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 March 31, 2017.
First Quarter 2017
Highlights
• Net income of $2.4 million, or $0.07 per common share, which
consists of:
- Net interest income of $25.6 million, or $0.77 per common
share
- Total expenses of $2.4 million, or $0.07 per common share
- Net realized and unrealized losses of $20.7 million, or $0.63
per share, on RMBS and derivative instruments
• First quarter total dividends declared and paid of $0.42 per
common share
• Book value per share of $9.75 at March 31, 2017
• 0.7% economic gain on common equity for the quarter, or 2.8%
annualized, comprised of $0.42 dividend per common share and $0.35
decrease in net book value per common share, divided by beginning
book value per share
• Company to discuss results on Friday, April 28, 2017, at 10:00
AM ET
• Supplemental materials to be discussed on the call can be
downloaded from the Company’s website
Details of First Quarter 2017 Results of
Operations
The Company reported net income of $2.4 million
for the three month period ended March 31, 2017, compared with net
loss of $4.6 million for the three month period ended March 31,
2016. The first quarter net income included net interest
income of $25.6 million, net portfolio losses of $20.7 million
(which includes realized and unrealized losses (losses) on RMBS and
derivative instruments, and net interest expense realized in
interest rate swaps), management fees and allocated overhead of
$1.7 million, audit, legal and other professional fees of $0.2
million, and other operating, general and administrative expenses
of $0.5 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 December
31, 2016, approximately 54% 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 March 31, 2017, the allocation to the PT RMBS had decreased by
2% to approximately 52%.
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 -
December 31, 2016 |
|
$ |
2,874,215 |
|
|
|
$ |
69,726 |
|
|
|
$ |
78,233 |
|
|
|
$ |
147,959 |
|
|
|
$ |
3,022,174 |
|
Securities
purchased |
|
|
1,682,894 |
|
|
|
|
43,498 |
|
|
|
|
10,848 |
|
|
|
|
54,346 |
|
|
|
|
1,737,240 |
|
Securities sold |
|
|
(1,369,585 |
) |
|
|
|
- |
|
|
|
|
(38,088 |
) |
|
|
|
(38,088 |
) |
|
|
|
(1,407,673 |
) |
Losses on sales |
|
|
(910 |
) |
|
|
|
- |
|
|
|
|
(440 |
) |
|
|
|
(440 |
) |
|
|
|
(1,350 |
) |
Return of
investment |
|
|
n/a |
|
|
|
|
(5,859 |
) |
|
|
|
(2,668 |
) |
|
|
|
(8,527 |
) |
|
|
|
(8,527 |
) |
Pay-downs |
|
|
(64,889 |
) |
|
|
|
n/a |
|
|
|
|
n/a |
|
|
|
|
n/a |
|
|
|
|
(64,889 |
) |
Premium lost due to
pay-downs |
|
|
(4,653 |
) |
|
|
|
n/a |
|
|
|
|
n/a |
|
|
|
|
n/a |
|
|
|
|
(4,653 |
) |
Mark to
market losses |
|
|
(9,412 |
) |
|
|
|
(151 |
) |
|
|
|
(742 |
) |
|
|
|
(893 |
) |
|
|
|
(10,305 |
) |
Market value - March 31, 2017 |
|
$ |
3,107,660 |
|
|
|
$ |
107,214 |
|
|
|
$ |
47,143 |
|
|
|
$ |
154,357 |
|
|
|
$ |
3,262,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tables below present the allocation of
capital between the respective portfolios at March 31, 2017 and
December 31, 2016, and the return on invested capital for each
sub-portfolio for the three month period ended March 31,
2017. The return on invested capital in the PT RMBS and
structured RMBS portfolios was approximately 2.1% and 0.8%,
respectively, for the first quarter of 2017. The combined
portfolio generated a return on invested capital of approximately
1.5%.
|
($ in thousands) |
Capital Allocation |
|
|
|
|
|
|
|
|
|
Structured Security Portfolio |
|
|
|
|
|
|
|
|
|
|
Pass-Through |
|
|
|
|
Interest-Only |
|
|
|
|
Inverse Interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio |
|
|
|
|
Securities |
|
|
|
|
Only Securities |
|
|
|
|
Sub-total |
|
|
|
|
Total |
|
March 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
value |
|
|
|
$ |
3,107,660 |
|
|
|
$ |
107,214 |
|
|
|
$ |
47,143 |
|
|
|
$ |
154,357 |
|
|
|
$ |
3,262,017 |
|
Cash |
|
|
|
|
112,723 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
112,723 |
|
Borrowings(1) |
|
|
|
|
(3,050,608 |
) |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(3,050,608 |
) |
Total |
|
|
|
$ |
169,775 |
|
|
|
$ |
107,214 |
|
|
|
$ |
47,143 |
|
|
|
$ |
154,357 |
|
|
|
$ |
324,132 |
|
% of Total |
|
|
|
|
52.4 |
% |
|
|
|
33.1 |
% |
|
|
|
14.5 |
% |
|
|
|
47.6 |
% |
|
|
|
100.0 |
% |
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
value |
|
|
|
$ |
2,874,215 |
|
|
|
$ |
69,726 |
|
|
|
$ |
78,233 |
|
|
|
$ |
147,959 |
|
|
|
$ |
3,022,174 |
|
Cash |
|
|
|
|
94,425 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
94,425 |
|
Borrowings(2) |
|
|
|
|
(2,793,705 |
) |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
(2,793,705 |
) |
Total |
|
|
|
$ |
174,935 |
|
|
|
$ |
69,726 |
|
|
|
$ |
78,233 |
|
|
|
$ |
147,959 |
|
|
|
$ |
322,894 |
|
% of Total |
|
|
|
|
54.2 |
% |
|
|
|
21.6 |
% |
|
|
|
24.2 |
% |
|
|
|
45.8 |
% |
|
|
|
100.0 |
% |
(1) At March 31, 2017, there were outstanding repurchase
agreement balances of $63.8 million and $33.6 million secured by IO
and IIO securities, respectively. We entered into these
arrangements to generate additional cash to invest in PT RMBS;
therefore, we have not considered these balances to be allocated to
the structured securities strategy.(2) At December 31, 2016, there
were outstanding repurchase agreement balances of $33.3 million and
$45.5 million secured by IO and IIO securities, respectively.
We entered into these arrangements to generate additional cash to
invest in PT RMBS; therefore, we have not considered these balances
to be allocated to the structured securities strategy.
|
($ in thousands) |
Returns for the Quarter Ended March 31,
2017 |
|
|
|
|
|
|
|
|
Structured Security Portfolio |
|
|
|
|
|
|
|
|
Pass-Through |
|
|
|
|
Interest-Only |
|
|
|
|
Inverse Interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio |
|
|
|
|
Securities |
|
|
|
|
Only Securities |
|
|
|
|
Sub-total |
|
|
|
|
Total |
|
Income (net
of borrowing cost) |
|
|
$ |
23,057 |
|
|
|
$ |
541 |
|
|
|
$ |
1,998 |
|
|
|
$ |
2,539 |
|
|
|
$ |
25,596 |
|
Realized
and unrealized losses |
|
|
|
(14,975 |
) |
|
|
|
(151 |
) |
|
|
|
(1,182 |
) |
|
|
|
(1,333 |
) |
|
|
|
(16,308 |
) |
Derivative losses |
|
|
|
(4,419 |
) |
|
|
|
n/a |
|
|
|
|
n/a |
|
|
|
|
n/a |
|
|
|
|
(4,419 |
) |
Total Return |
|
|
$ |
3,663 |
|
|
|
$ |
390 |
|
|
|
$ |
816 |
|
|
|
$ |
1,206 |
|
|
|
$ |
4,869 |
|
Beginning Capital Allocation |
|
|
$ |
174,935 |
|
|
|
$ |
69,726 |
|
|
|
$ |
78,233 |
|
|
|
$ |
147,959 |
|
|
|
$ |
322,894 |
|
Return on Invested Capital for the Quarter(1) |
|
|
|
2.1 |
% |
|
|
|
0.6 |
% |
|
|
|
1.0 |
% |
|
|
|
0.8 |
% |
|
|
|
1.5 |
% |
Average Capital Allocation(2) |
|
|
$ |
172,355 |
|
|
|
$ |
88,470 |
|
|
|
$ |
62,688 |
|
|
|
$ |
151,158 |
|
|
|
$ |
323,513 |
|
Return on Average Invested Capital for the Quarter(3) |
|
|
|
2.1 |
% |
|
|
|
0.4 |
% |
|
|
|
1.3 |
% |
|
|
|
0.8 |
% |
|
|
|
1.5 |
% |
(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 March 31, 2017, Orchid
received $73.3 million in scheduled and unscheduled principal
repayments and prepayments, which equated to a constant prepayment
rate (“CPR”) of approximately 9.9%. Prepayment rates on the two
RMBS sub-portfolios were as follows (in CPR):
|
|
|
|
|
|
Structured |
|
|
|
|
|
|
PT RMBS |
|
|
RMBS |
|
|
Total |
Three Months Ended |
|
|
Portfolio (%) |
|
|
Portfolio (%) |
|
|
Portfolio (%) |
March 31, 2017 |
|
|
7.5 |
|
|
14.3 |
|
|
9.9 |
December 31, 2016 |
|
|
9.7 |
|
|
18.4 |
|
|
12.2 |
September 30, 2016 |
|
|
8.9 |
|
|
17.9 |
|
|
11.7 |
June 30, 2016 |
|
|
8.4 |
|
|
15.9 |
|
|
11.0 |
March 31,
2016 |
|
|
5.5 |
|
|
12.4 |
|
|
8.2 |
|
|
|
|
|
|
|
|
|
|
Portfolio
The following tables summarize certain
characteristics of Orchid’s PT RMBS and structured RMBS as of March
31, 2017 and December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ 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 |
|
March 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable Rate
RMBS |
|
$ |
1,947 |
|
|
0.1 |
% |
|
|
3.52 |
% |
|
|
215 |
|
|
1-Sep-35 |
|
|
3.22 |
|
|
10.04 |
% |
|
|
2.00 |
% |
Fixed Rate RMBS |
|
|
3,061,957 |
|
|
93.9 |
% |
|
|
4.33 |
% |
|
|
338 |
|
|
1-Mar-47 |
|
|
NA |
|
|
NA |
|
|
|
NA |
|
Hybrid
Adjustable Rate RMBS |
|
|
43,756 |
|
|
1.3 |
% |
|
|
2.55 |
% |
|
|
310 |
|
|
1-Aug-43 |
|
|
70.01 |
|
|
7.55 |
% |
|
|
2.00 |
% |
Total
Mortgage-backed Pass-through |
|
|
3,107,660 |
|
|
95.3 |
% |
|
|
4.31 |
% |
|
|
337 |
|
|
1-Mar-47 |
|
|
NA |
|
|
NA |
|
|
|
NA |
|
Interest-Only
Securities |
|
|
107,214 |
|
|
3.3 |
% |
|
|
3.74 |
% |
|
|
266 |
|
|
25-Dec-45 |
|
|
NA |
|
|
NA |
|
|
|
NA |
|
Inverse
Interest-Only Securities |
|
|
47,143 |
|
|
1.4 |
% |
|
|
5.26 |
% |
|
|
326 |
|
|
25-Feb-47 |
|
|
NA |
|
|
6.22 |
% |
|
|
NA |
|
Total
Structured RMBS |
|
|
154,357 |
|
|
4.7 |
% |
|
|
4.20 |
% |
|
|
284 |
|
|
25-Feb-47 |
|
|
NA |
|
|
NA |
|
|
|
NA |
|
Total
Mortgage Assets |
|
$ |
3,262,017 |
|
|
100.0 |
% |
|
|
4.30 |
% |
|
|
335 |
|
|
1-Mar-47 |
|
|
NA |
|
|
NA |
|
|
|
NA |
|
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable Rate
RMBS |
|
$ |
2,062 |
|
|
0.1 |
% |
|
|
3.50 |
% |
|
|
219 |
|
|
1-Sep-35 |
|
|
5.67 |
|
|
10.05 |
% |
|
|
2.00 |
% |
Fixed Rate RMBS |
|
|
2,826,694 |
|
|
93.5 |
% |
|
|
4.21 |
% |
|
|
325 |
|
|
1-Dec-46 |
|
|
NA |
|
|
n/a |
|
|
|
n/a |
|
Hybrid
Adjustable Rate RMBS |
|
|
45,459 |
|
|
1.5 |
% |
|
|
2.55 |
% |
|
|
313 |
|
|
1-Aug-43 |
|
|
73.08 |
|
|
7.55 |
% |
|
|
2.00 |
% |
Total
Mortgage-backed Pass-through |
|
|
2,874,215 |
|
|
95.1 |
% |
|
|
4.19 |
% |
|
|
324 |
|
|
1-Dec-46 |
|
|
NA |
|
|
NA |
|
|
|
NA |
|
Interest-Only
Securities |
|
|
69,726 |
|
|
2.3 |
% |
|
|
3.59 |
% |
|
|
235 |
|
|
25-Apr-45 |
|
|
NA |
|
|
n/a |
|
|
|
n/a |
|
Inverse
Interest-Only Securities |
|
|
78,233 |
|
|
2.6 |
% |
|
|
5.40 |
% |
|
|
338 |
|
|
25-Dec-46 |
|
|
NA |
|
|
6.14 |
% |
|
|
n/a |
|
Total
Structured RMBS |
|
|
147,959 |
|
|
4.9 |
% |
|
|
4.55 |
% |
|
|
290 |
|
|
25-Dec-46 |
|
|
NA |
|
|
NA |
|
|
|
n/a |
|
Total
Mortgage Assets |
|
$ |
3,022,174 |
|
|
100.0 |
% |
|
|
4.20 |
% |
|
|
323 |
|
|
25-Dec-46 |
|
|
NA |
|
|
NA |
|
|
|
NA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in
thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017 |
|
December 31, 2016 |
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
Percentage of |
|
Agency |
|
|
|
Fair Value |
|
|
Entire Portfolio |
|
|
|
Fair Value |
|
|
Entire Portfolio |
|
Fannie Mae |
|
|
$ |
2,491,752 |
|
|
76.4 |
% |
|
|
$ |
2,226,893 |
|
|
73.7 |
% |
Freddie Mac |
|
|
|
761,590 |
|
|
23.3 |
% |
|
|
|
785,496 |
|
|
26.0 |
% |
Ginnie
Mae |
|
|
|
8,675 |
|
|
0.3 |
% |
|
|
|
9,785 |
|
|
0.3 |
% |
Total
Portfolio |
|
|
$ |
3,262,017 |
|
|
100.0 |
% |
|
|
$ |
3,022,174 |
|
|
100.0 |
% |
|
|
|
March 31, 2017 |
|
|
|
|
December 31, 2016 |
Weighted Average
Pass-through Purchase Price |
|
$ |
108.26 |
|
|
|
$ |
108.64 |
Weighted Average
Structured Purchase Price |
|
$ |
14.52 |
|
|
|
$ |
15.39 |
Weighted Average
Pass-through Current Price |
|
$ |
107.19 |
|
|
|
$ |
107.14 |
Weighted Average
Structured Current Price |
|
$ |
14.58 |
|
|
|
$ |
15.49 |
Effective
Duration (1) |
|
|
3.495 |
|
|
|
|
4.579 |
(1) Effective duration of 3.495 indicates that an interest rate
increase of 1.0% would be expected to cause a 3.495% decrease in
the value of the RMBS in the Company’s investment portfolio at
March 31, 2017. An effective duration of 4.579 indicates that
an interest rate increase of 1.0% would be expected to cause a
4.579% decrease in the value of the RMBS in the Company’s
investment portfolio at December 31, 2016. 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 March 31, 2017, the Company had
outstanding repurchase obligations of approximately $3,050.6
million with a net weighted average borrowing rate of 1.01%.
These agreements were collateralized by RMBS with a fair value,
including accrued interest, of approximately $3,244.3 million and
cash pledged to counterparties of approximately $4.4 million. The
Company’s leverage ratio at March 31, 2017 was 9.2 to 1. At March
31, 2017, the Company’s liquidity was approximately $125.3 million,
consisting of unpledged RMBS (excluding the value of the unsettled
purchases) and cash and cash equivalents. To enhance our
liquidity even further, we may pledge more of our structured RMBS
as part of a repurchase agreement funding, but retain the cash in
lieu of acquiring additional assets. In this way we can, at a
modest cost, retain higher levels of cash on hand and decrease the
likelihood we will have to sell assets in a distressed market in
order to raise cash. Below is a listing of outstanding
borrowings under repurchase obligations at March 31,
2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in
thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
Total |
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
Outstanding |
|
|
% of |
|
Borrowing |
|
|
|
Amount |
|
|
Maturity |
Counterparty |
|
|
|
Balances |
|
|
Total |
|
Rate |
|
|
|
at Risk(1) |
|
|
in Days |
Wells Fargo Bank,
N.A. |
|
|
$ |
423,078 |
|
|
13.8 |
% |
|
|
0.98 |
% |
|
|
$ |
23,102 |
|
|
11 |
Citigroup Global
Markets, Inc. |
|
|
|
286,584 |
|
|
9.4 |
% |
|
|
1.04 |
% |
|
|
|
28,586 |
|
|
27 |
ICBC Financial
Services, LLC |
|
|
|
240,705 |
|
|
7.9 |
% |
|
|
1.04 |
% |
|
|
|
12,885 |
|
|
43 |
J.P. Morgan Securities
LLC |
|
|
|
231,617 |
|
|
7.6 |
% |
|
|
1.11 |
% |
|
|
|
18,241 |
|
|
13 |
RBC Capital Markets,
LLC |
|
|
|
229,689 |
|
|
7.5 |
% |
|
|
0.98 |
% |
|
|
|
12,399 |
|
|
12 |
Cantor Fitzgerald &
Co. |
|
|
|
228,461 |
|
|
7.5 |
% |
|
|
0.91 |
% |
|
|
|
12,440 |
|
|
18 |
Mitsubishi UFJ
Securities (USA), Inc. |
|
|
|
207,082 |
|
|
6.8 |
% |
|
|
0.86 |
% |
|
|
|
11,237 |
|
|
21 |
South Street
Securities, LLC |
|
|
|
172,080 |
|
|
5.6 |
% |
|
|
0.98 |
% |
|
|
|
9,130 |
|
|
7 |
ED&F Man Capital
Markets Inc. |
|
|
|
153,325 |
|
|
5.0 |
% |
|
|
0.99 |
% |
|
|
|
8,374 |
|
|
59 |
KGS-Alpha Capital
Markets, L.P. |
|
|
|
149,426 |
|
|
4.9 |
% |
|
|
1.06 |
% |
|
|
|
14,056 |
|
|
44 |
Merrill Lynch, Pierce,
Fenner & Smith Inc |
|
|
|
149,096 |
|
|
4.9 |
% |
|
|
0.99 |
% |
|
|
|
5,067 |
|
|
17 |
Daiwa Capital Markets
America, Inc. |
|
|
|
123,675 |
|
|
4.1 |
% |
|
|
1.01 |
% |
|
|
|
6,638 |
|
|
13 |
Goldman Sachs &
Co. |
|
|
|
111,342 |
|
|
3.6 |
% |
|
|
1.12 |
% |
|
|
|
9,059 |
|
|
70 |
Guggenheim Securities,
LLC |
|
|
|
81,432 |
|
|
2.7 |
% |
|
|
1.05 |
% |
|
|
|
4,609 |
|
|
78 |
FHLB-Cincinnati |
|
|
|
80,435 |
|
|
2.6 |
% |
|
|
1.04 |
% |
|
|
|
2,963 |
|
|
3 |
Natixis, New York
Branch |
|
|
|
72,100 |
|
|
2.4 |
% |
|
|
0.93 |
% |
|
|
|
3,910 |
|
|
6 |
Nomura Securities
International, Inc. |
|
|
|
65,701 |
|
|
2.2 |
% |
|
|
1.05 |
% |
|
|
|
3,592 |
|
|
38 |
Mizuho
Securities USA, Inc. |
|
|
|
44,780 |
|
|
1.5 |
% |
|
|
1.21 |
% |
|
|
|
6,720 |
|
|
17 |
Total /
Weighted Average |
|
|
$ |
3,050,608 |
|
|
100.0 |
% |
|
|
1.01 |
% |
|
|
$ |
193,008 |
|
|
25 |
(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 March 31, 2017, such instruments were comprised
of Eurodollar and Treasury note (“T-Note”) futures contracts and
interest rate swap agreements.
The table below presents information related to
the Company’s Eurodollar and T-Note futures contracts at March 31,
2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in
thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
|
Contract |
|
|
Average |
|
|
Average |
|
|
|
|
|
|
|
Notional |
|
|
Entry |
|
|
Effective |
|
|
|
Open |
Expiration Year |
|
|
Amount |
|
|
Rate |
|
|
Rate |
|
|
|
Equity(1) |
Eurodollar Futures Contracts (Short
Positions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 |
|
$ |
866,667 |
|
|
1.53 |
% |
|
|
1.44 |
% |
|
|
$ |
(556 |
) |
2018 |
|
|
1,000,000 |
|
|
1.84 |
% |
|
|
1.83 |
% |
|
|
|
(91 |
) |
2019 |
|
|
1,000,000 |
|
|
2.09 |
% |
|
|
2.20 |
% |
|
|
|
1,050 |
|
2020 |
|
|
925,000 |
|
|
2.62 |
% |
|
|
2.43 |
% |
|
|
|
(1,767 |
) |
Total /
Weighted Average |
|
$ |
953,333 |
|
|
2.06 |
% |
|
|
2.02 |
% |
|
|
$ |
(1,364 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Note Futures Contracts (Short
Positions)(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
June 2017 10 year
T-Note futures |
|
|
|
|
|
|
|
|
|
|
|
|
|
(June
2017 - June 2027 Hedge Period) |
|
$ |
465,000 |
|
|
2.22 |
% |
|
|
2.20 |
% |
|
|
$ |
(2,347 |
) |
(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 $124.56 at March 31,
2017. The nominal contract value of the short position was $579.2
million.
The table below presents information related to the Company’s
interest rate swap positions at March 31, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in
thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Net |
|
|
|
|
|
|
|
|
|
Fixed |
|
|
Average |
|
|
|
Estimated |
|
|
Average |
|
|
|
Notional |
|
|
Pay |
|
|
Receive |
|
|
|
Fair |
|
|
Maturity |
Expiration |
|
|
Amount |
|
|
Rate |
|
|
Rate |
|
|
|
Value |
|
|
(Years) |
> 1 to ≤ 3
years |
|
$ |
600,000 |
|
|
1.05 |
% |
|
|
1.04 |
% |
|
|
$ |
12,430 |
|
|
|
2.9 |
> 3 to
≤ 5 years |
|
|
200,000 |
|
|
2.14 |
% |
|
|
1.15 |
% |
|
|
|
(1,397 |
) |
|
|
4.9 |
|
|
$ |
800,000 |
|
|
1.32 |
% |
|
|
1.07 |
% |
|
|
$ |
11,033 |
|
|
|
3.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 -
YTD(1) |
|
|
|
0.560 |
|
|
|
18,942 |
Totals |
|
|
$ |
7.715 |
|
|
$ |
126,383 |
(1) On April 12, 2016, the Company declared a dividend of $0.14
per share to be paid on May 10, 2016. The effect of this
dividend is included in the table above, but is not reflected in
the Company’s financial statements as of March 31, 2017.
Peer Performance
The table below presents total return data for
Orchid compared to a selected group of peers for periods through
March 31, 2017.
|
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) |
Second Quarter
2013 |
|
|
(3.0 |
)% |
|
|
(10.6 |
)% |
|
|
7.6 |
% |
Third Quarter 2013 |
|
|
(2.2 |
)% |
|
|
0.5 |
% |
|
|
(2.7 |
)% |
Fourth Quarter
2013 |
|
|
3.3 |
% |
|
|
(0.2 |
)% |
|
|
3.5 |
% |
Stub 2013
(Annualized)(4) |
|
|
(2.8 |
)% |
|
|
(13.5 |
)% |
|
|
10.7 |
% |
First Quarter 2014 |
|
|
(2.9 |
)% |
|
|
4.3 |
% |
|
|
(7.2 |
)% |
Second Quarter
2014 |
|
|
9.0 |
% |
|
|
7.1 |
% |
|
|
1.9 |
% |
Third Quarter 2014 |
|
|
5.8 |
% |
|
|
1.2 |
% |
|
|
4.6 |
% |
Fourth Quarter
2014 |
|
|
2.5 |
% |
|
|
2.3 |
% |
|
|
0.2 |
% |
2014 Total Return |
|
|
13.6 |
% |
|
|
15.2 |
% |
|
|
(1.6 |
)% |
First Quarter 2015 |
|
|
2.7 |
% |
|
|
0.2 |
% |
|
|
2.5 |
% |
Second Quarter
2015 |
|
|
0.4 |
% |
|
|
(1.7 |
)% |
|
|
2.1 |
% |
Third Quarter 2015 |
|
|
(2.2 |
)% |
|
|
(2.6 |
)% |
|
|
0.4 |
% |
Fourth Quarter
2015 |
|
|
3.2 |
% |
|
|
(1.1 |
)% |
|
|
4.3 |
% |
2015 Total Return |
|
|
3.8 |
% |
|
|
(2.9 |
)% |
|
|
6.7 |
% |
First Quarter 2016 |
|
|
(1.8 |
)% |
|
|
(2.0 |
)% |
|
|
0.2 |
% |
Second Quarter
2016 |
|
|
2.5 |
% |
|
|
3.1 |
% |
|
|
(0.6 |
)% |
Third Quarter 2016 |
|
|
7.1 |
% |
|
|
5.2 |
% |
|
|
1.9 |
% |
Fourth Quarter
2016 |
|
|
(6.2 |
)% |
|
|
(5.7 |
)% |
|
|
(0.5 |
)% |
2016 Total Return |
|
|
1.1 |
% |
|
|
0.0 |
% |
|
|
1.1 |
% |
First Quarter
2017(5) |
|
|
0.8 |
% |
|
|
N/A |
|
|
|
N/A |
|
One Year Return -
4/1/16 - 3/31/17(5) |
|
|
3.8 |
% |
|
|
N/A |
|
|
|
N/A |
|
Two Year Return -
4/1/15 - 3/31/17(5) |
|
|
2.8 |
% |
|
|
N/A |
|
|
|
N/A |
|
Three Year Total Return
- 4/1/14 -3/31/17(5) |
|
|
23.4 |
% |
|
|
N/A |
|
|
|
N/A |
|
ORC IPO
to First Quarter 2016 - 3/31/13 - 3/31/17(4)(5) |
|
|
14.8 |
% |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
Source: Company SEC
filings and press releases |
|
|
|
|
|
|
|
|
|
|
(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,
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 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
April 27, 2017, earnings data for the first quarter of 2017 was not
available for all companies included in the peer average
calculation.
Book Value Per Share
The Company's book value per share at March 31,
2017 was $9.75. 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 March 31, 2017, the
Company's stockholders' equity was $334.2 million with 34,270,126
shares of common stock outstanding.
Stock Offerings
On February 23, 2017, Orchid entered into a
fifth equity distribution agreement (the “February 2017 Equity
Distribution Agreement”) with two sales agents pursuant to which
the Company may offer and sell, from time to time, up to an
aggregate amount of $125,000,000 of shares of the Company’s common
stock in transactions that are deemed to be “at the market”
offerings and privately negotiated transactions. The February
2017 Equity Distribution Agreement replaced the July 2016 Equity
Distribution Agreement. Through March 31, 2017, the Company issued
a total of 1,286,196 shares under the February 2017 Equity
Distribution Agreement for aggregate proceeds of approximately
$12.8 million, net of commissions and fees. After March 31, 2017,
the Company issued an additional 594,784 shares under the February
2017 Equity Distribution Agreement for aggregate proceeds of
approximately $6.0 million, net of commissions and fees.
Management Commentary
As the year 2017 unfolded, risk markets and
particularly the equity markets were buoyed by optimism stemming
from developments in Washington generated by the incoming Trump
administration. The President-elect made every effort to let
the world and markets know that a Trump administration was going to
be very pro-business, and pursue an aggressive legislative agenda
that encompassed health-care reform, tax reform, infrastructure
projects and regulatory relief. As various cabinet nominations were
announced, most of which were from the business world, and the new
President continuously met with leaders of most major industries,
the equity and risk markets continued to rally, setting new
all-time highs in the case of the Dow Industrials and S&P 500
in early March. Optimism was so high that when the Federal
Reserve raised the Fed Funds Rate by 25 bps at their March meeting
the markets reacted calmly. By quarter end, the treasury curve in
the US was close to unchanged from year end 2016 levels. The
10-year point of the curve was less than 5 bps lower in yield and
short rates were slightly higher – approximately 6.5 bps in the
case of the 2 year note and just over 30 bps in the case of the 1
month bill.
Various members of the Federal Open Market
Committee and Fed governors have increasingly discussed the
reduction of the Fed’s balance sheet as the next phase of the
removal of monetary accommodation, in addition to increasing the
Fed Funds Rate. Members of the Fed have indicated that this
reduction in the Fed’s balance sheet would be accomplished by
tapering the reinvestment of the paydowns they receive on its MBS
holdings and maturities of the treasury and agency debt holdings.
The market, particularly the MBS market, is keenly focused on the
timing and extent of a reduction in Fed purchases. The prospect of
the largest source of demand for agency MBS reducing its purchases
has caused agency MBS assets to cheapen to comparable duration
treasuries. Further, the flattening of the US treasury yield
curve described above also negatively impacted MBS asset
valuations, as the prospects for net interest income from owning
the assets diminished. Prepayment speeds moderated during the
quarter with the combination of the typical seasonal slowdown
coupled with substantially higher mortgage rates versus levels
prior to the election. Prepayment speeds appear to have hit
their trough in February – based on the report released in March –
before picking up again slightly in March – based on the report
released in April.
These developments in the rates and MBS markets
caused both our PT RMBS and structured RMBS to incur mark to market
losses for the quarter. In the case of structured RMBS, both
IO and IIO securities had negative mark to market losses.
However, these mark to market losses were not enough to prevent all
three asset types from generating positive returns for the quarter.
The flattening of the treasury yield curve resulted in negative
mark to market losses on our Euro Dollar positions as well as our
10-year treasury note futures position. The total realized
and unrealized losses for the quarter – on assets as well as hedge
positions – was ($20.7) million, or ($0.63) per common
share. Due to slower prepayment rates, changes in the mix of
IO’s in the portfolio and slightly higher leverage the portfolio
generated increased net interest income versus the prior
quarter. We executed several trades to reposition the
portfolio slightly which resulted in a slightly higher weighted
average coupon and slightly lower weighted average purchase price.
We increased our capital allocation to structured RMBS in the first
quarter and added better up rate protection as well. These
changes, in conjunction with changes to our TBA shorts, where we
lowered the weighted average coupon of the short position, allowed
us to increase our leverage slightly while maintaining what we
believe to be a similar risk profile to interest rate shocks.
The early days of the second quarter of 2017
have been quite volatile. The 10-year T-Note rallied
approximately 40 bps from March 13, 2017 through April 18,
2017. This was caused by a combination of geo-political
events, softer economic data and a lack of progress by the Trump
administration on its legislative agenda. The market has
since reversed some of this move. However, it is unclear which
direction the markets will go from here. The success or
failure of the Trump administration with its legislative agenda
will play a key role in determining this outcome, as will the
incoming economic data.
Earnings Conference Call
Details
An earnings conference call and live audio
webcast will be hosted Friday, April 28, 2017, at 10:00 AM
ET. Management will discuss a slide deck of supplemental
materials on the call. The conference call may be accessed by
dialing toll free (877) 341-5668. International callers dial
(224) 357-2205. The conference passcode is 11263288.
The supplemental materials may be downloaded from the investor
relations section of the Company’s website. 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 May 28, 2017.
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, inflation, the effect of actions of the U.S.
government, including the Fed and fiscal policy changes by the
Trump administration, market expectations 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.
Summarized Financial
Statements
The following is a summarized presentation of
the unaudited balance sheets as of March 31, 2017,
and December 31, 2016, and the unaudited quarterly results of
operations for the three months ended March 31, 2017 and
2016. Amounts presented are subject to change.
|
ORCHID ISLAND CAPITAL, INC. |
BALANCE SHEETS |
($ in thousands, except per share
data) |
(Unaudited - Amounts Subject To
Change) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017 |
|
|
|
December 31, 2016 |
ASSETS: |
|
|
|
|
|
|
|
|
Total
mortgage-backed securities |
|
|
$ |
3,262,017 |
|
|
$ |
3,022,174 |
Cash, cash
equivalents and restricted cash |
|
|
|
112,723 |
|
|
|
94,425 |
Accrued
interest receivable |
|
|
|
13,188 |
|
|
|
11,512 |
Derivative
assets, at fair value |
|
|
|
12,430 |
|
|
|
10,365 |
Other assets |
|
|
|
750 |
|
|
|
218 |
Total Assets |
|
|
$ |
3,401,108 |
|
|
$ |
3,138,694 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Repurchase
agreements |
|
|
$ |
3,050,608 |
|
|
$ |
2,793,705 |
Derivative
liabilities, at fair value |
|
|
|
3,633 |
|
|
|
1,982 |
Accrued
interest payable |
|
|
|
1,990 |
|
|
|
1,826 |
Due to
affiliates |
|
|
|
828 |
|
|
|
566 |
Dividends
payable |
|
|
|
4,799 |
|
|
|
4,616 |
Other liabilities |
|
|
|
5,038 |
|
|
|
3,220 |
Total
Liabilities |
|
|
|
3,066,896 |
|
|
|
2,805,915 |
Total Stockholders' Equity |
|
|
|
334,212 |
|
|
|
332,779 |
Total Liabilities and Stockholders'
Equity |
|
|
$ |
3,401,108 |
|
|
$ |
3,138,694 |
Common
shares outstanding |
|
|
|
34,270,126 |
|
|
|
32,962,919 |
Book value per share |
|
|
$ |
9.75 |
|
|
$ |
10.10 |
ORCHID ISLAND CAPITAL, INC. |
STATEMENTS OF OPERATIONS |
($ in thousands, except per share
data) |
(Unaudited - Amounts Subject to
Change) |
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
2017 |
|
|
|
|
2016 |
|
Interest
income |
|
|
$ |
32,311 |
|
|
|
$ |
20,466 |
|
Interest expense |
|
|
|
(6,715 |
) |
|
|
|
(3,319 |
) |
Net
interest income |
|
|
|
25,596 |
|
|
|
|
17,147 |
|
Losses |
|
|
|
(20,727 |
) |
|
|
|
(19,558 |
) |
Net
portfolio income (loss) |
|
|
|
4,869 |
|
|
|
|
(2,411 |
) |
Expenses |
|
|
|
2,420 |
|
|
|
|
2,180 |
|
Net income (loss) |
|
|
$ |
2,449 |
|
|
|
$ |
(4,591 |
) |
Basic and diluted net income (loss) per
share |
|
|
$ |
0.07 |
|
|
|
$ |
(0.21 |
) |
Dividends Declared Per Common Share: |
|
|
$ |
0.42 |
|
|
|
$ |
0.42 |
|
Weighted average shares outstanding |
|
|
|
33,069,064 |
|
|
|
|
21,756,065 |
|
|
|
Three Months Ended March 31, |
Key Balance Sheet Metrics |
|
2017 |
|
2016 |
|
Average RMBS(1) |
|
$ |
3,142,095 |
|
|
|
$ |
2,067,527 |
|
Average repurchase
agreements(1) |
|
|
2,922,157 |
|
|
|
|
1,962,901 |
|
Average stockholders'
equity(1) |
|
|
333,496 |
|
|
|
|
246,517 |
|
Leverage ratio(2) |
|
|
9.2:1 |
|
|
|
|
8.1:1 |
|
|
|
|
|
|
|
|
|
Key Performance
Metrics |
|
|
|
|
|
|
|
Average yield on
RMBS(3) |
|
|
4.11 |
% |
|
|
|
3.96 |
% |
Average cost of
funds(3) |
|
|
0.92 |
% |
|
|
|
0.68 |
% |
Average economic cost
of funds(4) |
|
|
1.36 |
% |
|
|
|
1.07 |
% |
Average interest rate
spread(5) |
|
|
3.19 |
% |
|
|
|
3.28 |
% |
Average
economic interest rate spread(6) |
|
|
2.75 |
% |
|
|
|
2.89 |
% |
(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. At
March 31, 2016, the $21.5 million of payable for unsettled
securities purchased have been excluded from the total liabilities
for this ratio.(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 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.
CONTACT:
Orchid Island Capital, Inc.
Robert E. Cauley, 772-231-1400
Chairman and Chief Executive Officer
www.orchidislandcapital.com
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