Q Supplemental Materials. July 27, 2018
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1 8 Q Supplemental Materials July 27, 2018
2 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, followed by or that include the words may, could, would, should, believe, expect, anticipate, plan, estimate, target, project, intend and similar expressions. These statements include, among others, statements regarding our expected performance, anticipated returns on our investment, financing and hedging strategies, and means to implement those strategies and the effect of actual or proposed actions by the U.S. Government and the Federal Reserve (the Fed ). The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. You should not place undue reliance on these forward-looking statements. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. Some of these factors are described under the caption Risk Factors in this Quarterly Report on Form 10-Q. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward looking statements, whether as a result of new information, future events or otherwise. 2
3 Table of Contents Topic Point Slide(s) Financial Highlights for the Quarter Ended June 30, 2018 Market Developments Financial Results Portfolio Characteristics, Credit Counterparties, & Hedge Positions Outlook & Strategy Appendix
4 Financial Highlights for the Quarter Ended June 30, 2018 Net Income per share of $0.03 Incurred $0.34 loss per share from net realized and unrealized gains/(losses) on MBS and derivative instruments, including net interest expense on interest rate swaps Earnings per share of $0.37, excluding realized and unrealized gains/(losses) on MBS and derivative instruments, including net interest expense on interest rate swaps (See page 15 for reconciliation of this non-gaap measure to earnings per share) Book value per share of $7.86 at June 30, 2018 A decrease of $0.23 (or -2.84%) from $8.09 at March 31, 2018 Dividend of $0.27 per share declared during the quarter Repurchased approximately 1.07 million shares at a weighted average purchase price (including commissions) of $7.19 per share Economic return of $0.04 per share, or 0.5% for the quarter / 2.0% annualized Source: Company Press Release 4
5 Market Developments 5
6 Change (bps) Change (bps) Yield (%) Yield (%) Q Performance: U.S. Treasury Curve & U.S. Dollar Swap Curve 3.5% U.S. Treasury Curve 3.5% U.S. Dollar Swap Curve 3.0% 30Yr 3.0% 2.5% 2.0% 1.5% 1.0% Yr 6Mo 2Yr 3Yr 1YR 6mo 3Mo 1Mo 5Yr 7Yr 1 12/31/17 Yield 03/31/18 Yield 06/30/18 Yield Change (12/31/17-06/08/18) Change (12/31/17-03/31/18) Change (03/31/18-06/08/18) 2.5% 2.0% 1.5% 1.0% Yr 6Mo 3Mo 1Mo 3Yr 5Yr 7Yr 10Yr 12/31/17 Yield 03/31/18 Yield 06/30/18 Yield Change (12/31/17-06/30/18) Change (12/31/17-03/31/18) Change (03/31/18-06/30/18) 30Yr 0 3Mo 5Yr 10Yr 30Yr 0 3Mo 5Yr 10Yr 30Yr Tenor Tenor Source: Bloomberg Data 6
7 Yield (%) Yield (%) Yield (%) Yield (%) 10-Year U.S. Treasury Note & 10-Year U.S. Dollar Swap Q Year Look Back 10-Year U.S. Treasury Note: (03/31/ /30/2018) 10-Year U.S. Treasury Note: (06/30/ /30/2018) 3.30% 3.50% 3.20% 3.10% 3.00% 2.90% 2.80% BPS for Q2 3.00% 2.50% 2.00% 11/08/16 US Election +136 BPS 2yr change 2.70% 2.60% 1.50% 2.50% 30-Mar 30-Apr 31-May 30-Jun 1.00% Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun Year U.S. Dollar Swap: (03/31/ /30/2018) 10-Year U.S. Dollar Swap: (06/30/ /30/2018) 3.30% 3.50% 3.20% 3.10% 3.00% 2.90% 2.80% BPS for Q2 3.00% 2.50% 2.00% 11/08/16 US Election BPS 2yr Change 2.70% 1.50% 2.60% 2.50% 31-Mar 30-Apr 31-May 30-Jun Source: Bloomberg Data % Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18
8 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Yield (%) Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Yield (%) 5-Year U.S. Treasury Note vs 30-Year U.S. Treasury Bond Spread 4.50% 4.00% 3.50% 3.00% High: 3.969% 12/31/13 5-Year U.S. Treasury Note and 30-Year U.S. Treasury Bond Yield Low: 2.099%, 7/8/ % 2.00% 1.50% 1.00% 0.50% Low: 0.648%; 5/2/13 High: 2.94%; 5/16/ % 5-Year Treasury Note 30-Year Treasury Bond 5-Year U.S. Treasury Note vs 30-Year U.S. Treasury Bond Yield Spread 2.50% High: 2.538%, 11/20/ % 1.50% 1.00% 0.50% Low: 0.248%, 6/14/ % Source: Bloomberg Data 8
9 2018 U.S. Fixed Income YTD Returns Agency MBS has returned -.99% YTD, vs -3.16% for IG corporates* Total Return Index YTD (%) MBS Year Conventional Year Conventional Month U.S. Treasury Year U.S. Treasury Year U.S. Treasury IG Corporates HY Corporates S&P Commodities 9.02 Source: Haver Analytics, Goldman Sachs Global Investment Research *Agency MBS 0.24% Q2 return Highlights Shorter duration sectors outperform longer duration sectors Lower credit quality outperformed investment grade generally Agency MBS Performance Agency MBS outperformed investment grade corporate and most high grade structured products on an unhedged basis Within Agency MBS, 30yrs and 15yrs performed similarly on a total return basis 9
10 Normal Vol (bps) Volatility Effects on MBS Volatility Update Cuspy MBS suffered the most from the sharp increase in volatility experienced in Q However, declining volatility was a positive for MBS in Q Volatility declined after the initial spike in Q and ended flat to slightly lower for Q Volatility has continued to decline in early Q /31/17 1/31/18 2/28/18 3/31/18 4/30/18 5/31/18 6/30/18 We continued to increase our hedge allocation to swaptions during Q ATM 1y10yr Normal Vol ATM +50bp 1y10yr Normal Vol Source: Bloomberg Data, Citi Velocity 10
11 Ticks (1/32) 2018 Hedge and MBS Performance yr MBS Performance vs. JPM 10yr Hedge Ratios During Q2 2018, 30-year fixed rate MBS widened versus 10- year U.S. treasuries by approximately 2 bps but have tightened 2-3 bps so far in Q /1/2018 2/1/2018 3/1/2018 4/1/2018 5/1/2018 6/1/2018 7/1/2018 FNCL 3 FNCL 3.5 FNCL 4 FNCL 4.5 For the same periods, 15-year fixed rate MBS tightened approximately 3 bps and 2 bps versus the 5-year U.S. treasuries. Curve mismatches for up in coupon MBS exaggerate their underperformance versus hedge ratios. With rates higher in 2018 and refinancing/purchase activity down, mortgage supply has declined, muting the negative effects of the reduced purchasing by the Fed. The Fed is now consistently buying 30yr 4s and 4.5s (50% of portfolio asset mix see page 20) The MBA Refi Index was anchored near 1000 during much of 2Q May 2018 prepayments for the 150 bp coupon range from 3.5s to 5.0s were separated by a meager 5 CPR (1) (1) JPM Agency CMO Q2 Review Source: Bloomberg Data, Citi Velocity 11
12 Roll Close in ticks (1/32) Payup in ticks (1/32) TBA Dollar Price Payup in ticks (1/32) Mortgage Market Update: TBA & Roll vs Specified Pool 106 FNCL 4.0 & FNCL 4.5 TBA 140 Wells Fargo Production 85k Max Specified Pool Payup over TBA ticks (1/32) for Q ticks (1/32) for Q Mar 29-Apr 29-May 29-Jun FNCL 4.0 FNCL 4.5 FNCL 85k Max 4.0 FNCL 85k Max FNCL 4.0 & FNCL 4.5 Roll ticks (1/32) for Q Wells Fargo New Production Specified Pool Payup over TBA Mar 30-Apr 31-May -1.0 ticks (1/32) for Q2 6 0 FNCL 4.0 Roll FNCL 4.5 Roll FNCL New 4.0 FNCL New 4.5 Source: Bloomberg Data, Wells Fargo Securities 12
13 Basis Points (bps) 2018 Repo Performance 70 Funding Performance vs. Hedges In 2Q M LIBOR / 3M OIS spreads normalized after a sharp widening into the end of Q Q1 End Q2 End Wider 3M LIBOR / 3M OIS spreads relative to our realized Repo / OIS spread creates a windfall in 3M LIBOR denominated hedges (swaps, Eurodollars etc). This spread has continued to compress in early Q Repo to OIS spreads tightened throughout the first two months of Q2 and, despite marginal widening post the FOMC meeting in June 2018, has resumed compressing Dec 31-Jan 28-Feb 31-Mar 30-Apr 31-May 30-Jun 1M Repo - 1M OIS Spread 3M LIBOR - 3M OIS Spread Funding spreads remain attractive vs. hedge resets Impact on repo funding less severe Source: Bloomberg Data, Citi Velocity 13
14 Financial Results 14
15 Orchid Island Capital Financial Results for the Three Months Ended June 30, 2018 Income Statement Net Income Realized and Excluding Realized Unrealized and Unrealized Gains/(Losses) Gains and Losses Total ($ in thousands, except per share data) Interest income $ 38,590 $ - $ 38,590 Interest expense (16,579) - (16,579) Net interest income 22,011-22,011 Realized gains/(losses) on mbs - (12,175) (12,175) Unrealized gains/(losses) on mbs - (20,418) (20,418) Gains/(losses) on interest rate futures - 7,049 7,049 Gains/(losses) on TBA - 1,564 1,564 Gains/(losses) on interest rate swaps - 3,530 3,530 Gains/(losses) on payer swaptions 2,716 2,716 Net portfolio income (loss) $ 22,011 $ (17,734) $ 4,277 Expenses: Management fees 1,606-1,606 Allocated overhead Accrued incentive compensation 1-1 Directors' fees and liability insurance Audit, legal and other professional fees Direct REIT operating expenses Other administrative Total expenses 2,931-2,931 MBS Portfolio Returns by Sector Structured Security Portfolio Interest- Pass-Through Only Inverse Interest Subtotal Total $ in thousands Portfolio Securities Only Securities 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) 1.10% 1.60% (1.70)% 0.90% 1.00% Average Capital Allocation (2) $ 268,914 $ 118,190 $ 26,960 $ 145,150 $ 414,064 Return on Average Invested Capital for the Quarter (3) 1.10% 1.60% (1.80)% 1.00% 1.00% (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. Net income (loss) $ 19,080 $ (17,734) $ 1,346 Basic and diluted net income (loss) per share $ 0.37 $ (0.34) $ 0.03 WAVG shares outstanding - Basic and diluted 52,287,472 52,287,472 $ 52,287,472 Dividends declared per common share $ 0.27 Source: Company Financials 15
16 Per Share Amount Yield (%) Orchid Economic Interest Rate Spread and Dividend History 5.00% 4.00% 3.00% 2.38% 2.00% 1.30% 1.00% 1.08% 0.00% Orchid Yield on MBS vs Economic Cost of Funds 2.75% 3.29% 1.22% 1.25% 4.11% 3.96% 3.95% 4.07% 4.18% 4.27% 4.15% 3.62% 3.57% 3.62% 3.48% 3.42% 3.57% 3.66% 3.79% 3.63% 3.25% 2.78% 3.04% 3.29% 2.62% 3.19% 3.18% 2.84% 2.87% 2.98% 2.83% 2.84% 2.89% 2.19% 2.27% 2.24% 2.18% 2.75% 2.55% 2.57% 2.39% 2.38% 2.38% 2.36% 1.88% 1.91% 2.03% 1.97% 0.42% 0.42% 0.45% 0.36% 0.38% 0.33% 0.38% 0.44% 0.50% 0.59% 1.07% 1.11% 1.36% 1.57% 0.73% Yield on MBS Economic Cost of Funds Economic Interest Rate Spread (Yield on MBS minus Economic Cost of Funds) $0.20 $0.18 $0.18 Orchid Dividend Per Share $0.16 $0.14 $0.14 $0.12 $0.10 $0.08 $0.135 $0.11 $0.09 Source: Company Press Releases 16
17 Per Share Amount Orchid Earnings Per Share (EPS) as Reported and with Gains/(Losses) Removed (1) $1.50 $1.17 $1.00 $0.50 $0.50 $0.41 $0.20 $0.56 $0.71 $0.62 $0.56 $0.53 $0.43 $0.66 $0.66 $0.63 $0.24 $0.69 $0.67 $0.33 $0.63 $0.36 $0.29 $0.85 $0.67 $0.69 $0.63 $0.67 $0.62 $0.70 $0.07 $0.62 $0.52 $0.49 $0.33 $0.41 $0.37 $- $(0.50) $(0.46) $(0.30) $(0.14) $(0.42) $(0.21) $(0.26) $0.03 $(0.12) $(0.31) $(0.72) $(1.00) Source: Company Financials (1) See appendix for supporting data. EPS EPS - Excluding Gains/(Losses) 17
18 Orchid Capital Allocation & MBS Portfolio Activity Capital Allocation Portfolio Activity ($ in thousands) ($ in thousands) Structured Security Portfolio Structured Security Portfolio Pass- Through Portfolio Interest- Only Securities Inverse Interest Only Securities Sub-total Total Pass-Through Portfolio Interest-Only Securities Inverse Interest Only Securities Sub-total Total June 30, 2018 Market value $ 3,547,711 $ 116,181 $ 25,704 $ 141,885 $ 3,689,596 Cash (1) 169, ,012 Borrowings (2) (3,449,854) (3,449,854) Total $ 266,869 $ 116,181 $ 25,704 $ 141,885 $ 408,754 % of Total 65.30% 28.40% 6.30% 34.70% % March 31, 2018 Market value $ 3,597,369 $ 120,199 $ 28,216 $ 148,415 $ 3,745,784 Cash 292, ,870 Borrowings (3) (3,619,280) (3,619,280) Total $ 270,959 $ 120,199 $ 28,216 $ 148,415 $ 419,374 % of Total 64.60% 28.70% 67.00% 35.40% % 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 (1) At June 30, 2018, cash was not effected by any unsettled purchases or sales. (2) At June 30, 2018, there were outstanding repurchase agreement balances of $73.3 million secured by IO securities and $17.7 million secured by 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. (3) At March 31, 2018, there were outstanding repurchase agreement balances of $74.8 million secured by IO securities and $15.3 million secured by IIO securities. We entered into these arrangements to generate additional cash available to meet margin calls on PT RMBS; therefore, we have not considered these balances to be allocated to the structured securities strategy. Source: Company Financials 18
19 Portfolio Characteristics, Credit Counterparties & Hedge Positions 19
20 Orchid Island Capital MBS Portfolio Characteristics as of June 30, 2018 MBS Valuation Characteristics As of June 30, 2018 ($ in thousands) TYPE Current Face Fair Value Percentage of Portfolio Current Price ($) Weighted Average Coupon Realized June 2018 Weighted CPR (1-Month) Average Maturity (Reported in July) Realized Apr - Jun 2018 CPR (3- Month) (Reported in Jul) Hybrid/ARM <3y reset $ 1,626 $ 1, % % % 0.01% 3y-5y reset 16,607 16, % % % 23.56% 5y-7y reset 8,280 8, % % % 0.79% Total Hybrid/ARM 26,513 26, % % % 15.00% Fixed Rate MBS Fixed Rate CMO 522, , % % % 4.72% Fixed Rate CMO Total 522, , % % % 4.72% 15yr 3.5 3,114 3, % % % 18.07% 15yr , , % % % 5.87% 15YR Total 713, , % % % 6.03% 20yr , , % % % 6.18% 20yr ,865 20, % % % n/a 20yr Total 208, , % % % 6.18% 30yr , , % % % 6.22% 30yr 4.5 1,322,318 1,387, % % % 10.53% 30yr , , % % % 19.97% 30yr Total 1,937,048 2,026, % % % 9.53% Total Fixed Rate MBS 3,382,017 3,521, % % % 8.66% Total Pass Through MBS 3,408,530 3,547, % % % 8.73% Structured MBS Interest-Only Securities 754, , % % % 12.24% Inverse Interest-Only Securities 245,659 25, % % % 11.75% Total Structured MBS 1,000, , % % % 12.12% Mortgage Assets Total Mortgage Assets $ 4,409,117 $ 3,689, % 4.28% % 9.76% Source: Company Press Releases 20
21 Percentage (%) Portfolio Composition 52% 52% 49% 44% 56% 60% 61% 56% 71% 64% 58% 58% 56% 60% 58% 54% 52% 64% 64% 63% 65% 74% 38% 44% 44% 44% 34% 28% 26% 26% 26% 18% 22% 32% 28% 24% 33% 22% 29% 25% 23% 30% 19% 28% 13% 12% Market Value (in millions of dollars) 5% 10% 8% 11% 16% 16% 17% 18% 24% 24% 16% 15% 4% 7% 7% 11% 14% 8% 7% 6% Percentage (%) Portfolio Composition 48.4% 48.1% 51.1% 56.0% 44.2% 40.1% 39.0% 29.2% 35.8% 43.8% 42.0% 42.3% 43.7% 39.9% 41.9% 45.9% 47.8% 36.4% 36.3% 26.5% 37.0% 35.0% 51.6% 51.9% 48.9% 44.0% 55.8% 59.9% 61.0% 70.8% 64.2% 56.2% 58.0% 57.7% 56.3% 60.1% 58.1% 54.1% 52.2% 63.6% 63.7% 73.5% 63.0% 65.0% Market Value (in millions of dollars) Orchid Island Capital Portfolio Characteristics Orchid Portfolio Capital Allocation Orchid Fixed Rate MBS Market Value by Tenor 100% 4,000 80% 60% 40% 20% 0% 20% 40% 60% 80% 100% 3,500 3,000 2,500 2,000 1,500 1, Pass-Through Structured 15-Year Fixed Rate MBS 20-Year Fixed Rate MBS 30-Year Fixed Rate MBS Orchid Capital Allocation Orchid Market Value of Structured Securities (IO & IIO) 100% % 80% 70% 60% 50% 40% 30% 20% 10% % - Pass-Through MBS Interest Only (IO) Inverse Interest Only (IIO) Interest Only (IO) Inverse Interest Only (IIO) Source: Company Press Releases 21
22 Orchid Credit Counterparties and Leverage Ratio History Orchid Island Capital Credit Counterparties ($ in thousands) As of June 30, 2018 Counterparty Total Outstanding Balances % of Total Weighted Average Borrowing Rate Weighted Average Maturity in Days RBC Capital Markets, LLC $ 463, % 2.17% 53 Mirae Asset Securities (USA) Inc. 380, % 1.95% 35 J.P. Morgan Securities LLC 348, % 1.61% 40 Mitsubishi UFJ Securities (USA), Inc 229, % 2.10% 31 Cantor Fitzgerald & Co 222, % 2.04% 16 ICBC Financial Services LLC 198, % 2.18% 65 Citigroup Global Markets Inc 171, % 2.21% 63 ING Financial Markets LLC 166, % 2.16% 40 Wells Fargo Bank, N.A. 164, % 2.17% 22 Natixis, New York Branch 148, % 2.29% 17 ABN AMRO Bank N.V. NY Branch 131, % 1.96% 3 ASL Capital Markets, Inc. 110, % 1.99% 26 Guggenheim Securities, LLC 104, % 2.18% 54 KGS-Alpha Capital Markets, L.P 99, % 2.04% 58 FHLB-Cincinnati 88, % 2.31% 2 Nomura Securities International, Inc. 81, % 2.20% 23 South Street Securities, LLC 76, % 2.11% 31 Daiwa Securities America Inc. 60, % 2.16% 9 Goldman, Sachs & Co 51, % 2.07% 41 ED&F Man Capital Markets Inc 44, % 2.15% 69 Lucid Cash Fund USG LLC 44, % 2.19% 12 Merrill Lynch, Pierce, Fenner & Smith 37, % 2.26% 24 Mizuho Securities USA, Inc 14, % 2.03% 19 J.V.B. Financial Group, LLC 8, % 2.17% 76 Total / Weighted Average $ 3,449, % 2.07% $ 37 Leverage Ratio (2) Orchid Island Capital Leverage Ratio History 10.0x 9.2x 9.0x 9.0x 8.5x 8.4x 8.1x 8.5x 8.4x 7.9x 8.0x 7.8x 7.7x 7.6x 7.9x 7.3x 7.1x 7.1x 7.0x 6.5x 6.3x 6.7x 6.3x 6.6x 6.3x 6.0x 6.1x 5.0x (1) Defined as total liabilities minus unsettled purchases divided by stockholders equity. Source: Company Press Releases 22
23 Orchid Island Capital Hedge Positions Eurodollar Futures Contracts ($ in thousands) As of 06/08/ Treasury Note Futures Contracts (Short Position)(2) ($ in thousands) (1) Open equity represents the cumulative gains (losses) recorded on open futures positions from inception. (2) 5-Year T-Note futures contracts were valued at a price of $ at March 31, The notional contract value of the short position was $188.9 million. (3) Notional amount represents the par value (or principal balance) of the underlying Agency MBS. (4) Cost basis represents the forward price to be paid (received) for the underlying Agency MBS. (5) Market value represents the current market value of the TBA securities (or of the underlying Agency MBS) as of period-end. (6) 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. Source: Company Financials Eurodollar Futures Contracts (Short Positions) Contract Notional Amount Weighted Average Entry Rate Weighted Average Effective Rate Open Equity (1) September 1,250, % 2.46% $ 1,703 December 1,500, % 2.64% 2,332 March $ 1,500, % 2.76% $ 2,545 June 1,500, % 2.86% 2,775 September 1,500, % 2.92% 2,783 December 1,500, % 2.97% 2,676 March $ 1,500, % 2.98% $ 1,766 June 1,500, % 2.98% 1,302 September 1,500, % 2.98% 1,123 December 1,500, % 2.98% 820 Total / WAVG $ 1,475, % 2.86% $ 19,825 Contract Contract Notional Amount Weighted Average Entry Rate Weighted Average Effective Rate Open Equity (1) Sep year T-Note futures $ 165, % 3.06% $ (6,531) 23 Swaption Agreement Option Underlying Swap Expiration Cost Fair Value TBA Positions ($ in thousands) Notional Amount Long (Short) (1) As of June 30, 2018 Cost Basis (2) Market Value (3) Net Carrying Value (4) 3.00% $ (200,000) $ (192,404) $ (193,625) $ (1,221) 30-Year TBA securities: 3.50% $ (200,000) $ (197,980) $ (199,000) $ (1,020) $ (400,000) $ (390,384) $ (392,625) $ (2,241) As of March 31, Year TBA securities: 3.00% $ (400,000) $ (387,621) $ (390,187) $ (2,566) $ (400,000) $ (387,621) $ (390,187) $ (2,566) Swap Agreements ($ in thousands) Notional Amount Weighted Avg Months to Expiration Average Fixed Pay Rate Notional Amount Average Receive Rate Fixed Pay Rate Net Estimated Fair Value Receive Rate (LIBOR) Weighted Avg Term (Years) As of June 30, 2018 Reciever 1 year $ 760 $ $ 100, % 3 Month 5.00 Payer 1 year $ 9,770 $ 7, $ 950, % 3 Month 9.26 As of March 31, 2018 Reciever 1 year $ 820 $ $ 100, % 3 Month 5.00 Payer 1 year $ 11,062 $ 10, $ 750, % 3 Month 9.20 Average Maturity (Years) As of June 30, 2018 Expiration > 1 to 3 years $ 650, % 2.36% $ 16, Expiration > 3 to 5 years 360, % 2.33% 10, $ 1,010, % 2.35% $ 27, As of March 31, 2018 Expiration > 1 to 3 years $ 650, % 1.81% $ 17, Expiration > 3 to 5 years 360, % 2.03% 7, $ 1,010, % 1.89% $ 25,
24 Outlook & Strategy 24
25 Orchid Island Capital Strategy and Portfolio Positioning Post financial crisis impaired mortgage finance capability - Resulted in an extended period of historically low rates - IPO to Date - - Borrower sensitivity to refinance incentives muted compared to pre-crisis environment Orchids strategy focused on taking exposure to refinance activity via high coupon, fixed rate securities and IOs Performance during Taper Tantrum allowed Orchid to take advantage of high rates and attractive investment opportunities in early Orchid generated an above average dividend stream to investors over this period - This facilitated capital raising while most peers traded at a substantial discount to book value and were generally locked out of the capital markets - Most capital raised via At the Market programs an efficient and low cost means of raising capital Orchid was able to grow from a sub $50mm market cap REIT post IPO to our current market cap near $400mm - This initial phase of growth is critical to the long term success of a REIT Current flat curve environment precludes this strategy from continuing absent excessive leverage and/or exposure to credit risk Portfolio repositioning started first quarter Protect against convexity risks - Reduce leverage - Repurchase shares opportunistically when stock trades well below book value 25
26 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 $ Per Share Orchid Island Capital Book Value and Share Price $16.00 $15.00 $14.00 $13.00 $12.47 $13.05 $13.27 $13.06 $12.87 $12.38 $12.00 $11.69 $11.64 $11.00 $11.01 $10.86 $11.21 $10.00 $10.10 $9.75 $10.19 $9.23 $9.00 $8.71 $8.00 $8.09 $7.86 $7.00 $6.00 Book Value Share Price Source: Company Financials, Bloomberg Data 26
27 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Stock Price to Trailing Book (%) Price to Trailing Book Value (1) Orchid vs Peer Group Average (2) 130% Price to Trailing Book Value - Orchid vs Peer Group Average 120% 110% 100% 90% 80% 70% 60% Orchid Peer Group Average (1) Trailing book value is the reported book value for the most recent quarter. The price to book is calculated as the closing stock price divided by the trailing book value. (2) The peer average is the unweighted, simple, average of the closing stock price to trailing book value for each of the following companies in each respective measurement period: AGNC, ANH, ARR, CMO, CYS, DX, MTGE, NLY, & WMC. Source: Company Financials, Bloomberg Data 27
28 Capital Raised $ (millions) Cumulative capital raised $ (millions) Capital Raised $ (millions) Cumulative capital raised $ (millions) Mortgage REIT Capital Raising Environment Capital Raised in Mortgage REIT Space - Since Orchid IPO 1 $1,000 $800 $600 $400 $200 $- $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 Capital Raised at Orchid since IPO $100 $700 $80 $60 $40 $20 $- $600 $500 $400 $300 $200 $100 $0 (1) Sum of capital offerings, excluding Orchid, for: AGNC, AI, AMTG, ANH, ARR, CMO, CYS, DX, HTS, IVR, MFA, MITT, MTGE, NLY, TWO, & WMC since Orchid IPO February Source: Company Press Releases 28
29 Appendix 29
30 Orchid Island Capital Earnings per Share Support Data Quarter Net Income (GAAP) Realized and Unrealized Gains and Losses Net Earnings Less Realized and Unrealized Gains and Losses Weighted Average Shares Outstanding Net Income Per Share Realized and Unrealized Gains and Losses Per Share Net Earnings Less Realized and Unrealized Gains and Losses Per Share Q1 $ 400,000 $ (413,000) $ 812,000 2,004,332 $ 0.20 $ (0.21) $ Q2 $ (1,546,000) $ (3,201,000) $ 1,655,000 3,341,665 $ (0.46) $ (0.96) $ Q3 $ (997,000) $ (2,853,000) $ 1,855,000 3,341,665 $ (0.30) $ (0.85) $ Q4 $ 1,445,000 $ (635,000) $ 2,079,000 3,341,665 $ 0.43 $ (0.19) $ Q1 $ 3,595,000 $ 758,000 $ 2,836,000 5,093,554 $ 0.71 $ 0.15 $ Q2 $ 10,635,000 $ 5,836,000 $ 4,798,000 9,078,107 $ 1.17 $ 0.64 $ Q3 $ 6,768,000 $ (306,000) $ 7,074,000 10,710,153 $ 0.63 $ (0.03) $ Q4 $ 3,521,000 $ (6,055,000) $ 9,576,000 14,565,000 $ 0.24 $ (0.42) $ Q1 $ 5,509,000 $ (6,063,000) $ 11,572,000 16,846,950 $ 0.33 $ (0.36) $ Q2 $ (2,832,000) $ (16,017,000) $ 13,185,000 19,751,871 $ (0.14) $ (0.81) $ Q3 $ (9,417,000) $ (23,682,000) $ 14,265,000 22,545,019 $ (0.42) $ (1.05) $ Q4 $ 7,810,000 $ (6,813,000) $ 14,622,000 21,771,000 $ 0.36 $ (0.31) $ Q1 $ (4,591,000) $ (19,561,000) $ 14,970,000 21,756,065 $ (0.21) $ (0.90) $ Q2 $ 6,463,000 $ (7,319,000) $ 13,782,000 21,920,573 $ 0.29 $ (0.33) $ Q3 $ 20,526,000 $ 4,418,000 $ 16,108,000 24,133,343 $ 0.85 $ 0.18 $ Q4 $ (20,419,000) $ (38,005,000) $ 17,586,000 28,494,000 $ (0.72) $ (1.33) $ Q1 $ 2,449,000 $ (20,727,000) $ 23,176,000 33,069,064 $ 0.07 $ (0.63) $ Q2 $ (9,643,000) $ (32,597,000) $ 22,954,000 37,211,362 $ (0.26) $ (0.88) $ Q3 $ 15,183,000 $ (8,254,000) $ 23,437,000 45,355,124 $ 0.33 $ (0.18) $ Q4 $ (5,982,000) $ (29,540,000) $ 23,558,000 48,310,191 $ (0.12) $ (0.61) $ Q1 $ (16,377,000) $ (38,055,000) $ 21,678,000 53,065,845 $ (0.31) $ (0.72) $ Q2 $ 1,347,566 $ (17,733,629) $ 19,081,195 52,587,472 $ 0.03 $ (0.33) $ 0.36 Source: Company Financials 30
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