ORC Orchid Island Capital Inc

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, 2023.

Second Quarter 2023 Results

• Net income of $10.2 million, or $0.25 per common share, which consists of:
• Net interest expense of $8.8 million, or $0.22 per common share
• Total expenses of $4.8 million, or $0.12 per common share
• Net realized and unrealized gains of $23.8 million, or $0.59 per common share, on RMBS and derivative instruments, including net interest income on interest rate swaps
• Second quarter dividends declared and paid of $0.48 per common share
• Book value per common share of $11.16 at June 30, 2023
• Total return of 0.78%, comprised of $0.48 dividend per common share and $0.39 decrease in book value per common share, divided by beginning book value per common share

Other Financial Highlights

• Orchid maintained a liquidity position of $204.1 million in cash and cash equivalents and unpledged RMBS, or 42% of stockholders' equity as of June 30, 2023
• Borrowing capacity in excess of June 30, 2023 outstanding repurchase agreement balances of $4,201.7 million, spread across 20 active lenders
• Company to discuss results on Friday, July 28, 2023, 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 regional banking crisis that emerged in March of 2023 elicited a severe market reaction, but the Federal Reserve ('Fed') and U.S. Treasury were very responsive to these developments and the damage was quickly contained by effective macro-prudential policy. By late April, market focus began to shift away from the prospects of contagion from a couple of high-profile bank failures to an impasse between congressional Republicans and the Biden administration over the debt ceiling. Fortunately, the impasse was resolved in late May. While the debt ceiling impasse was resolved before the government ran out of borrowing capacity and risk sentiment improved modestly, the economic data, particularly with respect to core inflation and the labor market, did not improve at all. The U.S. Treasury curve inversion peaked in early July, interest rates continued to rise as the 2-year U.S. Treasury approached 5% and the futures market priced in nearly two additional rate increases by the Fed with no rate decreases at all in 2023. In short, market expectations were now in sync with Fed rhetoric that funding rates would be higher and for far longer than previously expected. These developments were not good for the Agency RMBS market as the spread between the Agency RMBS current coupon and the 5-year U.S. Treasury reached approximately 187.5 bps on May 26, 2023.

“Orchid has maintained a lower coupon bias throughout the tightening cycle as we believe these securities still offer superior total return potential over new origination, higher coupon securities. We continue to hold these securities for the same reasons. We raised approximately $48 million of new capital in the second quarter and deployed the proceeds into higher coupon, low pay-up specified pools and hedged these positions predominantly with swaps. With the U.S. Treasury curve inverted as much as it is our hedge positions allow us to earn approximately 100 basis points of marginal net interest income on the new securities. We have also taken our economic leverage ratio (total liabilities adjusted for net TBA positions, divided by total stockholders' equity) up from approximately 6.5 to 1 on March 31, 2023, to approximately 8.1 to 1 on June 30, 2023. We are comfortable doing so because we still believe return prospects on Agency RMBS are skewed to the upside at current rate and spread levels. We added higher coupons to mitigate the lower carry of our legacy assets to allow us to continue to hold them and retain their higher return potential in the event of a normalization of rates and U.S. Treasury curve shape. In late May, when Agency RMBS spreads were at the widest spreads we have observed since the 2008 financial crisis, we moved most of our TBA hedges to rate hedges.

“As the third quarter unfolds, markets and the Fed are closely focused on incoming economic data as it pertains to inflation and the labor markets. Market performance – for all asset classes – will likely be dominated by these developments and their implications for monetary policy going forward. The Federal Deposit Insurance Corporation ('FDIC') liquidation sales of Agency RMBS seized from failed banks that began in April have gone well and are nearing an end, far sooner than originally anticipated. We anticipate current interest rate levels and curve shape – while challenging for levered Agency RMBS investors – are at or near the extremes we will experience for the cycle. As such, we do not anticipate changes to our strategy other than possibly adding current income securities hedged with interest rate swaps to increase our net interest income, assuming we can add additional capital at attractive levels. We would not consider these positions long-term holds.”

Details of Second Quarter 2023 Results of Operations

The Company reported net income of $10.2 million for the three month period ended June 30, 2023, compared with a net loss of $60.1 million for the three month period ended June 30, 2022. The Company increased its Agency RMBS portfolio over the course of the second quarter of 2023, from $4.0 billion at March 31, 2023 to $4.4 billion at June 30, 2023. Interest income on the portfolio in the second quarter was up approximately $1.9 million from the first quarter of 2023. The yield on our average Agency RMBS decreased from 4.03% in the first quarter of 2023 to 3.81% for the second quarter of 2023, repurchase agreement borrowing costs increased from 4.72% for the first quarter of 2023 to 4.88% for the second quarter of 2023, and our net interest spread decreased from (0.69)% in the first quarter of 2023 to (1.07)% in the second quarter of 2023.

Book value decreased by $0.39 per share in the first quarter of 2023. The decrease in book value reflects our net income of $0.25 per share and the dividend distribution of $0.48 per share. The Company recorded net realized and unrealized gains of $0.59 per share on Agency RMBS assets and derivative instruments, including net interest income on interest rate swaps.

Prepayments

For the quarter ended June 30, 2023, Orchid received $138.4 million in scheduled and unscheduled principal repayments and prepayments, which equated to a 3-month constant prepayment rate (“CPR”) of approximately 5.3%. Prepayment rates on the two RMBS sub-portfolios were as follows (in CPR):

 

 

 

 

 

Structured

 

 

 

 

 

 

PT RMBS

 

 

RMBS

 

 

Total

 

Three Months Ended

 

Portfolio (%)

 

 

Portfolio (%)

 

 

Portfolio (%)

 

June 30, 2023

 

5.3

 

 

7.0

 

 

5.3

 

March 31, 2023

 

3.9

 

 

5.7

 

 

4.0

 

December 31, 2022

 

4.9

 

 

6.0

 

 

5.0

 

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

 

Portfolio

The following tables summarize certain characteristics of Orchid’s PT RMBS (as defined below) and structured RMBS as of June 30, 2023 and December 31, 2022:

($ in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

Percentage

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

of

 

 

Weighted

 

 

Maturity

 

 

 

 

Fair

 

 

Entire

 

 

Average

 

 

in

 

Longest

Asset Category

 

Value

 

 

Portfolio

 

 

Coupon

 

 

Months

 

Maturity

June 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Rate RMBS

 

$

4,356,203

 

 

99.6

%

 

3.80

%

 

337

 

1-Jun-53

Interest-Only Securities

 

 

17,448

 

 

0.4

%

 

4.01

%

 

228

 

25-Jul-48

Inverse Interest-Only Securities

 

 

321

 

 

0.0

%

 

0.00

%

 

280

 

15-Jun-42

Total Mortgage Assets

 

$

4,373,972

 

 

100.0

%

 

3.78

%

 

334

 

1-Jun-53

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Rate RMBS

 

$

3,519,906

 

 

99.4

%

 

3.47

%

 

339

 

1-Nov-52

Interest-Only Securities

 

 

19,669

 

 

0.6

%

 

4.01

%

 

234

 

25-Jul-48

Inverse Interest-Only Securities

 

 

427

 

 

0.0

%

 

0.00

%

 

286

 

15-Jun-42

Total Mortgage Assets

 

$

3,540,002

 

 

100.0

%

 

3.46

%

 

336

 

1-Nov-52

($ in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2023

 

 

December 31, 2022

 

 

 

Fair Value

 

 

Percentage of Entire Portfolio

 

 

Fair Value

 

 

Percentage of Entire Portfolio

 

Agency

 

 

 

 

 

 

 

 

Fannie Mae

 

$

2,897,583

 

 

66.2

%

 

$

2,320,960

 

 

65.6

%

Freddie Mac

 

 

1,476,389

 

 

33.8

%

 

 

1,219,042

 

 

34.4

%

Total Portfolio

 

$

4,373,972

 

 

100.0

%

 

$

3,540,002

 

 

100.0

%

 

 

June 30, 2023

 

 

December 31, 2022

 

Weighted Average Pass-through Purchase Price

 

$

105.06

 

 

$

106.41

 

Weighted Average Structured Purchase Price

 

$

18.74

 

 

$

18.74

 

Weighted Average Pass-through Current Price

 

$

92.75

 

 

$

91.46

 

Weighted Average Structured Current Price

 

$

13.25

 

 

$

14.05

 

Effective Duration (1)

 

 

5.220

 

 

 

5.580

 

(1)

Effective duration of 5.220 indicates that an interest rate increase of 1.0% would be expected to cause a 5.220% decrease in the value of the RMBS in the Company’s investment portfolio at June 30, 2023. An effective duration of 5.580 indicates that an interest rate increase of 1.0% would be expected to cause a 5.580% decrease in the value of the RMBS in the Company’s investment portfolio at December 31, 2022. 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 June 30, 2023, the Company had outstanding repurchase obligations of approximately $4,201.7 million with a net weighted average borrowing rate of 5.26%. These agreements were collateralized by RMBS with a fair value, including accrued interest, of approximately $4,383.3 million and cash pledged to counterparties of approximately $30.6 million. The Company’s adjusted leverage ratio, defined as the balance of repurchase agreement liabilities divided by stockholders' equity, at June 30, 2023 was 8.6 to 1. At June 30, 2023, the Company’s liquidity was approximately $204.1 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, 2023.

($ in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Weighted

 

 

 

Total

 

 

 

 

 

Average

 

 

 

 

 

 

Average

 

 

 

Outstanding

 

 

% of

 

 

Borrowing

 

 

Amount

 

 

Maturity

 

Counterparty

 

Balances

 

 

Total

 

 

Rate

 

 

at Risk(1)

 

 

in Days

 

J.P. Morgan Securities LLC

 

$

337,627

 

 

8.0

%

 

5.32

%

 

$

18,780

 

 

13

 

ASL Capital Markets Inc.

 

 

336,720

 

 

8.0

%

 

5.27

%

 

 

18,280

 

 

41

 

Mitsubishi UFJ Securities (USA), Inc.

 

 

331,790

 

 

7.9

%

 

5.25

%

 

 

16,536

 

 

19

 

Wells Fargo Bank, N.A.

 

 

328,470

 

 

7.8

%

 

5.28

%

 

 

17,626

 

 

15

 

RBC Capital Markets, LLC

 

 

315,578

 

 

7.5

%

 

5.19

%

 

 

10,406

 

 

15

 

Citigroup Global Markets, Inc.

 

 

308,384

 

 

7.3

%

 

5.24

%

 

 

16,692

 

 

28

 

Mirae Asset Securities (USA) Inc.

 

 

301,508

 

 

7.2

%

 

5.23

%

 

 

15,658

 

 

78

 

Daiwa Capital Markets America, Inc.

 

 

241,338

 

 

5.7

%

 

5.22

%

 

 

10,317

 

 

17

 

Marex Capital Markets Inc.

 

 

229,138

 

 

5.5

%

 

5.29

%

 

 

9,966

 

 

11

 

ING Financial Markets LLC

 

 

225,570

 

 

5.4

%

 

5.24

%

 

 

9,738

 

 

27

 

ABN AMRO Bank N.V.

 

 

218,376

 

 

5.2

%

 

5.30

%

 

 

6,968

 

 

13

 

Cantor Fitzgerald & Co.

 

 

217,196

 

 

5.2

%

 

5.25

%

 

 

11,486

 

 

17

 

Merrill Lynch, Pierce, Fenner & Smith Inc.

 

 

186,631

 

 

4.4

%

 

5.26

%

 

 

6,769

 

 

15

 

StoneX Financial Inc.

 

 

174,967

 

 

4.2

%

 

5.25

%

 

 

9,218

 

 

13

 

Goldman Sachs & Co. LLC

 

 

122,836

 

 

2.9

%

 

5.30

%

 

 

6,488

 

 

11

 

South Street Securities, LLC

 

 

117,859

 

 

2.8

%

 

5.36

%

 

 

5,976

 

 

88

 

Santander Bank, N.A.

 

 

113,119

 

 

2.7

%

 

5.20

%

 

 

5,037

 

 

24

 

BMO Capital Markets Corp.

 

 

74,325

 

 

1.8

%

 

5.25

%

 

 

3,901

 

 

17

 

Lucid Cash Fund USG, LLC

 

 

11,208

 

 

0.3

%

 

5.30

%

 

 

576

 

 

20

 

Lucid Prime Fund, LLC

 

 

9,077

 

 

0.2

%

 

5.30

%

 

 

480

 

 

20

 

Total / Weighted Average

 

$

4,201,717

 

 

100.0

%

 

5.26

%

 

$

200,898

 

 

25

 

(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 June 30, 2023, such instruments were comprised of U.S. Treasury note (“T-Note”) futures contracts, 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 futures contracts at June 30, 2023.

($ in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2023

 

 

 

Average

 

Weighted

 

 

Weighted

 

 

 

 

 

 

 

Contract

 

Average

 

 

Average

 

 

 

 

 

 

 

Notional

 

Entry

 

 

Effective

 

 

Open

 

Expiration Year

 

Amount

 

Rate

 

 

Rate

 

 

Equity(1)

 

Treasury Note Futures Contracts (Short Positions)(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

September 2023 5-year T-Note futures (Sep 2023 - Sep 2028 Hedge Period)

 

$

471,500

 

3.69

%

 

4.40

%

 

$

9,795

 

September 2023 10-year T-Note futures (Sep 2023 - Sep 2033 Hedge Period)

 

$

285,000

 

3.76

%

 

4.47

%

 

$

3,793

 

September 2023 10-year Ultra futures (Sep 2023 - Sep 2033 Hedge Period)

 

$

244,200

 

3.71

%

 

3.77

%

 

$

2,182

 

(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 $107.1. The contract values of the short positions were $504.9 million. 10-Year T-Note futures contracts were valued at a price of $112.3. The contract values of the short positions were $320.0 million. 10-Year Ultra futures contracts were valued at a price of $118.4. The contract value of the short position was $289.2 million.

The table below presents information related to the Company’s interest rate swap positions at June 30, 2023.

($ in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed

 

 

Average

 

 

Average

 

 

 

Notional

 

 

Pay

 

 

Receive

 

 

Maturity

 

 

 

Amount

 

 

Rate

 

 

Rate

 

 

(Years)

 

Expiration > 1 to ≤ 5 years

 

$

500,000

 

 

 

0.84

%

 

 

5.53

%

 

 

3.2

 

Expiration > 5 years

 

$

1,651,500

 

 

 

2.53

%

 

 

5.14

%

 

 

6.9

 

 

 

$

2,151,500

 

 

 

2.13

%

 

 

5.23

%

 

 

6.1

 

The following table presents information related to our interest rate swaption positions as of June 30, 2023.

($ in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Option

 

Underlying Swap

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Months to Expiration

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

Average

 

Average

 

 

 

 

 

 

 

Fair

 

 

 

Notional

 

 

Fixed

 

Adjustable

 

Term

 

Expiration

 

Cost

 

 

Value

 

 

 

Amount

 

 

Rate

 

Rate

 

(Years)

 

Payer Swaptions (long positions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

≤ 1 year

 

$

36,685

 

 

$

5,698

 

 

3.6

 

$

1,250,000

 

 

4.09

%

SOFR

 

10.0

 

>1 year

 

 

10,115

 

 

 

12,259

 

 

18.7

 

 

1,000,000

 

 

3.49

%

SOFR

 

2.0

 

 

 

$

46,800

 

 

$

17,957

 

 

10.3

 

$

2,250,000

 

 

3.82

%

 

 

6.4

 

Payer Swaptions (short positions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

≤ 1 year

 

$

(3,819

)

 

$

(68

)

 

0.6

 

$

(917,000

)

 

4.09

%

SOFR

 

10.0

 

>1 year

 

$

(8,433

)

 

$

(10,216

)

 

18.7

 

$

(1,000,000

)

 

3.74

%

SOFR

 

2.0

 

 

 

$

(12,252

)

 

$

(10,284

)

 

10.0

 

$

(1,917,000

)

 

3.91

%

 

 

5.8

 

The following table presents information related to our interest cap positions as of June 30, 2023.

($ 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

 

$

211

 

The table below presents information related to the Company’s interest rate floor positions at June 30, 2023.

($ in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net

 

 

 

 

 

 

 

 

 

 

 

Strike

 

 

 

Estimated

 

 

 

Notional

 

 

 

 

 

 

Swap

 

 

 

Fair

 

 

 

Amount

 

 

Cost

 

 

Rate

 

Terms

 

Value

 

June 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long Position

 

$

1,000,000

 

 

$

2,500

 

 

0.13

%

2Y_2s30s

 

$

3,844

 

Short Position

 

$

(1,000,000

)

 

$

(1,358

)

 

(0.37

)%

2Y_2s30s

 

$

(2,573

)

The following table summarizes our contracts to sell TBA securities as of June 30, 2023.

($ in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notional Amount Long (Short)(1)

 

 

 

 

 

 

 

 

 

 

Net

 

 

 

 

 

Cost

 

 

Market

 

 

Carrying

 

 

 

 

 

Basis(2)

 

 

Value(3)

 

 

Value(4)

 

June 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15-Year TBA securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5.00%

 

$

100,000

 

 

$

99,234

 

 

$

99,351

 

 

$

117

 

30-Year TBA securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.00%

 

 

(350,000

)

 

 

(308,494

)

 

 

(308,410

)

 

 

84

 

 

 

$

(250,000

)

 

$

(209,260

)

 

$

(209,059

)

 

$

201

 

(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

 

 

2.475

 

 

 

87,906

 

2023 - YTD(1)

 

 

1.120

 

 

 

45,531

 

Totals

 

$

65.770

 

 

$

573,001

 

(1)

On July 12, 2023, the Company declared a dividend of $0.16 per share to be paid on August 29, 2023. The effect of this dividend is included in the table above but is not reflected in the Company’s financial statements as of June 30, 2023.

Book Value Per Share

The Company's book value per share at June 30, 2023 was $11.16. 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, 2023, the Company's stockholders' equity was $490.1 million with 43,896,709 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, 2023, approximately 95.8% 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, 2023, the allocation to the PT RMBS portfolio was approximately 95.3%.

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 Portfolio

 

 

Interest-Only Securities

 

 

Inverse Interest Only Securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total

 

 

Total

 

Market value - March 31, 2023

 

$

3,980,462

 

 

$

18,962

 

 

$

482

 

 

$

19,444

 

 

$

3,999,906

 

Securities purchased

 

 

521,364

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

521,364

 

Securities sold

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Losses on sales

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Return of investment

 

 

n/a

 

 

 

(647

)

 

 

-

 

 

 

(647

)

 

 

(647

)

Pay-downs

 

 

(76,725

)

 

 

n/a

 

 

 

n/a

 

 

 

n/a

 

 

 

(76,725

)

Discount accretion due to pay-downs

 

 

4,886

 

 

 

n/a

 

 

 

n/a

 

 

 

n/a

 

 

 

4,886

 

Mark to market losses

 

 

(73,784

)

 

 

(867

)

 

 

(161

)

 

 

(1,028

)

 

 

(74,812

)

Market value - June 30, 2023

 

$

4,356,203

 

 

$

17,448

 

 

$

321

 

 

$

17,769

 

 

$

4,373,972

 

The tables below present the allocation of capital between the respective portfolios at June 30, 2023 and March 31, 2023, and the return on invested capital for each sub-portfolio for the three month period ended June 30, 2023.

($ in thousands)

 

Capital Allocation

 

 

 

 

 

 

 

Structured Security Portfolio

 

 

 

 

 

 

 

Pass-Through Portfolio

 

 

Interest-Only Securities

 

 

Inverse Interest Only Securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total

 

 

Total

 

June 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Market value

 

$

4,356,203

 

 

$

17,448

 

 

$

321

 

 

$

17,769

 

 

$

4,373,972

 

Cash

 

 

249,337

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

249,337

 

Borrowings(1)

 

 

(4,201,717

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,201,717

)

Total

 

$

403,823

 

 

$

17,448

 

 

$

321

 

 

$

17,769

 

 

$

421,592

 

% of Total

 

 

95.8

%

 

 

4.1

%

 

 

0.1

%

 

 

4.2

%

 

 

100.0

%

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Market value

 

$

3,980,462

 

 

$

18,962

 

 

$

482

 

 

$

19,444

 

 

$

3,999,906

 

Cash

 

 

185,958

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

185,958

 

Borrowings(2)

 

 

(3,769,437

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,769,437

)

Total

 

$

396,983

 

 

$

18,962

 

 

$

482

 

 

$

19,444

 

 

$

416,427

 

% of Total

 

 

95.3

%

 

 

4.6

%

 

 

0.1

%

 

 

4.7

%

 

 

100.0

%

(1)

At June 30, 2023, there were outstanding repurchase agreement balances of $14.8 million secured by IO securities and $0.3 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 March 31, 2023, there were outstanding repurchase agreement balances of $15.4 million secured by IO securities and $0.3 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 3.9% and (3.1)%, respectively, for the second quarter of 2023. The combined portfolio generated a return on invested capital of approximately 3.6%.

($ in thousands)

 

Returns for the Quarter Ended June 30, 2023

 

 

 

 

 

 

 

Structured Security Portfolio

 

 

 

 

 

 

 

Pass-Through Portfolio

 

 

Interest-Only Securities

 

 

Inverse Interest Only Securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total

 

 

Total

 

Income (net of borrowing cost)

 

$

(9,176

)

 

$

416

 

 

$

-

 

 

$

416

 

 

$

(8,760

)

Realized and unrealized losses

 

 

(68,511

)

 

 

(867

)

 

 

(161

)

 

 

(1,028

)

 

 

(69,539

)

Derivative gains

 

 

93,367

 

 

 

n/a

 

 

 

n/a

 

 

 

n/a

 

 

 

93,367

 

Total Return

 

$

15,680

 

 

$

(451

)

 

$

(161

)

 

$

(612

)

 

$

15,068

 

Beginning Capital Allocation

 

$

396,983

 

 

$

18,962

 

 

$

482

 

 

$

19,444

 

 

$

416,427

 

Return on Invested Capital for the Quarter(1)

 

 

3.9

%

 

 

(2.4

)%

 

 

(33.4

)%

 

 

(3.1

)%

 

 

3.6

%

Average Capital Allocation(2)

 

$

400,403

 

 

$

18,205

 

 

$

402

 

 

$

18,607

 

 

$

419,010

 

Return on Average Invested Capital for the Quarter(3)

 

 

3.9

%

 

 

(2.5

)%

 

 

(40.0

)%

 

 

(3.3

)%

 

 

3.6

%

(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 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 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, 2023, we issued a total of 4,757,953 shares under the March 2023 Equity Distribution Agreement for aggregate gross proceeds of approximately $48.1 million, and net proceeds of approximately $47.4 million, after commissions and fees.

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 June 30, 2023, the Company repurchased a total of 4,048,613 shares at an aggregate cost of approximately $68.8 million, including commissions and fees, for a weighted average price of $16.99 per share. During the six months ended June 30, 2023, the Company repurchased a total of 373,041 shares at an aggregate cost of approximately $4.0 million, including commissions and fees, for a weighted average price of $10.62 per share.

Earnings Conference Call Details

An earnings conference call and live audio webcast will be hosted Friday, July 28, 2023, 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 August 28, 2023.

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, leverage ratio, dividends, growth, return opportunities, 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 Fed and the FDIC, market expectations, capital raising, 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 June 30, 2023, and December 31, 2022, and the unaudited quarterly statements of operations for the six and three months ended June 30, 2023 and 2022. Amounts presented are subject to change.

ORCHID ISLAND CAPITAL, INC.

BALANCE SHEETS

($ in thousands, except per share data)

(Unaudited - Amounts Subject to Change)

 

 

June 30, 2023

 

 

December 31, 2022

 

ASSETS:

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

4,373,972

 

 

$

3,540,002

 

U.S. Treasury Notes

 

 

37,195

 

 

 

36,382

 

Cash, cash equivalents and restricted cash

 

 

249,337

 

 

 

237,219

 

Accrued interest receivable

 

 

15,266

 

 

 

11,519

 

Derivative assets, at fair value

 

 

52,324

 

 

 

40,172

 

Other assets

 

 

2,836

 

 

 

442

 

Total Assets

 

$

4,730,930

 

 

$

3,865,736

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Repurchase agreements

 

$

4,201,717

 

 

$

3,378,445

 

Dividends payable

 

 

7,049

 

 

 

5,908

 

Derivative liabilities, at fair value

 

 

12,875

 

 

 

7,161

 

Accrued interest payable

 

 

11,280

 

 

 

9,209

 

Due to affiliates

 

 

1,241

 

 

 

1,131

 

Other liabilities

 

 

6,683

 

 

 

25,119

 

Total Liabilities

 

 

4,240,845

 

 

 

3,426,973

 

Total Stockholders' Equity

 

 

490,085

 

 

 

438,763

 

Total Liabilities and Stockholders' Equity

 

$

4,730,930

 

 

$

3,865,736

 

Common shares outstanding

 

 

43,896,709

 

 

 

36,764,983

 

Book value per share

 

$

11.16

 

 

$

11.93

 

ORCHID ISLAND CAPITAL, INC.

STATEMENTS OF OPERATIONS

($ in thousands, except per share data)

(Unaudited - Amounts Subject to Change)

 

 

Six Months Ended June 30,

 

 

Three Months Ended June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Interest income

 

$

77,923

 

 

$

77,125

 

 

$

39,911

 

 

$

35,268

 

Interest expense

 

 

(90,888

)

 

 

(10,835

)

 

 

(48,671

)

 

 

(8,180

)

Net interest (expense) income

 

 

(12,965

)

 

 

66,290

 

 

 

(8,760

)

 

 

27,088

 

Gains (losses) on RMBS and derivative contracts

 

 

36,567

 

 

 

(266,224

)

 

 

23,828

 

 

 

(82,674

)

Net portfolio income (loss)

 

 

23,602

 

 

 

(199,934

)

 

 

15,068

 

 

 

(55,586

)

Expenses

 

 

9,823

 

 

 

8,932

 

 

 

4,819

 

 

 

4,553

 

Net income (loss)

 

$

13,779

 

 

$

(208,866

)

 

$

10,249

 

 

$

(60,139

)

Basic and diluted net income (loss) per share

 

$

0.35

 

 

$

(5.90

)

 

$

0.25

 

 

$

(1.70

)

Weighted Average Shares Outstanding

 

 

39,356,054

 

 

 

35,403,193

 

 

 

40,210,844

 

 

 

35,406,832

 

Dividends Declared Per Common Share:

 

$

0.960

 

 

$

1.450

 

 

$

0.480

 

 

$

0.675

 

 

 

Three Months Ended June 30,

 

Key Balance Sheet Metrics

 

2023

 

 

2022

 

Average RMBS(1)

 

$

4,186,939

 

 

$

4,260,727

 

Average repurchase agreements(1)

 

 

3,985,577

 

 

 

4,111,544

 

Average stockholders' equity(1)

 

 

470,723

 

 

 

549,390

 

Adjusted leverage ratio - as of period end(2)

 

8.6:1

 

 

7.4:1

 

Economic leverage ratio - as of period end(3)

 

8.1:1

 

 

7.8:1

 

 

 

 

 

 

 

 

 

 

Key Performance Metrics

 

 

 

 

 

 

 

 

Average yield on RMBS(4)

 

 

3.81

%

 

 

3.31

%

Average cost of funds(4)

 

 

4.88

%

 

 

0.80

%

Average economic cost of funds(5)

 

 

2.53

%

 

 

0.64

%

Average interest rate spread(6)

 

 

(1.07

)%

 

 

2.51

%

Average economic interest rate spread(7)

 

 

1.28

%

 

 

2.67

%

(1)

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

(2)

The adjusted leverage ratio is calculated by dividing ending repurchase agreement liabilities by ending stockholders’ equity.

(3)

The economic leverage ratio is calculated by dividing ending total liabilities adjusted for net notional TBA positions by ending stockholders' equity.

(4)

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.

(5)

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.

(6)

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

(7)

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/20230727683209/en/

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