Orchid Island Capital Announces Fourth Quarter 2024 Results

VERO BEACH, Fla., Jan. 30, 2025 (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 and twelve month periods ended December 31, 2024.

Fourth Quarter 2024 Results

• Net income of $5.6 million, or $0.07 per common share, which consists of:
  • Net interest income of $8.1 million, or $0.10 per common share
  • Total expenses of $4.4 million, or $0.05 per common share
  • Net realized and unrealized gains of $1.8 million, or $0.02 per common share, on RMBS and derivative instruments, including net interest income on interest rate swaps
• Fourth quarter total dividends declared and paid of $0.36 per common share
• Total return of 0.60%, comprised of $0.36 dividends per common share and a $0.31 decrease in book value per common share, divided by beginning book value per common share

• Net income of $37.8 million, or $0.57 per common share, which consists of:
  • Net interest income of $5.3 million, or $0.08 per common share
  • Total expenses of $16.7 million, or $0.26 per common share
  • Net realized and unrealized gains of $49.1 million, or $0.75 per common share, on RMBS and derivative instruments, including net interest income on interest rate swaps
• Full year total dividends declared and paid of $1.44 per common share
• Total return of 4.73%, comprised of $1.44 dividends per common share and a $1.01 decrease in book value per common share, divided by beginning book value per common share

• Book value per common share of $8.09 at December 31, 2024
• Orchid maintained a strong liquidity position of $353.6 million in cash and cash equivalents and unpledged securities (net of unsettled purchased securities), or 53% of stockholder's equity as of December 31, 2024
• Borrowing capacity in excess of December 31, 2024 outstanding repurchase agreement balances of $5,025.5 million, spread across 25 active lenders
• Company to discuss results on Friday, January 31, 2025, 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 fourth quarter results, Robert E. Cauley, Chairman and Chief Executive Officer, said, "The outlook for the fixed income market pivoted early in the fourth quarter of 2024.  As the third quarter came to an end, inflation was falling towards the Federal Reserve's (the "Fed") 2% target, the labor market was cooling, hiring levels had moderated and the unemployment rate was slowly creeping higher. As a result of these economic conditions, the Fed finally lowered the Fed funds rate by 50 basis points in September 2024.  At the time, the market expected the Fed to lower the rate by over 200 basis points over the next 18 months. Beginning early in the fourth quarter, the incoming data turned.  Readings on the labor market stabilized and hiring stopped slowing.  The unemployment rate appeared to plateau and most importantly, inflation data appeared "sticky”, as the decline previously in place seemed to lose momentum and remained above the Fed's 2% target level. In early November, the Republican party swept the national elections, with the new president having a very pro-growth agenda for the country.  By the end of 2024, the Fed had lowered the Fed funds rate two more times - by 25 basis points in each case.  With the Fed funds rate lowered by 100 basis points over the course of the third and fourth quarters and the outlook reversing as described above, the Treasury curve shifted higher and is no longer inverted between the Fed funds level and the 10-year point, or between the 2-year and 10-year points. The Agency RMBS market generated negative total returns for the fourth quarter and was one of the worst performing sectors of the fixed income markets.  Returns for the Agency RMBS market versus comparable duration swaps, a proxy for returns for levered bond investors such as the Company, were also negative, albeit far less so than the absolute returns.

"In spite of the elevated level of interest rates and poor performance of the Agency RMBS asset class for the quarter, Orchid generated a positive return of 0.6% for the fourth quarter (unannualized) as our book value decline of $0.31 was offset by dividends declared and paid of $0.36 during the quarter. These figures compare to a 2.1% return (unannualized) for the third quarter of 2024 as the market rallied given the onset of the Fed easing cycle described above. For the year ended December 31, 2024, Orchid generated a total return of 4.73% versus (8.63)% for 2023. 

"With the economy remaining quite strong, inflation sticky and fiscal deficits likely to remain elevated, we believe upward pressure on longer-term rates may persist and additional interest rate cuts by the Fed will be modest.  We have retained a bar-bell strategy in our Agency RMBS portfolio with an up-in-coupon bias and leverage near the lower end of our typical range.  We used a combination of new capital raised via our ATM program, paydowns and sales of some lower coupon securities to add to our higher coupon holdings, in all cases with favorable prepayment characteristics acquired at modest pay-ups to TBA securities.  With dollar-roll levels elevated, we moved our TBA hedge positions to short Treasury future positions.  While we have shifted our portfolio over the course of 2024 towards an up-in-coupon bias, we still maintain significant lower coupon holdings and in securities with significant seasoning, resulting in attractive returns due to prepayments well above typical turnover levels and performance when and if the market rallies.”

Details of Fourth Quarter 2024 Results of Operations

The Company reported net income of $5.6 million for the three month period ended December 31, 2024, compared with net income of $27.1 million for the three month period ended December 31, 2023. The Company increased its average Agency RMBS portfolio during the fourth quarter of 2024, from $5.0 billion for the quarter ended September 30, 2024 to $5.3 billion for the quarter ended December 31, 2024. Interest income on the portfolio in the fourth quarter was up approximately $4.4 million from the third quarter of 2024. The yield on our average Agency RMBS decreased from 5.43% in the third quarter of 2024 to 5.38% for the fourth quarter of 2024, repurchase agreement borrowing costs decreased from 5.62% for the third quarter of 2024 to 4.98% for the fourth quarter of 2024, and our net interest spread increased from (0.19)% in the third quarter of 2024 to 0.40% in the fourth quarter of 2024.

Book value decreased by $0.31 per share in the fourth quarter of 2024. The decrease in book value reflects our net income of $0.07 per share and the dividend distribution of $0.36 per share. The Company recorded net realized and unrealized gains of $0.02 per share on Agency RMBS assets and derivative instruments, including net interest income on interest rate swaps.

Details of Full Year 2024 Results of Operations

The Company reported net income of $37.7 million for the year ended December 31, 2024, compared with a net loss of $39.2 million for the year ended December 31, 2023. Interest income on the portfolio in the year ended December 31, 2024 was approximately $241.6 million and the yield on our average Agency RMBS was 5.25%. Repurchase agreement interest expense was $236.3 million during 2024 with an average cost of 5.35%.

Book value decreased by $1.01 per share in the year ended December 31, 2024. The decrease in book value reflects our net income of $0.57 per share and the dividend distribution of $1.44 per share. The Company recorded net realized and unrealized gains of $0.75 per share on Agency RMBS assets and derivative instruments, including net interest income on interest rate swaps.

Prepayments

For the quarter ended December 31, 2024, Orchid received $185.0 million in scheduled and unscheduled principal repayments and prepayments, which equated to a 3-month constant prepayment rate ("CPR”) of approximately 10.5%. Prepayment rates on the two RMBS sub-portfolios were as follows (in CPR):

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

As of December 31, 2024, the Company had outstanding repurchase obligations of approximately $5,025.5 million with a net weighted average borrowing rate of 4.66%. These agreements were collateralized by RMBS with a fair value, including accrued interest, of approximately $5,231.9 million. The Company's adjusted leverage ratio, defined as the balance of repurchase agreement liabilities divided by stockholders' equity, at December 31, 2024 was 7.5:1. At December 31, 2024, the Company's liquidity was approximately $353.6 million consisting of cash and cash equivalents and unpledged securities (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 December 31, 2024.