ORC

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 September 30, 2022.

Third Quarter 2022 Results

• Net loss of $84.5 million, or $2.40 per common share, which consists of:
• Net interest income of $14.2 million, or $0.40 per common share
• Total expenses of $5.2 million, or $0.15 per common share
• Net realized and unrealized losses of $93.5 million, or $2.66 per common share, on RMBS and derivative instruments, including net interest income on interest rate swaps
• Third quarter total dividends declared and paid of $0.545 per common share
• Book value per common share of $11.42 at September 30, 2022
• Total return of (16.7)%, comprised of $0.545 dividend per common share and $2.94 decrease in book value per common share, divided by beginning book value per common share

Other Financial Highlights

• Orchid maintains a strong liquidity position of $219.6 million in cash and cash equivalents and unpledged RMBS, or 54% of stockholder’s equity as of September 30, 2022
• Borrowing capacity in excess of September 30, 2022 outstanding repurchase agreement balances of $3,133.9 million, spread across 20 active lenders
• Since June 30, 2022, the Company has repurchased 5.2%, or 1.8 million shares, of Orchid’s June 30, 2022 common stock at a weighted average price of $9.02 per share
• Estimated book value per share as of October 26, 2022 between $10.60 and $10.70 per share
• On August 30, 2022, the Company effected a one-for-five reverse stock split. All share and per share numbers have been retroactively adjusted to reflect the reverse stock split, as applicable.
• Company to discuss results on Friday, October 28, 2022, 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 third quarter results, Robert E. Cauley, Chairman and Chief Executive Officer, said, “In a continuation of the extremely turbulent and volatile market conditions that have existed since the onset of the COVID-19 pandemic, during the third quarter of 2022 the markets and the outlook for monetary policy changed materially. The reaction on the part of the Federal Reserve (the “Fed”) to inflation and economic data has shaped the rates markets, currency markets and the outlook for the economy since the spring of 2021. This is when inflation first began to accelerate in the U.S. During the third quarter their outlook the Fed’s outlook changed significantly. Through early August of 2022 the markets perceived that, while inflation was not transitory, the Fed would be able to dampen demand by raising rates and cause inflation to decrease back towards the Fed’s long-term target of 2%. Further, the market anticipated this would happen by early in 2023 and that the Fed would then start to loosen monetary policy shortly thereafter. The Fed, through repeated public comments by various Fed officials, stressed that this was not going to be the case. Incoming economic data over the period was persistently strong, indicating the rate increases to date had yet to slow demand. More importantly, incoming inflation data showed no evidence of slowing at all and was in fact becoming more widespread, possibly even well entrenched. This reinforced the notion that the Fed will have to take rates higher and for longer.

“The result of these developments was significant and widespread. Specific to Orchid Island were increases in market interest rates and a widening in the spreads that Agency RMBS securities trade relative to comparable duration U.S. Treasuries or swaps. The yield on the 10-year U.S. Treasury closed just above 3.83% on September 30, 2022, and surpassed 4% in October of 2022. Short-term rates increased even more as the curve became even more inverted. Interest rates on maturities inside three months increased by 160 basis points by the end of the quarter and by over 236 basis points since the end of the second quarter through October 26, 2022. As of September 30, 2022, market pricing implied the terminal rate for the current cycle would be approximately 4.53% - anticipated to occur late in the first quarter of 2023. As of October 26, 2022, the market is pricing in a terminal rate of approximately 4.85% sometime late in the second quarter of 2023 and with the Fed funds rate still over 4.39% in early 2024.

“Agency RMBS spreads relative to benchmark interest rates increased to levels observed in March of 2020 by the end of the third quarter of 2022 and have exceeded those levels in October. Returns for the Agency RMBS market for the third quarter of 2022 were (5.4)% and these returns were 1.7% lower than comparable duration LIBOR swaps. The relative performance across the Agency RMBS universe is skewed in favor of higher coupon, 30-year securities that are currently in production by originators. Lower coupon securities, especially those held in large amounts by the Fed, and which may eventually be sold by the Fed, have performed the worst. These results are consistent with the relative duration of the securities, as higher coupons have shorter durations, or less sensitivity to movements in interest rates. Actions by the Fed as described above may prevent the sector from performing well in the near term but, if the economy does contract and enter a recession, the sector could do well on a relative performance basis owing to the lack of credit exposure of Agency RMBS. This is consistent with the sector’s history of performance in a counter-cyclical manner – doing well when the economy is soft and relatively poorly when the economy is strong.”

Details of Third Quarter 2022 Results of Operations

The Company reported net loss of $84.5 million for the three month period ended September 30, 2022, compared with net income of $26.0 million for the three month period ended September 30, 2021. The Company decreased its Agency RMBS portfolio over the course of the first nine months of 2022, from $6.5 billion at December 31, 2021 to $3.2 billion at September 30, 2022. Interest income on the portfolio in the third quarter was up approximately $0.3 million from the second quarter of 2022. The yield on our average MBS increased from 3.31% in the second quarter of 2022 to 3.99% for the third quarter of 2022, repurchase agreement borrowing costs increased from 0.80% for the second quarter of 2022 to 2.48% for the third quarter of 2022, and our net interest spread decreased from 2.51% in the second quarter of 2022 to 1.51% in the third quarter of 2022.

Book value decreased by $2.94 per share in the third quarter of 2022. The decrease in book value reflects our net loss of $2.40 per share and the dividend distribution of $0.545 per share. The Company recorded net realized and unrealized losses of $2.66 per share on Agency RMBS assets and derivative instruments, including net interest income on interest rate swaps.

The Company estimates book value per share as of October 26, 2022 to be approximately $10.60 to $10.70 per share. The estimated book value per share includes a deduction for the Company’s September 2022 dividend of $0.16 per share of common stock that will be paid on October 27, 2022, which was declared on September 12, 2022 with a September 30, 2022 record date. The estimated book value per share range is unaudited and has not been verified or reviewed by any third party. The Company undertakes no obligation to update or revise its estimated book value per share.

Prepayments

For the quarter ended September 30, 2022, Orchid received $96.6 million in scheduled and unscheduled principal repayments and prepayments, which equated to a 3-month constant prepayment rate (“CPR”) of approximately 6.5%. Prepayment rates on the two RMBS sub-portfolios were as follows (in CPR):

 

 

Structured

 

 

PT RMBS

RMBS

Total

Three Months Ended

Portfolio (%)

Portfolio (%)

Portfolio (%)

September 30, 2022

6.1

10.4

6.5

June 30, 2022

8.3

13.7

9.4

March 31, 2022

8.1

19.5

10.7

December 31, 2021

9.0

24.6

11.4

September 30, 2021

9.8

25.1

12.4

June 30, 2021

10.9

29.9

12.9

March 31, 2021

9.9

40.3

12.0

Portfolio

The following tables summarize certain characteristics of Orchid’s PT RMBS (as defined below) and structured RMBS as of September 30, 2022 and December 31, 2021:

($ in thousands)

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

Percentage

 

Average

 

 

 

 

of

Weighted

Maturity

 

 

 

Fair

Entire

Average

in

Longest

Asset Category

 

Value

Portfolio

Coupon

Months

Maturity

September 30, 2022

 

 

 

 

 

 

Fixed Rate RMBS

$

3,150,403

98.4

%

3.30

%

341

1-Aug-52

Interest-Only Securities

 

50,274

1.6

%

3.72

%

278

25-Nov-51

Inverse Interest-Only Securities

 

537

0.0

%

1.51

%

289

15-Jun-42

Total Mortgage Assets

$

3,201,214

100.0

%

3.31

%

336

1-Aug-52

December 31, 2021

 

 

 

 

 

 

Fixed Rate RMBS

$

6,298,189

96.7

%

2.93

%

342

1-Dec-51

Interest-Only Securities

 

210,382

3.2

%

3.40

%

263

25-Jan-52

Inverse Interest-Only Securities

 

2,524

0.1

%

3.75

%

300

15-Jun-42

Total Mortgage Assets

$

6,511,095

100.0

%

3.03

%

325

25-Jan-52

($ in thousands)

 

 

 

 

 

 

 

 

 

 

September 30, 2022

 

December 31, 2021

 

 

 

 

Percentage of

 

 

 

Percentage of

Agency

 

Fair Value

 

Entire Portfolio

 

Fair Value

 

Entire Portfolio

Fannie Mae

$

2,231,699

 

69.7

%

$

4,719,349

 

72.5

%

Freddie Mac

 

969,515

 

30.3

%

 

1,791,746

 

27.5

%

Total Portfolio

$

3,201,214

 

100.0

%

$

6,511,095

 

100.0

%

 

 

September 30, 2022

 

December 31, 2021

Weighted Average Pass-through Purchase Price

$

107.06

$

107.19

Weighted Average Structured Purchase Price

$

18.08

$

15.21

Weighted Average Pass-through Current Price

$

89.44

$

105.31

Weighted Average Structured Current Price

$

17.32

$

14.08

Effective Duration (1)

 

5.800

 

3.390

(1)

Effective duration of 5.800 indicates that an interest rate increase of 1.0% would be expected to cause a 5.800% decrease in the value of the RMBS in the Company’s investment portfolio at September 30, 2022. An effective duration of 3.390 indicates that an interest rate increase of 1.0% would be expected to cause a 3.390% decrease in the value of the RMBS in the Company’s investment portfolio at December 31, 2021. These figures include the structured securities in the portfolio, but do not include the effect of the Company’s funding cost hedges. Effective duration quotes for individual investments are obtained from The Yield Book, Inc.

Financing, Leverage and Liquidity

As of September 30, 2022, the Company had outstanding repurchase obligations of approximately $3,133.9 million with a net weighted average borrowing rate of 3.00%. These agreements were collateralized by RMBS with a fair value, including accrued interest, of approximately $3,206.4 million and cash pledged to counterparties of approximately $49.4 million. The Company’s leverage ratio at September 30, 2022 was 8.5 to 1. At September 30, 2022, the Company’s liquidity was approximately $219.6 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 September 30, 2022.

($ in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Weighted

 

 

Total

 

 

 

Average

 

 

Average

 

 

Outstanding

 

% of

 

Borrowing

 

Amount

Maturity

Counterparty

 

Balances

 

Total

 

Rate

 

at Risk(1)

in Days

Daiwa Capital Markets America, Inc.

$

305,822

 

9.9

%

 

3.05

%

$

9,118

25

Merrill Lynch, Pierce, Fenner & Smith Inc.

 

296,050

 

9.4

%

 

2.81

%

 

7,977

15

Mirae Asset Securities (USA) Inc.

 

286,438

 

9.1

%

 

3.02

%

 

10,056

52

Cantor Fitzgerald & Co.

 

234,245

 

7.5

%

 

3.04

%

 

10,742

36

J.P. Morgan Securities LLC

 

223,180

 

7.1

%

 

2.90

%

 

10,833

13

Mitsubishi UFJ Securities (USA), Inc.

 

206,189

 

6.6

%

 

3.09

%

 

13,020

33

ED&F Man Capital Markets Inc.

 

200,001

 

6.4

%

 

3.12

%

 

6,550

22

ABN AMRO Bank N.V.

 

194,818

 

6.2

%

 

2.89

%

 

2,131

44

RBC Capital Markets, LLC

 

173,422

 

5.5

%

 

2.75

%

 

3,374

7

ING Financial Markets LLC

 

149,958

 

4.8

%

 

3.14

%

 

4,772

34

Goldman Sachs & Co. LLC

 

129,760

 

4.1

%

 

3.14

%

 

5,924

38

Nomura Securities International, Inc.

 

123,060

 

3.9

%

 

3.15

%

 

5,806

39

Santander Bank, N.A.

 

117,062

 

3.7

%

 

3.14

%

 

5,293

27

Citigroup Global Markets, Inc.

 

111,594

 

3.6

%

 

2.87

%

 

5,141

28

Wells Fargo Bank, N.A.

 

101,431

 

3.2

%

 

2.88

%

 

4,397

36

BMO Capital Markets Corp.

 

80,692

 

2.6

%

 

3.14

%

 

3,703

24

StoneX Financial Inc.

 

74,348

 

2.4

%

 

3.14

%

 

3,184

24

ASL Capital Markets Inc.

 

64,836

 

2.1

%

 

3.15

%

 

3,025

21

South Street Securities, LLC

 

38,047

 

1.2

%

 

3.12

%

 

1,484

19

Lucid Cash Fund USG LLC

 

22,908

 

0.7

%

 

2.78

%

 

914

13

Total / Weighted Average

$

3,133,861

 

100.0

%

 

3.00

%

$

117,444

29

(1)

Equal to the sum of the fair value of securities sold, accrued interest receivable and cash posted as collateral (if any), minus the sum of repurchase agreement liabilities, accrued interest payable and the fair value of securities posted by the counterparties (if any).

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 September 30, 2022, such instruments were comprised of Treasury note (“T-Note”) futures contracts, interest rate swap agreements, interest rate swaption agreements, interest rate caps and contracts to buy and sell TBA securities.

The table below presents information related to the Company’s T-Note futures contracts at September 30, 2022.

($ in thousands)

 

 

 

 

 

 

 

 

 

 

 

Average

 

Weighted

 

Weighted

 

 

 

 

 

Contract

 

Average

 

Average

 

 

 

 

 

Notional

 

Entry

 

Effective

 

 

Open

Expiration Year

 

Amount

 

Rate

 

Rate

 

 

Equity(1)

Treasury Note Futures Contracts (Short Positions)(2)

 

 

 

 

 

 

 

 

 

December 2022 5-year T-Note futures

 

 

 

 

 

 

 

 

 

(Dec 2022 - Dec 2027 Hedge Period)

$

750,500

 

3.54%

 

4.32%

 

 

29,141

December 2022 10-year Ultra futures

 

 

 

 

 

 

 

 

 

(Dec 2022 - Dec 2032 Hedge Period)

$

174,500

 

3.03%

 

3.77%

 

$

13,141

(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 $107.51 at September 30, 2022. The contract values of the short positions were $806.8 million at September 30, 2022. 10-Year Ultra futures contracts were valued at a price of $118.48 at September 30, 2022. The contract value of the short position was $206.8 million at September 30, 2022.

The table below presents information related to the Company’s interest rate swap positions at September 30, 2022.

($ in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

Net

 

 

 

 

 

 

Fixed

 

Average

 

 

Estimated

 

Average

 

 

Notional

 

Pay

 

Receive

 

 

Fair

 

Maturity

Expiration

 

Amount

 

Rate

 

Rate

 

 

Value

 

(Years)

> 3 to ≤ 5 years

$

500,000

 

0.84

%

 

3.46

%

 

$

60,776

 

4.0

> 5 years

 

900,000

 

1.70

%

 

2.56

%

 

 

108,854

 

6.8

 

$

1,400,000

 

1.39

%

 

2.88

%

 

$

169,630

 

5.8

The following table presents information related to our interest rate swaption positions as of September 30, 2022.

($ 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)

Payer Swaptions - long

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

≤ 1 year

$

35,230

 

$

83,470

 

10.6

 

$

1,303,600

 

 

2.95

%

 

3 Month

 

10.0

>10 years

 

7,267

 

 

7,725

 

238.9

 

 

80,000

 

 

2.07

%

 

3 Month

 

10.0

 

$

42,497

 

$

91,195

 

23.8

 

$

1,383,600

 

 

2.90

%

 

3 Month

 

10.0

Payer Swaptions - short

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

≤ 1 year

$

(17,500

)

$

52,315

 

4.7

 

$

(958,300

)

 

2.95

%

 

3 Month

 

10.0

The following table presents information related to our interest cap positions as of September 30, 2022.

($ in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net

 

 

 

 

 

 

 

Strike

 

 

 

 

Estimated

 

 

Notional

 

 

 

 

Swap

 

Curve

 

 

Fair

Expiration

 

Amount

 

 

Cost

 

Rate

 

Spread

 

 

Value

February 8, 2024

$

200,000

 

$

1,450

 

0.09

%

 

2Y10Y

 

$

1,188

The following table summarizes our contracts to purchase and sell TBA securities as of September 30, 2022.

($ in thousands)

 

 

 

 

 

 

 

 

 

 

Notional

 

 

 

 

 

Net

 

 

Amount

 

Cost

 

Market

 

Carrying

 

 

Long (Short)(1)

 

Basis(2)

 

Value(3)

 

Value(4)

September 30, 2022

 

 

 

 

 

 

 

 

30-Year TBA securities:

 

 

 

 

 

 

 

 

2.0%

$

(175,000

)

$

(141,329

)

$

(141,723

)

$

(394

)

3.0%

 

(300,000

)

 

(261,047

)

 

(261,047

)

 

-

 

 

$

(475,000

)

$

(402,376

)

$

(402,770

)

$

(394

)

(1)

Notional amount represents the par value (or principal balance) of the underlying Agency RMBS.

(2)

Cost basis represents the forward price to be paid (received) for the underlying Agency RMBS.

(3)

Market value represents the current market value of the TBA securities (or of the underlying Agency RMBS) as of period-end.

(4)

Net carrying value represents the difference between the market value and the cost basis of the TBA securities as of period-end and is reported in derivative assets (liabilities) at fair value in our balance sheets.

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.

(in thousands, except per share data)

Year

 

 

 

Per Share Amount

 

Total

2013

 

 

$

6.975

$

4,662

2014

 

 

 

10.800

 

22,643

2015

 

 

 

9.600

 

38,748

2016

 

 

 

8.400

 

41,388

2017

 

 

 

8.400

 

70,717

2018

 

 

 

5.350

 

55,814

2019

 

 

 

4.800

 

54,421

2020

 

 

 

3.950

 

53,570

2021

 

 

 

3.900

 

97,601

2022 - YTD(1)

 

 

 

2.155

 

76,024

Totals

 

 

$

64.330

$

515,588

(1)

On October 12, 2022, the Company declared a dividend of $0.16 per share to be paid on November 28, 2022. The effect of this dividend is included in the table above but is not reflected in the Company’s financial statements as of September 30, 2022.

Book Value Per Share

The Company's book value per share at September 30, 2022 was $11.42. 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 September 30, 2022, the Company's stockholders' equity was $400.4 million with 35,066,251 shares of common stock outstanding.

Capital Allocation and Return on Invested Capital

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

(in thousands)

Portfolio Activity for the Quarter

 

 

Structured Security Portfolio

 

 

Pass-Through

Interest-Only

Inverse Interest

 

 

 

Portfolio

Securities

Only Securities

Sub-total

Total

Market value - June 30, 2022

$

3,766,151

 

$

173,754

 

$

955

 

$

174,709

 

$

3,940,860

 

Securities purchased

 

431,897

 

 

-

 

 

-

 

 

-

 

 

431,897

 

Securities sold

 

(683,895

)

 

(112,998

)

 

-

 

 

(112,998

)

 

(796,893

)

Losses on sales

 

(60,740

)

 

(5,403

)

 

-

 

 

(5,403

)

 

(66,143

)

Return of investment

 

n/a

 

 

(5,221

)

 

33

 

 

(5,188

)

 

(5,188

)

Pay-downs

 

(91,283

)

 

n/a

 

 

-

 

 

n/a

 

 

(91,283

)

Discount accretion due to pay-downs

 

4,647

 

 

n/a

 

 

-

 

 

n/a

 

 

4,647

 

Mark to market (losses) gains

 

(216,374

)

 

142

 

 

(451

)

 

(309

)

 

(216,683

)

Market value - September 30, 2022

$

3,150,403

 

$

50,274

 

$

537

 

$

50,811

 

$

3,201,214

 

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, 2022, approximately 62% 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 September 30, 2022, the allocation to the PT RMBS portfolio increased to approximately 85%.

The tables below present the allocation of capital between the respective portfolios at September 30, 2022 and June 30, 2022, and the return on invested capital for each sub-portfolio for the three month period ended September 30, 2022.

($ in thousands)

Capital Allocation

 

 

Structured Security Portfolio

 

 

Pass-Through

Interest-Only

Inverse Interest

 

 

 

Portfolio

Securities

Only Securities

Sub-total

Total

September 30, 2022

 

 

 

 

 

 

 

 

 

 

Market value

$

3,150,403

 

$

50,274

 

$

537

 

$

50,811

 

$

3,201,214

 

Cash

 

280,952

 

 

-

 

 

-

 

 

-

 

 

280,952

 

Borrowings(1)

 

(3,133,861

)

 

-

 

 

-

 

 

-

 

 

(3,133,861

)

Total

$

297,494

 

$

50,274

 

$

537

 

$

50,811

 

$

348,305

 

% of Total

 

85.4

%

 

14.4

%

 

0.2

%

 

14.6

%

 

100.0

%

June 30, 2022

 

 

 

 

 

 

 

 

 

 

Market value

$

3,766,151

 

$

173,754

 

$

955

 

$

174,709

 

$

3,940,860

 

Cash

 

283,371

 

 

-

 

 

-

 

 

-

 

 

283,371

 

Borrowings(2)

 

(3,758,980

)

 

-

 

 

-

 

 

-

 

 

(3,758,980

)

Total

$

290,542

 

$

173,754

 

$

955

 

$

174,709

 

$

465,251

 

% of Total

 

62.4

%

 

37.4

%

 

0.2

%

 

37.6

%

 

100.0

%

(1)

At September 30, 2022, there were outstanding repurchase agreement balances of $41.0 million secured by IO securities and $0.5 million secured by IIO securities. We entered into these arrangements to generate additional cash available to meet margin calls on PT RMBS; therefore, we have not considered these balances to be allocated to the structured securities strategy.

(2)

At June 30, 2022, there were outstanding repurchase agreement balances of $144.9 million secured by IO securities and $0.8 million secured by IIO securities. We entered into these arrangements to generate additional cash available to meet margin calls on PT RMBS; therefore, we have not considered these balances to be allocated to the structured securities strategy.

The return on invested capital in the PT RMBS and structured RMBS portfolios was approximately (26.5)% and (1.4)%, respectively, for the third quarter of 2022. The combined portfolio generated a return on invested capital of approximately (17.0)%.

($ in thousands)

Returns for the Quarter Ended September 30, 2022

 

 

Structured Security Portfolio

 

 

Pass-Through

Interest-Only

Inverse Interest

 

 

 

Portfolio

Securities

Only Securities

Sub-total

Total

Income (net of borrowing cost)

$

10,936

 

$

3,094

 

$

219

 

$

3,313

 

$

14,249

 

Realized and unrealized losses

 

(272,652

)

 

(5,261

)

 

(451

)

 

(5,712

)

 

(278,364

)

Derivative gains

 

184,820

 

 

n/a

 

 

n/a

 

 

n/a

 

 

184,820

 

Total Return

$

(76,896

)

$

(2,167

)

$

(232

)

$

(2,399

)

$

(79,295

)

Beginning Capital Allocation

$

290,542

 

$

173,754

 

$

955

 

$

174,709

 

$

465,251

 

Return on Invested Capital for the Quarter(1)

 

(26.5

)%

 

(1.2

)%

 

(24.3

)%

 

(1.4

)%

 

(17.0

)%

Average Capital Allocation(2)

$

294,018

 

$

112,014

 

$

746

 

$

112,760

 

$

406,778

 

Return on Average Invested Capital for the Quarter(3)

 

(26.2

)%

 

(1.9

)%

 

(31.1

)%

 

(2.1

)%

 

(19.5

)%

(1)

Calculated by dividing the Total Return by the Beginning Capital Allocation, expressed as a percentage.

(2)

Calculated using two data points, the Beginning and Ending Capital Allocation balances.

(3)

Calculated by dividing the Total Return by the Average Capital Allocation, expressed as a percentage.

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 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 September 30, 2022, we issued a total of 3,167,140 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. We did not issue any shares under the October 2021 Equity Distribution Agreement during the nine months ended September 30, 2022.

Stock Repurchase Program

On July 29, 2015, the Company’s Board of Directors authorized the repurchase of up to 400,000 shares of our common stock. The timing, manner, price and amount of any repurchases is determined by the Company in its discretion and is 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. On February 8, 2018, the Board of Directors approved an increase in the stock repurchase program for up to an additional 904,564 shares of the Company’s common stock. Coupled with the 156,751 shares remaining from the original 400,000 share authorization, the increased authorization brought the total authorization to 1,061,316 shares, representing 10% of the Company’s 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 3,372,399 shares, bringing the remaining authorization under the stock repurchase program to 3,539,861 shares, representing approximately 10% of the Company’s then outstanding shares of common stock. On October 12, 2022, 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 4,300,000 shares, bringing the remaining authorization under the stock repurchase program to 6,183,601 shares, representing approximately 18% of the Company’s then outstanding shares of common stock. This stock repurchase program has no termination date.

From the inception of the stock repurchase program through September 30, 2022, the Company repurchased a total of 1,487,362 shares at an aggregate cost of approximately $44.8 million, including commissions and fees, for a weighted average price of $30.12 per share. During the nine months ended September 30, 2022, the Company repurchased a total of 350,206 shares at an aggregate cost of approximately $4.4 million, including commissions and fees, for a weighted average price of $12.68 per share. Subsequent to September 30, 2022, the Company repurchased a total of 1,644,044 shares at an aggregate cost of approximately $14.2 million, including commissions and fees, for a weighted average price of $8.64 per share.

Earnings Conference Call Details

An earnings conference call and live audio webcast will be hosted Friday, October 28, 2022, at 10:00 AM ET. The conference call may be accessed by dialing toll free (888) 510-2356. The conference passcode is 8493186. The supplemental materials may be downloaded from the investor relations section of the Company’s website at https://ir.orchidislandcapital.com. A live audio webcast of the conference call can be accessed via the investor relations section of the Company’s website at https://ir.orchidislandcapital.com, and an audio archive of the webcast will be available until November 27, 2022.

About Orchid Island Capital, Inc.

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, such as mortgage pass-through certificates, and CMOs issued by the GSEs, and (ii) structured Agency RMBS, such as IOs, IIOs and principal only securities, 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, inflation, liquidity, pledging of our structured RMBS, funding levels and spreads, prepayment speeds, portfolio positioning and repositioning, hedging levels, dividends, growth, the supply and demand for Agency RMBS and the performance of the Agency RMBS sector generally, the effect of actual or expected actions of the U.S. government, including the Federal Reserve, market expectations, future opportunities and prospects of the Company, the stock repurchase program 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.

Summarized Financial Statements

The following is a summarized presentation of the unaudited balance sheets as of September 30, 2022, and December 31, 2021, and the unaudited quarterly statements of operations for the nine and three months ended September 30, 2022 and 2021. Amounts presented are subject to change.

ORCHID ISLAND CAPITAL, INC.

BALANCE SHEETS

($ in thousands, except per share data)

(Unaudited - Amounts Subject to Change)

 

 

 

 

 

 

September 30, 2022

December 31, 2021

ASSETS:

 

 

 

 

Mortgage-backed securities

$

3,201,214

$

6,511,095

U.S. Treasury Notes

 

36,118

 

37,175

Cash, cash equivalents and restricted cash

 

280,952

 

450,442

Accrued interest receivable

 

10,527

 

18,859

Derivative assets, at fair value

 

262,318

 

50,786

Receivable for securities sold

 

13,684

 

-

Other assets

 

1,027

 

320

Total Assets

$

3,805,840

$

7,068,677

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

Repurchase agreements

$

3,133,861

$

6,244,106

Dividends payable

 

5,636

 

11,530

Derivative liabilities, at fair value

 

53,013

 

7,589

Accrued interest payable

 

4,424

 

788

Due to affiliates

 

1,075

 

1,062

Other liabilities

 

207,454

 

35,505

Total Liabilities

 

3,405,463

 

6,300,580

Total Stockholders' Equity

 

400,377

 

768,097

Total Liabilities and Stockholders' Equity

$

3,805,840

$

7,068,677

Common shares outstanding

 

35,066,251

 

35,398,610

Book value per share

$

11.42

$

21.70

ORCHID ISLAND CAPITAL, INC.

STATEMENTS OF OPERATIONS

($ in thousands, except per share data)

(Unaudited - Amounts Subject to Change)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

Three Months Ended September 30,

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

Interest income

$

112,735

 

$

90,279

 

$

35,610

 

$

34,169

 

Interest expense

 

(32,196

)

 

(5,067

)

 

(21,361

)

 

(1,570

)

Net interest income

 

80,539

 

 

85,212

 

 

14,249

 

 

32,599

 

Losses on RMBS and derivative contracts

 

(359,059

)

 

(94,522

)

 

(93,544

)

 

(2,887

)

Net portfolio (loss) income

 

(278,520

)

 

(9,310

)

 

(79,295

)

 

29,712

 

Expenses

 

14,859

 

 

10,886

 

 

5,218

 

 

3,674

 

Net (loss) income

$

(293,379

)

$

(20,196

)

$

(84,513

)

$

26,038

 

Basic net (loss) income per share

$

(8.31

)

$

(0.95

)

$

(2.40

)

$

1.00

 

Diluted net (loss) income per share

$

(8.31

)

$

(0.95

)

$

(2.40

)

$

1.00

 

Weighted Average Shares Outstanding

 

35,336,702

 

 

21,061,154

 

 

35,205,888

 

 

25,717,469

 

Dividends Declared Per Common Share:

$

1.995

 

$

2.925

 

$

0.545

 

$

0.975

 

 

 

Three Months Ended September 30,

Key Balance Sheet Metrics

 

2022

2021

Average RMBS(1)

 

$

3,571,037

$

5,136,331

Average repurchase agreements(1)

 

 

3,446,420

 

4,864,287

Average stockholders' equity(1)

 

 

453,369

 

642,225

Leverage ratio(2)

 

 

8.5:1

 

7.2:1

 

 

 

 

 

 

Key Performance Metrics

 

 

 

 

 

Average yield on RMBS(3)

 

 

3.99%

 

2.66%

Average cost of funds(3)

 

 

2.48%

 

0.13%

Average economic cost of funds(4)

 

 

1.89%

 

0.23%

Average interest rate spread(5)

 

 

1.51%

 

2.53%

Average economic interest rate spread(6)

 

 

2.10%

 

2.43%

(1)

Average RMBS, borrowings and stockholders’ equity balances are calculated using two data points, the beginning and ending balances.

(2)

The leverage ratio is calculated by dividing total ending liabilities by ending stockholders’ equity.

(3)

Portfolio yields and costs of funds are calculated based on the average balances of the underlying investment portfolio/borrowings balances and are annualized for the quarterly periods presented.

(4)

Represents the interest cost of our borrowings and the effect of derivative agreements attributed to the period related to hedging activities, divided by average borrowings.

(5)

Average interest rate spread is calculated by subtracting average cost of funds from average yield on RMBS.

(6)

Average economic interest rate spread is calculated by subtracting average economic cost of funds from average yield on RMBS.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20221027005999/en/

Orchid Island Capital, Inc. Robert E. Cauley, 772-231-1400 Chairman and Chief Executive Officer https://ir.orchidislandcapital.com