Orchid Island Capital, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Financial Statements Page Report of Independent Registered Public Accounting Firm ( BDO USA, LLP ; West Palm Beach, FL ; PCAOB ID# 243 ) 80 Balance Sheets 82 Statements of Operations 83 Statements of Stockholders’ Equity 84 Statements of Cash Flows 85 Notes to Financial Statements 86 80 Report of Independent Registered Public Accounting Firm Stockholders and Board of Directors Orchid Island Capital, Inc. Vero Beach, Florida Opinion on the Financial Statements We have audited the accompanying balance sheets of Orchid Island Capital, Inc. (the “Company”) as of December 31, 2021 and 2020, the related statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 , in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 25, 2022 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Valuation of Investments in Mortgage-Backed Securities As described in Notes 1 and 12 to the financial statements, the Company accounts for its Level 2 mortgage-backed securities at fair value, which totaled $6.5 billion at December 31, 2021.    The fair value of mortgage-backed securities is based on independent pricing sources and/or third-party broker quotes, when available. Because the price estimates may vary, management must make certain judgments and assumptions about the appropriate price to use to calculate the fair values based on various techniques including observing the most recent market for like or identical assets (including security coupon rate, maturity, yield, prepayment speed), market credit spreads, and model driven approaches. 81    We identified the valuation of mortgage-backed securities as a critical audit matter.    The principal considerations for our determination are: (i) the potential for bias in how management subjectively selects the price from multiple pricing sources to determine the fair value of the mortgage-backed securities and (ii) the audit effort involved, including the use of valuation professionals with specialized skill and knowledge.     The primary procedures we performed to address this critical audit matter included:    ● Testing the design, implementation, and operating effectiveness of controls relating to the valuation of mortgaged-backed securities, including controls over management’s process to select the price from multiple pricing sources.    ● Reviewing the range of values used for each investment position, and assessing the price selected for management bias by comparing the price to the high, low and average of the range of pricing sources.     ● Testing the reasonableness of fair values determined by management by comparing the fair value of certain securities to recent transactions, if applicable. ● Utilizing personnel with specialized knowledge and skill in valuation to develop an independent estimate of the fair value of each investment position by considering the stated security coupon rate, yield, maturity, and prepayment speeds, and comparing to the fair value used by management. /s/ BDO USA, LLP Certified Public Accountants We have served as the Company's auditor since 2011. West Palm Beach, Florida February 25, 2022 82 ORCHID ISLAND CAPITAL, INC. BALANCE SHEETS ($ in thousands, except per share data) December 31, 2021 December 31, 2020 ASSETS: Mortgage-backed securities, at fair value (includes pledged assets of $ 6,506,372 $ 6,511,095 $ 3,726,895 and $ 3,719,906 , respectively) U.S. Treasury Notes, at fair value (includes pledged assets of $ 29,740 and $ 0 , respectively) 37,175 - Cash and cash equivalents 385,143 220,143 Restricted cash 65,299 79,363 Accrued interest receivable 18,859 9,721 Derivative assets 50,786 20,999 Receivable for securities sold, pledged to counterparties - 414 Other assets 320 516 Total Assets $ 7,068,677 $ 4,058,051 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Repurchase agreements $ 6,244,106 $ 3,595,586 Dividends payable 11,530 4,970 Derivative liabilities 7,589 33,227 Accrued interest payable 788 1,157 Due to affiliates 1,062 632 Other liabilities 35,505 7,188 Total Liabilities 6,300,580 3,642,760 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, $ 0.01 par value; 100,000,000 shares authorized; no shares issued and outstanding as of December 31, 2021 and December 31, 2020 - - Common Stock, $ 0.01 par value; 500,000,000 shares authorized, 176,993,049 shares issued and outstanding as of December 31, 2021 and 76,073,317 shares issued and outstanding as of December 31, 2020 1,770 761 Additional paid-in capital 849,081 432,524 Accumulated deficit ( 82,754 ) ( 17,994 ) Total Stockholders' Equity 768,097 415,291 Total Liabilities and Stockholders' Equity $ 7,068,677 $ 4,058,051 See Notes to Financial Statements 83 ORCHID ISLAND CAPITAL, INC. STATEMENTS OF OPERATIONS For the Years Ended December 31, 2021, 2020 and 2019 ($ in thousands, except per share data) 2021 2020 2019 Interest income $ 134,700 $ 116,045 $ 142,324 Interest expense ( 7,090 ) ( 25,056 ) ( 83,666 ) Net interest income 127,610 90,989 58,658 Realized losses on mortgage-backed securities ( 5,542 ) ( 24,986 ) ( 10,877 ) Unrealized (losses) gains on mortgage-backed securities and U.S. Treasury Notes ( 198,454 ) 25,761 38,045 Gains (losses) on derivative instruments 26,877 ( 79,092 ) ( 51,176 ) Net portfolio (loss) income ( 49,509 ) 12,672 34,650 Expenses: Management fees 8,156 5,281 5,528 Allocated overhead 1,632 1,514 1,380 Incentive compensation 1,132 38 115 Directors' fees and liability insurance 1,169 998 998 Audit, legal and other professional fees 1,112 1,045 1,105 Direct REIT operating expenses 1,475 1,057 997 Other administrative 575 611 262 Total expenses 15,251 10,544 10,385 Net (loss) income $ ( 64,760 ) $ 2,128 $ 24,265 Basic and diluted net (loss) income per share $ ( 0.54 ) $ 0.03 $ 0.43 Weighted Average Shares Outstanding 121,144,326 67,210,815 56,328,027 See Notes to Financial Statements 84 ORCHID ISLAND CAPITAL, INC. STATEMENTS OF STOCKHOLDERS' EQUITY For the Years Ended December 31, 2021, 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 - - - 24,265 24,265 Cash dividends declared - - ( 54,421 ) - ( 54,421 ) Issuance of common stock pursuant to public offerings, net 14,377 145 92,169 - 92,314 Stock based awards and amortization 23 - 294 - 294 Shares repurchased and retired ( 470 ) ( 5 ) ( 3,019 ) - ( 3,024 ) Balances, December 31, 2019 63,062 631 414,998 ( 20,122 ) 395,507 Net income - - - 2,128 2,128 Cash dividends declared - - ( 53,570 ) - ( 53,570 ) Issuance of common stock pursuant to public offerings, net 13,019 130 70,920 - 71,050 Stock based awards and amortization 12 - 244 - 244 Shares repurchased and retired ( 20 ) - ( 68 ) - ( 68 ) Balances, December 31, 2020 76,073 761 432,524 ( 17,994 ) 415,291 Net loss - - - ( 64,760 ) ( 64,760 ) Cash dividends declared - - ( 97,601 ) - ( 97,601 ) Issuance of common stock pursuant to public offerings, net 100,828 1,008 513,051 - 514,059 Stock based awards and amortization 92 1 1,107 - 1,108 Balances, December 31, 2021 176,993 $ 1,770 $ 849,081 $ ( 82,754 ) $ 768,097 See Notes to Financial Statements 85 ORCHID ISLAND CAPITAL, INC. STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2021, 2020 and 2019 ($ in thousands) 2021 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ ( 64,760 ) $ 2,128 $ 24,265 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Stock based compensation 772 244 294 Realized and unrealized losses (gains) on mortgage-backed securities 203,731 ( 775 ) ( 27,168 ) Unrealized losses on U.S. Treasury Notes 265 - - Realized and unrealized (gains) losses on derivative instruments ( 35,350 ) 58,891 45,207 Changes in operating assets and liabilities: Accrued interest receivable ( 9,138 ) 2,683 837 Other assets 196 ( 446 ) 80 Accrued interest payable ( 369 ) ( 9,944 ) 4,656 Other liabilities 663 2,583 22 Due to affiliates 430 10 ( 32 ) NET CASH PROVIDED BY OPERATING ACTIVITIES 96,440 55,374 48,161 CASH FLOWS FROM INVESTING ACTIVITIES: From mortgage-backed securities investments: Purchases ( 6,430,725 ) ( 4,859,434 ) ( 4,241,822 ) Sales 2,851,708 4,200,536 3,321,206 Principal repayments 591,086 523,699 594,833 Purchases of U.S. Treasury Notes ( 37,440 ) - - Net proceeds from reverse repurchase agreements - 30 - Net Proceeds from (payments on) on derivative instruments 8,571 ( 64,171 ) ( 29,023 ) NET CASH USED IN INVESTING ACTIVITIES ( 3,016,800 ) ( 199,340 ) ( 354,806 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from repurchase agreements 35,950,241 33,140,625 45,595,010 Principal payments on repurchase agreements ( 33,301,721 ) ( 32,993,145 ) ( 45,171,956 ) Cash dividends ( 90,984 ) ( 53,645 ) ( 53,307 ) Proceeds from issuance of common stock, net of issuance costs 514,059 71,050 92,314 Common stock repurchases, including shares withheld from employee stock awards for payment of taxes ( 299 ) ( 68 ) ( 3,024 ) NET CASH PROVIDED BY FINANCING ACTIVITIES 3,071,296 164,817 459,037 NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 150,936 20,851 152,392 CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of the period 299,506 278,655 126,263 CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of the period $ 450,442 $ 299,506 $ 278,655 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 7,458 $ 35,000 $ 79,010 See Notes to Financial Statements 86 ORCHID ISLAND CAPITAL, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2021 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 “2019 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 2019 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 $ 19.8 million, and net proceeds of approximately $ 19.4 million, after 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 could offer and sell, from time to time, up to an aggregate amount of $ 150,000,000 of shares of the Company’s common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions. The Company issued a total of 27,493,650 shares under the August 2020 Equity Distribution Agreement for aggregate gross proceeds of approximately $ 150.0 million, and net proceeds of approximately $ 147.4 million, after commissions and fees, prior to its termination in June 2021. On January 20, 2021, Orchid entered into an underwriting agreement (the “January 2021 Underwriting Agreement”) with J.P. Morgan Securities LLC (“J.P. Morgan”), relating to the offer and sale of 7,600,000 shares of the Company’s common stock. J.P. Morgan purchased the shares of the Company’s common stock from the Company pursuant to the January 2021 Underwriting Agreement at $ 5.20 per share. In addition, the Company granted J.P. Morgan a 30-day option to purchase up to an additional 1,140,000 shares of the Company’s common stock on the same terms and conditions, which J.P. Morgan exercised in full on January 21, 2021. The closing of the offering of 8,740,000 shares of the Company’s common stock occurred on January 25, 2021, with 87 proceeds to the Company of approximately $ 45.2 million, after deduction of underwriting discounts and commissions and other estimated offering expenses. On March 2, 2021, Orchid entered into an underwriting agreement (the “March 2021 Underwriting Agreement”) with J.P. Morgan, relating to the offer and sale of 8,000,000 shares of the Company’s common stock. J.P. Morgan purchased the shares of the Company’s common stock from the Company pursuant to the March 2021 Underwriting Agreement at $ 5.45 per share. In addition, the Company granted J.P. Morgan a 30-day option to purchase up to an additional 1,200,000 shares of the Company’s common stock on the same terms and conditions, which J.P. Morgan exercised in full on March 3, 2021. The closing of the offering of 9,200,000 shares of the Company’s common stock occurred on March 5, 2021, with proceeds to the Company of approximately $ 50.0 million, after deduction of underwriting discounts and commissions and other estimated offering expenses. On June 22, 2021, Orchid entered into an equity distribution agreement (the “June 2021 Equity Distribution Agreement”) with four sales agents pursuant to which the Company could offer and sell, from time to time, up to an aggregate amount of $ 250,000,000 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 49,407,336 shares under the June 2021 Equity Distribution Agreement for aggregate gross proceeds of approximately $ 250.0 million, and net proceeds of approximately $ 246.0 million, after commissions and fees, prior to its termination in October 2021. On October 29, 2021, Orchid entered into an equity distribution agreement (the “October 2021 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 $ 250,000,000 of shares of the Company’s common stock in transactions that are deemed to be “at the market” offerings and privately negotiated transactions. Through December 31, 2021, the Company issued a total of 15,835,700 shares under the October 2021 Equity Distribution Agreement for aggregate gross proceeds of approximately $ 78.3 million, and net proceeds of approximately $ 77.0 million, after commissions and fees. Basis of Presentation and Use of Estimates The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). 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 December 31, 2021. 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. 88 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) December 31, 2021 December 31, 2020 Cash and cash equivalents $ 385,143 $ 220,143 Restricted cash 65,299 79,363 Total cash, cash equivalents and restricted cash $ 450,442 $ 299,506 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 and U.S. Treasury Notes The Company invests primarily in mortgage pass-through (“PT”) residential mortgage backed (“RMBS”) and collateralized mortgage obligations (“CMOs”) certificates issued by Freddie Mac, Fannie Mae or Ginnie Mae, 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 also invests in U.S. Treasury Notes, primarily to satisfy collateral requirements of derivative counterparties. The Company has elected to account for its investment in RMBS and U.S. Treasury Notes under the fair value option. Electing the fair value option requires the Company to record changes in fair value in the 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 securities transactions on the trade date. Security purchases that have not settled as of the balance sheet date are included in the portfolio balance with an offsetting liability recorded, whereas securities sold that have not settled as of the balance sheet date are removed from the portfolio 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. Estimated fair values for U.S. Treasury Notes are based on quoted prices for identical assets in active markets. Income on PT RMBS securities and U.S. Treasury Notes is based on the stated interest rate of the security. Premiums or discounts present at the date of purchase are not amortized. Premium lost and discount accretion resulting from monthly principal repayments are reflected in unrealized gains (losses) on RMBS in the 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. 89 Derivative Financial 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 TBA securities transactions, but the Company may enter into other derivative and other hedging 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 and other hedging instruments are carried at fair value, and changes in fair value are recorded in earnings for each period. The Company’s derivative financial instruments are not designated as hedge accounting relationships, but rather are used as economic hedges of its portfolio assets and liabilities. Gains and losses on derivatives, except those that result in cash receipts or payments, are included in operating activities on the statement of cash flows. Cash payments and cash receipts from settlements of derivatives, including current period net cash settlements on interest rate swaps, is classified as an investing activity on the statements of cash flows. Holding derivatives creates exposure to credit risk related to the potential for failure on the part of counterparties and exchanges to honor their commitments. In the event of default by a counterparty, the Company may have difficulty recovering its collateral and may not receive payments provided for under the terms of the agreement. The Company’s derivative agreements require it to post or receive collateral to mitigate such risk. In addition, the Company uses only registered central clearing exchanges and well-established commercial banks as counterparties, monitors positions with individual counterparties and adjusts posted collateral as required. Financial Instruments The fair value of financial instruments for which it is practicable to estimate that value is disclosed, either in the body of the financial statements or in the accompanying notes. RMBS, Eurodollar, Fed Funds and T-Note futures contracts, interest rate swaps, interest rate swaptions and TBA securities are accounted for at fair value in the balance sheets. The methods and assumptions used to estimate fair value for these instruments are presented in Note 12 of the financial statements. The estimated fair value of cash and cash equivalents, restricted cash, accrued interest receivable, receivable for securities sold, other assets, due to affiliates, repurchase agreements, payable for unsettled securities purchased, accrued interest payable and other liabilities generally approximates their carrying values as of December 31, 2021 and December 31, 2020 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. 90 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. Stock-Based Compensation The Company may grant equity-based compensation to non-employee members of its board of directors and to the executive officers and employees of the Manager. Stock-based awards issued include Performance Units, Deferred Stock Units and immediately vested common stock awards. Compensation expense is measured and recognized for all stock-based payment awards made to employees and non-employee directors based on the fair value of our common stock on the date of grant. Compensation expense is recognized over each award’s respective service period using the graded vesting attribution method. We do not estimate forfeiture rates; rather, we adjust for forfeitures in the periods in which they occur. Income Taxes Orchid elected and is organized and operated so as to qualify to be taxed as a REIT under the Code. REITs are generally not subject to federal income tax on their REIT taxable income provided that they distribute to their stockholders all of their REIT taxable income on an annual basis. A REIT must distribute at least 90% of its REIT taxable income, determined without regard to the deductions for dividends paid and excluding net capital gain, and meet other requirements 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 based on the facts, circumstances and information available at the end of each period. All of Orchid’s tax positions are categorized as highly certain. There is no accrual for any tax, interest or penalties related to Orchid’s tax position assessment. The measurement of uncertain tax positions is adjusted when new information is available, or when an event occurs that requires a change. Recent Accounting Pronouncements In 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 financial statements. In January 2021, the FASB issued ASU 2021-01 “Reference Rate Reform (Topic 848). ASU 2021-01 expands the scope of ASC 848 to include all affected derivatives and give market participants the ability to apply certain aspects of the contract modification and 91 hedge accounting expedients to derivative contracts affected by the discounting transition. In addition, ASU 2021-01 adds implementation guidance to permit a company to apply certain optional expedients to modifications of interest rate indexes used for margining, discounting or contract price alignment of certain derivatives as a result of reference rate reform initiatives and extends optional expedients to account for a derivative contract modified as a continuation of the existing contract and to continue hedge accounting when certain critical terms of a hedging relationship change to modifications made as part of the discounting transition. The guidance in ASU 2021-01 is effective immediately and available generally 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 financial statements. NOTE 2. MORTGAGE-BACKED SECURITIES AND U.S. TREASURY NOTES The following table presents the Company’s RMBS portfolio as of December 31, 2021 and December 31, 2020: (in thousands) December 31, 2021 December 31, 2020 Pass-Through RMBS Certificates: Fixed-rate Mortgages $ 6,298,189 $ 3,560,746 Fixed-rate CMOs - 137,453 Total Pass-Through Certificates 6,298,189 3,698,199 Structured RMBS Certificates: Interest-Only Securities 210,382 28,696 Inverse Interest-Only Securities 2,524 - Total Structured RMBS Certificates 212,906 28,696 Total $ 6,511,095 $ 3,726,895 As of December 31, 2021, the Company held U.S. Treasury Notes with a fair value of approximately $37.2 million, primarily to satisfy collateral requirements of one of its derivative counterparties. The Company did not hold any U.S. Treasury Notes as of December 31, 2020. The following table is a summary of our net gain (loss) from the sale of mortgage-backed securities for the years ended December 31, 2021, 2020 and 2019. (in thousands) 2021 2020 2019 Total Total Total Carrying value of RMBS sold $ 2,857,250 $ 4,225,522 $ 3,332,083 Proceeds from sales of RMBS 2,851,708 4,200,536 3,321,206 Net (loss) gain on sales of RMBS $ ( 5,542 ) $ ( 24,986 ) $ ( 10,877 ) Gross gain on sales of RMBS $ 7,930 $ 8,678 $ 2,177 Gross loss on sales of RMBS ( 13,472 ) ( 33,664 ) ( 13,054 ) Net gain (loss) on sales of RMBS $ ( 5,542 ) $ ( 24,986 ) $ ( 10,877 ) NOTE 3. 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 December 31, 2021, the Company had met all margin call requirements. 92 As of December 31, 2021 and 2020, 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 December 31, 2021 Fair market value of securities pledged, including accrued interest receivable $ - $ 4,624,396 $ 1,848,080 $ 52,699 $ 6,525,175 Repurchase agreement liabilities associated with these securities $ - $ 4,403,182 $ 1,789,327 $ 51,597 $ 6,244,106 Net weighted average borrowing rate - 0.15 % 0.13 % 0.15 % 0.15 % December 31, 2020 Fair market value of securities pledged, including accrued interest receivable $ - $ 2,112,969 $ 1,560,798 $ 55,776 $ 3,729,543 Repurchase agreement liabilities associated with these securities $ - $ 2,047,897 $ 1,494,500 $ 53,189 $ 3,595,586 Net weighted average borrowing rate - 0.23 % 0.22 % 0.30 % 0.23 % In addition, cash pledged to counterparties as collateral for repurchase agreements was approximately $ 57.3 million and $ 58.8 million as of December 31, 2021 and 2020, 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 December 31, 2021, 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 $ 338.3 million. The Company did not have an amount at risk with any individual counterparty that was greater than 10% of the Company’s equity at December 31, 2021 and 2020 . 93 NOTE 4. DERIVATIVE AND OTHER HEDGING INSTRUMENTS The table below summarizes fair value information about our derivative and other hedging instruments assets and liabilities as of December 31, 2021 and 2020. (in thousands) Derivative and Other Hedging Instruments Balance Sheet Location December 31, 2021 December 31, 2020 Assets Interest rate swaps Derivative assets, at fair value $ 29,293 $ 7 Payer swaptions (long positions) Derivative assets, at fair value 21,493 17,433 TBA securities Derivative assets, at fair value - 3,559 Total derivative assets, at fair value $ 50,786 $ 20,999 Liabilities Interest rate swaps Derivative liabilities, at fair value $ 2,862 $ 24,711 Payer swaptions (short positions) Derivative liabilities, at fair value 4,423 7,730 TBA securities Derivative liabilities, at fair value 304 786 Total derivative liabilities, at fair value $ 7,589 $ 33,227 Margin Balances Posted to (from) Counterparties Futures contracts Restricted cash $ 8,035 $ 489 TBA securities Restricted cash - 284 TBA securities Other liabilities ( 856 ) ( 2,520 ) Interest rate swaption contracts Other liabilities ( 6,350 ) ( 3,563 ) Interest rate swap contracts Restricted cash - 19,761 Total margin balances on derivative contracts $ 829 $ 14,451 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 December 31, 2021 and 2020. ($ in thousands) December 31, 2021 Average Weighted Weighted Contract Average Average Notional Entry Effective Open Expiration Year Amount Rate Rate Equity (1) U.S. Treasury Note Futures Contracts (Short Positions) (2) March 2022 5-year T-Note futures (Mar 2022 - Mar 2027 Hedge Period) $ 369,000 1.56 % 1.62 % $ 1,013 March 2022 10-year Ultra futures (Mar 2022 - Mar 2032 Hedge Period) $ 220,000 1.22 % 1.09 % $ ( 3,861 ) 94 ($ in thousands) December 31, 2020 Average Weighted Weighted Contract Average Average Notional Entry Effective Open Expiration Year Amount Rate Rate Equity (1) Eurodollar Futures Contracts (Short Positions) 2021 $ 50,000 1.03 % 0.18 % $ ( 424 ) U.S. Treasury Note Futures Contracts (Short Position) (2) March 2021 5 year T-Note futures (Mar 2021 - Mar 2026 Hedge Period) $ 69,000 0.72 % 0.67 % $ ( 186 ) (1) Open equity represents the cumulative gains (losses) recorded on open futures positions from inception. (2) 5-Year T-Note futures contracts were valued at a price of $ 120.98 at December 31, 2021 and $ 126.16 at December 31, 2020. The contract values of the short positions were $ 446.4 million and $ 87.1 million at December 31, 2021 and December 31, 2020, respectively. 10-Year Ultra futures contracts were valued at price of $ 146.44 at December 31, 2021. The contract value of the short position was $ 322.2 million at December 31, 2021. Under our interest rate swap agreements, we typically pay a fixed rate and receive a floating rate based on 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 December 31, 2021 and 2020. ($ in thousands) Average Net Fixed Average Estimated Average Notional Pay Receive Fair Maturity Amount Rate Rate Value (Years) December 31, 2021 Expiration > 3 to ≤ 5 years $ 955,000 0.64 % 0.16 % $ 21,788 4.0 Expiration > 5 years $ 400,000 1.16 % 0.21 % $ 4,643 7.3 $ 1,355,000 0.79 % 0.18 % $ 26,431 5.0 December 31, 2020 Expiration > 1 to ≤ 3 years $ 620,000 1.29 % 0.22 % $ ( 23,760 ) 3.6 Expiration > 3 to ≤ 5 years 200,000 0.67 % 0.23 % ( 944 ) 6.4 $ 820,000 1.14 % 0.23 % $ ( 24,704 ) 4.3 The table below presents information related to the Company’s interest rate swaption positions at December 31, 2021 and 2020. ($ in thousands) Option Underlying Swap Weighted Average Weighted Average Average Adjustable Average Fair Months to Notional Fixed Rate Term Expiration Cost Value Expiration Amount Rate (LIBOR) (Years) December 31, 2021 Payer Swaptions (long positions) ≤ 1 year $ 4,000 $ 1,575 3.2 400,000 1.66 % 3 Month 5.0 > 1 year ≤ 2 years 32,690 19,918 18.4 1,258,500 2.46 % 3 Month 14.1 $ 36,690 $ 21,493 14.7 $ 1,658,500 2.27 % 3 Month 11.9 Payer Swaptions (short positions) ≤ 1 year $ ( 16,185 ) $ ( 4,423 ) 5.3 $ ( 1,331,500 ) 2.29 % 3 Month 11.4 December 31, 2020 95 Payer Swaptions (long positions) ≤ 1 year $ 3,450 $ 5 2.5 500,000 0.95 % 3 Month 4.0 > 1 year ≤ 2 years 13,410 17,428 17.4 675,000 1.49 % 3 Month 12.8 $ 16,860 $ 17,433 11.0 $ 1,175,000 1.26 % 3 Month 9.0 Payer Swaptions (short positions) ≤ 1 year $ ( 4,660 ) $ ( 7,730 ) 5.4 $ ( 507,700 ) 1.49 % 3 Month 12.8 The following table summarizes our contracts to purchase and sell TBA securities as of December 31, 2021 and 2020. ($ in thousands) Notional Net Amount Cost Market Carrying Long (Short) (1) Basis (2) Value (3) Value (4) December 31, 2021 30-Year TBA securities: 3.0% $ ( 575,000 ) $ ( 595,630 ) $ ( 595,934 ) $ ( 304 ) Total $ ( 575,000 ) $ ( 595,630 ) $ ( 595,934 ) $ ( 304 ) December 31, 2020 30-Year TBA securities: 2.0% $ 465,000 $ 479,531 $ 483,090 $ 3,559 3.0% ( 328,000 ) ( 342,896 ) ( 343,682 ) ( 786 ) Total $ 137,000 $ 136,635 $ 139,408 $ 2,773 (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 securit ies (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 and other hedging instruments on the statements of operations for the years ended December 31, 2021, 2020 and 2019. (in thousands) 2021 2020 2019 Eurodollar futures contracts (short positions) $ ( 10 ) $ ( 8,337 ) $ ( 13,860 ) U.S. Treasury Note futures contracts (short position) ( 846 ) ( 4,707 ) ( 5,175 ) Fed Funds futures contracts (short positions) - - 177 Interest rate swaps 23,613 ( 66,212 ) ( 26,582 ) Payer swaptions (long positions) ( 2,580 ) 98 ( 1,379 ) Payer swaptions (short positions) 9,062 ( 3,070 ) - Interest rate floors 2,765 - - TBA securities (short positions) 3,432 ( 6,719 ) ( 6,264 ) TBA securities (long positions) ( 8,559 ) 9,950 1,907 U.S. Treasury securities (short positions) - ( 95 ) - Total $ 26,877 $ ( 79,092 ) $ ( 51,176 ) Credit Risk-Related Contingent Features The use of derivatives and other hedging instruments creates exposure to credit risk relating to potential losses that could be recognized in the event that the counterparties to these instruments fail to perform their obligations under the contracts. We attempt to minimize this risk by limiting our counterparties for instruments which are not centrally cleared on a registered exchange to major financial 96 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 December 31, 2021 and 2020. (in thousands) December 31, 2021 December 31, 2020 Repurchase Derivative Repurchase Derivative Assets Pledged to Counterparties Agreements Agreements Total Agreements Agreements Total PT RMBS - fair value $ 6,294,102 $ - $ 6,294,102 $ 3,692,811 $ - $ 3,692,811 Structured RMBS - fair value 212,270 - 212,270 27,095 - 27,095 U.S. Treasury Notes - 29,740 29,740 - - - Accrued interest on pledged securities 18,804 13 18,817 9,636 - 9,636 Restricted cash 57,264 8,035 65,299 58,829 20,534 79,363 Total $ 6,582,440 $ 37,788 $ 6,620,228 $ 3,788,371 $ 20,534 $ 3,808,905 Assets Pledged from Counterparties The table below summarizes assets pledged to us from counterparties under our repurchase agreements and derivative agreements as of December 31, 2021 and 2020. (in thousands) December 31, 2021 December 31, 2020 Repurchase Derivative Repurchase Derivative Assets Pledged to Orchid Agreements Agreements Total Agreements Agreements Total Cash $ 4,339 $ 7,206 $ 11,545 $ 120 $ 6,083 $ 6,203 U.S. Treasury securities - fair value - - - 253 - 253 Total $ 4,339 $ 7,206 $ 11,545 $ 373 $ 6,083 $ 6,456 PT 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. 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 balance sheets. NOTE 6. OFFSETTING ASSETS AND LIABILITIES The Company’s derivative agreements and repurchase agreements are subject to underlying agreements with master netting or 97 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 December 31, 2021 and 2020. (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 December 31, 2021 Interest rate swaps $ 29,293 $ - $ 29,293 $ - $ - $ 29,293 Interest rate swaptions 21,493 - 21,493 - ( 6,350 ) 15,143 $ 50,786 $ - $ 50,786 $ - $ ( 6,350 ) $ 44,436 December 31, 2020 Interest rate swaps $ 7 $ - $ 7 $ - $ - $ 7 Interest rate swaptions 17,433 - 17,433 - ( 3,563 ) 13,870 TBA securities 3,559 - 3,559 - ( 2,520 ) 1,039 $ 20,999 $ - $ 20,999 $ - $ ( 6,083 ) $ 14,916 (in thousands) Offsetting of Liabilities Gross Amount Not Net Amount Offset in the Balance Sheet of Liabilities Financial Gross Amount Gross Amount Presented Instruments of Recognized Offset in the in the Posted as Cash Posted Net Liabilities Balance Sheet Balance Sheet Collateral Collateral Amount December 31, 2021 Repurchase Agreements $ 6,244,106 $ - $ 6,244,106 $ ( 6,186,842 ) $ ( 57,264 ) $ - Interest rate swaps 2,862 - 2,862 ( 2,862 ) - - Interest rate swaptions 4,423 - 4,423 - - 4,423 TBA securities 304 - 304 - - 304 $ 6,251,695 $ - $ 6,251,695 $ ( 6,189,704 ) $ ( 57,264 ) $ 4,727 December 31, 2020 Repurchase Agreements $ 3,595,586 $ - $ 3,595,586 $ ( 3,536,757 ) $ ( 58,829 ) $ - Interest rate swaps 24,711 - 24,711 - ( 19,761 ) 4,950 Interest rate swaptions 7,730 - 7,730 - - 7,730 TBA securities 786 - 786 - ( 284 ) 502 $ 3,628,813 $ - $ 3,628,813 $ ( 3,536,757 ) $ ( 78,874 ) $ 13,182 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 and other hedging instruments. NOTE 7. CAPITAL STOCK Common Stock Issuances 98 During 2021 and 2020, 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) 2021 At the Market Offering Program (3) First Quarter $ 5.10 308,048 $ 1,572 Follow-on Offerings First Quarter 5.31 17,940,000 95,336 At the Market Offering Program (3) Second Quarter 5.40 23,087,089 124,746 At the Market Offering Program (3) Third Quarter 4.94 35,818,338 177,007 At the Market Offering Program (3) Fourth Quarter 4.87 23,674,698 115,398 100,828,173 $ 514,059 2020 At the Market Offering Program (3) First Quarter $ 6.23 3,170,727 $ 19,447 At the Market Offering Program (3) Second Quarter - - - At the Market Offering Program (3) Third Quarter 5.15 3,073,326 15,566 At the Market Offering Program (3) Fourth Quarter 5.41 6,775,187 36,037 13,019,240 $ 71,050 (1) Weighted average price received per share is after deducting the underwriters’ discount, if applicable, and other offering costs. (2) Net proceeds are net of the underwriters’ discount, if applicable, and other offering costs. (3) As of December 31, 2021, the Company had entered into ten equity distribution agreements, nine 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 2,0000,000 share authorization, the increased authorization brought the total authorization to 5,306,579 shares, representing 10% of the then outstanding share count. On December 9, 2021, the Board of Directors approved an increase in the number of shares of the Company’s common stock available in the stock repurchase program for up to an additional 16,861,994 shares, bringing the remaining authorization under the stock repurchase program to 17,699,305 shares, representing approximately 10% of the Company’s then outstanding shares of common stock. As part of the 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 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 December 31, 2021, 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. The Company did not repurchase any of its common stock during the year ended December 31, 2021. During the year ended December 31, 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 year ended December 31, 2019, the Company 99 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 stock repurchase program as of December 31, 2021 is 17,699,305 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 0.790 53,570 2021 0.780 97,601 2022 - YTD (1) 0.110 19,502 Totals $ 12.545 $ 459,066 (1) On January 13, 2022, the Company declared a dividend of $0.055 per share to be paid on February 24, 2022. On February 16, 2022, the Company declared a dividend of $0.055 per share to be paid on March 29, 2022. The dollar amount of the dividend declared in February 2022 is estimated based on the number of shares outstanding at February 25, 2022. The effect of these dividends are included in the table above, but are not reflected in the Company’s financial statements as of December 31, 2021. NOTE 8. STOCK INCENTIVE PLAN In 2021, the Company’s Board of Directors adopted, and the stockholders approved, the Orchid Island Capital, Inc. 2021 Equity Incentive Plan (the “2021 Incentive Plan”) to replace the Orchid Island Capital, Inc. 2012 Equity Incentive Plan (the “2012 Incentive Plan” and together with the 2021 Incentive Plan, the “Incentive Plans”). The 2021 Incentive Plan provides for the award of stock options, stock appreciation rights, stock award, performance units, other equity-based awards (and dividend equivalents with respect to awards of performance units and other equity-based awards) and incentive awards. The 2021 Incentive Plan is administered by the Compensation Committee of the Company’s 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 2021 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 7,366,623 shares of the Company’s common stock that may be issued under the 2021 Incentive Plan. The 2021 Incentive Plan replaces the 2012 Incentive Plan, and no further grants will be made under the 2012 Incentive Plan. However, any outstanding awards under the 2012 Incentive Plan will continue in accordance with the terms of the 2012 Incentive Plan and any award agreement executed in connection with such outstanding awards. 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, 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, 100 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, included in incentive compensation on the statements of operations, 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 years ended December 31, 2021 and 2020. ($ in thousands, except per share data) 2021 2020 Weighted Weighted Average Average Grant Date Grant Date Shares Fair Value Shares Fair Value Unvested, beginning of period 4,554 $ 7.45 19,021 $ 7.78 Granted 137,897 5.88 - - Forfeited ( 4,674 ) 5.88 ( 1,607 ) 7.45 Vested and issued ( 4,554 ) 7.45 ( 12,860 ) 7.93 Unvested, end of period 133,223 $ 5.88 4,554 $ 7.45 Compensation expense during period $ 321 $ 38 Unrecognized compensation expense, end of period $ 467 $ 4 Intrinsic value, end of period $ 599 $ 24 Weighted-average remaining vesting term (in years) 1.4 0.8 The number of shares of common stock issuable upon the vesting of the remaining outstanding Performance Units was reduced in 2020 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%. Stock Awards The Company has issued, and may in the future issue additional, immediately vested common stock under the Incentive Plans to certain executive officers and employees of its Manager. Compensation expense for the stock awards is based on the fair value of the Company’s common stock on the grant date and is included in incentive compensation in the statements of operations. The following table presents information related to fully vested common stock issued during the years ended December 31, 2021 and 2020. All of the fully vested shares of common stock issued during the year ended December 31, 2021, and the related compensation expense, were granted with respect to service performed during the previous fiscal year. ($ in thousands, except per share data) 2021 2020 Fully vested shares granted 137,897 - Weighted average grant date price per share $ 5.88 $ - Compensation expense related to fully vested shares of common stock awards (1) $ 811 $ - (1) The awards issued during the year ended December 31, 2021 were granted with respect to service performed in 2020. Approximately $600,000 of compensation expense related to the 2021 awards was accrued and recognized in 2020. Deferred Stock Units 101 Non-employee directors receive a portion of their compensation in the form of deferred stock unit awards (“DSUs”) pursuant to the Incentive Plans. Each DSU represents a right to receive one share of the Company’s common stock. The DSUs are immediately vested and are settled at a future date based on the election of the individual participant. Compensation expense for the DSUs is included in directors’ fees and liability insurance in the statements of operations. The DSUs contain dividend equivalent rights, which entitle the participant to receive distributions declared by the Company on common stock. These distributions will be made in the form of cash or additional DSUs at the participant’s election. The DSUs do not include the right to vote the underlying shares of common stock. The following table presents information related to the DSUs outstanding during the years ended December 31, 2021 and 2020. ($ in thousands, except per share data) 2021 2020 Weighted Weighted Average Average Grant Date Grant Date Shares Fair Value Shares Fair Value Outstanding, beginning of period 90,946 $ 5.44 43,570 $ 6.56 Granted and vested 52,030 5.29 47,376 4.41 Outstanding, end of period 142,976 $ 5.38 90,946 $ 5.44 Compensation expense during period $ 240 $ 180 Intrinsic value, end of period $ 643 $ 473 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 December 31, 2021. NOTE 10. INCOME TAXES The Company will generally not be subject to U.S. federal income tax on its REIT taxable income to the extent that it distributes its REIT taxable income to its stockholders and satisfies the ongoing REIT requirements, including meeting certain asset, income and stock ownership tests. A REIT must generally distribute at least 90% of its REIT taxable income, determined without regard to the deductions for dividends paid and excluding net capital gain, to its stockholders, annually to maintain REIT status. An amount equal to the sum of 85% of its REIT ordinary income and 95% of its REIT capital gain net income, plus certain undistributed income from prior taxable years, must be distributed within the taxable year in order to avoid the imposition of an excise tax. The remaining balance may be distributed up to the end of the following taxable year, provided the REIT elects to treat such amount as a prior year distribution and meets certain other requirements. REIT taxable income (loss) is computed in accordance with the Code, which is different than the Company’s financial statement net income (loss) computed in accordance with GAAP. 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 hedges for tax purposes. As of December 31, 2021, we had distributed all of our estimated REIT taxable income through fiscal year 2021. Accordingly, no income tax provision was recorded for 2021, 2020 and 2019. NOTE 11. EARNINGS PER SHARE (EPS) 102 The Company had dividend eligible Performance Units and Deferred Stock Units that were outstanding during the years ended December 31, 2021, 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 years ended December 31, 2021, 2020 and 2019. (in thousands, except per-share information) 2021 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 $ ( 64,760 ) $ 2,128 $ 24,265 Weighted average shares of common stock: Shares of common stock outstanding at the balance sheet date 176,993 76,073 63,062 Unvested dividend eligible share based compensation outstanding at the balance sheet date - 96 63 Effect of weighting ( 55,849 ) ( 8,958 ) ( 6,797 ) Weighted average shares-basic and diluted 121,144 67,211 56,328 Net (loss) income per common share: Basic and diluted $ ( 0.54 ) $ 0.03 $ 0.43 Anti-dilutive incentive shares not included in calculation. 281 - - 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 and TBA securities are Level 2 valuations, and such valuations are determined by the Company based on independent pricing sources and/or third party broker quotes, when available. Because the price estimates may vary, the Company must make certain judgments and assumptions about the appropriate price to use to calculate the fair values. The Company and the independent pricing sources use various valuation techniques to determine the price of the Company’s securities. These techniques include observing the most recent market for like or identical assets (including security coupon, maturity, yield, and prepayment speeds), spread pricing techniques to determine market credit spreads (option adjusted spread, zero volatility spread, spread to the U.S. Treasury curve or spread to a benchmark such as a TBA), and model driven approaches (the discounted cash flow method, Black Scholes and 103 SABR models which rely upon observable market rates such as the term structure of interest rates and volatility). The appropriate spread pricing method used is based on market convention. The pricing source determines the spread of recently observed trade activity or observable markets for assets similar to those being priced. The spread is then adjusted based on variances in certain characteristics between the market observation and the asset being priced. Those characteristics include: type of asset, the expected life of the asset, the stability and predictability of the expected future cash flows of the asset, whether the coupon of the asset is fixed or adjustable, the guarantor of the security if applicable, the coupon, the maturity, the issuer, size of the underlying loans, year in which the underlying loans were originated, loan to value ratio, state in which the underlying loans reside, credit score of the underlying borrowers and other variables if appropriate. The fair value of the security is determined by using the adjusted spread. The Company’s U.S. Treasury Notes are based on quoted prices for identical instruments in active markets and are classified as Level 1 assets. The Company’s futures contracts are Level 1 valuations, as they are exchange-traded instruments and quoted market prices are readily available. Futures contracts are settled daily. The Company’s interest rate swaps and interest rate swaptions are Level 2 valuations. The fair value of interest rate swaps is determined using a discounted cash flow approach using forward market interest rates and discount rates, which are observable inputs. The fair value of interest rate swaptions is determined using an option pricing model. RMBS (based on the fair value option), derivatives and TBA securities were recorded at fair value on a recurring basis during the years ended December 31, 2021, 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 December 31, 2021 and 2020. Derivative contracts are reported as a net position by contract type, and not based on master netting arrangements. (in thousands) Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs (Level 1) (Level 2) (Level 3) December 31, 2021 Mortgage-backed securities $ - $ 6,511,095 $ - U.S. Treasury Notes 37,175 - - Interest rate swaps - 26,431 - Interest rate swaptions - 17,070 - TBA securities - ( 304 ) - December 31, 2020 Mortgage-backed securities $ - $ 3,726,895 $ - Interest rate swaps - ( 24,704 ) - Interest rate swaptions - 9,703 - TBA securities - 2,773 - During the years ended December 31, 2021 and 2020, there were no transfers of financial assets or liabilities between levels 1, 2 or 3. NOTE 13. RELATED PARTY TRANSACTIONS 104 Management Agreement The Company is externally managed and advised by the “Manager” pursuant to the terms of a management agreement. The management agreement has been renewed through February 20, 2023 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 allocated overhead incurred were approximately $ 9.8 million, $ 6.8 million and $ 6.9 million for the years ended December 31, 2021, 2020 and 2019, respectively. Other Relationships with Bimini Robert Cauley, our Chief Executive Officer and Chairman of our Board of Directors, also serves as Chief Executive Officer and Chairman of the Board of Directors of Bimini and owns shares of common stock of Bimini. George H. Haas, our Chief Financial Officer, Chief Investment Officer, Secretary and a member of our Board of Directors, also serves as the Chief Financial Officer, Chief Investment Officer and Treasurer of Bimini and owns shares of common stock of Bimini. In addition, as of December 31, 2021, Bimini owned 2,595,357 shares, or 1.5 %, of the Company’s common stock. 105 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE We had no disagreements with our Independent Registered Public Accounting Firm on any matter of accounting principles or practices or financial statement disclosure.