Orchid Island Capital Announces Third Quarter 2024 Results

Third Quarter2024 Results

• Netincomeof $17.3 million, or $0.24per common share, which consists of:
• Net interest incomeof $0.3 million, or less than $0.01 per common share
• Total expenses of $4.3 million, or $0.06per common share
• Net realized and unrealized gainsof $21.2 million, or $0.29per common share, on RMBS and derivative instruments, including net interest income on interest rate swaps
• Thirdquarter dividends declared and paid of $0.36per common share
• Book value per common share of $8.40atSeptember 30, 2024
• Total return of 2.10%, comprised of $0.36dividend per common share and $0.18decreasein book value per common share, divided by beginning book value per common share

Other Financial Highlights

• Orchid maintaineda strong liquidity position of$326.7 millionin cash and cash equivalents and unpledged securities, or approximately50%of stockholders’ equity as ofSeptember 30, 2024
• Borrowing capacity in excess of September 30, 2024outstanding repurchase agreement balances of $5,230.9 million, spread across 25active lenders
• Company to discuss results on Friday,October 25, 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 third quarter results, Robert E. Cauley, Chairman and Chief Executive Officer, said, “The long-awaited impacts of tight monetary policy orchestrated by the Federal Reserve appear to have finally had the desired impacts on inflation and the imbalances in the labor market. Inflation is closing in on the Fed’s 2% target and hiring and wage growth are slowing while the unemployment rate has steadily risen. In contrast, growth in the economy and consumer spending have remained robust throughout. In late September the Fed reduced the overnight funding rate by 50 basis points, and the market anticipated it was the first of many such cuts. Unfortunately, the non-farm payroll report for September 2024, released in early October, as well as the latest readings on inflation and spending, imply the magnitude and urgency of additional rate cuts by the Fed may differ with those market expectations.

“For the third quarter of 2024 Orchid Island generated an economic return of 2.1%, not annualized. We have maintained the dividend rate at $0.12 per month which, based on yesterday’s closing price of $7.80, represents a dividend yield of approximately 18.5%. Our portfolio positioning continues to be predominantly focused on a barbell strategy with 30-year, fixed rate Agency RMBS, while our hedges are more focused and have a longer duration bias to protect the portfolio against an unanticipated rise in longer term rates. This positioning was not optimal during the current quarter, as interest rates decreased significantly, leading to a modest decline in our book value, but we made modest changes to our positioning since quarter end to better balance the anticipated outcomes for different rate movements. However, we continue to view a bear-steepening of the yield curve as the greatest risk to the portfolio.

“We were able to raise additional capital at attractive levels via our ATM program and increase the size of the portfolio while maintaining leverage levels. Looking forward, we anticipate investment opportunities to remain attractive withpotential total returns that could improve if the Fed were to continue easing monetary policy. Absent such a development, total returns available today are still quite attractive and hedged net-interest spreads are ample in relation to the current dividend level.”

Details of Third Quarter2024 Results of Operations

The Company reported net incomeof $17.3 millionfor the three month period endedSeptember 30, 2024, compared with a net loss of $80.1 millionfor the three month period ended September 30, 2023. Interest income on the portfolio in thethird quarter was up approximately $14.6 millionfrom the secondquarter of 2024. The yield on our average Agency RMBS increased from 5.05% in the second quarter of 2024to 5.43% for thethird quarter of2024, and our repurchase agreement borrowing costs increased from 5.34% for the second quarter of 2024to 5.62% for thethird quarter of 2024. Book value decreased by $0.18per share in the third quarter of 2024. The decrease in book value reflects our net income of $0.24per share and the dividend distribution of $0.36per share. The Company recorded net realized and unrealized gains of$21.2 million on Agency RMBS assets and derivative instruments, including net interest income on interest rate swaps.

Prepayments

For the quarter endedSeptember 30, 2024, Orchid received $137.7 millionin scheduled and unscheduled principal repayments and prepayments, which equated to a 3-month constant prepayment rate (“CPR”) of approximately 8.8%. Prepayment rates on the two RMBS sub-portfolios were as follows (in CPR):

Portfolio

The following tables summarize certain characteristics of Orchid’s PT RMBS (as defined below) and structured RMBS as ofSeptember 30, 2024 andDecember 31, 2023:

Financing, Leverage and Liquidity

As ofSeptember 30, 2024, the Company had outstanding repurchase obligations of approximately$5,230.9 millionwith a net weighted average borrowing rate of 5.24%. These agreements were collateralized by RMBS with a fair value, including accrued interest, of approximately$5,461.0 millionand cash pledged to counterparties of approximately $9.2 million. The Company’s adjusted leverage ratio, defined as the balance of repurchase agreement liabilities divided by stockholders’ equity,atSeptember 30, 2024 was 8.0to 1. AtSeptember 30, 2024, the Company’s liquidity was approximately $326.7 millionconsisting of cash and cash equivalents and unpledged RMBS. 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 September 30, 2024.

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. AtSeptember 30, 2024, such instruments were comprised of U.S. Treasury note (“T-Note”) and Secured Overnight Financing Rate (“SOFR”) futures contracts, interest rate swap agreementsand contracts to sell to-be-announced (“TBA”) securities.

The table below presents information related to the Company’s T-Note and SOFR futures contracts atSeptember 30, 2024.

The table below presents information related to the Company’s interest rate swap positions atSeptember 30, 2024.

The following table summarizes our contracts to sell TBA securities as ofSeptember 30, 2024.

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.

Book Value Per Share

The Company’s book value per share at September 30, 2024 was $8.40. 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 September 30, 2024, the Company’s stockholders’ equity was $656.0 millionwith 78,082,645shares 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, 2024, approximately 97.1%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 June 30, 2024, the allocation to the PT RMBS portfolio wasapproximately 96.2%.

The table below details the changes to the respective sub-portfolios during the quarter.

The tables below present the allocation of capital between the respective portfolios atSeptember 30, 2024and June 30, 2024, and the return on invested capital for each sub-portfolio for the three month period endedSeptember 30, 2024.

The return on invested capital in the PT RMBS and structured RMBS portfolios was approximately 5.1%and (0.2)%, respectively, for thethird quarter of 2024. The combined portfolio generated a return on invested capital of approximately 4.9%.

Stock Offerings

On October 29, 2021, we entered into an equity distribution agreement (the “October 2021 Equity Distribution Agreement”) with four sales agents pursuant to which we could 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 were deemed to be “at the market” offerings and privately negotiated transactions. Weissued a total of 9,742,188shares under the October 2021 Equity Distribution Agreement for aggregate gross proceeds of approximately $151.8million, and net proceeds of approximately $149.3million, after commissions and fees, prior to its termination in March 2023.

On March 7, 2023, we entered into an equity distribution agreement (the “March 2023Equity Distribution Agreement”) with three sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate amount of $250,000,000 of shares ofour common stock in transactions that were deemed to be “at the market” offerings and privately negotiated transactions. We issued a total of 24,675,497shares under the March 2023 Equity Distribution Agreement for aggregate gross proceeds of approximately $228.8 millionand net proceeds of approximately $225.0 million, after commissions and fees, prior to its termination in June 2024.

On June 11, 2024, we entered into an equity distribution agreement (the “June 2024 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 September 30, 2024, weissued a total of 15,309,022shares under the June 2024 Equity Distribution Agreement for aggregate gross proceeds of approximately $128.6 million, and net proceeds of approximately $126.5 million, after commissions and fees. Subsequent toSeptember 30, 2024, weissued a total of332,000shares under the June 2024 Equity Distribution Agreement for aggregate gross proceeds of approximately $2.7 million, and net proceeds of approximately $2.7 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 repurchaseprogram 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 1,061,316 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 September 30, 2024, the Company repurchased a total of 5,144,602shares at an aggregate cost of approximately $77.5 million, including commissions and fees, for a weighted average price of $15.07per share. During the nine months ended September 30, 2024, the Company repurchased a total of 396,241shares at an aggregate cost of approximately $3.3 million, including commissions and fees, for a weighted average price of $8.30per share.

Earnings Conference Call Details

An earnings conference call and live audio webcast will be hosted Friday, October 25, 2024, at 10:00 AM ET. Participants can register and receive dial-in information at https://register.vevent.com/register/BI631347493dd04b38aa589f3e4b9f5a6d. A live audio webcast of the conference call can be accessed at https://edge.media-server.com/mmc/p/9wgzmhx7 or via the investor relations section of the Company’s website at https://ir.orchidislandcapital.com. An audio archive of the webcast will be available for 30 days after the call.

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 levels and spreads, prepayment speeds, portfolio composition, positioning and repositioning, hedging levels, leverage ratio, dividends, investment and return opportunities, 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, capital raising, future opportunities and prospects of the Companyand 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 September30, 2024, andDecember 31, 2023, and the unaudited quarterly statements of operations for the nine and three months ended September 30, 2024and 2023. Amounts presented are subject to change.