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Capital Allocation and Return on Invested Capital

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Portfolio

The following tables summarize certain characteristics of Orchid's PT RMBS and structured RMBS as of June 30, 2016 and December 31, 2015:

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Financing, Leverage and Liquidity

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Hedging

In connection with its interest rate risk management strategy, the Company economically hedges a portion of the cost of its repurchase agreement funding against a rise in interest rates by entering into derivative financial instrument contracts.  The Company has not elected hedging treatment under U.S. generally accepted accounting principles ("GAAP") in order to align the accounting treatment of its derivative instruments with the treatment of its portfolio assets under the fair value option election. As such, all gains or losses on these instruments are reflected in earnings for all periods presented.  At June 30, 2016, such instruments were comprised of Eurodollar and Treasury note ("T-Note") futures contracts and interest rate swap agreements.

The table below presents information related to the Company's Eurodollar and T-Note futures contracts at June 30, 2016.

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The Company's book value per share at June 30, 2016 was $10.86. The Company computes book value per share by dividing total stockholders' equity by the total number of shares outstanding of the Company's common stock. At June 30, 2016, the Company's stockholders' equity was $243.7 million with 22,430,858 shares of common stock outstanding.

On March 2, 2015, Orchid entered into a third equity distribution agreement (the "March 2015 Equity Distribution Agreement") with two sales agents pursuant to which the Company may offer and sell, from time to time, up to an aggregate amount of $100,000,000 of shares of the Company's common stock in transactions that are deemed to be "at the market" offerings and privately negotiated transactions.  The March 2015 Equity Distribution Agreement replaced the September 2014 Equity Distribution Agreement. Through June 30, 2016, the Company issued a total of 6,867,855 shares under the March 2015 Equity Distribution Agreement for aggregate proceeds of approximately $89.7 million, net of commissions and fees. After June 30, 2016, the Company issued an additional 350,911 shares under the March 2015 Equity Distribution Agreement for aggregate proceeds of approximately $3.5 million, net of commissions and fees.

Commenting on the second quarter, Robert E. Cauley, Chairman and Chief Executive Officer, said, "The second quarter of 2016 was in many respects a continuation of what we saw in the first quarter, albeit with a few twists and turns as the market reacted to the events that unfolded.  At the conclusion of the Federal Reserve Open Market Committee meeting in late April, the committee released a statement that was perceived to be dovish by the market.  The committee was seen to be backing away from earlier calls for two to three rate increases in 2016 and more concerned with market turmoil and events abroad.  However, the market reaction was apparently stronger than the committee expected. The committee once again reversed their tone in May, and several governors and committee members returned to their data dependent focus in their public comments – appearing to try to talk the market back into expecting further policy normalization. This seemed to make sense as the incoming economic data improved and events overseas moderated.  Just as the market was starting to price in a meaningful probability of a rate hike in June, the May non-farm payroll data was released in early June.  The lone stalwart of the expansion, job growth, appeared to slow dramatically. The market was taken by surprise by the magnitude of the slowdown in job creation. Once again the market reversed course, and the futures market priced out most policy adjustments for the balance of the year.  Later in the month the Federal Reserve conducted their scheduled meeting, and at the press conference Chair Yellen stressed the committee would be even more patient in normalizing rates and needed to see more data on the employment front to determine if the June report was the start of a new trend or an aberration.  The chair also cited the pending referendum in the United Kingdom ("UK") the following week regarding the potential exit of the UK from the European Union ("EU"), referred to as "Brexit," as another reason for patience. The following week the market was stunned when voters in the UK voted in favor of the referendum and opted to leave the EU, albeit the process could take up to two years. The initial market reaction was violent, and the futures market priced in a small probability of an easing of monetary policy by the Fed in the months ahead.  The second quarter ended with rates, particularly longer term rates, at or near all-time lows. In early July Germany issued 10 year bunds with a negative yield for the first time.

"These events made for a volatile market as expectations for the path of the economy, Federal Reserve monetary policy and the status of the EU changed violently and often over the course of the second quarter.  This volatility has abated so far in the third quarter.  The impact of these events in the second quarter on the mortgage market was to push spreads wider and heighten prepayment fears. As we moved into July two things changed – although only slightly. First the economic data, starting with the June non-farm payroll report on July 8th, strengthened, and the May report appeared to be an aberration.  Subsequent data has been strong and the economy appears to be well on its way to recovering from a slowdown in the first quarter.  After initially being reported as less than 1%, GDP growth in the first quarter appears to have been slightly over one percent and higher than 2% in the second quarter.  The second development was the fall-out from the "Brexit" appears to have been minimal. Since the event in late June, the European Central Bank has held a meeting and opted to maintain their current monetary policy as they wait to further assess the impact, if any, from the referendum. The Bank of England reached a similar conclusion at their initial meeting after the vote. The markets have reacted accordingly as equities, both here and in Europe, have returned to levels seen before the vote.  Interest rates have moved off the extreme lows seen immediately after the vote, but have yet to reach pre-Brexit levels, as is the case with the British Pound.  Mortgages have tightened, although still trade at slightly wider levels than those seen before the vote.  Importantly for us, primary mortgage rates did not react meaningfully to the sharp rally in rates as originators appear to be unable or unwilling to lower rates available to borrowers as much as the move in benchmark rates would suggest. Given the turn in economic data, the front end of the curve, and funding levels, have stabilized and are in fact higher than before the UK referendum.  This has likely kept originators from lowering primary rates as their margins would be squeezed further if they lowered rates to borrowers.

"The events of the second quarter had a negative impact on our book value per share, although far less than the first quarter.  Our portfolio remains biased towards higher coupon, fixed rate securities with various forms of prepayment protection, interest only and inverse interest only securities, and funding hedges positioned primarily on the belly of the curve and, to a lesser extent, the ten year part of the curve. Our greatest source of interest rate sensitivity, or duration, and convexity of the portfolio lies in the pay-up premiums on the various forms of prepayment protection we have in our pass-through securities. While our pass-through securities appreciated in price during the second quarter, the underlying coupons, 30 year 4.5% and 4.0% and 20 year 4.0% for the most part, did so only marginally.  Most of the appreciation in the pass-through portfolio was derived from the increase in pay-ups, which reached levels last seen during the first quarter of 2013.  We believe that such pay-ups represent our greatest exposure to a meaningful increase in rates should it occur.  Of course, our interest only and to a lesser extent inverse interest-only securities performed poorly during the quarter.  Our hedges, particularly the swap position and 10 year short, were hurt as long term rates globally rallied to historic low levels – all driven by the reach for yield prevalent in the market as much of the sovereign debt market trades at negative yields.  In sum, the impact of the market for the second quarter, with another leg lower in rates just like the first quarter, was more significant on our hedges than the pass-throughs and interest only securities. Our book value declined by approximately 1.4% during the second quarter.

"Prepayment speeds increased over the course of the last several months as the market has rallied.  However, our portfolio's reaction has been muted so far. For the second quarter prepayment speeds on our pass-through portfolio increased from 5.5 CPR in the first quarter to 8.4 CPR in the second.  For July the figure was 8.8 CPR.  This compares with 13.8 CPR in the second quarter of 2015, the last time the rates market rallied strongly. Our structured securities prepaid at 15.9 CPR in the second quarter and 17.4 CPR in July versus 17.9 CPR for the second quarter of 2015. We expect prepayment speeds to remain somewhat elevated over the next two months given interest rate levels and the time of year, and then moderate as we move into the fall.  The combination of flat primary mortgage rates, as I mentioned above, coupled with far less of the mortgage market "in the money" in terms of rates versus the 2015 experience, should keep speeds muted as we move into the fall and winter. In response, we have continued to add to the quality of the prepayment protection of the securities we owned and have recently added some interest only securities that were available at attractive prices following the rally.  The portfolio continues to migrate towards a higher concentration of pass-throughs as the global reach for yield seems likely to suppress long term rates and alleviate extension fears or jeopardize prepayment protection premiums meaningfully. We will continue to be ever vigilant, however, as the risk such extension poses is so material. Our interest only securities and 10 year treasury futures short represent our primary source of protection from such an event."

Earnings Conference Call Details

Orchid Island Capital, Inc. is a specialty finance company that invests on a leveraged basis in Agency RMBS. Our investment strategy focuses on, and our portfolio consists of, two categories of Agency RMBS: (i) traditional pass-through Agency RMBS and (ii) structured Agency RMBS, such as CMOs, IOs, IIOs and POs, among other types of structured Agency RMBS. Orchid is managed by Bimini Advisors, LLC, a registered investment adviser with the Securities and Exchange Commission.

Forward Looking Statements

Statements herein relating to matters that are not historical facts, including, but not limited to statements regarding  interest rates, liquidity, pledging of our structured RMBS, funding levels and spreads, inflation, prepayment speeds, portfolio positioning, market expectations and general economic conditions, are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. The reader is cautioned that such forward-looking statements are based on information available at the time and on management's good faith belief with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in such forward-looking statements. Important factors that could cause such differences are described in Orchid Island Capital, Inc.'s filings with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Orchid Island Capital, Inc. assumes no obligation to update forward-looking statements to reflect subsequent results, changes in assumptions or changes in other factors affecting forward-looking statements.

CONTACT:

Orchid Island Capital, Inc.

Robert E. Cauley, 772-231-1400

Chairman and Chief Executive Officer

www.orchidislandcapital.com

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Summarized Financial Statements

The following is a summarized presentation of the unaudited balance sheets as of June 30, 2016, and December 31, 2015, and the unaudited quarterly results of operations for the six and three months ended June 30, 2016 and 2015.  Amounts presented are subject to change.

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