Orchid Island Capital(ORC) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the company's financial statements and related disclosures for the reporting period Financial Statements This section presents the unaudited condensed financial statements for Orchid Island Capital, Inc. for the quarterly period ended March 31, 2024 Condensed Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity at specific points in time Condensed Balance Sheet Highlights (Unaudited) | Account | March 31, 2024 ($ in thousands) | December 31, 2023 ($ in thousands) | | :--- | :--- | :--- | | Total Assets | $4,214,662 | $4,264,947 | | Mortgage-backed securities, at fair value | $3,881,078 | $3,894,012 | | Cash and cash equivalents | $190,373 | $171,893 | | Total Liabilities | $3,733,031 | $3,795,002 | | Repurchase agreements | $3,711,498 | $3,705,649 | | Total Stockholders' Equity | $481,631 | $469,945 | - Total assets slightly decreased from $4.26 billion at year-end 2023 to $4.21 billion at the end of Q1 2024. Total stockholders' equity increased from $469.9 million to $481.6 million during the same period[9] Condensed Statements of Comprehensive Income This section details the company's financial performance, including net income and other comprehensive income components Statement of Comprehensive Income Summary (Unaudited) | Metric | Three Months Ended Mar 31, 2024 ($ in thousands) | Three Months Ended Mar 31, 2023 ($ in thousands) | | :--- | :--- | :--- | | Net interest expense | $(2,490) | $(4,205) | | Unrealized (losses) gains on securities | $(61,895) | $53,895 | | Gains (losses) on derivative instruments | $87,899 | $(41,156) | | Net income | $19,776 | $3,530 | | Basic and diluted net income per share | $0.38 | $0.09 | - Net income for Q1 2024 was $19.8 million, a substantial increase from $3.5 million in Q1 2023. This was primarily due to significant gains on derivative and other hedging instruments, which more than offset the unrealized losses on mortgage-backed securities[11] Condensed Statements of Stockholders' Equity This section outlines changes in the company's equity over the period, including net income, dividends, and share transactions - Total stockholders' equity increased from $469.9 million at the beginning of 2024 to $481.6 million at the end of Q1 2024. The increase was driven by $19.8 million in net income and $13.1 million from stock issuance, partially offset by $18.7 million in cash dividends and $2.8 million in share repurchases[13] Condensed Statements of Cash Flows This section summarizes the company's cash inflows and outflows from operating, investing, and financing activities Cash Flow Summary (Unaudited) | Cash Flow Activity | Three Months Ended Mar 31, 2024 ($ in thousands) | Three Months Ended Mar 31, 2023 ($ in thousands) | | :--- | :--- | :--- | | Net Cash Provided By (Used In) Operating Activities | $45,009 | $(2,629) | | Net Cash Used In Investing Activities | $(39,169) | $(448,889) | | Net Cash (Used In) Provided By Financing Activities | $(2,509) | $400,257 | - Cash, cash equivalents, and restricted cash increased by $3.3 million during Q1 2024, ending the period at $203.6 million[15] Notes to Condensed Financial Statements This section provides detailed explanations and disclosures supporting the condensed financial statements - The company invests primarily in residential mortgage-backed securities (RMBS) and has elected to account for them under the fair value option. It operates as a Real Estate Investment Trust (REIT)[17][28][42] - Through its 'at the market' offering program initiated in March 2023, the company has issued 14.7 million shares for net proceeds of approximately $140.9 million as of March 31, 2024[19] - The RMBS portfolio had a fair value of $3.88 billion as of March 31, 2024, consisting almost entirely of fixed-rate pass-through certificates[46] - The company finances its RMBS portfolio primarily through repurchase agreements, which totaled $3.71 billion at a weighted average borrowing rate of 5.46% as of March 31, 2024[52] - The company uses a variety of derivative instruments for hedging, including interest rate swaps, futures, and options. For Q1 2024, these instruments generated a net gain of $87.9 million[55][69] - During Q1 2024, the company repurchased 332,773 shares of its common stock at an aggregate cost of $2.8 million. The remaining authorization under the stock repurchase program was 3,895,829 shares as of April 25, 2024[87] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's Q1 2024 performance, financial condition, and market outlook Net Income Summary | Metric | Q1 2024 ($ in thousands) | Q1 2023 ($ in thousands) | Change ($ in thousands) | | :--- | :--- | :--- | :--- | | Net interest expense | (2,490) | (4,205) | 1,715 | | Gains on RMBS and derivative contracts | 26,004 | 12,739 | 13,265 | | Total expenses | (3,738) | (5,004) | 1,266 | | Net income | 19,776 | 3,530 | 16,246 | Economic Net Interest Income (Non-GAAP) | Metric | Q1 2024 ($ in thousands) | Q1 2023 ($ in thousands) | | :--- | :--- | :--- | | GAAP Net Interest (Expense) Income | $(2,490) | $(4,205) | | Gains (Losses) on Derivative Instruments Attributed to Current Period | $27,587 | $19,211 | | Economic Net Interest Income | $25,097 | $15,006 | - The company's economic leverage was 7.0 to 1 at March 31, 2024, an increase from 6.7 to 1 at December 31, 2023. Adjusted leverage, which only considers repurchase agreements, was 7.7 to 1[192][193] - The average 3-month constant prepayment rate (CPR) for the portfolio was 6.0% in Q1 2024, compared to 4.0% in Q1 2023[179][183] - Management's outlook notes that strong economic data and persistent inflation have pushed back market expectations for Fed rate cuts. Despite this, Agency RMBS performed relatively well in Q1 2024, supported by declining interest rate volatility[207][227][228] Quantitative and Qualitative Disclosures about Market Risk This section outlines the company's exposure to various market risks, with a primary focus on interest rate risk - The primary market risks identified are interest rate risk, prepayment risk, spread risk, liquidity risk, extension risk, and counterparty credit risk[234] Interest Rate Sensitivity Analysis on Book Value (as of March 31, 2024) | Change in Interest Rate | Estimated Change in Book Value (%) | | :--- | :--- | | -200 Basis Points | (17.67)% | | -100 Basis Points | (4.66)% | | +100 Basis Points | (2.27)% | | +200 Basis Points | (10.25)% | - The sensitivity analysis highlights the portfolio's negative convexity, where significant rate movements in either direction are projected to result in a decrease in book value. This is due to the nature of mortgage assets and the linear profile of the hedge portfolio[243] - Liquidity risk arises from financing long-term assets with short-term borrowings (repurchase agreements). As of March 31, 2024, the company had $190.4 million in unrestricted cash and $25.3 million in unpledged securities to meet margin calls and for other purposes[252] Controls and Procedures Management, with the participation of the CEO and CFO, evaluated the company's disclosure controls and procedures - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2024[256] - There were no significant changes in internal control over financial reporting during the first quarter of 2024[257] PART II. OTHER INFORMATION This section covers additional required disclosures including legal proceedings, risk factors, and other miscellaneous information Legal Proceedings The company states that it is not currently a party to any material pending legal proceedings - As of the reporting date, the company is not involved in any material pending legal proceedings[259] Risk Factors The company reports that there have been no material changes in its risk factors from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2023 - There have been no material changes to the company's risk factors since its 2023 Annual Report on Form 10-K[260] Unregistered Sales of Equity Securities and Use of Proceeds This section confirms that there were no unregistered sales of equity securities during Q1 2024 - The company had no unregistered sales of its equity securities during the three months ended March 31, 2024[261] Share Repurchase Activity - Q1 2024 | Period | Total Shares Repurchased | Weighted Average Price Paid Per Share | Shares Purchased as Part of Publicly Announced Program | | :--- | :--- | :--- | :--- | | Jan 2024 | 332,773 | $8.35 | 332,773 | | Feb 2024 | - | - | - | | Mar 2024 | 14,288 (1) | $8.71 | - | | Total | 347,061 | $8.36 | 332,773 | - Note (1): Includes 14,288 shares acquired to satisfy tax withholding on vested employee awards, which do not reduce the repurchase program authorization[263] Defaults upon Senior Securities The company reports that there were no defaults upon senior securities - None[264] Mine Safety Disclosures This item is not applicable to the company's business - Not Applicable[265] Other Information The company reports that there is no other information to disclose for this item - None[266] Exhibits This section lists the exhibits filed with the Form 10-Q - Exhibits filed include Sarbanes-Oxley Section 302 and 906 certifications from the CEO and CFO, and Inline XBRL instance and taxonomy documents[269]