Borrowings

6 Months Ended

Jun. 30, 2016

Disclosure of Repurchase Agreements [Abstract]

NOTE 3. REPURCHASE AGREEMENTS AND OTHER BORROWINGS

The Company pledges certain of its RMBS as collateral under repurchase agreements with financial institutions and a secured borrowing facility with the FHLBC. Interest rates on the borrowings are generally based on the London Interbank Offered Rate (“LIBOR “) plus or minus a margin and amounts available to be borrowed are dependent upon the fair value of the securities pledged as collateral, which fluctuates with changes in interest rates, type of security and liquidity conditions within the banking, mortgage finance and real estate industries. 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 June 30, 2016, the Company had met all margin call requirements.

Repurchase Agreements

As of June 30, 2016, the Company had outstanding repurchase obligations of approximately $2,060.8 million with a net weighted average borrowing rate of 0.69%. These agreements were collateralized by RMBS with a fair value, including accrued interest and securities pledged related to securities sold but not yet settled, of approximately $2,185.8 million, and cash pledged to the counterparties of approximately $3.6 million. As of December 31, 2015, the Company had outstanding repurchase obligations of approximately $1,798.8 million with a net weighted average borrowing rate of 0.64%. These agreements were collateralized by RMBS with a fair value, including accrued interest, of approximately $1,909.3 million, and cash pledged to the counterparties of approximately $4.0 million.

As of June 30, 2016 and 2015, the Company’s repurchase agreements had remaining maturities as summarized below:

($ in thousands)
		OVERNIGHT		BETWEEN 2		BETWEEN 31
		(1 DAY OR		AND		AND
		LESS)		30 DAYS		90 DAYS			TOTAL
June 30, 2016
Fair market value of securities pledged, including
	accrued interest receivable	$	276,136	$	1,506,619	$	403,006	$	2,185,761
Repurchase agreement liabilities associated with
	these securities	$	261,357	$	1,419,188	$	380,282	$	2,060,827
Net weighted average borrowing rate			0.67%		0.70%		0.69%		0.69%
December 31, 2015
Fair market value of securities pledged, including
	accrued interest receivable	$	-	$	1,894,491	$	14,801	$	1,909,292
Repurchase agreement liabilities associated with
	these securities	$	-	$	1,789,338	$	9,475	$	1,798,813
Net weighted average borrowing rate			-		0.64%		1.19%		0.64%

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 June 30, 2016, 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 $127.1 million. The Company did not have an amount at risk with any individual counterparty greater than 10% of the Company’s equity at June 30, 2016 and December 31, 2015

FHLB Advances

In December 2015, our wholly-owned subsidiary, Orchid Island Casualty, LLC, was accepted for membership in the FHLBC. As of December 31, 2015, our subsidiary had approximately $187.5 million of outstanding secured FHLB advances, with a weighted average borrowing rate of 0.42%. These advances were secured by RMBS with a fair value, including accrued interest, of approximately $192.2 million as of June 30, 2016. This agreement also required our subsidiary to purchase and hold stock in the FHLBC in an amount equal to a specified percentage of outstanding advances. As of December 31, 2015, our subsidiary held FHLBC stock with a cost basis of approximately $3.8 million which is included in other assets in our consolidated balance sheets.

On January 12, 2016, the regulator of the FHLB system, the Federal Housing Finance Agency (“FHFA”), released a final rule that amended regulations governing FHLB membership, including an amendment which prevents captive insurance companies from being eligible for FHLB membership. Under the terms of the final rule, our subsidiary is required to terminate its membership, redeem existing FHLBC stock, and repay its existing advances within one year following the effective date of the final rule. In addition, our subsidiary is prohibited from obtaining new advances or renewing existing advances upon their maturity during the one year transition period. The final rule became effective on February 19, 2016. During the six months ended June 30, 2016, all of our subsidiary’s outstanding advances, including accrued interest, were refinanced through repurchase agreements. During the six months ended June 30, 2016, the Company redeemed all of its activity-based FHLBC stock but still holds stock with a carrying value of $2,500, the minimum amount required to retain membership.