Orchid Island Capital(ORC) - 2024 Q2 - Quarterly Results

Second Quarter 2024 Financial Highlights & Management Commentary Orchid Island Capital reported a Q2 2024 net loss, increased its Agency RMBS portfolio, and raised equity, anticipating a Federal Reserve policy pivot Q2 2024 Key Financial Metrics | Metric | Value | | :--- | :--- | | Net Loss | $5.0 million | | Net Loss per Common Share | $0.09 | | Dividends Declared and Paid per Share | $0.36 | | Book Value per Common Share (at June 30, 2024) | $8.58 | | Total Return | (1.97)% | | Liquidity (Cash & Unpledged Securities) | $265.3 million | - Management believes the Federal Reserve may be nearing a pivot to ease monetary policy due to moderating economic growth and inflation, with market pricing suggesting two to three rate cuts by year-end 2024[3] - The company raised approximately $100.7 million in common equity via its at-the-market program during Q2 2024[4] - Proceeds from the equity raise were used to increase the portfolio size by approximately 16.6% in Q2 2024, capitalizing on attractive spreads in Agency RMBS[4] Detailed Financial & Operational Performance The company's Q2 2024 operations showed a net loss, increased prepayment rates, and expanded mortgage assets, supported by financing and hedging activities Results of Operations The company reported a Q2 2024 net loss, with slight changes in RMBS yield and borrowing costs, impacting book value per share Q2 2024 vs Q1 2024 Performance | Metric | Q2 2024 | Q1 2024 | | :--- | :--- | :--- | | Yield on Average Agency RMBS | 5.05% | 5.03% | | Repurchase Agreement Borrowing Costs | 5.34% | 5.54% | - Book value decreased by $0.54 per share in Q2 2024, reflecting a net loss of $0.09 per share and a dividend of $0.36 per share[6] Prepayments Orchid received significant principal repayments in Q2 2024, leading to an increased constant prepayment rate Constant Prepayment Rate (CPR) Trend | Quarter Ended | Total Portfolio CPR (%) | | :--- | :--- | | June 30, 2024 | 7.6 | | March 31, 2024 | 6.0 | | December 31, 2023 | 5.5 | | September 30, 2023 | 6.0 | | June 30, 2023 | 5.6 | Portfolio Composition As of June 30, 2024, the mortgage asset portfolio significantly grew, primarily comprising fixed-rate RMBS, with a slight duration decrease Portfolio Fair Value Comparison ($ in thousands) | Asset Category | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Fixed Rate RMBS | $4,509,084 | $3,877,082 | | Interest-Only Securities | $16,447 | $16,572 | | Inverse Interest-Only Securities | $224 | $358 | | Total Mortgage Assets | $4,525,755 | $3,894,012 | - The portfolio's effective duration was 4.290 as of June 30, 2024, down from 4.400 at December 31, 2023[9] Financing, Leverage, and Liquidity The company maintained substantial repurchase obligations and liquidity, with an adjusted leverage ratio of 7.8 to 1 Financing and Liquidity Metrics (June 30, 2024) | Metric | Value | | :--- | :--- | | Repurchase Obligations | $4,345.7 million | | Weighted Average Borrowing Rate | 5.46% | | Adjusted Leverage Ratio | 7.8 to 1 | | Liquidity | $265.3 million | - The company has borrowing agreements with 22 active counterparties, with the largest exposure being 6.6% to ABN AMRO Bank N.V[10][11] Hedging Activities The company actively uses various derivative instruments to hedge interest rate risk on its portfolio - The company economically hedges its repurchase agreement funding costs against rising interest rates using derivative financial instruments without electing GAAP hedge accounting treatment[12] Key Hedging Positions (June 30, 2024) | Instrument | Notional Amount ($ in thousands) | | :--- | :--- | | T-Note Futures (Short) | $421,500 | | Interest Rate Swaps | $3,136,800 | | TBA Securities (Short) | $(400,000) | Capital Management & Shareholder Returns The company declared Q2 2024 dividends, managed book value, strategically allocated capital, and engaged in stock offerings and repurchases Dividends Orchid Island Capital maintains its policy of paying regular monthly dividends to satisfy REIT qualification requirements Dividends Declared Per Share | Period | Per Share Amount | | :--- | :--- | | 2024 - YTD | $0.840 | | 2023 | $1.800 | | 2022 | $2.475 | - The company intends to pay regular monthly dividends to stockholders to satisfy REIT qualification requirements, which mandate distributing at least 90% of REIT taxable income[22] Book Value Per Share As of June 30, 2024, the company's book value per share was calculated based on total stockholders' equity and outstanding shares Book Value Calculation (June 30, 2024) | Metric | Value | | :--- | :--- | | Total Stockholders' Equity | $555.9 million | | Common Stock Outstanding | 64,824,374 shares | | Book Value Per Share | $8.58 | Capital Allocation and Return on Invested Capital Capital is primarily allocated to pass-through RMBS, with varying returns across portfolios Capital Allocation as of June 30, 2024 | Portfolio | % of Total Capital | | :--- | :--- | | Pass-Through Portfolio | 96.2% | | Structured Security Portfolio | 3.8% | Return on Invested Capital for Q2 2024 | Portfolio | Return on Invested Capital | | :--- | :--- | | Pass-Through Portfolio | (0.5)% | | Structured Security Portfolio | 6.2% | | Total Portfolio | (0.2)% | Stock Offerings The company actively uses "at the market" equity distribution agreements to raise capital - On June 11, 2024, the company entered into a new equity distribution agreement to offer and sell up to $250 million of common stock[35] - Through June 30, 2024, $16.9 million in gross proceeds were raised under the new June 2024 agreement. An additional $55.5 million was raised subsequent to the quarter end[35] Stock Repurchase Program The company has an active stock repurchase program with a significant remaining authorization Stock Repurchase Activity (Six Months Ended June 30, 2024) | Metric | Value | | :--- | :--- | | Shares Repurchased | 332,773 | | Aggregate Cost | ~$2.8 million | | Weighted Average Price | $8.35 per share | - The stock repurchase program has no termination date and the remaining authorization represents approximately 18% of the outstanding shares as of October 12, 2022[36] Summarized Financial Statements Unaudited Q2 2024 financial statements show increased assets and equity, a net loss, and key performance metrics including interest rate spreads Balance Sheets As of June 30, 2024, total assets and liabilities increased, while stockholders' equity grew and book value per share decreased Balance Sheet Summary ($ in thousands) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $4,929,905 | $4,264,947 | | Total Liabilities | $4,373,973 | $3,795,002 | | Total Stockholders' Equity | $555,932 | $469,945 | | Book Value Per Share | $8.58 | $9.10 | Statements of Comprehensive Income (Loss) For Q2 2024, the company reported a net loss, a downturn from the prior year, driven by net interest expense and operating costs Income Statement Summary - Three Months Ended June 30 ($ in thousands) | Account | 2024 | 2023 | | :--- | :--- | :--- | | Net Interest Expense | $(697) | $(8,760) | | Gains on RMBS and derivative contracts | $98 | $23,828 | | Expenses | $4,380 | $4,819 | | Net Income (Loss) | $(4,979) | $10,249 | | Basic and Diluted EPS | $(0.09) | $0.25 | Key Performance Metrics Q2 2024 metrics include average RMBS yield, cost of funds, economic interest rate spread, and adjusted leverage ratio Key Performance Metrics - Three Months Ended June 30 | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Average Yield on RMBS | 5.05% | 3.81% | | Average Cost of Funds | 5.34% | 4.88% | | Average Economic Interest Rate Spread | 2.64% | 1.28% | | Adjusted Leverage Ratio (End of Period) | 7.8:1 | 8.6:1 | Corporate Information Orchid Island Capital is a specialty finance company managed by Bimini Advisors, LLC, with an upcoming earnings conference call About Orchid Island Capital, Inc. Orchid Island Capital, Inc. is a specialty finance company investing in Agency RMBS on a leveraged basis - The company's investment strategy focuses on traditional pass-through Agency RMBS (like mortgage pass-through certificates and CMOs) and structured Agency RMBS (like IOs and IIOs)[39] Conference Call Information An earnings conference call is scheduled for July 26, 2024, to discuss the quarterly results - Earnings conference call scheduled for Friday, July 26, 2024, at 10:00 AM ET[38] Forward-Looking Statements This report contains forward-looking statements subject to risks and uncertainties, with no obligation for updates - The report includes forward-looking statements concerning economic conditions, Fed actions, and company performance, which are subject to risks and uncertainties[40]