Orchid Island Capital, Inc. · NYSE:ORC
Orchid Island Capital — Q3 2023 Earnings Presentation
33 slides from Orchid Island Capital's earnings presentation, Oct 27, 2023
Slide 1: Q3 2023 Earnings Supplemental Materials
8 Q3 2023 Earnings Supplemental Materials October 27, 2023 1
Slide 2: Disclaimers
Disclaimers Forward-Looking Information This presentation contains forward-looking statements and information. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by,
Slide 3: Table of Contents
Table of Contents Topic Point Slide(s) Financial Results 4-8 Market Developments 9 - 13 Portfolio Characteristics, Credit & Hedge Positions 14 - 23 Appendix 24 - 33 3
Slide 4: Financial Results
Financial Results 4 S-ORCHIDISLAND
Slide 5: Financial Highlights for the Quarter Ended September 30, 2023
Financial Highlights for the Quarter Ended September 30, 2023 Net Income (Loss)1 Book Value 1 Q3 23 Q2 23 Q3 23 Q2 23 $(1.68) $0.25 $8.92 $11.16 Total Return 2 Dividend Declared 1 Q3 23 Q2 23 Q3 23 Q2 23 (15.77)% 0.78% $0.48 $0.48 1. Data is on a per share basis 2. Equal to (a) the sum of dividends
Slide 6: Portfolio Highlights for the Quarter Ended September 30, 2023
Portfolio Highlights for the Quarter Ended September 30, 2023 Average MBS Balances Economic Leverage Ratio 1 (in millions) Q3 23 Q2 23 Q3 23 Q2 23 $4,447 $4,187 8.5 8.1 Speeds Liquidity 2 (3mo. Portfolio CPR) Q3 23 Q2 23 Q3 23 Q2 23 6.0 5.6 35.1% 41.6% 1. The economic leverage ratio is calculated by
Slide 7: Financial Results for the Three Months Ended September 30, 2023
Orchid Island Capital Financial Results for the Three Months Ended September 30, 2023 Income Statement Balance Sheet ($ in thousands, except for per share data) ($ in thousands, except for per share data) Three Months Ended September 30, 30-Sep-23 31-Dec-22 2023 2022 ASSETS: Interest income $ 50,107
Slide 8: Adjusted Economic Income
Orchid Island Capital Financial Results for the Three Months Ended September 30, 2023 Adjusted Economic Income in Dollars ($ in thousands) Q3 2023 Q2 2023 Q1 2023 Q4 2022 Interest income $ 50,107 $ 39,911 $ 38,012 $ 31,897 Plus/(minus) discount accretion/premium amortization due to paydowns 7,252 4,
Slide 9: Market Developments
Market Developments 9 SORCHIDISLAND
Slide 10: U.S. Treasury, U.S. Dollar Swap, Yield Spread Curve
U.S. Treasury, U.S. Dollar Swap, Yield Spread Curve US Treasury Curve SOFR Swap Curve 5.0% 5.0% 5Yr 2Yr 7Yr 10Yr 4.0% 30Yr 4.0% 5Yr 7Yr 10Yr Yield (%) Yield (%) 3Yr 2Yr 1Yr 30Yr 1Yr 3Yr 6Mo 06/30/23 3.0% 3.0% 09/30/23 6Mo 06/30/23 3Mo 10/20/23 3Mo 09/30/23 10/20/23 1Mo 1Mo 2.0% 2.0% 3.0% 3-Month Tre
Slide 11: 10-Year U.S. Treasury Note vs MBS Current Coupon
10-Year U.S. Treasury Note vs MBS Current Coupon 2010 – Current: 10Yr Treasury Note/Current Coupon Spread 200 12/13/22: 190 bps 03/19/20: 165 bps 150 100 05/26/23: 200 bps 50 0 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-2017 Jan-2018 Jan-2019 Jan-2020 Jan-2021 Jan-2022 Jan-20
Slide 12: Swaption Implied Volatility
Swaption Implied Volatility 160 3m x 10Y Normal Vol 150 140 130 120 110 100 90 80 Sep-22 Dec-22 Mar-23 Jun-23 Sep-23 3M x 10Y USD Normal Annual Vol (BPS/ANNUM) 200 Swaption Implied Volatility (MOVE Index) 180 160 140 120 100 80 60 40 20 Source: Citi Velocity, Bloomberg Data 12
Slide 13: Refinancing Activity
Refinancing Activity Refi Index vs. Mortgage Rates Primary – Secondary Spreads 7,000 8.5 250.0 8.0 6,000 7.5 7.0 200.0 Mortgage Rate (%) 5,000 6.5 4,000 6.0 bps Refi Index 5.5 150.0 3,000 5.0 4.5 2,000 4.0 100.0 1,000 3.5 3.0 0 2.5 50.0 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22
Slide 14: Portfolio Characteristics, Credit & Hedge Positions
Portfolio Characteristics, Credit & Hedge Positions 14
Slide 15: Investment Portfolio
Investment Portfolio During a tumultuous quarter of high volatility in both the rates market and Agency RMBS market, we used proceeds from our ATM program and paydowns to invest in approximately $455 million of 6.0% and 6.5% 30 year fixed rate pass throughs near historical wide spreads to comparable
Slide 16: Investment Portfolio Pass-Through Holdings
Investment Portfolio Pass-Through Holdings Over the course of 2023 we have progressively migrated the portfolio holdings into higher coupons, increasing the weighted average coupon from 3.47% at December 31, 2022 to 4.05% at September 30, 2023 while retaining a bias towards discount securities with
Slide 17: Investment Portfolio Funding Costs as of September 30, 2023
Investment Portfolio Funding Costs as of September 30, 2023 Orchid’s interest rate hedges with a notional balance (excluding short TBA positions, interest rate floors/caps) equal to approximately 97% of our repo liability balance has contained the rapid expansion of our funding cost as the Federal R
Slide 18: Hedging Positions
Hedging Positions While the Federal Reserve has continued to increase funding rates, Orchid has expanded its hedge positions equal to approximately 97% of our repo funding liability (excluding TBA shorts, interest rate caps/floors) with an emphasis towards interest rate swaps. • Total notional balan
Slide 19: Hedging Positions
Hedging Positions Treasury Futures Swap Agreements ($ in thousands) ($ in thousands) Contract Notional Weighted Average Weighted Average Notional Average Fixed Average Net Estimated Weighted Avg Open Equity(1) Amount Entry Rate Effective Rate Amount Pay Rate Receive Rate Fair Value Maturity (Years)
Slide 20: Current Agency Conventional 30-year Fixed Rate Risk Metrics
Current Agency Conventional 30-year Fixed Rate Risk Metrics Below are the return projections under various scenarios of conventional 30 year fixed rate Agency RMBS, option adjusted spreads, effective duration and convexity figures, as well as Orchid’s portfolio allocation to each. All figures are as
Slide 21: Investment Portfolio Interest Rate Sensitivity
Investment Portfolio Interest Rate Sensitivity Orchid’s Agency RMBS portfolio consists predominantly of 30-year, fixed rate pass through securities with a strong bias towards securities with favorable convexity characteristics and expected returns in various interest rate scenarios. ($ in thousands)
Slide 22: Investment Portfolio Prepayment Experience
Investment Portfolio Prepayment Experience In the current interest rate environment, prepayment rates for Agency RMBS remain very low. More seasoned securities tend to prepay slightly faster, increasing returns when such securities are priced at a discount. Prepayment Speeds (CPR) Securities (by cou
Slide 23: Q3 Wrap-up and Outlook
Orchid Island Capital – Q3 Wrap-up and Outlook We are amid a very challenging market environment, but remain focused on managing through this difficult period and coming out well positioned to benefit from a market turnaround when and if it occurs. Looking back: • Interest rates increased significan
Slide 24: Appendix
Appendix 24 S-ORCHIDISLAND
Slide 25: Commercial Bank & Federal Reserve MBS Holdings
Commercial Bank & Federal Reserve MBS Holdings Commercial Banks & Federal Reserve Holdings of MBS 3,200 High: 2,987 02/01/22 10/04/23: 2,536 3,000 2,800 2,600 High: 2,718 08/01/22 2,400 10/04/23: 2,480 2,200 2,000 1,800 1,600 1,400 1,200 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22
Slide 26: Cross Asset Fixed Income Performance by U.S. Aggregate Bond Index Component
Cross Asset Fixed Income Performance by U.S. Aggregate Bond Index Component Q3 2023 Returns 1% 0.46% 0.25% -1% -0.61% -1.03% -1.17% -2.00% -3% -2.60% -3.06% -3.23% -3.27% -3.27% -4.05% -3.94% -5% YTD 2023 Returns as of 09/30/23 16% 13.06% 12% 8% 5.86% 4% 3.08% 1.99% 2.00% 0.16% 0.35% 0% -0.33% -0.78
Slide 27: Leverage Ratio
Orchid Island Capital Leverage Ratio History 11.0 9.5 10.0 Leverage Ratio 9.0 8.0 7.0 8.5 6.0 5.0 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19 Jun-20 Dec-20 Jun-21 Dec-21 Jun-22 Dec-22 Jun-23 Adjusted Leverage (1) Economic Leverage (2) 1. The adju
Slide 28: MBS Portfolio Characteristics as of September 30, 2023
Orchid Island Capital MBS Portfolio Characteristics as of September 30, 2023 Percent of Current Int Rate Sensitivity (- Int Rate Sensitivity Type Face FMV Portfolio Price CPN GWAC AGE WA Mat 1m CPR 3m CPR 50 BPS) (+50 BPS) Fixed Rate MBS 15yr 4.0 $ 373,942 $ 355,274 0.01% $ 95.01 4.00% 4.54% 65 113
Slide 29: Orchid Credit Counterparties
Orchid Credit Counterparties ($ in thousands) As of September 30, 2023 Total Weighted Counterparty Outstanding % of Total Average Longest Maturity Balances Maturity in Days Cantor Fitzgerald & Co 354,817 8.0% 28 11/13/2023 Wells Fargo Bank, N.A. 353,817 8.0% 26 11/7/2023 Mirae Asset Securities (USA)
Slide 30: Gains (Losses) on Derivative Instruments
Gains (Losses) on Derivative Instruments Gains (Losses) on Derivative Instruments (in thousands) Funding Hedges Recognized in TBA Securities Attributed to Attributed to Income Gain (Loss) Current Future The tables to the left present a Statement (Short (Long Period Periods (GAAP) Positions) Position
Slide 31: Economic Net Interest Spread
Economic Net Interest Spread The tables below provide information on our portfolio average balances, interest income, yield on assets, average borrowings, interest expense, cost of funds, net interest income and net interest spread for the nine months ended September 30, 2023 and 2022, and each quar
Slide 32: Securitized Products Returns September 2023
Securitized Products Returns September 2023 Last 12 months from September 2022 – sorted by total returns Last 12 months from September 2022 – sorted by excess return Last 12 Mo. (As of 9/30/23) 2022 9/30/2023 Last 12 Mo. (As of 9/30/23) 2022 9/30/2023 Excess Return Excess Return (vs. Total Excess Re
Slide 33: Securitized Products Returns September 2023
Securitized Products Returns September 2023 Securitized products total and excess returns versus swaps/Libor Source: BofA Global Research - Securitized Products Returns for September 2023/ Securitized Products Strategy / 02 October 2023 33
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