Orchid Island Capital(US:ORC)2025-10-24 20:17Financial Performance - Net income for the nine months ended September 30, 2025, was $55.6 million, or $0.48 per share, compared to $32.1 million, or $0.53 per share for the same period in 2024, reflecting a 73.5% increase in net income [135]. - Interest income for the nine months ended September 30, 2025, was $281.8 million, up from $169.6 million in 2024, representing a 66.1% increase [135]. - Net interest income for the nine months ended September 30, 2025, was $69.8 million, compared to a net interest expense of $2.8 million in 2024, indicating a significant turnaround [135]. - For the three months ended September 30, 2025, net income excluding realized and unrealized gains was $72,078,000, compared to a loss of $33,578,000 in the previous quarter [142]. - The net earnings for the nine months ended September 30, 2025, were $55,622,000, a significant increase from $32,117,000 in the same period of 2024 [142]. - Economic net interest income for the three months ended September 30, 2025, was $48,791,000, reflecting an increase from $40,625,000 in the previous quarter [156]. - The company reported an economic net interest income of $133.5 million for the nine months ended September 30, 2025, compared to $86.1 million for the same period in 2024 [160]. Shareholder Activities - The company issued a total of 24,675,497 shares under the March 2023 Equity Distribution Agreement for gross proceeds of approximately $228.8 million [127]. - As of October 23, 2025, the remaining authorization under the stock repurchase program was 2,719,137 shares, representing approximately 10% of the company's then outstanding shares [133]. - The company repurchased a total of 1,113,224 shares at an aggregate cost of approximately $7.3 million during the nine months ended September 30, 2025, at a weighted average price of $6.52 per share [133]. - The company issued a total of 56,019,745 shares under the February 2025 Equity Distribution Agreement for aggregate gross proceeds of approximately $420.2 million [218]. Investment Strategy - The company aims to provide attractive risk-adjusted total returns through capital appreciation and regular monthly distributions from its investments in Agency RMBS [124]. - The company operates to qualify as a real estate investment trust (REIT) and generally will not be subject to U.S. federal income tax if it distributes all REIT taxable income to stockholders [125]. - The company’s investment strategy focuses on two categories of Agency RMBS: traditional pass-through RMBS and structured Agency RMBS [123]. Economic and Market Conditions - The third quarter economic outlook indicates potential economic weakness, particularly in the labor market, leading to a 25 basis points reduction in the Fed Funds rate [219]. - The Agency RMBS index generated a return of 2.4% for Q3 2025, compared to 2.7% for the investment grade corporate index and 2.4% for high yield debt [226]. - Conventional 30-year mortgages within Agency RMBS achieved a total return of 2.6% in Q3 2025, while 15-year mortgages returned 1.5% [227]. - The Fed reduced its balance sheet for Agency RMBS by approximately $654 billion from its peak to $2.1 trillion, representing a 49% reduction since the pandemic quantitative easing [228]. - The spread between 2-year and 10-year U.S. Treasury securities increased by approximately 5 basis points to around 55 basis points at the end of Q3 2025 [223]. Risk Management - The company utilized various hedging instruments to manage interest rate risk, including Fed Funds and SOFR futures contracts [145]. - The company has not elected hedge accounting treatment for its derivative holdings, affecting the presentation of interest expense and cost of funds [146]. - The company mitigates credit risk through daily adjustments to collateral and limits counterparties to registered central clearing exchanges and major financial institutions [267]. - There is no guarantee that the company's efforts to manage counterparty credit risk will be successful, which could lead to significant losses [267]. Financial Position - Cash and cash equivalents as of September 30, 2025, totaled $583.9 million, with cash flows generated from principal and interest payments on RMBS amounting to $793.9 million [213]. - The company had obligations under repurchase agreements of approximately $8.0 billion, with a net weighted average borrowing cost of 4.33% [199]. - The average outstanding borrowings for the nine months ended September 30, 2025, were $6.5 billion, compared to $4.2 billion for the same period in 2024 [167]. - The company has sufficient short-term and long-term liquidity and capital resources for investment acquisitions and repayment of borrowings [204]. Operating Expenses - Total operating expenses for the nine months ended September 30, 2025, were approximately $14.7 million, up from $12.4 million in the same period of 2024, representing a year-over-year increase of 17.7% [184]. - For the nine months ended September 30, 2025, management fees increased to $9,023,000 from $6,867,000 in 2024, representing a change of $2,156,000 or 31.4% [185]. - The total expenses for the nine months ended September 30, 2025, were $14,663,000, up from $12,387,000 in 2024, reflecting an increase of $2,276,000 or 18.4% [190]. Portfolio Performance - For the nine months ended September 30, 2025, the company reported total gains on RMBS of $137.216 million, compared to $74.209 million for the same period in 2024, reflecting an increase of 84.9% [175]. - The company experienced realized losses on sales of RMBS amounting to $9.288 million for the nine months ended September 30, 2025, compared to realized gains of $0.510 million in the same period of 2024 [176]. - Unrealized gains on RMBS for the nine months ended September 30, 2025, were $146.504 million, significantly higher than $73.699 million for the same period in 2024, an increase of 98.6% [175]. Dividend Policy - The company plans to pay regular monthly dividends, having declared a dividend of $0.12 per share to be paid on November 26, 2025 [245].