, Chief Financial Officer of the Registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1 Certification of Robert E. Cauley, Chief Executive Officer and President of the Registrant, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
32.2 Certification of G. Hunter Haas, IV, Chief Financial Officer of the Registrant, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
Exhibit 101.INS XBRL Instance Document ***
Exhibit 101.SCH XBRL Taxonomy Extension Schema Document ***
Exhibit 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document***
Exhibit 101.DEF XBRL Additional Taxonomy Extension Definition Linkbase Document Created***
Exhibit 101.LAB XBRL Taxonomy Extension Label Linkbase Document ***
Exhibit 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document ***

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

Orchid Island Capital, Inc.
Registrant
Date: October 27, 2017 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.INS XBRL Instance Document ***
Exhibit 101.SCH XBRL Taxonomy Extension Schema Document ***
Exhibit 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document***
Exhibit 101.DEF XBRL Additional Taxonomy Extension Definition Linkbase Document Created***
Exhibit 101.LAB XBRL Taxonomy Extension Label Linkbase Document ***
Exhibit 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document ***

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