Orchid Island Capital Announces Third Quarter 2024 Results
VERO BEACH, Fla., Oct. 24, 2024 (GLOBE NEWSWIRE) -- 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, 2024.
Third Quarter 2024 Results
Net income of $17.3 million, or $0.24 per common share, which consists of:
Net interest income of $0.3 million, or less than $0.01 per common share
Total expenses of $4.3 million, or $0.06 per common share
Net realized and unrealized gains of $21.2 million, or $0.29 per common share, on RMBS and derivative instruments, including net interest income on interest rate swaps
Third quarter dividends declared and paid of $0.36 per common share
Book value per common share of $8.40 at September 30, 2024
Total return of 2.10%, comprised of $0.36 dividend per common share and $0.18 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 $326.7 million in cash and cash equivalents and unpledged securities, or approximately 50% of stockholders' equity as of September 30, 2024
Borrowing capacity in excess of September 30, 2024 outstanding repurchase agreement balances of $5,230.9 million, spread across 25 active lenders
Company to discuss results on Friday, October 25, 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 third quarter results, Robert E. Cauley, Chairman and Chief Executive Officer, said, "The long-awaited impacts of tight monetary policy orchestrated by the Federal Reserve appear to have finally had the desired impacts on inflation and the imbalances in the labor market. Inflation is closing in on the Fed's 2% target and hiring and wage growth are slowing while the unemployment rate has steadily risen. In contrast, growth in the economy and consumer spending have remained robust throughout. In late September the Fed reduced the overnight funding rate by 50 basis points, and the market anticipated it was the first of many such cuts. Unfortunately, the non-farm payroll report for September 2024, released in early October, as well as the latest readings on inflation and spending, imply the magnitude and urgency of additional rate cuts by the Fed may differ with those market expectations.
"For the third quarter of 2024 Orchid Island generated an economic return of 2.1%, not annualized. We have maintained the dividend rate at $0.12 per month which, based on yesterday's closing price of $7.80, represents a dividend yield of approximately 18.5%. Our portfolio positioning continues to be predominantly focused on a barbell strategy with 30-year, fixed rate Agency RMBS, while our hedges are more focused and have a longer duration bias to protect the portfolio against an unanticipated rise in longer term rates. This positioning was not optimal during the current quarter, as interest rates decreased significantly, leading to a modest decline in our book value, but we made modest changes to our positioning since quarter end to better balance the anticipated outcomes for different rate movements. However, we continue to view a bear-steepening of the yield curve as the greatest risk to the portfolio.
"We were able to raise additional capital at attractive levels via our ATM program and increase the size of the portfolio while maintaining leverage levels. Looking forward, we anticipate investment opportunities to remain attractive with potential total returns that could improve if the Fed were to continue easing monetary policy. 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 Third Quarter 2024 Results of Operations
The Company reported net income of $17.3 million for the three month period ended September 30, 2024, compared with a net loss of $80.1 million for the three month period ended September 30, 2023. Interest income on the portfolio in the third quarter was up approximately $14.6 million from the second quarter of 2024. The yield on our average Agency RMBS increased from 5.05% in the second quarter of 2024 to 5.43% for the third quarter of 2024, and our repurchase agreement borrowing costs increased from 5.34% for the second quarter of 2024 to 5.62% for the third quarter of 2024. Book value decreased by $0.18 per share in the third quarter of 2024. The decrease in book value reflects our net income of $0.24 per share and the dividend distribution of $0.36 per share. The Company recorded net realized and unrealized gains of $21.2 million on Agency RMBS assets and derivative instruments, including net interest income on interest rate swaps.
Prepayments
For the quarter ended September 30, 2024, Orchid received $137.7 million in scheduled and unscheduled principal repayments and prepayments, which equated to a 3-month constant prepayment rate ("CPR") of approximately 8.8%. Prepayment rates on the two RMBS sub-portfolios were as follows (in CPR):
Structured
PT RMBS
RMBS
Total
Three Months Ended
Portfolio (%)
Portfolio (%)
Portfolio (%)
September 30, 2024
8.8
6.4
8.8
June 30, 2024
7.6
7.1
7.6
March 31, 2024
6.0
5.9
6.0
December 31, 2023
5.4
7.9
5.5
September 30, 2023
6.1
5.7
6.0
June 30, 2023
5.6
7.0
5.6
March 31, 2023
3.9
5.7
4.0
Portfolio
The following tables summarize certain characteristics of Orchid's PT RMBS (as defined below) and structured RMBS as of September 30, 2024 and December 31, 2023:
($ in thousands)
Weighted
Percentage
Average
of
Weighted
Maturity
Fair
Entire
Average
in
Longest
Asset Category
Value
Portfolio
Coupon
Months
Maturity
September 30, 2024
Fixed Rate RMBS
$
5,427,069
99.7
%
4.94
%
327
1-Oct-54
Interest-Only Securities
15,382
0.3
%
4.01
%
214
25-Jul-48
Inverse Interest-Only Securities
353
0.0
%
0.00
%
264
15-Jun-42
Total Mortgage Assets
$
5,442,804
100.0
%
4.90
%
325
1-Oct-54
December 31, 2023
Fixed Rate RMBS
$
3,877,082
99.6
%
4.33
%
334
1-Nov-53
Interest-Only Securities
16,572
0.4
%
4.01
%
223
25-Jul-48
Inverse Interest-Only Securities
358
0.0
%
0.00
%
274
15-Jun-42
Total Mortgage Assets
$
3,894,012
100.0
%
4.30
%
331
1-Nov-53
($ in thousands)
September 30, 2024
December 31, 2023
Percentage of
Percentage of
Agency
Fair Value
Entire Portfolio
Fair Value
Entire Portfolio
Fannie Mae
$
3,692,047
67.8
%
$
2,714,192
69.7
%
Freddie Mac
1,750,757
32.2
%
1,179,820
30.3
%
Total Portfolio
$
5,442,804
100.0
%
$
3,894,012
100.0
%
September 30, 2024
December 31, 2023
Weighted Average Pass-through Purchase Price
$
102.72
$
104.10
Weighted Average Structured Purchase Price
$
18.74
$
18.74
Weighted Average Pass-through Current Price
$
98.89
$
95.70
Weighted Average Structured Current Price
$
14.02
$
13.51
Effective Duration (1)
3.490
4.400
(1
)
Effective duration is the approximate percentage change in price for a 100 basis point change in rates. An effective duration of 3.490 indicates that an interest rate increase of 1.0% would be expected to cause a 3.490% decrease in the value of the RMBS in the Company's investment portfolio at September 30, 2024. An effective duration of 4.400 indicates that an interest rate increase of 1.0% would be expected to cause a 4.400% decrease in the value of the RMBS in the Company's investment portfolio at December 31, 2023. 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, 2024, the Company had outstanding repurchase obligations of approximately $5,230.9 million with a net weighted average borrowing rate of 5.24%. These agreements were collateralized by RMBS with a fair value, including accrued interest, of approximately $5,461.0 million and cash pledged to counterparties of approximately $9.2 million. The Company's adjusted leverage ratio, defined as the balance of repurchase agreement liabilities divided by stockholders' equity, at September 30, 2024 was 8.0 to 1. At September 30, 2024, the Company's liquidity was approximately $326.7 million consisting of cash and cash equivalents and unpledged RMBS. To enhance our liquidity even further, we may pledge more of our structured RMBS as part of a repurchase agreement funding, but retain the cash in lieu of acquiring additional assets. In this way we can, at a modest cost, retain higher levels of cash on hand and decrease the likelihood we will have to sell assets in a distressed market in order to raise cash. Below is a list of our outstanding borrowings under repurchase obligations at September 30, 2024.
($ in thousands)
Weighted
Weighted
Total
Average
Average
Outstanding
% of
Borrowing
Maturity
Counterparty
Balances
Total
Rate
in Days
ABN AMRO Bank N.V.
$
381,192
7.29
%
5.37
%
15
Merrill Lynch, Pierce, Fenner & Smith
379,748
7.26
%
5.20
%
35
ASL Capital Markets Inc.
346,397
6.62
%
5.35
%
31
Cantor Fitzgerald & Co
289,468
5.53
%
5.30
%
11
DV Securities, LLC Repo
274,284
5.24
%
5.24
%
19
Mitsubishi UFJ Securities (USA), Inc
263,580
5.04
%
5.35
%
23
J.P. Morgan Securities LLC
254,798
4.87
%
5.33
%
9
Banco Santander SA
248,472
4.75
%
5.33
%
49
Daiwa Securities America Inc.
247,191
4.73
%
5.04
%
28
Citigroup Global Markets Inc
244,746
4.68
%
5.04
%
25
Wells Fargo Bank, N.A.
241,641
4.62
%
5.29
%
16
ING Financial Markets LLC
225,593
4.31
%
5.01
%
39
Marex Capital Markets Inc.
223,192
4.27
%
5.00
%
21
Goldman, Sachs & Co
208,485
3.99
%
5.32
%
16
Bank of Montreal
204,522
3.91
%
5.31
%
15
South Street Securities, LLC
194,516
3.72
%
5.20
%
19
Clear Street LLC
193,535
3.70
%
5.21
%
48
Mirae Asset Securities (USA) Inc.
193,120
3.69
%
5.26
%
26
StoneX Financial Inc.
159,098
3.04
%
5.03
%
21
The Bank of Nova Scotia
149,958
2.87
%
5.29
%
15
RBC Capital Markets, LLC
143,225
2.74
%
5.31
%
45
Nomura Securities International, Inc.
75,278
1.44
%
5.31
%
15
Lucid Prime Fund, LLC
48,322
0.92
%
5.29
%
17
Wells Fargo Securities, LLC
23,004
0.44
%
5.06
%
25
Lucid Cash Fund USG LLC
17,506
0.33
%
5.31
%
17
Total / Weighted Average
$
5,230,871
100.00
%
5.24
%
25
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, 2024, such instruments were comprised of U.S. Treasury note ("T-Note") and Secured Overnight Financing Rate ("SOFR") futures contracts, interest rate swap agreements 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 September 30, 2024.
($ in thousands)
