orc20231129_8k.htm
false 0001518621 0001518621 2024-02-01 2024-02-01
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported): February 1, 2024
 
Orchid Island Capital, Inc.
(Exact Name of Registrant as Specified in Charter)
 
Maryland
001-35236
27-3269228
(State or Other Jurisdiction of Incorporation)
(Commission File Number)
(IRS Employer Identification No.)
 
3305 Flamingo Drive, Vero Beach, Florida 32963
(Address of Principal Executive Offices) (Zip Code)
 
Registrant’s telephone number, including area code (772) 231-1400
 
N/A
(Former Name or Former Address, if Changed Since Last Report)
 
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class:
Trading symbol:         
Name of each exchange on which registered:
Common Stock, par value $0.01 per share
ORC
NYSE
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
 

 
 
Item 2.02. Results of Operations and Financial Condition.
 
On February 1, 2024, Orchid Island Capital, Inc. (the “Company”) issued the press release attached hereto as Exhibit 99.1 announcing the Company’s results of operations for the period ended December 31, 2023. In addition, the Company posted the supplemental financial information attached hereto as Exhibit 99.2 on the investor relations section of its website (https://ir.orchidislandcapital.com). The press release, attached as Exhibit 99.1, and the supplemental financial information, attached as Exhibit 99.2, are being filed under this “Item 2.02 Results of Operations and Financial Condition,” and are incorporated by reference into this Item 2.02. Exhibit 99.1 and Exhibit 99.2 provided with this Form 8-K shall each be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
 
Caution About Forward-Looking Statements.
 
This Current Report on Form 8-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws, including, but not limited to, statements regarding interest rates, inflation, liquidity, pledging of our structured RMBS, funding levels costs, prepayment speeds, portfolio positioning and repositioning, hedging levels, book value, leverage ratio, earnings, dividends, 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. These forward-looking statements are based upon the Company’s present expectations, but the Company cannot assure investors that actual results will not vary from the expectations contained in the forward-looking statements. Investors should not place undue reliance upon forward-looking statements. For further discussion of the factors that could affect outcomes, please refer to the “Risk Factors” section of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which has been filed with the Securities and Exchange Commission ("SEC"), and other documents that the Company files with the SEC. All forward-looking statements speak only as of the date on which they are made. New risks and uncertainties arise over time, and it is not possible to predict those events or how they may affect the Company. Except as required by law, the Company is not obligated to, and does not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
 
Item 9.01. Financial Statements and Exhibits.
 
(d) Exhibits
 
Exhibit No.
 
Description
99.1
 
99.2   Fourth Quarter 2023 Supplemental Financial Information
104
 
Cover Page Interactive Data File (embedded within the Inline XBRL document)
 
 

 
 
Signatures
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
Date: February 1, 2024
 
ORCHID ISLAND CAPITAL, INC.
   
   
 
By:
/s/ Robert E. Cauley
   
Robert E. Cauley
   
Chairman and Chief Executive Officer
 
 
ex_601266.htm

Exhibit 99.1

 

https://cdn.kscope.io/42fec49abba67bad8b3ea19caf761eda-oilogo.jpg

 

ORCHID ISLAND CAPITAL ANNOUNCES FOURTH QUARTER 2023 RESULTS

 

VERO BEACH, Fla. (February 1, 2024) – 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, 2023.

 

Fourth Quarter 2023 Results

 

Net income of $27.1 million, or $0.52 per common share, which consists of:

 

Net interest expense of $(2.8) million, or $(0.05) per common share

 

Total expenses of $4.1 million, or $0.08 per common share

 

Net realized and unrealized gains of $34.0 million, or $0.65 per common share, on RMBS and derivative instruments, including net interest income on interest rate swaps

 

Fourth quarter and full year total dividends declared and paid of $0.36 and $1.80 per common share, respectively

 

Book value per common share of $9.10 at December 31, 2023

 

Total return of 6.05%, comprised of $0.36 dividends per common share and an $0.18 increase in book value per common share, divided by beginning book value per common share

 

Other Financial Highlights

 

Orchid maintained a strong liquidity position of $200.4 million in cash and cash equivalents and unpledged securities (net of unsettled purchased securities, or 43% of stockholder’s equity as of December 31, 2023

 

Borrowing capacity in excess of December 31, 2023 outstanding repurchase agreement balances of $3,705.7 million, spread across 21 active lenders

 

Company to discuss results on Friday, February 2, 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 fourth quarter results, Robert E. Cauley, Chairman and Chief Executive Officer, said, “The last quarter of 2023 may prove to be a very pivotal period. At the conclusion of the third quarter of 2023 several factors were driving interest rates rapidly higher and the market fully expected rates to remain higher for an extended period.  Rapidly expanding federal deficits were a key driver and the Federal Reserve’s (the "Fed") own outlook, expressed via their quarterly “dot plots,” reflected rates remaining high through 2024. The outlook began to change in early November. The impetus was twofold.  Economic data, particularly inflation data, appeared to moderate.  The Fed reacted to this development in their public comments. Even the Chairman at the press conference at the conclusion of their December meeting strongly hinted that if inflation continued to moderate, they were done raising rates and they would likely cut rates – perhaps relatively soon. 

 

“The markets reacted strongly to these developments.  Risk assets of all types performed very well over the balance of the fourth quarter.  Several sectors of the fixed income markets with negative year to date returns as of November 1, 2023 ended the quarter and year with positive returns.  Interest rates ended the quarter significantly lower than the levels at September 30, 2023, even after rising significantly during October. The yield on the 2-year U.S. Treasury declined by nearly 80 basis points during the fourth quarter, and the 10-year U.S. Treasury declined by approximately 70 basis points. Equity markets performed even better, with the S&P 500 finishing the quarter with a positive 11.7% return and the year with a positive 26.3% return.  Agency MBS had a relatively strong quarter, outperforming most other sectors of the fixed income markets except for municipals and emerging market high yield.  For the year, Agency MBS returns were not as strong on a relative basis, but still positive at +5.05%.

 

“Orchid’s book value increased over the quarter, from $8.92 at the end of the third quarter to $9.10 at December 31, 2023.  During the turbulent weeks at the beginning of the quarter as rates moved higher and mortgage performance was quite poor, we reduced leverage and decreased the size of the portfolio by approximately 15.7% with the sales focused solely in longer duration discount securities.  When the market reversed and interest rates decreased, we kept our hedge coverage constant as it appeared the market might be getting too optimistic on the magnitude and timing of rate cuts in 2024.  As we entered 2024 this proved to be a prudent step as the market has since reversed again and market pricing of Fed rates cuts in 2024 has both declined and been pushed further into the future.  Mortgages have not performed very well, having widened to comparable duration rates or swaps slightly. 

 

 

 

“As we enter 2024 the steps taken in 2023 should serve us well.  We have reduced our exposure to lower coupon securities and increased the weighted average coupon of the portfolio from 3.47% at December 31, 2022 to 4.33% at December 31, 2023.  Our hedge strategy has protected our funding costs from increasing too high as the Fed raised overnight funding costs towards 5.5%.  In fact, our economic interest spread, which reflects the effect of our hedges, increased from 1.33% at September 30, 2023 to 2.35% at year end.  Going forward, the severe book value pressure for the bulk of the last two years appears to have abated and with our earnings having stabilized, we believe  there is room for our earnings to increase should Fed rate cuts lower our funding costs.”

 

Details of Fourth Quarter 2023 Results of Operations

 

The Company reported net income of $27.1 million for the three month period ended December 31, 2023, compared with net income of $34.9 million for the three month period ended December 31, 2022. The Company decreased its Agency RMBS portfolio during the fourth quarter of 2023, from $4.5 billion at September 30, 2023 to $3.9 billion at December 31, 2023. Interest income on the portfolio in the fourth quarter was down approximately $0.6 million from the third quarter of 2023. The yield on our average Agency RMBS increased from 4.51% in the third quarter of 2023 to 4.71% for the fourth quarter of 2023, repurchase agreement borrowing costs decreased from 5.44% for the third quarter of 2023 to 5.15% for the fourth quarter of 2023, and our net interest spread increased from (0.93)% in the third quarter of 2023 to (0.44)% in the fourth quarter of 2023.

 

Book value increased by $0.18 per share in the fourth quarter of 2023. The increase in book value reflects our net income of $0.52 per share and the dividend distribution of $0.36 per share. The Company recorded net realized and unrealized gains of $0.65 per share on Agency RMBS assets and derivative instruments, including net interest income on interest rate swaps.

 

Details of Full Year 2023 Results of Operations

 

The Company reported a net loss of $39.2 million for the year ended December 31, 2023, compared with a net loss of $258.5 million for the year ended December 31, 2022. Interest income on the portfolio in the year ended December 31, 2023 was approximately $177.6 million and the yield on our average Agency RMBS was 4.28%. Repurchase agreement interest expense was $201.9 million during 2023 with an average cost of 5.07%.

 

Prepayments

 

For the quarter ended December 31, 2023, Orchid received $88.8 million in scheduled and unscheduled principal repayments and prepayments, which equated to a 3-month constant prepayment rate (“CPR”) of approximately 5.5%. Prepayment rates on the two RMBS sub-portfolios were as follows (in CPR):

 

           

Structured

         
   

PT RMBS

   

RMBS

   

Total

 

Three Months Ended

 

Portfolio (%)

   

Portfolio (%)

   

Portfolio (%)

 

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  

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 December 31, 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

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

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)

                               
   

December 31, 2023

   

December 31, 2022

 
           

Percentage of

           

Percentage of

 

Agency

 

Fair Value

   

Entire Portfolio

   

Fair Value

   

Entire Portfolio

 

Fannie Mae

  $ 2,714,192       69.7 %   $ 2,320,960       65.6 %

Freddie Mac

    1,179,820       30.3 %     1,219,042       34.4 %

Total Portfolio

  $ 3,894,012       100.0 %   $ 3,540,002       100.0 %

 

   

December 31, 2023

   

December 31, 2022

 

Weighted Average Pass-through Purchase Price

  $ 104.10     $ 106.41  

Weighted Average Structured Purchase Price

  $ 18.74     $ 18.74  

Weighted Average Pass-through Current Price

  $ 95.70     $ 91.46  

Weighted Average Structured Current Price

  $ 13.51     $ 14.05  

Effective Duration (1)

    4.400       5.580  

 

(1)

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. 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 December 31, 2023, the Company had outstanding repurchase obligations of approximately $3,705.6 million with a net weighted average borrowing rate of 5.55%. These agreements were collateralized by RMBS with a fair value, including accrued interest, of approximately $3,900.5 million. The Company’s adjusted leverage ratio, defined as the balance of repurchase agreement liabilities divided by stockholders' equity, at December 31, 2023 was 7.9 to 1. At December 31, 2023, the Company’s liquidity was approximately $200.4 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, 2023.

 

($ in thousands)

                                       
                   

Weighted

           

Weighted

 
   

Total

           

Average

           

Average

 
   

Outstanding

   

% of

   

Borrowing

   

Amount

   

Maturity

 

Counterparty

 

Balances

   

Total

   

Rate

   

at Risk(1)

   

in Days

 

RBC Capital Markets, LLC

    300,275       8.1 %     5.53 %   $ 9,705       16  

Citigroup Global Markets Inc

    298,549       8.1 %     5.55 %     15,832       26  

Mitsubishi UFJ Securities (USA), Inc.

    284,167       7.7 %     5.57 %     15,761       22  

J.P. Morgan Securities LLC

    266,958       7.2 %     5.54 %     14,264       18  

Cantor Fitzgerald & Co

    257,999       7.0 %     5.54 %     12,990       44  

ASL Capital Markets Inc.

    244,611       6.6 %     5.53 %     13,391       17  

Wells Fargo Bank, N.A.

    218,540       5.9 %     5.56 %     11,522       26  

Mirae Asset Securities (USA) Inc.

    200,200       5.4 %     5.53 %     8,721       52  

Merrill Lynch, Pierce, Fenner & Smith

    193,715       5.2 %     5.56 %     13,036       16  

Daiwa Securities America Inc.

    179,787       4.9 %     5.54 %     6,862       24  

ABN AMRO Bank N.V.

    177,114       4.8 %     5.55 %     10,102       20  

Bank of Montreal

    169,041       4.6 %     5.55 %     9,112       16  

StoneX Financial Inc.

    168,852       4.6 %     5.55 %     9,023       16  

Goldman, Sachs & Co

    160,410       4.3 %     5.56 %     8,533       18  

Banco Santander SA

    154,412       4.2 %     5.53 %     7,670       71  

ING Financial Markets LLC

    128,758       3.5 %     5.55 %     5,498       16  

Marex Capital Markets Inc.

    115,143       3.1 %     5.52 %     4,385       10  

DV Securities, LLC Repo

    88,423       2.4 %     5.55 %     5,105       48  

South Street Securities, LLC

    80,295       2.2 %     5.57 %     4,131       59  

Lucid Cash Fund USG LLC

    9,840       0.3 %     5.55 %     768       18  

Lucid Prime Fund, LLC

    8,560       0.2 %     5.54 %     474       18  

Total / Weighted Average

  $ 3,705,649       100.0 %     5.55 %   $ 186,885       26  

 

(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 December 31, 2023, such instruments were comprised of U.S. Treasury note (“T-Note”) and Secured Overnight Financing Rate ("SOFR") futures contracts, interest rate swap agreements, interest rate swaption 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 December 31, 2023.

 

($ in thousands)

                               
   

December 31, 2023

 
   

Average

   

Weighted

   

Weighted

         
   

Contract

   

Average

   

Average

         
   

Notional

   

Entry

   

Effective

   

Open

 

Expiration Year

 

Amount

   

Rate

   

Rate

   

Equity(1)

 

U.S. Treasury Note Futures Contracts (Short Positions)(2)

                               

March 2024 5-year T-Note futures (Mar 2024 - Mar 2029 Hedge Period)

  $ 421,500       4.36 %     4.04 %   $ (9,936 )

March 2024 10-year Ultra futures (Mar 2024 - Mar 2034 Hedge Period)

    320,000       4.38 %     4.39 %   $ (11,393 )

SOFR Futures Contracts (Short Positions)

                               

June 2024 3-Month SOFR futures (Mar 2024 - Jun 2024 Hedge Period)

  $ 25,000       5.08 %     4.99 %   $ (24 )

September 2024 3-Month SOFR futures (Jun 2024 - Sep 2024 Hedge Period)

    25,000       4.67 %     4.52 %   $ (39 )

December 2024 3-Month SOFR futures (Sep 2024 - Dec 2024 Hedge Period)

    25,000       4.27 %     4.10 %   $ (44 )

March 2025 3-Month SOFR futures (Dec 2024 - Mar 2025 Hedge Period)

    25,000       3.90 %     3.73 %   $ (43 )

June 2025 3-Month SOFR futures (Mar 2025 - Jun 2025 Hedge Period)

    25,000       3.58 %     3.42 %   $ (41 )

September 2025 3-Month SOFR futures (Jun 2025 - Sep 2025 Hedge Period)

    25,000       3.37 %     3.21 %   $ (39 )

December 2025 3-Month SOFR futures (Sep 2025 - Dec 2025 Hedge Period)

    25,000       3.25 %     3.10 %   $ (37 )

March 2026 3-Month SOFR futures (Dec 2025 - Mar 2026 Hedge Period)

    25,000       3.21 %     3.07 %   $ (35 )

 

(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 $108.77 at December 31, 2023. The contract values of the short positions were $458.5 million at December 31, 2023. 10-Year Ultra futures contracts were valued at a price of $112.89 at December 31, 2023.  The contract value of the short positions was $361.3 million at December 31, 2023.

 

The table below presents information related to the Company’s interest rate swap positions at December 31, 2023.

 

($ in thousands)

                               
           

Average

                 
           

Fixed

   

Average

   

Average

 
   

Notional

   

Pay

   

Receive

   

Maturity

 
   

Amount

   

Rate

   

Rate

   

(Years)

 

Expiration > 1 to ≤ 5 years

  $ 500,000       0.84 %     5.64 %     2.7  

Expiration > 5 years

    1,826,500       2.62 %     5.40 %     6.8  
    $ 2,326,500       2.24 %     5.45 %     5.9  

 

The following table presents information related to our interest rate swaption positions as of December 31, 2023.

 

($ 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 positions)

                                                 

≤ 1 year

  $ 1,619     $ 72       5.0     $ 800,000       5.40 %

SOFR

    1.0  

 

 

 

 

The following table summarizes our contracts to sell TBA securities as of December 31, 2023.

 

($ in thousands)

                               
   

Notional

                   

Net

 
   

Amount

   

Cost

   

Market

   

Carrying

 
   

Long (Short)(1)

   

Basis(2)

   

Value(3)

   

Value(4)

 

December 31, 2023

                               

30-Year TBA securities:

                             
3.00%   $ (70,700 )   $ (59,278 )   $ (62,647 )   $ (3,369 )
5.00%     (250,000 )     (242,725 )     (247,657 )     (4,932 )
5.50%     (325,000 )     (322,410 )     (326,803 )     (4,393 )
    $ (645,700 )   $ (624,413 )   $ (637,107 )   $ (12,694 )

 

(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 amounts)

               

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

    1.800       81,127  

2024 YTD(1)

    0.120       6,181  

Totals

  $ 66.570     $ 614,778  

 

(1)

On January 10, 2024, the Company declared a dividend of $0.12 per share to be paid on February 27, 2024. The effect of this dividend is included in the table above but is not reflected in the Company’s financial statements as of December 31, 2023.

 

Book Value Per Share

 

The Company's book value per share at December 31, 2023 was $9.10. 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 December 31, 2023, the Company's stockholders' equity was $469.9 million with 51,636,074 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 September 30, 2023, approximately 95.1% 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 December 31, 2023, the allocation to the PT RMBS portfolio increased to approximately 95.6%.

 

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 - September 30, 2023

  $ 4,502,115     $ 17,833     $ 277     $ 18,110     $ 4,520,225  

Securities purchased

    77,243       -       -       -       77,243  

Securities sold

    (797,633 )     -       -       -       (797,633 )

Losses on sales

    (22,642 )     -       -       -       (22,642 )

Return of investment

    n/a       (593 )     -       (593 )     (593 )

Pay-downs

    (88,223 )     n/a       -       n/a       (88,223 )

Discount accretion due to pay-downs

    8,067       n/a       -       n/a       8,067  

Mark to market gains (losses)

    198,155       (668 )     81       (587 )     197,568  

Market value - December 31, 2023

  $ 3,877,082     $ 16,572     $ 358     $ 16,930     $ 3,894,012  

 

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

 

($ in thousands)

 

Capital Allocation

 
           

Structured Security Portfolio

         
   

Pass-Through

   

Interest-Only

   

Inverse Interest

                 
   

Portfolio

   

Securities

   

Only Securities

   

Sub-total

   

Total

 

December 31, 2023

                                       

Market value

  $ 3,877,082     $ 16,572     $ 358     $ 16,930     $ 3,894,012  

Cash

    200,289       -       -       -       200,289  

Borrowings(1)

    (3,705,649 )     -       -       -       (3,705,649 )

Total

  $ 371,722     $ 16,572     $ 358     $ 16,930     $ 388,652  

% of Total

    95.6 %     4.3 %     0.1 %     4.4 %     100.0 %

September 30, 2023

                                       

Market value

  $ 4,502,115     $ 17,833     $ 277     $ 18,110     $ 4,520,225  

Cash

    278,217       -       -       -       278,217  

Borrowings(2)

    (4,426,947 )     -       -       -       (4,426,947 )

Total

  $ 353,385     $ 17,833     $ 277     $ 18,110     $ 371,495  

% of Total

    95.1 %     4.8 %     0.1 %     4.9 %     100.0 %

 

(1)

At December 31, 2023, there were outstanding repurchase agreement balances of $13.9 million secured by IO securities and $0.2 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 September 30, 2023, there were outstanding repurchase agreement balances of $14.7 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.

 

 

 

The return on invested capital in the PT RMBS and structured RMBS portfolios was approximately 8.7% and (1.1)%, respectively, for the fourth quarter of 2023. The combined portfolio generated a return on invested capital of approximately 8.2%.

 

($ in thousands)

 

Returns for the Quarter Ended December 31, 2023

 
           

Structured Security Portfolio

         
   

Pass-Through

   

Interest-Only

   

Inverse Interest

                 
   

Portfolio

   

Securities

   

Only Securities

   

Sub-total

   

Total

 

Income (net of borrowing cost)

  $ (3,191 )   $ 403     $ -     $ 403     $ (2,788 )

Realized and unrealized gains (losses)

    183,580       (668 )     81       (587 )     182,993  

Derivative losses

    (149,016 )     n/a       n/a       n/a       (149,016 )

Total Return

  $ 31,373     $ (265 )   $ 81     $ (184 )   $ 31,189  

Beginning Capital Allocation

  $ 353,385     $ 17,833     $ 277     $ 18,110     $ 371,495  

Return on Invested Capital for the Quarter(1)

    8.9 %     (1.5 )%     29.2 %     (1.0 )%     8.4 %

Average Capital Allocation(2)

  $ 362,554     $ 17,203     $ 318     $ 17,521     $ 380,075  

Return on Average Invested Capital for the Quarter(3)

    8.7 %     (1.5 )%     25.5 %     (1.1 )%     8.2 %

 

(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 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 December 31, 2023, we issued a total of 13,190,039 shares under the March 2023 Equity Distribution Agreement for aggregate gross proceeds of approximately $129.9 million, and net proceeds of approximately $127.8 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 1,061,315 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 December 31, 2023, the Company repurchased a total of 4,748,361 shares at an aggregate cost of approximately $74.2 million, including commissions and fees, for a weighted average price of $15.63 per share. During the year ended December 31, 2023, the Company repurchased a total of 1,072,789 shares at an aggregate cost of approximately $9.4 million, including commissions and fees, for a weighted average price of $8.79 per share. Subsequent to December 31, 2023, the Company repurchased a total of 332,773 shares at an aggregate cost of approximately $2.8 million, including commissions and fees, for a weighted average price of $8.35 per share.

 

 

 

Earnings Conference Call Details

 

An earnings conference call and live audio webcast will be hosted Friday, February 2, 2024, at 10:00 AM ET. The conference call may be accessed by dialing toll free (800) 715-9871. The conference passcode is 8307491. 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 March 1, 2024.

 

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 costs, prepayment speeds, portfolio positioning and repositioning, hedging levels, book value, leverage ratio, earnings, dividends, 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, 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.

 

CONTACT:

Orchid Island Capital, Inc.

Robert E. Cauley, 772-231-1400

Chairman and Chief Executive Officer

https://ir.orchidislandcapital.com

 

 

 

Summarized Financial Statements

 

The following is a summarized presentation of the unaudited balance sheets as of December 31, 2023 and 2022, and the unaudited quarterly statements of operations for the twelve and three months ended December 31, 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)

 

   

December 31, 2023

   

December 31, 2022

 

ASSETS:

               

Mortgage-backed securities

  $ 3,894,012     $ 3,540,002  

U.S. Treasury securities

 

148,820

   

36,382

 

Cash, cash equivalents and restricted cash

    200,289       237,219  

Accrued interest receivable

    14,951       11,519  

Derivative assets, at fair value

    6,420       40,172  

Other assets

    455       442  

Total Assets

  $ 4,264,947     $ 3,865,736  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

               

Repurchase agreements

  $ 3,705,649     $ 3,378,445  

Payable of investment securities purchased

    60,454       -  

Dividends payable

    6,222       5,908  

Derivative liabilities, at fair value

    12,694       7,161  

Accrued interest payable

    7,939       9,209  

Due to affiliates

    1,013       1,131  

Other liabilities

    1,031       25,119  

Total Liabilities

    3,795,002       3,426,973  

Total Stockholders' Equity

    469,945       438,763  

Total Liabilities and Stockholders' Equity

  $ 4,264,947     $ 3,865,736  

Common shares outstanding

    51,636,074       36,764,983  

Book value per share

  $ 9.10     $ 11.93  

 

 

 

 

 

 

ORCHID ISLAND CAPITAL, INC.

STATEMENTS OF COMPREHENSIVE INCOME

($ in thousands, except per share data)

(Unaudited - Amounts Subject to Change)

 

   

Years Ended December 31,

   

Three Months Ended December 31,

 
   

2023

   

2022

   

2023

   

2022

 

Interest income

  $ 177,569     $ 144,633     $ 49,539     $ 31,898  

Interest expense

    (201,918 )     (61,708 )     (52,325 )     (29,512 )

Net interest (expense) income

    (24,349 )     82,925       (2,786 )     2,386  

Gains (losses) on RMBS and derivative contracts

    3,654       (323,929 )     33,977       36,728  

Net portfolio (loss) income

    (20,695 )     (241,004 )     31,191       39,114  

Expenses

    18,531       17,449       4,064       4,188  

Net (loss) income

  $ (39,226 )   $ (258,453 )   $ 27,127     $ 34,926  

Other comprehensive income

    17       -       1       -  

Comprehensive net

  $ (39,209 )   $ (258,453 )   $ 27,128     $ 34,926  
                                 

Basic and diluted net (loss) income per share

  $ (0.89 )   $ (6.90 )   $ 0.52     $ 0.95  

Weighted Average Shares Outstanding

    44,649,039       37,464,671       52,396,001       36,786,056  

Dividends Declared Per Common Share:

  $ 1.800     $ 2.475     $ 0.360     $ 0.480  

 

   

Three Months Ended December 31,

 

Key Balance Sheet Metrics

 

2023

   

2022

 

Average RMBS(1)

  $ 4,207,118     $ 3,370,608  

Average repurchase agreements(1)

    4,066,298       3,256,153  

Average stockholders' equity(1)

    468,393       419,570  

Adjusted leverage ratio(2)

 

7.9:1

   

7.7:1

 

Economic leverage ratio(3)

 

6.7:1

   

6.3:1

 
                 

Key Performance Metrics

               

Average yield on RMBS(4)

    4.71 %     3.79 %

Average cost of funds(4)

    5.15 %     3.63 %

Average economic cost of funds(5)

    2.36 %     2.47 %

Average interest rate spread(6)

    (0.44 )%     0.16 %

Average economic interest rate spread(7)

    2.35 %     1.32 %

 

 

(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.

 

 

 

 
Image Exhibit

Exhibit 99.2

 

 

 

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