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
- 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
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 $137.7 million in scheduled and unscheduled principal repayments and prepayments, which equated to a 3-month constant prepayment rate ("CPR”) of approximately 8.8%. Prepayment rates on the two RMBS sub-portfolios were as follows (in CPR):
| Structured | ||||||
| PT RMBS | RMBS | Total | ||||
| Three Months Ended | Portfolio (%) | Portfolio (%) | Portfolio (%) | |||
| September 30, 2024 | 8.8 | 6.4 | 8.8 | |||
| June 30, 2024 | 7.6 | 7.1 | 7.6 | |||
| March 31, 2024 | 6.0 | 5.9 | 6.0 | |||
| December 31, 2023 | 5.4 | 7.9 | 5.5 | |||
| September 30, 2023 | 6.1 | 5.7 | 6.0 | |||
| June 30, 2023 | 5.6 | 7.0 | 5.6 | |||
| March 31, 2023 | 3.9 | 5.7 | 4.0 | |||
The following tables summarize certain characteristics of Orchid's PT RMBS (as defined below) and structured RMBS as of September 30, 2024 and December 31, 2023:
| ($ 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. |
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 | %<
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