Orchid Island Capital, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS ORCHID ISLAND CAPITAL, INC. CONDENSED BALANCE SHEETS ($ in thousands, except per share data) (Unaudited) September 30, 2020 December 31, 2019 ASSETS: Mortgage-backed securities, at fair value Pledged to counterparties $ 3,416,118 $ 3,584,354 Unpledged 124,249 6,567 Total mortgage -backed securities 3,540,367 3,590,921 Cash and cash equivalents 199,805 193,770 Restricted cash 47,541 84,885 Accrued interest receivable 10,378 12,404 Derivative assets, at fair value 14,239 - Other assets 603 100 Total Assets $ 3,812,933 $ 3,882,080 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Repurchase agreements $ 3,281,303 $ 3,448,106 Payable for unsettled securities purchased 113,653 - Dividends payable 4,505 5,045 Derivative liabilities, at fair value 33,295 20,658 Accrued interest payable 752 11,101 Due to affiliates 590 622 Other liabilities 2,094 1,041 Total Liabilities 3,436,192 3,486,573 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, 2020 and December 31, 2019 - - Common Stock, $ 0.01 par value; 500,000,000 shares authorized, 69,295,962 shares issued and outstanding as of September 30, 2020 and 63,061,781 shares issued and outstanding as of December 31, 2019 693 631 Additional paid-in capital 410,521 414,998 Accumulated deficit ( 34,473 ) ( 20,122 ) Total Stockholders' Equity 376,741 395,507 Total Liabilities and Stockholders' Equity $ 3,812,933 $ 3,882,080 See Notes to Financial Statements 2 ORCHID ISLAND CAPITAL, INC. CONDENSED STATEMENTS OF OPERATIONS (Unaudited) For the Nine and Three Months Ended September 30, 2020 and 2019 ($ in thousands, except per share data) Nine Months Ended September 30, Three Months Ended September 30, 2020 2019 2020 2019 Interest income $ 90,152 $ 104,795 $ 27,223 $ 35,907 Interest expense ( 23,045 ) ( 63,644 ) ( 2,043 ) ( 22,321 ) Net interest income 67,107 41,151 25,180 13,586 Realized (losses) gains on mortgage-backed securities ( 24,522 ) ( 5,135 ) 498 ( 5,491 ) Unrealized gains (losses) on mortgage-backed securities 38,440 39,255 1,168 ( 5,292 ) (Losses) gains on derivative and other hedging instruments ( 87,630 ) ( 61,968 ) 4,079 ( 8,648 ) Net portfolio (loss) income ( 6,605 ) 13,303 30,925 ( 5,845 ) Expenses: Management fees 3,897 4,051 1,252 1,440 Allocated overhead 1,072 1,001 377 351 Accrued incentive compensation ( 117 ) ( 53 ) 158 173 Directors' fees and liability insurance 750 750 242 260 Audit, legal and other professional fees 841 886 240 221 Direct REIT operating expenses 852 790 406 130 Other administrative 451 225 174 57 Total expenses 7,746 7,650 2,849 2,632 Net (loss) income $ ( 14,351 ) $ 5,653 $ 28,076 $ ( 8,477 ) Basic net (loss) income per share $ ( 0.22 ) $ 0.10 $ 0.42 $ ( 0.14 ) Diluted net (loss) income per share $ ( 0.22 ) $ 0.10 $ 0.42 $ ( 0.14 ) Weighted Average Shares Outstanding 66,014,379 54,037,721 67,301,901 60,418,985 Dividends declared per common share $ 0.595 $ 0.720 $ 0.190 $ 0.240 See Notes to Financial Statements 3 ORCHID ISLAND CAPITAL, INC. CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) For the Nine and Three Months Ended September 30, 2020 and 2019 (in thousands) Additional Retained Common Stock Paid-in Earnings Shares Par Value Capital (Deficit) Total Balances, January 1, 2019 49,132 $ 491 $ 379,975 $ ( 44,387 ) $ 336,079 Net income - - - 10,597 10,597 Cash dividends declared - - ( 11,824 ) - ( 11,824 ) Issuance of common stock pursuant to public offerings, net 1,268 13 8,490 - 8,503 Issuance of common stock pursuant to stock based compensation plan 7 - 41 - 41 Amortization of stock based compensation - - 42 - 42 Shares repurchased and retired ( 469 ) ( 5 ) ( 3,019 ) - ( 3,024 ) Balances, March 31, 2019 49,938 $ 499 $ 373,705 $ ( 33,790 ) $ 340,414 Net income - - 3,533 3,533 Cash dividends declared - ( 12,859 ) - ( 12,859 ) Issuance of common stock pursuant to public offerings, net 4,338 44 28,451 - 28,495 Issuance of common stock pursuant to stock based compensation plan 7 - 43 - 43 Amortization of stock based compensation - 32 - 32 Balances, June 30, 2019 54,283 $ 543 $ 389,372 $ ( 30,257 ) $ 359,658 Net loss - - - ( 8,477 ) ( 8,477 ) Cash dividends declared - - ( 14,588 ) - ( 14,588 ) Issuance of common stock pursuant to public offerings, net 8,771 88 55,236 - 55,324 Issuance of common stock pursuant to stock based compensation plan 4 - 48 - 48 Amortization of stock based compensation - - 23 - 23 Balances, September 30, 2019 63,058 $ 631 $ 430,091 $ ( 38,734 ) $ 391,988 Balances, January 1, 2020 63,062 $ 631 $ 414,998 $ ( 20,122 ) $ 395,507 Net loss - - - ( 91,199 ) ( 91,199 ) Cash dividends declared - - ( 15,670 ) - ( 15,670 ) Issuance of common stock pursuant to public offerings, net 3,171 31 19,416 - 19,447 Issuance of common stock pursuant to stock based compensation plan 4 - - - - Amortization of stock based compensation - - 59 - 59 Balances, March 31, 2020 66,237 $ 662 $ 418,803 $ ( 111,321 ) $ 308,144 Net income - - - 48,772 48,772 Cash dividends declared - - ( 10,935 ) - ( 10,935 ) Issuance of common stock pursuant to stock based compensation plan 4 - - - - Amortization of stock based compensation - - 55 - 55 Shares repurchased and retired ( 20 ) - ( 68 ) - ( 68 ) Balances, June 30, 2020 66,221 $ 662 $ 407,855 $ ( 62,549 ) $ 345,968 Net income - - - 28,076 28,076 Cash dividends declared - - ( 12,920 ) - ( 12,920 ) Issuance of common stock pursuant to public offerings, net 3,073 31 15,535 - 15,566 Issuance of common stock pursuant to stock based compensation plan 2 - ( 2 ) - ( 2 ) Amortization of stock based compensation - - 53 - 53 Balances, September 30, 2020 69,296 $ 693 $ 410,521 $ ( 34,473 ) $ 376,741 4 See Notes to Financial Statements 5 ORCHID ISLAND CAPITAL, INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) For the Nine Months Ended September 30, 2020 and 2019 ($ in thousands) 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ ( 14,351 ) $ 5,653 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Stock based compensation 167 229 Realized and unrealized gains on mortgage-backed securities ( 13,918 ) ( 34,120 ) Realized and unrealized losses on interest rate swaptions 4,848 1,379 Realized and unrealized losses on interest rate swaps 60,988 42,739 Realized and unrealized losses on U.S. Treasury securities 95 - Realized losses on forward settling to-be-announced securities 1,813 3,846 Changes in operating assets and liabilities: Accrued interest receivable 2,137 ( 2,146 ) Other assets ( 533 ) ( 27 ) Accrued interest payable ( 10,349 ) 5,447 Other liabilities 16 1,440 Due from affiliates ( 32 ) ( 57 ) NET CASH PROVIDED BY OPERATING ACTIVITIES 30,881 24,383 CASH FLOWS FROM INVESTING ACTIVITIES: From mortgage-backed securities investments: Purchases ( 2,898,616 ) ( 3,096,194 ) Sales 2,692,230 1,948,079 Principal repayments 384,314 389,496 Payments from U.S. Treasury securities ( 139,807 ) - Proceeds on U.S. Treasury securities 139,712 - Net payments on reverse repurchase agreements 30 - Payments on net settlement of to-be-announced securities ( 1,993 ) ( 9,846 ) Purchase of derivative financial instruments, net of margin cash received ( 66,135 ) ( 20,032 ) NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 109,735 ( 788,497 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from repurchase agreements 27,995,556 33,804,965 Principal payments on repurchase agreements ( 28,162,359 ) ( 33,016,040 ) Cash dividends ( 40,065 ) ( 38,156 ) Proceeds from issuance of common stock, net of issuance costs 35,013 92,322 Common stock repurchases ( 70 ) ( 3,024 ) NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ( 171,925 ) 840,067 NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH ( 31,309 ) 75,953 CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of the period 278,655 126,263 CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of the period $ 247,346 $ 202,216 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 33,395 $ 58,197 SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES: Securities acquired settled in later period $ 113,653 $ - Securities sold settled in later period - 209,241 6 See Notes to Financial Statements 7 ORCHID ISLAND CAPITAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) SEPTEMBER 30, 2020 NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization and Business Description Orchid Island Capital, Inc. (“Orchid” or the “Company”), was incorporated in Maryland on August 17, 2010 for the purpose of creating and managing a leveraged investment portfolio consisting of residential mortgage-backed securities (“RMBS”). From incorporation to February 20, 2013, Orchid was a wholly owned subsidiary of Bimini Capital Management, Inc. (“Bimini”). Orchid began operations on November 24, 2010 (the date of commencement of operations). From incorporation through November 24, 2010, Orchid’s only activity was the issuance of common stock to Bimini. On August 2, 2017, Orchid entered into an equity distribution agreement (the “August 2017 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 15,123,178 shares under the August 2017 Equity Distribution Agreement for aggregate gross proceeds of approximately $ 125.0 million, and net proceeds of approximately $ 123.1 million, net of commissions and fees, prior to its termination in July 2019. On July 30, 2019, Orchid entered into an underwriting agreement (the “Underwriting Agreement”) with Morgan Stanley & Co. LLC, Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, as representatives of the underwriters named therein, relating to the offer and sale of 7,000,000 shares of the Company’s common stock at a price to the public of $ 6.55 per share. The underwriters purchased the shares pursuant to the Underwriting Agreement at a price of $ 6.3535 per share. The closing of the offering of 7,000,000 shares of common stock occurred on August 2, 2019, with net proceeds to the Company of approximately $ 44.2 million after deduction of underwriting discounts and commissions and other estimated offering expenses. On January 23, 2020, Orchid entered into an equity distribution agreement (the “January 2020 Equity Distribution Agreement”) with three sales agents pursuant to which the Company could offer and sell, from time to time, up to an aggregate amount of $ 200,000,000 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 3,170,727 shares under the January 2020 Equity Distribution Agreement for aggregate gross proceeds of approximately $ 19.8 million, and net proceeds of approximately $ 19.4 million, net of commissions and fees, prior to its termination in August 2020. On August 4, 2020, Orchid entered into an equity distribution agreement (the “August 2020 Equity Distribution Agreement”) with four sales agents pursuant to which the Company may offer and sell, from time to time, up to an aggregate amount of $ 150,000,000 of shares of the Company’s common stock in transactions that are deemed to be “at the market” offerings and privately negotiated transactions. Through September 30, 2020, the Company issued a total of 3,073,326 shares under the August 2020 Equity Distribution Agreement for aggregate gross proceeds of approximately $ 15.8 million, and net proceeds of approximately $ 15.6 million, net of commissions and fees. COVID-19 Impact Beginning in mid-March 2020, the global pandemic associated with the novel coronavirus COVID-19 (“COVID-19”) and related economic conditions began to impact our financial position and results of operations. As a result of the economic, health and market turmoil brought about by COVID-19, the Agency RMBS market experienced severe dislocations. This resulted in falling prices of our 8 assets and increased margin calls from our repurchase agreement lenders. Further, as interest rates declined, we faced additional margin calls related to our various hedge positions. In order to maintain sufficient cash and liquidity, reduce risk and satisfy margin calls, we were forced to sell assets at levels significantly below their carrying values and closed several hedge positions. The Agency RMBS market largely stabilized after the Federal Reserve announced on March 23, 2020 that it would purchase Agency RMBS and U.S. Treasuries in the amounts needed to support smooth market functioning. As of September 30, 2020, we had timely satisfied all margin calls. The following summarizes the impact COVID-19 has had on our financial position and results of operations through September 30, 2020. ● We sold approximately $ 2.7 billion of RMBS during the nine months ended September 30, 2020, realizing losses of approximately $ 24.5 million. Approximately $ 1.1 billion of these sales were executed on March 19th and March 20th and resulted in losses of approximately $ 31.4 million. The losses sustained on these two days were a direct result of the adverse RMBS market conditions associated with COVID-19. ● We terminated interest rate swap positions with an aggregate notional value of $ 1.2 billion and incurred approximately $ 54.5 million in mark to market losses on the positions through the date of the respective terminations. Approximately $ 45.0 million of these losses occurred during the three months ended March 31, 2020. ● Our RMBS portfolio had a fair market value of approximately $ 3.5 billion as of September 30, 2020, compared to $ 3.6 billion as of December 31, 2019. The September 30, 2020 balance represents an increase from the $ 3.3 billion balance as of June 30, 2020 and the $ 2.9 billion balance as of March 31, 2020. ● Our outstanding balances under our repurchase agreement borrowings as of September 30, 2020 were approximately $ 3.3 billion, compared to $ 3.4 billion as of December 31, 2019, $ 2.8 billion as of March 31, 2020 and $ 3.2 billion as of June 30, 2020. ● Our stockholders’ equity was $ 376.7 million as of September 30, 2020, compared to $ 395.5 million as of December 31, 2019, $ 308.1 million as of March 31, 2020 and $ 346.0 million as of June 30, 2020. In response to the Shelter in Place order issued in Florida in March 2020, our Manager (as defined below) invoked its Disaster Recovery Plan and its employees are working remotely. Prior planning resulted in the successful implementation of this plan and key operational team members maintain daily communication. Although the Company cannot estimate the length or gravity of the impact of the COVID-19 outbreak at this time, if the pandemic continues, it may continue to have adverse effects on the Company’s results of future operations, financial position, and liquidity in fiscal year 2020 and beyond. In addition, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which has provided billions of dollars of relief to individuals, businesses, state and local governments, and the health care system suffering the impact of the pandemic, including mortgage loan forbearance and modification programs to qualifying borrowers who may have difficulty making their loan payments. The Company has evaluated the provisions of the CARES Act and has determined that it will not have a material effect on the Company’s business, results of operations and financial condition. The Federal Housing Financing Agency (the “FHFA”) has instructed the GSEs on how they will handle servicer advances for loans that back Agency RMBS that enter into forbearance, which should limit prepayments during the forbearance period that could have resulted otherwise. There can be no assurance as to how, in the long term, these and other actions by the U.S. government will affect the efficiency, liquidity and stability of the financial and mortgage markets. To the extent the financial or mortgage markets do not respond favorably to any of these actions, or such actions do not function as intended, our business, results of operations and financial condition may continue to be materially adversely affected. Basis of Presentation and Use of Estimates The accompanying unaudited 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. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. 9 Operating results for the nine and three month period ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. The balance sheet at December 31, 2019 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, 2019. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant estimates affecting the accompanying financial statements are the fair values of RMBS and derivatives. Management believes the estimates and assumptions underlying the financial statements are reasonable based on the information available as of September 30, 2020; however, uncertainty over the ultimate impact that COVID-19 will have on the global economy generally, and on Orchid’s business in particular, makes any estimates and assumptions as of September 30, 2020 inherently less certain than they would be absent the current and potential impacts of COVID-19. Variable Interest Entities (“VIEs”) We obtain interests in VIEs through our investments in mortgage-backed securities. Our interests in these VIEs are passive in nature and are not expected to result in us obtaining a controlling financial interest in these VIEs in the future. As a result, we do not consolidate these VIEs and we account for our interest in these VIEs as mortgage-backed securities. See Note 2 for additional information regarding our investments in mortgage-backed securities. Our maximum exposure to loss for these VIEs is the carrying value of the mortgage-backed securities. Cash and Cash Equivalents and Restricted Cash Cash and cash equivalents include cash on deposit with financial institutions and highly liquid investments with original maturities of three months or less at the time of purchase. Restricted cash includes cash pledged as collateral for repurchase agreements and other borrowings, and interest rate swaps and other derivative instruments. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows. (in thousands) September 30, 2020 December 31, 2019 Cash and cash equivalents $ 199,805 $ 193,770 Restricted cash 47,541 84,885 Total cash, cash equivalents and restricted cash $ 247,346 $ 278,655 The Company maintains cash balances at three banks and excess margin on account with two exchange clearing members. At times, balances may exceed federally insured limits. The Company has not experienced any losses related to these balances. The Federal Deposit Insurance Corporation insures eligible accounts up to $250,000 per depositor at each financial institution. Restricted cash balances are uninsured, but are held in separate customer accounts that are segregated from the general funds of the counterparty. The Company limits uninsured balances to only large, well-known banks and exchange clearing members and believes that it is not exposed to any significant credit risk on cash and cash equivalents or restricted cash balances. Mortgage-Backed Securities The Company invests primarily in mortgage pass-through (“PT”) residential mortgage backed certificates issued by Freddie Mac, 10 Fannie Mae or Ginnie Mae (“RMBS”), collateralized mortgage obligations (“CMOs”), interest-only (“IO”) securities and inverse interest-only (“IIO”) securities representing interest in or obligations backed by pools of RMBS. We refer to RMBS and CMOs as PT RMBS. We refer to IO and IIO securities as structured RMBS. The Company 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 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. Fair value is defined as the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date. The fair value measurement assumes that the transaction to sell the asset or transfer the liability either occurs in the principal market for the asset or liability, or in the absence of a principal market, occurs in the most advantageous market for the asset or liability. Estimated fair values for 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 statements of operations. For IO securities, the income is accrued based on the carrying value and the effective yield. The difference between income accrued and the interest received on the security is characterized as a return of investment and serves to reduce the asset’s carrying value. At each reporting date, the effective yield is adjusted prospectively for future reporting periods based on the new estimate of prepayments and the contractual terms of the security. For IIO securities, effective yield and income recognition calculations also take into account the index value applicable to the security. Changes in fair value of RMBS during each reporting period are recorded in earnings and reported as unrealized gains or losses on mortgage-backed securities in the accompanying statements of operations. Derivative and Other Hedging Instruments The Company uses derivative and other hedging instruments to manage interest rate risk, facilitate asset/liability strategies and manage other exposures, and it may continue to do so in the future. The principal instruments that the Company has used to date are Treasury Note (“T-Note”), Fed Funds and Eurodollar futures contracts, short positions in U.S. Treasury securities, interest rate swaps, options to enter in interest rate swaps (“interest rate swaptions”) and “to-be-announced” (“TBA”) securities transactions, but the Company may enter into other derivative instruments in the future. The Company accounts for TBA securities as derivative instruments. Gains and losses associated with TBA securities transactions are reported in gain (loss) on derivative instruments in the accompanying statements of operations. Derivative instruments are carried at fair value, and changes in fair value are recorded in earnings for each period. The Company’s derivative financial instruments are not designated as hedge accounting relationships, but rather are used as economic hedges of its portfolio assets and liabilities. Holding derivatives creates exposure to credit risk related to the potential for failure on the part of counterparties and exchanges to honor their commitments. In addition, the Company may be required to post collateral based on any declines in the market value of the derivatives. In the event of default by a counterparty, the Company may have difficulty recovering its collateral and may not receive payments provided for under the terms of the agreement. To mitigate this risk, the Company uses only well-established commercial banks and exchanges as counterparties. 11 Financial Instruments The fair value of financial instruments for which it is practicable to estimate that value is disclosed either in the body of the financial statements or in the accompanying notes. RMBS, Eurodollar, Fed Funds and T-Note futures contracts, interest rate swaps, interest rate swaptions and TBA securities are accounted for at fair value in the balance sheets. The methods and assumptions used to estimate fair value for these instruments are presented in Note 12 of the financial statements. The estimated fair value of cash and cash equivalents, restricted cash, accrued interest receivable, receivable for securities sold, other assets, due to affiliates, repurchase agreements, payable for unsettled securities purchased, accrued interest payable and other liabilities generally approximates their carrying values as of September 30, 2020 and December 31, 2019 due to the short-term nature of these financial instruments. Repurchase Agreements The Company finances the acquisition of the majority of its RMBS through the use of repurchase agreements under master repurchase agreements. Repurchase agreements are accounted for as collateralized financing transactions, which are carried at their contractual amounts, including accrued interest, as specified in the respective agreements. Reverse Repurchase Agreements and Obligations to Return Securities Borrowed under Reverse Repurchase Agreements The Company borrows securities to cover short sales of U.S. Treasury securities through reverse repurchase transactions under our master repurchase agreements. We account for these as securities borrowing transactions and recognize an obligation to return the borrowed securities at fair value on the balance sheet based on the value of the underlying borrowed securities as of the reporting date. The securities received as collateral in connection with our reverse repurchase agreements mitigate our credit risk exposure to counterparties. Our reverse repurchase agreements typically have maturities of 30 days or less. Manager Compensation The Company is externally managed by Bimini Advisors, LLC (the “Manager” or “Bimini Advisors”), a Maryland limited liability company and wholly-owned subsidiary of Bimini. The Company’s management agreement with the Manager provides for payment to the Manager of a management fee and reimbursement of certain operating expenses, which are accrued and expensed during the period for which they are earned or incurred. Refer to Note 13 for the terms of the management agreement. Earnings Per Share Basic earnings per share (“EPS”) is calculated as net income or loss attributable to common stockholders divided by the weighted average number of shares of common stock outstanding or subscribed during the period. Diluted EPS is calculated using the treasury stock or two-class method, as applicable, for common stock equivalents, if any. However, the common stock equivalents are not included in computing diluted EPS if the result is anti-dilutive. Income Taxes Orchid has qualified and elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). REITs are generally not subject to federal income tax on their REIT taxable income provided that they distribute to their stockholders at least 90% of their REIT taxable income on an annual basis. In addition, a REIT must meet other provisions of the Code to retain its tax status. Orchid assesses the likelihood, based on their technical merit, that uncertain tax positions will be sustained upon examination 12 based on the facts, circumstances and information available at the end of each period. All of Orchid’s tax positions are categorized as highly certain. There is no accrual for any tax, interest or penalties related to Orchid’s tax position assessment. The measurement of uncertain tax positions is adjusted when new information is available, or when an event occurs that requires a change. Recent Accounting Pronouncements On January 1, 2020, we adopted Accounting Standards Update (“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). The Company’s adoption of this ASU did not have a material effect on its financial statements as its financial assets were already measured at fair value through earnings. In March 2020, the FASB issued ASU 2020-04 “ Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ” ASU 2020-04 provides optional expedients and exceptions to GAAP requirements for modifications on debt instruments, leases, derivatives, and other contracts, related to the expected market transition from the London Interbank Offered Rate (“LIBOR”), and certain other floating rate benchmark indices, or collectively, IBORs, to alternative reference rates. ASU 2020-04 generally considers contract modifications related to reference rate reform to be an event that does not require contract remeasurement at the modification date nor a reassessment of a previous accounting determination. The guidance in ASU 2020-04 is optional and may be elected over time, through December 31, 2022, as reference rate reform activities occur. The Company does not believe the adoption of this ASU will have a material impact on its consolidated financial statements. NOTE 2. MORTGAGE-BACKED SECURITIES The following table presents the Company’s RMBS portfolio as of September 30, 2020 and December 31, 2019: (in thousands) September 30, 2020 December 31, 2019 Pass-Through RMBS Certificates: Adjustable-rate Mortgages $ 960 $ 1,014 Fixed-rate Mortgages 3,357,501 3,206,013 Fixed-rate CMOs 151,110 299,205 Total Pass-Through Certificates 3,509,571 3,506,232 Structured RMBS Certificates: Interest-Only Securities 30,796 60,986 Inverse Interest-Only Securities - 23,703 Total Structured RMBS Certificates 30,796 84,689 Total $ 3,540,367 $ 3,590,921 NOTE 3. REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS Repurchase Agreements The Company pledges certain of its RMBS as collateral under repurchase agreements with financial institutions. Interest rates are generally fixed based on prevailing rates corresponding to the terms of the borrowings, and interest is generally paid at the termination of a borrowing. If the fair value of the pledged securities declines, lenders will typically require the Company to post additional collateral or pay down borrowings to re-establish agreed upon collateral requirements, referred to as "margin calls." Similarly, if the fair value of the pledged securities increases, lenders may release collateral back to the Company. As of September 30, 2020, the Company had met all margin call requirements. As of September 30, 2020 and December 31, 2019, the Company’s repurchase agreements had remaining maturities as summarized 13 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, 2020 Fair market value of securities pledged, including accrued interest receivable $ 4,956 $ 1,700,941 $ 675,475 $ 1,044,903 $ 3,426,275 Repurchase agreement liabilities associated with these securities $ 3,709 $ 1,627,083 $ 648,133 $ 1,002,378 $ 3,281,303 Net weighted average borrowing rate 1.30 % 0.24 % 0.24 % 0.24 % 0.24 % December 31, 2019 Fair market value of securities pledged, including accrued interest receivable $ - $ 2,470,263 $ 1,005,517 $ 120,941 $ 3,596,721 Repurchase agreement liabilities associated with these securities $ - $ 2,361,378 $ 964,368 $ 122,360 $ 3,448,106 Net weighted average borrowing rate - 2.04 % 1.94 % 2.60 % 2.03 % In addition, cash pledged to counterparties for repurchase agreements was approximately $24.8 million and $65.9 million as of September 30, 2020 and December 31, 2019, respectively. If, during the term of a repurchase agreement, a lender files for bankruptcy, the Company might experience difficulty recovering its pledged assets, which could result in an unsecured claim against the lender for the difference between the amount loaned to the Company plus interest due to the counterparty and the fair value of the collateral pledged to such lender, including the accrued interest receivable and cash posted by the Company as collateral. At September 30, 2020, 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 $170.4 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, 2020 and December 31, 2019. NOTE 4. DERIVATIVE AND OTHER HEDGING INSTRUMENTS Derivative and Other Hedging Instruments Assets (Liabilities), at Fair Value The table below summarizes fair value information about our derivative and other hedging instruments assets and liabilities as of September 30, 2020 and December 31, 2019. (in thousands) Derivative Instruments and Related Accounts Balance Sheet Location September 30, 2020 December 31, 2019 Assets Payer swaptions - long Derivative assets, at fair value $ 14,048 $ - TBA securities Derivative assets, at fair value 191 - Total derivative assets, at fair value $ 14,239 $ - Liabilities Interest rate swaps Derivative liabilities, at fair value $ 26,636 $ 20,146 Payer swaptions - short Derivative liabilities, at fair value 6,221 - TBA securities Derivative liabilities, at fair value 438 512 Total derivative liabilities, at fair value $ 33,295 $ 20,658 Margin Balances Posted to (from) Counterparties 14 Futures contracts Restricted cash $ 561 $ 1,338 TBA securities Restricted cash 1,394 246 Interest rate swaption contracts Other liabilities ( 1,037 ) - Interest rate swap contracts Restricted cash 20,819 17,450 Total margin balances on derivative contracts $ 21,737 $ 19,034 Eurodollar, Fed Funds 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, 2020 and December 31, 2019. ($ in thousands) September 30, 2020 Average Weighted Weighted Contract Average Average Notional Entry Effective Open Expiration Year Amount Rate Rate Equity (1) Eurodollar Futures Contracts (Short Positions) 2020 $ 50,000 3.25 % 0.25 % $ ( 375 ) 2021 50,000 1.03 % 0.20 % ( 415 ) Total / Weighted Average $ 50,000 1.47 % 0.21 % $ ( 790 ) Treasury Note Futures Contracts (Short Position) (2) December 2020 5-year T-Note futures (Dec 2020 - Dec 2025 Hedge Period) $ 69,000 0.70 % 0.69 % $ ( 22 ) ($ in thousands) December 31, 2019 Average Weighted Weighted Contract Average Average Notional Entry Effective Open Expiration Year Amount Rate Rate Equity (1) Eurodollar Futures Contracts (Short Positions) 2020 $ 500,000 2.97 % 1.67 % $ ( 6,505 ) Total / Weighted Average $ 500,000 2.97 % 1.67 % $ ( 6,505 ) Treasury Note Futures Contracts (Short Position) (2) March 2020 5 year T-Note futures (Mar 2020 - Mar 2025 Hedge Period) $ 69,000 1.96 % 2.06 % $ 302 (1) Open equity represents the cumulative gains (losses) recorded on open futures positions from inception. (2) T-Note futures contracts were valued at a price of $ 126.03 at September 30, 2020 and $ 118.61 at December 31, 2019. The contract values of the short positions were $ 87.0 million and $ 81.8 million at September 30, 2020 and December 31, 2019, respectively. Under our interest rate swap agreements, we typically pay a fixed rate and receive a floating rate based on the 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, 2020 and December 31, 2019. ($ in thousands) Average Net Fixed Average Estimated Average Notional Pay Receive Fair Maturity Amount Rate Rate Value (Years) September 30, 2020 15 Expiration > 3 to ≤ 5 years $ 620,000 1.29 % 0.25 % $ ( 23,817 ) 3.9 Expiration > 5 years 200,000 0.67 % 0.25 % ( 2,819 ) 6.7 $ 820,000 1.14 % 0.25 % $ ( 26,636 ) 4.6 December 31, 2019 Expiration > 1 to ≤ 3 years $ 360,000 2.05 % 1.90 % $ ( 3,680 ) 2.3 Expiration > 3 to ≤ 5 years 910,000 2.03 % 1.93 % ( 16,466 ) 4.4 $ 1,270,000 2.03 % 1.92 % $ ( 20,146 ) 3.8 The table below presents information related to the Company’s interest rate swaption positions at September 30, 2020. There were no open swaption positions at December 31, 2019. ($ in thousands) Option Underlying Swap Weighted Average Weighted Average Average Adjustabl e Average Fair Months to Notional Fixed Rate Term Expiration Cost Value Expiration Amount Rate (LIBOR) (Years) September 30, 2020 Payer Swaptions - long ≤ 1 year $ 3,450 $ 32 5.5 $ 500,000 0.95 % 3 Month 4.0 >1 year ≤ 2 years 13,410 14,016 20.4 675,000 1.49 % 3 Month 12.8 $ 16,860 $ 14,048 14.0 $ 1,175,000 1.26 % 3 Month 9.0 Payer Swaptions - short ≤ 1 year $ ( 4,660 ) $ ( 6,221 ) 8.4 $ 507,700 1.49 % 3 Month 12.8 The following table summarizes our contracts to purchase and sell TBA securities as of September 30, 2020 and December 31, 2019 . ($ in thousands) Notional Net Amount Cost Market Carrying Long (Short) (1) Basis (2) Value (3) Value (4) September 30, 2020 15-Year TBA securities: 2.0% $ 175,000 $ 181,727 $ 181,918 $ 191 30-Year TBA securities: 2.5% 200,000 210,250 209,812 ( 438 ) Total $ 375,000 $ 391,977 $ 391,730 $ ( 247 ) December 31, 2019 30-Year TBA securities: 4.5% $ ( 300,000 ) $ ( 315,426 ) $ ( 315,938 ) $ ( 512 ) Total $ ( 300,000 ) $ ( 315,426 ) $ ( 315,938 ) $ ( 512 ) (1) Notional amount represents the par value (or principal balance) of the underlying Agency RMBS. (2) Cost basis represents the forward price to be paid (received) for the underlying Agency RMBS. (3) Market value represents the current market value of the TBA securities (or of the underlying Agency RMBS) as of period-end. (4) Net carrying value represents the difference between the market value and the cost basis of the TBA securities as of period-end and is reported in derivative assets (liabilities) at fair value in our balance sheets. Gain (Loss) From Derivative and Other Hedging Instruments, Net The table below presents the effect of the Company’s derivative financial instruments on the statements of operations for the nine and three months ended September 30, 2020 and 2019. 16 (in thousands) Nine Months Ended September 30, Three Months Ended September 30, 2020 2019 2020 2019 Eurodollar futures contracts (short positions) $ ( 8,324 ) $ ( 14,423 ) $ ( 6 ) $ ( 94 ) T-Note futures contracts (short position) ( 4,837 ) ( 6,311 ) ( 113 ) ( 1,112 ) Fed Funds futures contracts (short positions) - 313 - 313 Interest rate swaps ( 67,713 ) ( 36,322 ) 489 ( 9,918 ) Payer swaptions - short ( 1,561 ) - ( 672 ) - Payer swaptions - long ( 3,287 ) ( 1,379 ) 914 ( 316 ) Net TBA securities ( 1,813 ) ( 3,846 ) 3,431 2,479 U.S. Treasury securities - short position ( 95 ) - 36 - Total $ ( 87,630 ) $ ( 61,968 ) $ 4,079 $ ( 8,648 ) Credit Risk-Related Contingent Features The use of derivatives creates exposure to credit risk relating to potential losses that could be recognized in the event that the counterparties to these instruments fail to perform their obligations under the contracts. We minimize this risk by limiting our counterparties for instruments which are not centrally cleared on a registered exchange to major financial institutions with acceptable credit ratings and monitoring positions with individual counterparties. In addition, we may be required to pledge assets as collateral for our derivatives, whose amounts vary over time based on the market value, notional amount and remaining term of the derivative contract. In the event of a default by a counterparty, we may not receive payments provided for under the terms of our derivative agreements, and may have difficulty obtaining our assets pledged as collateral for our derivatives. The cash and cash equivalents pledged as collateral for our derivative instruments are included in restricted cash on our balance sheets. It is the Company's policy not to offset assets and liabilities associated with open derivative contracts. However, the Chicago Mercantile Exchange (“CME”) rules characterize variation margin transfers as settlement payments, as opposed to adjustments to collateral. As a result, derivative assets and liabilities associated with centrally cleared derivatives for which the CME serves as the central clearing party are presented as if these derivatives had been settled as of the reporting date. NOTE 5. PLEDGED ASSETS Assets Pledged to Counterparties The table below summarizes our assets pledged as collateral under our repurchase agreements and derivative agreements by type, including securities pledged related to securities sold but not yet settled, as of September 30, 2020 and December 31, 2019. (in thousands) September 30, 2020 December 31, 2019 Repurchase Derivative Repurchase Derivative Assets Pledged to Counterparties Agreements Agreements Total Agreements Agreements Total PT RMBS - fair value $ 3,387,253 $ - $ 3,387,253 $ 3,500,394 $ - $ 3,500,394 Structured RMBS - fair value 28,865 - 28,865 83,960 - 83,960 Accrued interest on pledged securities 10,157 - 10,157 12,367 - 12,367 Restricted cash 24,767 22,774 47,541 65,851 19,034 84,885 Total $ 3,451,042 $ 22,774 $ 3,473,816 $ 3,662,572 $ 19,034 $ 3,681,606 Assets Pledged from Counterparties The table below summarizes our assets pledged to us from counterparties under our repurchase agreements, reverse repurchase agreements and derivative agreements as of September 30, 2020 and December 31, 2019. 17 (in thousands) Reverse Repurchase Repurchase Derivative Assets Pledged to Orchid Agreements Agreements Agreements Total September 30, 2020 Cash $ 5,855 $ - $ 1,037 $ 6,892 U.S. Treasury securities - fair value 1,424 - - 1,424 Total $ 7,279 $ - $ 1,037 $ 8,316 December 31, 2019 Cash $ 1,418 $ - $ - $ 1,418 Total $ 1,418 $ - $ - $ 1,418 RMBS and U.S. Treasury securities received as margin under our repurchase agreements are not recorded in the balance sheets because the counterparty retains ownership of the security. U.S. Treasury securities received from counterparties as collateral under our reverse repurchase agreements are recognized as obligations to return securities borrowed under reverse repurchase agreements in the balance sheet. Cash received as margin is recognized as cash and cash equivalents with a corresponding amount recognized as an increase in repurchase agreements or other liabilities in the balance sheets. NOTE 6. OFFSETTING ASSETS AND LIABILITIES The Company’s derivative agreements and repurchase agreements and reverse repurchase agreements are subject to underlying agreements with master netting or similar arrangements, which provide for the right of offset in the event of default or in the event of bankruptcy of either party to the transactions. The Company reports its assets and liabilities subject to these arrangements on a gross basis. 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, 2020 and December 31, 2019. (in thousands) Offsetting of Assets Gross Amount Not Net Amount Offset in the Balance Sheet of Assets Financial Gross Amount Gross Amount Presented Instruments Cash of Recognized Offset in the in the Received as Received as Net Assets Balance Sheet Balance Sheet Collateral Collateral Amount September 30, 2020 Interest rate swaptions $ 14,048 $ - $ 14,048 $ - $ ( 1,037 ) $ 13,011 TBA securities 191 - 191 - - 191 $ 14,239 $ - $ 14,239 $ - $ ( 1,037 ) $ 13,202 (in thousands) Offsetting of Liabilities Gross Amount Not Net Amount Offset in the Balance Sheet of Liabilities Financial Gross Amount Gross Amount Presented Instruments of Recognized Offset in the in the Posted as Cash Posted Net Liabilities Balance Sheet Balance Sheet Collateral as Collateral Amount September 30, 2020 Repurchase Agreements $ 3,281,303 $ - $ 3,281,303 $ ( 3,256,536 ) $ ( 24,767 ) $ - Interest rate swaps 26,636 - 26,636 - ( 20,819 ) 5,817 18 Interest rate swaptions 6,221 - 6,221 - - 6,221 TBA securities 438 - 438 - ( 438 ) - $ 3,314,598 $ - $ 3,314,598 $ ( 3,256,536 ) $ ( 46,024 ) $ 12,038 December 31, 2019 Repurchase Agreements $ 3,448,106 $ - $ 3,448,106 $ ( 3,382,255 ) $ ( 65,851 ) $ - Interest rate swaps 20,146 - 20,146 - ( 17,450 ) 2,696 TBA securities 512 - 512 - ( 246 ) 266 $ 3,468,764 $ - $ 3,468,764 $ ( 3,382,255 ) $ ( 83,547 ) $ 2,962 The amounts disclosed for collateral received by or posted to the same counterparty up to and not exceeding the net amount of the asset or liability presented in the balance sheets. The fair value of the actual collateral received by or posted to the same counterparty 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 Common Stock Issuances During the nine months ended September 30, 2020 and the year ended December 31, 2019, the Company completed the following public offerings of shares of its common stock. ($ in thousands, except per share amounts) Weighted Average Price Received Net Type of Offering Period Per Share (1) Shares Proceeds (2) 2020 At the Market Offering Program (3) First Quarter $ 6.23 3,170,727 $ 19,447 At the Market Offering Program (3) Third Quarter 5.15 3,073,326 15,566 Total 6,244,053 $ 35,013 2019 At the Market Offering Program (3) First Quarter $ 6.84 1,267,894 $ 8,503 At the Market Offering Program (3) Second Quarter 6.70 4,337,931 28,495 At the Market Offering Program (3) Third Quarter 6.37 1,771,301 11,098 Follow-on Offering Third Quarter 6.35 7,000,000 44,218 14,377,126 $ 92,314 (1) Weighted average price received per share is before deducting the underwriters’ discount, if applicable, and other offering costs. (2) Net proceeds are net of the underwriters’ discount, if applicable, and other offering costs. (3) The Company has entered into eight equity distribution agreements, seven of which have either been terminated because all shares were sold or were replaced with a subsequent agreement. Stock Repurchase Program On July 29, 2015 , the Company’s Board of Directors authorized the repurchase of up to 2,000,000 shares of the Company’s common stock. On February 8, 2018, the Board of Directors approved an increase in the stock repurchase program for up to an additional 4,522,822 shares of the Company's common stock. Coupled with the 783,757 shares remaining from the original 2,000,000 share authorization, the increased authorization brought the total authorization to 5,306,579 shares, representing 10% of the Company’s then outstanding share count. As part of the stock repurchase program, shares may be purchased in open market transactions, 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 19 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 stock repurchase program through September 30, 2020, the Company repurchased a total of 5,685,511 shares at an aggregate cost of approximately $ 40.4 million, including commissions and fees, for a weighted average price of $ 7.10 per share. During the nine months ended September 30, 2020, the Company repurchased a total of 19,891 shares at an aggregate cost of approximately $ 0.1 million, including commissions and fees, for a weighted average price of $ 3.42 per share. During the nine months ended September 30, 2019, the Company repurchased a total of 469,975 shares at an aggregate cost of approximately $ 3.0 million, including commissions and fees, for a weighted average price of $ 6.43 per share. The remaining authorization under the repurchase program as of September 30, 2020 was 837,311 shares. Cash Dividends 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 1.680 70,717 2018 1.070 55,814 2019 0.960 54,421 2020 - YTD (1) 0.660 44,055 Totals $ 11.525 $ 332,448 (1) On October 14, 2020, the Company declared a dividend of $ 0.065 per share to be paid on November 25, 2020. The effect of this dividend is included in the table above, but is not reflected in the Company’s financial statements as of September 30, 2020. NOTE 8. STOCK INCENTIVE PLAN In October 2012, the Company’s Board of Directors adopted and Bimini, then the Company’s sole stockholder, approved, the Orchid Island Capital, Inc. 2012 Equity Incentive Plan (the “Incentive Plan”) to recruit and retain employees, directors and other service providers, including employees of the Manager and other affiliates. The Incentive Plan provides for the award of stock options, stock appreciation rights, stock award, performance units, other equity-based awards (and dividend equivalents with respect to awards of performance units and other equity-based awards) and incentive awards. The Incentive Plan is administered by the Compensation Committee of the Company’s Board of Directors except that the Company’s full Board of Directors will administer awards made to directors who are not employees of the Company or its affiliates. The Incentive Plan provides for awards of up to an aggregate of 10 % of the issued and outstanding shares of our common stock (on a fully diluted basis) at the time of the awards, subject to a maximum aggregate 4,000,000 shares of the Company’s common stock that may be issued under the Incentive Plan. Performance Units The Company has issued, and may in the future issue additional, performance units under the Incentive Plan to certain executive officers and employees of its Manager. “Performance Units” vest after the end of a defined performance period, 20 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 underlying shares of common stock. Performance Units are subject to forfeiture should the participant no longer serve as an executive officer or employee of the Company. Compensation expense for the Performance Units is recognized over the remaining vesting period once it becomes probable that the performance conditions will be achieved. The following table presents information related to Performance Units outstanding during the nine months ended September 30, 2020 and 2019. ($ in thousands, except per share data) Nine Months Ended September 30, 2020 2019 Weighted Weighted Average Average Grant Date Grant Date Shares Fair Value Shares Fair Value Unvested, beginning of period 19,021 $ 7.78 43,672 $ 8.34 Forfeited ( 1,607 ) 7.45 - - Vested and issued ( 10,583 ) 8.03 ( 20,498 ) 8.90 Unvested, end of period 6,831 $ 7.45 23,174 $ 7.85 Compensation expense during period $ 32 $ 94 Unrecognized compensation expense, end of period $ 8 $ 60 Intrinsic value, end of period $ 34 $ 133 Weighted-average remaining vesting term (in years) 0.5 0.9 The number of shares of common stock issuable upon the vesting of the remaining outstanding Performance Units was reduced as a result of the book value impairment event that occurred pursuant to the Company's Long Term Incentive Compensation Plans (the "Plans"). The book value impairment event occurred when the Company's book value per share declined by more than 15% during the quarter ended March 31, 2020 and the Company's book value per share decline from January 1, 2020 to June 30, 2020 was more than 10%. The Plans provide that if such a book value impairment event occurs, then the number of outstanding Performance Units that are outstanding as of the last day of such two quarter period shall be reduced by 15%. Deferred Stock Units Non-employee directors began to receive a portion of their compensation in the form of deferred stock unit awards (“DSUs”) pursuant to the Incentive Plan beginning with the awards for the second quarter of 2018. Each DSU represents a right to receive one share of the Company’s common stock. The DSUs are immediately vested and are settled at a future date based on the election of the individual participant. The DSUs contain dividend equivalent rights, which entitle the participant to receive distributions declared by the Company on common stock. These dividend equivalent rights are settled in cash or additional DSUs at the participant’s election. The DSUs do not include the right to vote the underlying shares of common stock. The following table presents information related to the DSUs outstanding during the nine months ended September 30, 2020 and 2019. ($ in thousands, except per share data) Nine Months Ended September 30, 2020 2019 Weighted Weighted 21 Average Average Grant Date Grant Date Shares Fair Value Shares Fair Value Outstanding, beginning of period 43,570 $ 6.56 12,434 $ 7.37 Granted and vested 36,682 4.22 22,424 6.42 Issued - - - - Outstanding, end of period 80,252 $ 5.49 34,858 $ 6.76 Compensation expense during period $ 135 $ 135 Intrinsic value, end of period $ 402 $ 200 NOTE 9. COMMITMENTS AND CONTINGENCIES From time to time, the Company may become involved in various claims and legal actions arising in the ordinary course of business. Management is not aware of any reported or unreported contingencies at September 30, 2020. NOTE 10. INCOME TAXES The Company will generally not be subject to federal income tax on its REIT taxable income to the extent that it distributes its REIT taxable income to its stockholders and satisfies the ongoing REIT requirements, including meeting certain asset, income and stock ownership tests. A REIT must generally distribute at least 90% of its REIT taxable income to its stockholders, of which 85% generally must be distributed within the taxable year, in order to avoid the imposition of an excise tax. The remaining balance may be distributed up to the end of the following taxable year, provided the REIT elects to treat such amount as a prior year distribution and meets certain other requirements. NOTE 11. EARNINGS PER SHARE (EPS) The Company had dividend eligible Performance Units and Deferred Stock Units that were outstanding during the nine and three months ended September 30, 2020 and 2019. The basic and diluted per share computations include these unvested Performance Units and Deferred Stock Units if there is income available to common stock, as they have dividend participation rights. The unvested Performance Units and Deferred Stock Units have no contractual obligation to share in losses. Because there is no such obligation, the unvested Performance Units and Deferred Stock Units are not included in the basic and diluted EPS computations when no income is available to common stock even though they are considered participating securities. The table below reconciles the numerator and denominator of EPS for the nine and three months ended September 30, 2020 and 2019. (in thousands, except per share information) Nine Months Ended September 30, Three Months Ended September 30, 2020 2019 2020 2019 Basic and diluted EPS per common share: Numerator for basic and diluted EPS per share of common stock: Net (loss) income - Basic and diluted $ ( 14,351 ) $ 5,653 $ 28,076 $ ( 8,477 ) Weighted average shares of common stock: Shares of common stock outstanding at the balance sheet date 69,296 63,058 69,296 63,058 Unvested dividend eligible share based compensation outstanding at the balance sheet date - 58 87 - Effect of weighting ( 3,282 ) ( 9,078 ) ( 2,081 ) ( 2,639 ) Weighted average shares-basic and diluted 66,014 54,038 67,302 60,419 Net (loss) income per common share: Basic and diluted $ ( 0.22 ) $ 0.10 $ 0.42 $ ( 0.14 ) 22 Anti-dilutive incentive shares not included in calculation. 87 - - 58 NOTE 12. FAIR VALUE The framework for using fair value to measure assets and liabilities defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price). A fair value measure should reflect the assumptions that market participants would use in pricing the asset or liability, including the assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset and the risk of non-performance. Required disclosures include stratification of balance sheet amounts measured at fair value based on inputs the Company uses to derive fair value measurements. These stratifications are: ● Level 1 valuations, where the valuation is based on quoted market prices for identical assets or liabilities traded in active markets (which include exchanges and over-the-counter markets with sufficient volume), ● Level 2 valuations, where the valuation is based on quoted market prices for similar instruments traded in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market, and ● Level 3 valuations, where the valuation is generated from model-based techniques that use significant assumptions not observable in the market, but observable based on Company-specific data. These unobservable assumptions reflect the Company’s own estimates for assumptions that market participants would use in pricing the asset or liability. Valuation techniques typically include option pricing models, discounted cash flow models and similar techniques, but may also include the use of market prices of assets or liabilities that are not directly comparable to the subject asset or liability. The Company's RMBS, interest rate swaps, interest rate swaptions, U.S. Treasury securities 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. The Company and the independent pricing sources use various valuation techniques to determine the price of the Company’s securities. These techniques include observing the most recent market for like or identical assets, spread pricing techniques (option adjusted spread, zero volatility spread, spread to the U.S. Treasury curve or spread to a benchmark such as a TBA), and model driven approaches (the discounted cash flow method, Black Scholes and SABR models which rely upon observable market rates such as the term structure of interest rates and volatility). The appropriate spread pricing method used is based on market convention. The pricing source determines the spread of recently observed trade activity or observable markets for assets similar to those being priced. The spread is then adjusted based on variances in certain characteristics between the market observation and the asset being priced. Those characteristics include: type of asset, the expected life of the asset, the stability and predictability of the expected future cash flows of the asset, whether the coupon of the asset is fixed or adjustable, the guarantor of the security if applicable, the coupon, the maturity, the issuer, size of the underlying loans, year in which the underlying loans were originated, loan to value ratio, state in which the underlying loans reside, credit score of the underlying borrowers and other variables if appropriate. The fair value of the security is determined by using the adjusted spread. RMBS (based on the fair value option), interest rate swaps, interest rate swaptions, U.S. Treasury securities and TBA securities were recorded at fair value on a recurring basis during the nine and three months ended September 30, 2020 and 2019. 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, 2020 and December 31, 2019. Derivative contracts are reported as a net position by contract type, and not based on master netting arrangements. (in thousands) 23 Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs (Level 1) (Level 2) (Level 3) September 30, 2020 Mortgage-backed securities $ - $ 3,540,367 $ - Interest rate swaps - ( 26,636 ) - Interest rate swaptions - 7,827 - TBA securities - ( 246 ) - December 31, 2019 Mortgage-backed securities $ - $ 3,590,921 $ - Interest rate swaps - ( 20,146 ) - TBA securities - ( 512 ) - During the nine and three months ended September 30, 2020 and 2019, there were no transfers of financial assets or liabilities between levels 1, 2 or 3. NOTE 13. RELATED PARTY TRANSACTIONS Management Agreement The Company is externally managed and advised by Bimini Advisors, LLC (the “Manager”) pursuant to the terms of a management agreement. The management agreement has been renewed through February 20, 2021 and provides for automatic one-year extension options thereafter and is subject to certain termination rights. Under the terms of the management agreement, the Manager is responsible for administering the business activities and day-to-day operations of the Company. The Manager receives a monthly management fee in the amount of: ● One-twelfth of 1.5% of the first $250 million of the Company’s month-end equity, as defined in the management agreement, ● One-twelfth of 1.25% of the Company’s month-end equity that is greater than $250 million and less than or equal to $500 million, and ● One-twelfth of 1.00% of the Company’s month-end equity that is greater than $500 million. 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 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 $5.0 million and $1.6 million for the nine and three months ended September 30, 2020, respectively, and $5.1 million and $1.8 million for the nine and three months ended September 30, 2019, respectively. At September 30, 2020 and December 31, 2019, the net amount due to affiliates was approximately $0.6 million and $0.6 million, respectively. Other Relationships with Bimini 24 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. George H. Haas, IV, our Chief Financial Officer, Chief Investment Officer, Secretary and a member of our Board of Directors, also serves as the Chief Financial Officer, Chief Investment Officer and Treasurer of Bimini and owns shares of common stock of Bimini. In addition, as of September 30, 2020, Bimini owned 2,595,357 shares, or 3.8% , of the Company’s common stock. 25