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Orchid Island Capital Announces Second Quarter 2018 Results

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VERO BEACH, Fla., July 26, 2018 (GLOBE NEWSWIRE) -- Orchid Island Capital, Inc. (NYSE:ORC) ("Orchid" or the "Company"), a real estate investment trust ("REIT"), today announced results of operations for the three month period ended June 30, 2018.

Second Quarter 2018 Highlights

  • Net income of $1.3 million, or $0.03 per common share, which consists of:
    • Net interest income of $22.0 million, or $0.42 per common share
    • Total expenses of $2.9 million, or $0.05 per common share
    • Net realized and unrealized losses of $17.7 million, or $0.34 per share, on RMBS and derivative instruments, including net interest expense on interest rate swaps
  • Second quarter total dividends declared and paid of $0.27 per common share
  • Book value per share of $7.86 at June 30, 2018
  • 0.5% economic gain on common equity for the quarter, or 2.0% annualized, comprised of $0.27 dividend per common share and $0.23 decrease in net book value per common share, divided by beginning book value per share
  • Company to discuss results on Friday, July 27, 2018, 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 www.orchidislandcapital.com

Details of Second Quarter 2018 Results of Operations

The Company reported net income of $1.3 million for the three month period ended June 30, 2018, compared with net loss of $9.6 million for the three month period ended June 30, 2017.  The second quarter net income included net interest income of $22.0 million, net portfolio losses of $17.7 million (which includes realized and unrealized losses on RMBS and derivative instruments, and net interest expense realized in interest rate swaps), management fees and allocated overhead of $2.0 million, audit, legal and other professional fees of $0.2 million, and other operating, general and administrative expenses of $0.7 million.

Capital Allocation and Return on Invested Capital

The Company allocates capital to two RMBS sub-portfolios, the pass-through RMBS portfolio ("PT RMBS"), and the structured RMBS portfolio, consisting of interest only ("IO") and inverse interest-only ("IIO") securities.  As of March 31, 2018, approximately 65% 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, 2018, the allocation to the PT RMBS portfolio remained at approximately 65%.

The table below details the changes to the respective sub-portfolios during the quarter, as well as the returns generated by each.

 
(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 - March 31, 2018 $ 3,597,369   $ 120,199   $ 28,216   $ 148,415   $ 3,745,784  
Securities purchased   1,445,522     1,178     -     1,178     1,446,700  
Securities sold   (1,369,661 )   -     -     -     (1,369,661 )
Losses on sales   (12,175 )   -     -     -     (12,175 )
Return of investment   n/a     (5,673 )   (1,119 )   (6,792 )   (6,792 )
Pay-downs   (93,842 )   n/a     n/a     n/a     (93,842 )
Premium lost due to pay-downs   (4,490 )   n/a     n/a     n/a     (4,490 )
Mark to market (losses) gains   (15,012 )   477     (1,393 )   (916 )   (15,928 )
Market value - June 30, 2018 $ 3,547,711   $ 116,181   $ 25,704   $ 141,885   $ 3,689,596  
                               

The tables below present the allocation of capital between the respective portfolios at June 30, 2018 and March 31, 2018, and the return on invested capital for each sub-portfolio for the three month period ended June 30, 2018.  The return on invested capital in the PT RMBS and structured RMBS portfolios was approximately 1.1% and 0.9%, respectively, for the second quarter of 2018.  The combined portfolio generated a return on invested capital of approximately 1.0%.

 
($ in thousands)
Capital Allocation
      Structured Security Portfolio  
    Pass-Through Interest-Only Inverse Interest    
    Portfolio Securities Only Securities Sub-total Total
June 30, 2018                    
Market value $ 3,547,711   $ 116,181   $ 25,704   $ 141,885   $ 3,689,596  
Cash   169,012     -     -     -     169,012  
Borrowings(1)   (3,449,854 )   -     -     -     (3,449,854 )
  Total $ 266,869   $ 116,181   $ 25,704   $ 141,885   $ 408,754  
  % of Total   65.3 %   28.4 %   6.3 %   34.7 %   100.0 %
March 31, 2018                    
Market value $ 3,597,369   $ 120,199   $ 28,216   $ 148,415   $ 3,745,784  
Cash(2)   292,870     -     -     -     292,870  
Borrowings(3)   (3,619,280 )   -     -     -     (3,619,280 )
  Total $ 270,959   $ 120,199   $ 28,216   $ 148,415   $ 419,374  
  % of Total   64.6 %   28.7 %   6.7 %   35.4 %   100.0 %
                                 

(1)  At June 30, 2018, there were outstanding repurchase agreement balances of $73.3 million secured by IO securities and $14.7 million secured 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 March 31, 2018 cash was reduced by unsettled security purchases of approximately $32.1 million and increased by unsettled sales of approximately $160.9 million, which have already been reflected in the market value of the portfolio.
(3)  At March 31, 2018, there were outstanding repurchase agreement balances of $74.8 million secured by IO securities and $15.3 million secured by IIO securities, respectively.  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.

 
($ in thousands)
Returns for the Quarter Ended June 30, 2018
      Structured Security Portfolio  
    Pass-Through Interest-Only Inverse Interest    
    Portfolio Securities Only Securities Sub-total Total
Income (net of borrowing cost) $ 19,695   $ 1,409   $ 908   $ 2,317   $ 22,012  
Realized and unrealized (losses) / gains   (31,677 )   477     (1,393 )   (916 )   (32,593 )
Derivative gains   14,859     n/a     n/a     n/a     14,859  
  Total Return $ 2,877   $ 1,886   $ (485 ) $ 1,401   $ 4,278  
Beginning Capital Allocation $ 270,959   $ 120,199   $ 28,216   $ 148,415   $ 419,374  
Return on Invested Capital for the Quarter(1)   1.1 %   1.6 %   (1.7 )%   0.9 %   1.0 %
Average Capital Allocation(2) $ 268,914   $ 118,190   $ 26,960   $ 145,150   $ 414,064  
Return on Average Invested Capital for the Quarter(3)   1.1 %   1.6 %   (1.8 )%   1.0 %   1.0 %
                               

(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.

Prepayments

For the quarter ended June 30, 2018, Orchid received $101.4 million in scheduled and unscheduled principal repayments and prepayments, which equated to a 3-month constant prepayment rate ("CPR") of approximately 9.8%. Prepayment rates on the two RMBS sub-portfolios were as follows (in CPR):

       
    Structured  
  PT RMBS RMBS Total
Three Months Ended Portfolio (%) Portfolio (%) Portfolio (%)
June 30, 2018 8.7 11.8 9.8
March 31, 2018 6.5 11.6 7.7
December 31, 2017 7.0 13.6 9.1
September 30, 2017 8.3 14.9 10.3
June 30, 2017 7.0 12.7 9.5
March 31, 2017 7.5 14.3 9.9
       

Portfolio

The following tables summarize certain characteristics of Orchid's PT RMBS and structured RMBS as of June 30, 2018 and December 31, 2017:

($ in thousands)                  
          Weighted   Weighted    
      Percentage   Average   Average Weighted Weighted
      of Weighted Maturity   Coupon Average Average
    Fair Entire Average in Longest Reset in Lifetime Periodic
Asset Category   Value Portfolio Coupon Months Maturity Months Cap Cap
June 30, 2018                  
Adjustable Rate RMBS $ 1,718 0.0 % 3.95 % 200 1-Sep-35 0.81 10.05 % 2.00 %
Fixed Rate RMBS   2,978,653 80.7 % 4.30 % 298 1-May-48 NA NA   NA  
Fixed Rate CMOs   542,656 14.7 % 4.39 % 310 15-Jul-47 NA NA   NA  
Hybrid Adjustable Rate RMBS   24,684 0.7 % 2.57 % 295 1-Aug-43 53.98 7.57 % 2.00 %
Total Mortgage-backed Pass-through   3,547,711 96.1 % 4.30 % 300 1-May-48 NA NA   NA  
Interest-Only Securities   116,181 3.1 % 3.83 % 279 25-Feb-48 NA NA   NA  
Inverse Interest-Only Securities   25,704 0.8 % 3.57 % 309 15-Jul-47 NA 5.30 % NA  
Total Structured RMBS   141,885 3.9 % 3.79 % 285 25-Feb-48 NA NA   NA  
Total Mortgage Assets $ 3,689,596 100.0 % 4.28 % 299 1-May-48 NA NA   NA  
December 31, 2017                  
Adjustable Rate RMBS $ 1,754 0.0 % 3.95 % 206 1-Sep-35 5.50 10.05 % 2.00 %
Fixed Rate RMBS   3,594,533 96.0 % 4.25 % 338 1-Dec-47 NA NA   NA  
Hybrid Adjustable Rate RMBS   27,398 0.7 % 2.59 % 301 1-Aug-43 59.77 7.59 % 2.00 %
Total Mortgage-backed Pass-through   3,623,685 96.7 % 4.24 % 338 1-Dec-47 NA NA   NA  
Interest-Only Securities   86,918 2.3 % 3.75 % 262 15-Apr-47 NA NA   NA  
Inverse Interest-Only Securities   34,208 1.0 % 4.02 % 318 15-Jul-47 NA 5.11 % NA  
Total Structured RMBS   121,126 3.3 % 3.82 % 278 15-Jul-47 NA NA   NA  
Total Mortgage Assets $ 3,744,811 100.0 % 4.23 % 336 1-Dec-47 NA NA   NA  
                       


                 
($ in thousands)                
    June 30, 2018   December 31, 2017
        Percentage of       Percentage of
Agency   Fair Value   Entire Portfolio   Fair Value   Entire Portfolio
Fannie Mae $ 2,164,713   58.7 % $ 2,242,213   59.9 %
Freddie Mac   1,519,420   41.2 %   1,496,615   40.0 %
Ginnie Mae   5,463   0.1 %   5,983   0.1 %
Total Portfolio $ 3,689,596   100.0 % $ 3,744,811   100.0 %
                     


           
    June 30, 2018     December 31, 2017
Weighted Average Pass-through Purchase Price $ 106.25   $ 107.52
Weighted Average Structured Purchase Price $ 14.37   $ 13.82
Weighted Average Pass-through Current Price $ 104.08   $ 106.79
Weighted Average Structured Current Price $ 14.18   $ 12.50
Effective Duration (1)   3.421     2.989
           

(1)  Effective duration of 3.421 indicates that an interest rate increase of 1.0% would be expected to cause a 3.421% decrease in the value of the RMBS in the Company's investment portfolio at June 30, 2018.  An effective duration of 2.989 indicates that an interest rate increase of 1.0% would be expected to cause a 2.989% decrease in the value of the RMBS in the Company's investment portfolio at December 31, 2017. 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 June 30, 2018, the Company had outstanding repurchase obligations of approximately $3,449.9 million with a net weighted average borrowing rate of 2.07%.  These agreements were collateralized by RMBS with a fair value, including accrued interest, of approximately $3,658.3 million and cash pledged to counterparties of approximately $23.1 million. The Company's leverage ratio at June 30, 2018 was 8.6 to 1. At June 30, 2018, the Company's liquidity was approximately $183.4 million, consisting of unpledged RMBS and cash and cash equivalents.  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 June 30, 2018. 

                   
($ 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 $ 463,215   13.4 %   2.17 % $ 26,158 53
Mirae Asset Securities (USA) Inc.   380,537   11.0 %   1.95 %   21,022 35
J.P. Morgan Securities LLC   348,774   10.1 %   1.60 %   24,577 40
Mitsubishi UFJ Securities (USA), Inc.   229,964   6.7 %   2.10 %   13,018 31
Cantor Fitzgerald & Co.   222,976   6.5 %   2.04 %   12,131 16
ICBC Financial Services, LLC   198,184   5.7 %   2.18 %   11,395 65
Citigroup Global Markets, Inc.   171,635   5.0 %   2.21 %   15,549 63
ING Financial Markets LLC   166,530   4.8 %   2.16 %   9,414 40
Wells Fargo Bank, N.A.   164,513   4.8 %   2.16 %   21,030 22
Natixis, New York Branch   148,325   4.3 %   2.29 %   19,681 17
ABN AMRO Bank N.V.   131,599   3.8 %   1.96 %   3,701 3
ASL Capital Markets Inc.   110,737   3.2 %   1.99 %   6,013 26
Guggenheim Securities, LLC   104,561   3.0 %   2.18 %   5,737 54
KGS-Alpha Capital Markets, L.P.   99,545   2.9 %   2.04 %   6,141 58
FHLB-Cincinnati   88,394   2.6 %   2.31 %   3,071 2
Nomura Securities International, Inc.   81,987   2.4 %   2.18 %   4,484 23
South Street Securities, LLC   76,472   2.2 %   2.11 %   4,838 31
Daiwa Capital Markets America, Inc.   60,841   1.8 %   2.16 %   3,019 9
Goldman Sachs & Co.   51,489   1.5 %   2.07 %   2,352 41
ED&F Man Capital Markets Inc.   44,914   1.3 %   2.15 %   2,673 69
Lucid Cash Fund USG LLC   44,036   1.3 %   2.19 %   2,459 12
Merrill Lynch, Pierce, Fenner & Smith Inc   37,936   1.1 %   2.26 %   4,590 24
Mizuho Securities USA, Inc.   14,186   0.4 %   2.03 %   798 19
J.V.B. Financial Group, LLC   8,504   0.2 %   2.17 %   497 76
Total / Weighted Average $ 3,449,854   100.0 %   2.07 % $ 224,348 37
                       

(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 June 30, 2018, such instruments were comprised of Eurodollar and Treasury note ("T-Note") futures contracts and interest rate swap and swaption agreements and to-be-announced ("TBA") securities. 

The table below presents information related to the Company's Eurodollar and T-Note futures contracts at June 30, 2018.

                   
($ in thousands)                  
      Average   Weighted   Weighted      
      Contract   Average   Average      
      Notional   Entry   Effective     Open
Expiration Year   Amount   Rate   Rate     Equity(1)
Eurodollar Futures Contracts (Short Positions)                  
2018 $ 1,375,000   1.97 %   2.56 %   $ 4,035  
2019   1,500,000   2.16 %   2.88 %     10,779  
2020   1,500,000   2.64 %   2.98 %     5,011  
Total / Weighted Average $ 1,475,000   2.32 %   2.86 %   $ 19,825  
                     
Treasury Note Futures Contracts (Short Positions)(2)                  
September 2018 5-year T-Note futures                  
  (Sep 2018 - Sep 2023 Hedge Period) $ 165,000   2.90 %   3.04 %   $ (7 )
                           

(1)  Open equity represents the cumulative gains (losses) recorded on open futures positions from inception.
(2)  T-Note futures contracts were valued at a price of $113.62 at June 30, 2018. The notional contract value of the short position was $187.5 million.

The table below presents information related to the Company's interest rate swap positions at June 30, 2018.

                       
($ in thousands)                      
        Average         Net    
        Fixed   Average     Estimated   Average
    Notional   Pay   Receive     Fair   Maturity
Expiration   Amount   Rate   Rate     Value   (Years)
> 1 to ≤ 3 years $ 650,000   1.09 %   2.36 %   $ 16,223   1.6
> 3 to ≤ 5 years   360,000   2.05 %   2.33 %     10,111   3.8
  $ 1,010,000   1.43 %   2.35 %   $ 26,334   2.4
                           

The following table presents information related to our interest rate swaption positions as of June 30, 2018.

                               
($ 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                              
≤ 1 year $ 9,770 $ 7,232   6.4   $ 950,000   3.20 %   3 Month   9.3
Receiver Swaptions                              
≤ 1 year $ 760 $ 640   7.4   $ 100,000   2.80 %   3 Month   5.0
                                 

The following table summarizes our contracts to purchase and sell TBA securities as of June 30, 2018.

                 
($ in thousands)                
    Notional           Net
    Amount   Cost   Market   Carrying
    Long (Short)(1)   Basis(2)   Value(3)   Value(4)
June 30, 2018                
30-Year TBA securities:                
  3.0% $ (200,000 ) $ (192,404 ) $ (193,624 ) $ (1,220 )
  3.5%   (200,000 )   (197,980 )   (199,000 )   (1,020 )
  $ (400,000 ) $ (624,048 ) $ (626,570 ) $ (2,522 )
                         

(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 consolidated 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 data)
Year       Per Share
Amount
    Total
2013     $ 1.395   $ 4,662
2014       2.160     22,643
2015       1.920     38,748
2016       1.680     41,388
2017       1.680     70,717
2018 - YTD(1)       0.670     35,313
Totals     $ 9.505   $ 213,471
               

(1)  On July 18, 2018, the Company declared a dividend of $0.09 per share to be paid on August 10, 2018.  The effect of this dividend is included in the table above, but is not reflected in the Company's financial statements as of June 30, 2018.

Peer Performance

The table below presents total return data for Orchid compared to a selected group of peers for periods through June 30, 2018.

 
Portfolio Total Rate of Return Versus Peer Group Average
            ORC Spread
    ORC       Over / (Under)
    Total Rate   Peer   Peer
    of Return(1)   Average(1)(2)   Average(3)
Stub 2013 (Annualized)(4)   (2.8 )%   (13.5 )%   10.7 %
2014 Total Return   13.6 %   15.2 %   (1.6 )%
2015 Total Return   3.8 %   (2.9 )%   6.7 %
2016 Total Return   1.1 %   0.0 %   1.1 %
First Quarter 2017   0.8 %   3.9 %   (3.1 )%
Second Quarter 2017   (1.0 )%   2.1 %   (3.1 )%
Third Quarter 2017   3.7 %   4.3 %   (0.6 )%
Fourth Quarter 2017   (0.2 )%   2.0 %   (2.2 )%
2017 Total Return   3.0 %   12.3 %   (9.3 )%
Two Year Return - 4/1/16 - 3/31/18(5)   3.0 %   9.2 %   (6.2 )%
Three Year Total Return - 4/1/15 - 3/31/18(5)   2.1 %   2.9 %   (0.8 )%
Four Year Total Return - 4/1/14 - 3/31/18(5)   22.7 %   14.2 %   8.5 %
Five Year Total Return (Inception to 3/31/18)(4)(5)   14.2 %   6.3 %   7.9 %
First Quarter 2018   (3.6 )%   (5.0 )%   1.4 %
Second Quarter 2018(5)   0.5 %   N/A     N/A  
               

Source: SEC filings and press releases of Orchid and Peer Group
(1)  Total rate of return for each period is change in book value per share over the period plus dividends per share declared divided by the book value per share at the beginning of the period. None of the return calculations are annualized except the Stub 2013 calculation.
(2)  The peer average is the unweighted, simple, average of the total rate of return for each of the following companies in each respective measurement period:  NLY, ANH, CMO, CYS, ARR, AGNC and AI. HTS was included through Q1 2016. NLY acquired HTS in Q2 2016. HTS is excluded from any measurement periods after Q1 2016.
(3)  Represents the total rate of return for Orchid minus peer average in each respective measurement period.
(4)  Orchid completed its Initial Public Offering, or IPO, in February 2013.  We have elected to start our comparison beginning with Orchid's first full operating quarter, which was the second quarter of 2013. The Orchid IPO price was $15.00 per share on February 13, 2013, and Orchid paid its first dividend of $0.135 per share in March 2013.  The book value per share at March 31, 2013 was $14.98.
(5)  As of July 26, 2018, earnings data for the second quarter of 2018 was not available for all companies included in the peer average calculation.

Book Value Per Share

The Company's book value per share at June 30, 2018 was $7.86.  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 June 30, 2018, the Company's stockholders' equity was $409.2 million with 52,034,596 shares of common stock outstanding.

Stock Offerings

On August 2, 2017, we entered into an equity distribution agreement (the "August 2017 Equity Distribution Agreement") with two sales agents pursuant to which we may offer and sell, from time to time, up to an aggregate amount of $125,000,000 of shares of our common stock in transactions that are deemed to be "at the market" offerings and privately negotiated transactions.  Through June 30, 2018, we issued a total of 7,746,052 shares under the August 2017 Equity Distribution Agreement for aggregate gross proceeds of $76.0 million, and net proceeds of approximately $74.7 million, net of commissions and fees.

Stock Repurchase Program

On July 29, 2015, the Board of Directors passed a resolution authorizing the repurchase of up to 2,000,000 shares of the Company's common stock.  As part of the stock repurchase program, shares may be purchased in open market transactions, including through block purchases, privately negotiated transactions, or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Open market repurchases will be made in accordance with Exchange Act Rule 10b-18, which sets certain restrictions on the method, timing, price and volume of open market stock repurchases. 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. On February 8, 2018, the Board of Directors approved an increase in the stock repurchase program for up to an additional 4,522,822 shares of the Company's common stock. 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.

Through June 30, 2018, the Company repurchased a total of 2,285,084 shares under the stock repurchase program at an aggregate cost of approximately $18.5 million, including commissions and fees, for a weighted average price of $8.11 per share. During the three months ended June 30, 2018, the Company repurchased a total of 1,068,841 shares under the stock repurchase program at an aggregate cost of approximately $7.7 million, including commissions and fees, for a weighted average price of $7.19 per share. As of June 30, 2018, the remaining authorization under the repurchase program is for up to 4,237,738 shares of the Company's common stock.

Management Commentary

Commenting on the second quarter, Robert E. Cauley, Chairman and Chief Executive Officer, said, "The US economy appears to be very strong.  Growth in the second quarter is expected to be 4% or higher on an annualized basis and, given the extent of fiscal stimulus introduced by the Tax Cuts and Jobs Act of 2017 and the Bipartisan Budget Act of 2018, is likely to remain strong for the foreseeable future.  While the annualized growth rate of the economy may not match what we are likely to see in the second quarter of 2018, growth is likely to remain above the sustainable growth rate of the economy for some time. As reflected in their "dot plot" release after the June FOMC meeting, the Federal Reserve (the "Fed") expects to continue to remove accommodation by raising the target range for the Federal Funds rate two more times in 2018 and three more times in 2019.  By any measure, economic activity is robust and the employment market in particular appears to be overheating.  Importantly, while inflation has returned to, or near, the Fed target level of 2%, it does not appear to be at risk of meaningfully exceeding this level in the near term.  This should keep the Fed from raising rates beyond their current gradual pace.

"One threat to the economy the market fears is a meaningful trade war.  The Trump administration appears determined to reverse what the President sees as years of unfair trade that has weakened the United States.  The administration has aggressively introduced tariffs in an apparent attempt to force our various trading counter-parties to agree to more even trade terms.  To date, this strategy does not appear to be working, and the market fears a protracted trade war could develop.  This threat seems to be trumping the effect of the economy on the rates markets and the various risky asset markets.  The perception that the strength of the economy will keep the Fed from raising the Federal Funds target range at its anticipated pace has kept upward pressure on other short-term rates.  Couple that with the lack of excess inflation and the possible detrimental effects of a trade war on growth in the future containing long-term rates from moving higher and you have a flat U.S. treasury curve.  The combination has caused the spread between short and long-term rates to compress to levels usually associated with the onset of a recession. This trend does not appear likely to reverse in the near-term.

"The Agency RMBS market has generated a modest positive return of 0.24% for the second quarter and (1.0%) for the first six months of 2018.  The reduction in asset purchases by the Fed has been offset by reduced supply of Agency RMBS, largely negating the negative effect of the former on the performance of the asset class.  A continued slowing of prepayment behavior has benefited higher coupon mortgages as well, enhancing the carry of mortgages.  Going forward, the continued compression of the yield curve should put downward pressure on both returns for Agency RMBS as well as demand for the asset class.

"Until recently Orchid's Agency RMBS portfolio was generally biased to higher coupon, fixed rate securities.  With prepayment behavior exhibiting far less sensitivity to interest rate incentives than was the norm prior to the financial crisis and the damage that was done to the housing finance capacity of the market, this strategy enabled Orchid to generate a superior income stream to our investors.  Over the last few quarters the sell-off in rates and material flattening of the curve has made this strategy less viable.  Accordingly, early this year we began repositioning the portfolio to adapt to the new market environment.  This repositioning is warranted as we believe the current market conditions – interest rates increasing while the yield curve flattens – are likely to persist for the balance of the Fed's tightening cycle. We have reduced our exposure to 30-year mortgages in favor of either 15-year securities or structured pass-through securities – predominantly in sequential form – with limited extension risk.  Our allocation to our traditional structured holdings, interest only and inverse interest only securities – remains steady at approximately 35% of capital.  With the prospect of continued increases to the Fed Funds target range and what we view as the asymmetric risk of longer-term rates – biased higher versus lower, we anticipate that we will maintain our hedge coverage at or close to 100%."

Earnings Conference Call Details

An earnings conference call and live audio webcast will be hosted Friday, July 27, 2018, at 10:00 AM ET.  The conference call may be accessed by dialing toll free (877) 341-5668.  International callers dial (224) 357-2205.  The conference passcode is 3092219.  The supplemental materials may be downloaded from the investor relations section of the Company's website at www.orchidislandcapital.com. A live audio webcast of the conference call can be accessed via the investor relations section of the Company's website at www.orchidislandcapital.com, and an audio archive of the webcast will be available until August 27, 2018.

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 and (ii) structured Agency RMBS, such as CMOs, IOs, IIOs and POs, 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, liquidity, pledging of our structured RMBS, funding levels and spreads, prepayment speeds, portfolio positioning and repositioning, hedging levels, inflation, the supply and demand for Agency RMBS, the effect of actions of the U.S. government, including the Fed, market expectations, 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
www.orchidislandcapital.com

Summarized Financial Statements

The following is a summarized presentation of the unaudited balance sheets as of June 30, 2018, and December 31, 2017, and the unaudited quarterly results of operations for the six and three months ended June 30, 2018 and 2017.  Amounts presented are subject to change.

 
ORCHID ISLAND CAPITAL, INC.
BALANCE SHEETS
($ in thousands, except per share data)
(Unaudited - Amounts Subject to Change)
               
      June 30, 2018 December 31, 2017
ASSETS:          
Total mortgage-backed securities $ 3,689,596   $ 3,744,811
Cash, cash equivalents and restricted cash   169,012     246,712
Accrued interest receivable   14,771     14,444
Derivative assets, at fair value   34,207     17,160
Other assets   445     216
Total Assets $ 3,908,031   $ 4,023,343
               
LIABILITIES AND STOCKHOLDERS' EQUITY          
Repurchase agreements $ 3,449,854   $ 3,533,786
Dividends payable   4,683     7,429
Derivative liabilities, at fair value   2,240     2,038
Accrued interest payable   7,221     6,516
Due to affiliates   656     797
Other liabilities   34,178     10,566
Total Liabilities   3,498,832     3,561,132
Total Stockholders' Equity   409,199     462,211
Total Liabilities and Stockholders' Equity $ 3,908,031   $ 4,023,343
Common shares outstanding   52,034,596     53,061,904
Book value per share $ 7.86   $ 8.71
           


 
ORCHID ISLAND CAPITAL, INC.
STATEMENTS OF OPERATIONS
($ in thousands, except per share data)
(Unaudited - Amounts Subject to Change)
                 
  Six Months Ended June 30, Three Months Ended June 30,
    2018     2017     2018     2017  
Interest income $ 78,526   $ 66,890   $ 38,590   $ 34,579  
Interest expense   (31,728 )   (15,478 )   (16,579 )   (8,763 )
Net interest income   46,798     51,412     22,011     25,816  
Losses   (55,789 )   (53,324 )   (17,734 )   (32,597 )
Net portfolio (loss) income   (8,991 )   (1,912 )   4,277     (6,781 )
Expenses   6,039     5,281     2,931     2,862  
Net (loss) income $ (15,030 ) $ (7,193 ) $ 1,346   $ (9,643 )
Basic and diluted net (loss) income per share $ (0.29 ) $ (0.21 ) $ 0.03   $ (0.26 )
Weighted Average Shares Outstanding   52,794,513     35,117,364     52,587,472     37,211,362  
Dividends Declared Per Common Share: $ 0.58   $ 0.84   $ 0.27   $ 0.42  
                         


     
    Three Months Ended June 30,
Key Balance Sheet Metrics   2018   2017  
Average RMBS(1)   $ 3,717,690   $ 3,499,922  
Average repurchase agreements(1)     3,534,567     3,164,532  
Average stockholders' equity(1)     419,325     376,193  
Leverage ratio(2)     8.6:1     7.9:1  
           
Key Performance Metrics          
Average yield on RMBS(3)     4.15 %   3.95 %
Average cost of funds(3)     1.88 %   1.11 %
Average economic cost of funds(4)     1.97 %   1.57 %
Average interest rate spread(5)     2.27 %   2.84 %
Average economic interest rate spread(6)     2.18 %   2.38 %
               

(1)  Average RMBS, borrowings and stockholders' equity balances are calculated using two data points, the beginning and ending balances.
(2)  The leverage ratio is calculated by dividing total ending liabilities by ending stockholders' equity. 
(3)  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.
(4)  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.
(5)  Average interest rate spread is calculated by subtracting average cost of funds from average yield on RMBS.
(6)  Average economic interest rate spread is calculated by subtracting average economic cost of funds from average yield on RMBS.

 

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