Orchid Island Capital Announces Second Quarter 2024 Results

VERO BEACH, Fla.–(BUSINESS WIRE)–Orchid Island Capital, Inc. (NYSE:ORC) (“Orchid” or the “Company”), a real estate investment trust (“REIT”), today announced results of operations for the three month period ended June 30, 2024.

Second Quarter 2024 Results

• Net loss of $5.0 million, or $0.09 per common share, which consists of:
• Net interest expense of $0.7 million, or $0.01 per common share
• Total expenses of $4.4 million, or $0.08 per common share
• Net realized and unrealized gains of $0.1 million, on RMBS and derivative instruments, including net interest income on interest rate swaps
• Second quarter dividends declared and paid of $0.36 per common share
• Book value per common share of $8.58 at June 30, 2024
• Total return of (1.97)%, comprised of $0.36 dividend per common share and $0.54 decrease in book value per common share, divided by beginning book value per common share

Other Financial Highlights

• Orchid maintained a strong liquidity position of $265.3 million in cash and cash equivalents and unpledged securities (net of unsettled purchased securities), or 48% of stockholders’ equity as of June 30, 2024
• Borrowing capacity in excess of June 30, 2024 outstanding repurchase agreement balances of $4,345.7 million, spread across 22 active lenders
• Company to discuss results on Friday, July 26, 2024, at 10:00 AM ET
• Supplemental materials to be discussed on the call can be downloaded from the investor relations section of the Company’s website at https://ir.orchidislandcapital.com

Management Commentary

Commenting on the second quarter results, Robert E. Cauley, Chairman and Chief Executive Officer, said, “The long-awaited pivot on the part of Federal Reserve may finally be at hand. Persistently strong growth of the U.S. economy and above trend inflation appear to have moderated sufficiently that the Fed now sees the risks to the economy as balanced – implying there is equal risk of more growth or a slow-down. Since the Fed sees their current monetary policy as restrictive, it may now be time to reverse some of the tightening that occurred in 2022 and 2023 and ease monetary policy if inflation data continues to moderate. Current market pricing is for between two and three 25 basis point cuts by year end with several more in 2025. Should such conditions persist, the Fed should begin lowering the Fed funds rate this year, perhaps starting in September.

“With the turn in the outlook for monetary policy towards more accommodation equity prices for mortgage REITs have strengthened and we have been able to raise common equity capital via our at-the-market program. We were able to raise approximately $100.7 million during the second quarter of 2024, generally at a slight discount to book value. The proceeds were deployed into Agency RMBS assets at very attractive levels as mortgages, as measured by the spread of the current coupon 30-year fixed rate security, traded at spreads that averaged between 140 and 145 basis points to the five-year U.S. Treasury over the course of the quarter versus approximately 80 basis points over the five-year U.S. Treasury prior to the pandemic. We continue to find investment opportunities available in the market to be very attractive. As a result of this new equity capital, we were able to increase the size of the portfolio by approximately 16.6% in the second quarter of 2024.

“Looking forward, we anticipate investment opportunities to remain attractive with potential total returns that could improve if the Federal Reserve were to begin easing monetary policy, especially so if the banking community became active in the Agency RMBS space again. Absent such a development, total returns available today are still quite attractive and hedged net-interest spreads are ample in relation to the current dividend level.”

Details of Second Quarter 2024 Results of Operations

The Company reported net loss of $5.0 million for the three month period ended June 30, 2024, compared with net income of $10.2 million for the three month period ended June 30, 2023. Interest income on the portfolio in the second quarter was up approximately $4.2 million from the first quarter of 2024. The yield on our average Agency RMBS increased from 5.03% in the first quarter of 2024 to 5.05% for the second quarter of 2024, and our repurchase agreement borrowing costs decreased from 5.54% for the first quarter of 2024 to 5.34% for the second quarter of 2024. Book value decreased by $0.54 per share in the second quarter of 2024. The decrease in book value reflects our net loss of $0.09 per share and the dividend distribution of $0.36 per share. The Company recorded net realized and unrealized losses of $0.1 million on Agency RMBS assets and derivative instruments, including net interest income on interest rate swaps.

Prepayments

For the quarter ended June 30, 2024, Orchid received $98.3 million in scheduled and unscheduled principal repayments and prepayments, which equated to a 3-month constant prepayment rate (“CPR”) of approximately 7.6%. Prepayment rates on the two RMBS sub-portfolios were as follows (in CPR):

Portfolio

The following tables summarize certain characteristics of Orchid’s PT RMBS (as defined below) and structured RMBS as of June 30, 2024 and December 31, 2023:

Financing, Leverage and Liquidity

As of June 30, 2024, the Company had outstanding repurchase obligations of approximately $4,345.7 million with a net weighted average borrowing rate of 5.46%. These agreements were collateralized by RMBS and U.S. Treasury securities with a fair value, including accrued interest, of approximately $4,540.1 million and cash pledged to counterparties of approximately $11.2 million. The Company’s adjusted leverage ratio, defined as the balance of repurchase agreement liabilities divided by stockholders’ equity, at June 30, 2024 was 7.8 to 1. At June 30, 2024, the Company’s liquidity was approximately $265.3 million consisting of cash and cash equivalents and unpledged RMBS (not including unsettled securities purchases). To enhance our liquidity even further, we may pledge more of our structured RMBS as part of a repurchase agreement funding, but retain the cash in lieu of acquiring additional assets. In this way we can, at a modest cost, retain higher levels of cash on hand and decrease the likelihood we will have to sell assets in a distressed market in order to raise cash. Below is a list of our outstanding borrowings under repurchase obligations at June 30, 2024.

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, 2024, such instruments were comprised of U.S. Treasury note (“T-Note”) and Secured Overnight Financing Rate (“SOFR”) futures contracts, dual digital options, interest rate swap agreements, interest rate swaption agreements, interest rate caps, interest rate floors and contracts to sell to-be-announced (“TBA”) securities.

The table below presents information related to the Company’s T-Note and SOFR futures contracts at June 30, 2024.

The table below presents information related to the Company’s interest rate swap positions at June 30, 2024.

The following table presents information related to our dual digital option position as of June 30, 2024.

The following table summarizes our contracts to sell TBA securities as of June 30, 2024.

Dividends

In addition to other requirements that must be satisfied to qualify as a REIT, we must pay annual dividends to our stockholders of at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gains. We intend to pay regular monthly dividends to our stockholders and have declared the following dividends since our February 2013 IPO.

Book Value Per Share

The Company’s book value per share at June 30, 2024 was $8.58. 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, 2024, the Company’s stockholders’ equity was $555.9 million with 64,824,374 shares of common stock outstanding.

Capital Allocation and Return on Invested Capital

The Company allocates capital to two RMBS sub-portfolios, the pass-through RMBS portfolio, consisting of mortgage pass-through certificates issued by Fannie Mae, Freddie Mac or Ginnie Mae (the “GSEs”) and collateralized mortgage obligations (“CMOs”) issued by the GSEs (“PT RMBS”), and the structured RMBS portfolio, consisting of interest-only (“IO”) and inverse interest-only (“IIO”) securities. As of June 30, 2024, approximately 96.2% of the Company’s investable capital (which consists of equity in pledged PT RMBS, available cash and unencumbered assets) was deployed in the PT RMBS portfolio. At March 31, 2024, the allocation to the PT RMBS portfolio was approximately 95.6%.

The table below details the changes to the respective sub-portfolios during the quarter.

The tables below present the allocation of capital between the respective portfolios at June 30, 2024 and March 31, 2024, and the return on invested capital for each sub-portfolio for the three month period ended June 30, 2024.

The return on invested capital in the PT RMBS and structured RMBS portfolios was approximately (0.5)% and 6.2%, respectively, for the second quarter of 2024. The combined portfolio generated a return on invested capital of approximately (0.2)%.

Stock Offerings

On October 29, 2021, we entered into an equity distribution agreement (the “October 2021 Equity Distribution Agreement”) with four sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions. We issued a total of 9,742,188 shares under the October 2021 Equity Distribution Agreement for aggregate gross proceeds of approximately $151.8 million, and net proceeds of approximately $149.3 million, after commissions and fees, prior to its termination in March 2023.

On March 7, 2023, we entered into an equity distribution agreement (the “March 2023 Equity Distribution Agreement”) with three sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions. We issued a total of 24,675,497 shares under the March 2023 Equity Distribution Agreement for aggregate gross proceeds of approximately $228.8 million and net proceeds of approximately $225.0 million, after commissions and fees, prior to its termination in June 2024.

On June 11, 2024, we entered into an equity distribution agreement (the “June 2024 Equity Distribution Agreement”) with three sales agents pursuant to which we may offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares of our common stock in transactions that are deemed to be “at the market” offerings and privately negotiated transactions. Through June 30, 2024, we issued a total of 1,995,000 shares under the June 2024 Equity Distribution Agreement for aggregate gross proceeds of approximately $16.9 million, and net proceeds of approximately $16.6 million, after commissions and fees. Subsequent to June 30, 2024, we issued a total of 6,514,200 shares under the June 2024 Equity Distribution Agreement for aggregate gross proceeds of approximately $55.

Contacts

Orchid Island Capital, Inc.

Robert E. Cauley, 772-231-1400

Chairman and Chief Executive Officer

https://ir.orchidislandcapital.com

Read full story here