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
December 31, 2020.
Fourth Quarter 2020 Highlights
- Net income of $16.5 million, or $0.23 per common share, which
consists of:
- Net interest income of $23.9 million, or $0.34 per common
share
- Total expenses of $2.8 million, or $0.04 per common share
- Net realized and unrealized losses of $4.6 million, or $0.07
per share, on RMBS and derivative instruments, including net
interest expense on interest rate swaps
- Fourth quarter and full year total dividends declared and paid
of $0.195 and $0.79 per common share, respectively
- Since its initial public offering, the Company has declared
cash dividends equaling $11.785 per common share
- Book value per share of $5.46 at December 31, 2020
- 4.0% economic gain on common equity for the quarter, or 15.8%
annualized, comprised of $0.195 dividend per common share and $0.02
increase in net book value per common share, divided by beginning
book value per share
- Company to discuss results on Friday, February 26, 2021, at
10:00 AM ET
- Supplemental materials to be discussed on the call can be
downloaded from the investor relations section of the Company’s
website at https://ir.orchidislandcapital.com
Management Commentary
Commenting on the fourth quarter and full year results, Robert
E. Cauley, Chairman and Chief Executive Officer, said, “Orchid
Island Capital generated another quarter of strong returns for
stockholders. For the fourth quarter, Orchid generated a 4.0%
return based on a $0.02 per share increase in book value and $0.195
per share of dividends. This marks the third consecutive quarter of
positive returns since the market turbulence of the first quarter –
a product of the COVID-19 pandemic and its impact on the economy
and financial markets. Orchid’s strategy of focusing exclusively on
Agency RMBS assets since inception with no credit exposure of any
kind in any of our assets enabled Orchid to avoid the pitfalls so
many around us suffered, in many cases leading to severe financial
distress that many have yet to fully recover from. Managing our
portfolio was never more challenging than what we experienced last
March. Our asset selection acumen and disciplined investment style
were put to the test, as was our liquidity management skills.
During such periods, relationships with our credit counterparties
and their confidence in us were critical. These relationships have
been developed over nearly two decades and continue to pay
dividends, especially in times of severe market stress like 2020.
Since our difficulties last March were very temporary, we were able
to quickly recover and capitalize on the many opportunities
available in the market place over the balance of the year. In
fact, in spite of the market disruptions of the first quarter,
Orchid generated a positive 2.7% return for stockholders for the
year based on a $0.63 per share decline in Orchid’s share price
since December 31, 2019, offset entirely by $0.79 per share of
dividends.
“During the fourth quarter of 2020 we focused on maximizing
returns on the portfolio by reducing the income draining effects of
prepayments on our premium RMBS. We shifted the portfolio into
lower coupon securities and in some cases shorter maturity
securities as well. Our prepayment rate in the fourth quarter was
16.7 CPR, a 2.4 CPR increase over the third quarter of 2020. During
the fourth quarter, the spread between mortgage rates available to
borrowers and rates on an interpolated par priced mortgage backed
security, or the primary/secondary spread, continued to compress
and rates available to borrowers were the lowest ever experienced.
As a result, we were quite happy with the prepayment performance of
the portfolio. We were also able to enhance our returns for the
fourth quarter by taking advantage of the TBA dollar roll market.
With the Federal Reserve continuing their asset purchases at a rate
of $40 billion of Agency RMBS per month, concentrated in production
coupons, we continued to modestly expand our use of the very
attractive financing offered by the TBA dollar roll market. Coupled
with continued low financing in the traditional repo markets and
our low prepayment rates, we were able to continue to generate
attractive net interest margins for our stockholders in support of
the dividend. During the fourth quarter, we were also able to raise
approximately $36.1 million of additional capital from our
at-the-market program at attractive prices relative to our book
value while also accretive to earnings.”
Details of Fourth Quarter 2020 Results of Operations
The Company reported net income of $16.5 million for the three
month period ended December 31, 2020, compared with net income of
$18.6 million for the three month period ended December 31, 2019.
The portfolio remains concentrated in specified, fixed rate pools
with favorable prepayment characteristics and, to a lesser extent,
lower coupon TBAs. With very high refinancing incentives to
borrowers as the primary/secondary interest rate spread continued
to compress, the Company sold higher coupon fixed rate securities
in favor of lower coupon fixed rate bonds and/or shorter maturity
securities, again with lower coupons. Secondly, the Company
increased its Agency RMBS portfolio over the course of the fourth
quarter through capital raised through the at-the-market program.
Interest income on the portfolio of specified pools was down
slightly from the third quarter of 2020. The yield on our average
MBS declined from 3.18% in the third quarter to 2.85% for the
fourth quarter, repurchase agreement borrowing costs declined from
0.25% for the third quarter to 0.23% for the fourth quarter, and
our net interest spread declined from 2.93% to 2.62% in the fourth
quarter. The decline in net interest income from the MBS portfolio
was offset by gains on long TBA positions of approximately $5.5
million.
Book value increased by $0.02 per share as net income of $0.23
per share exceeded the dividend distribution of $0.195 per share,
offset by the slightly dilutive effect of shares sold under the
Company’s at-the-market program of approximately $0.01 per share.
The proceeds of the shares issued were deployed into our Agency
RMBS portfolio, which benefited from tightening asset spreads and
attractive returns available in the market. As a result, the new
capital was accretive to earnings. The Company recorded net
realized and unrealized losses of $0.07 per share on Agency RMBS
assets and derivative instruments, including net interest expense
on interest rate swaps. As interest rates increased over the course
of the fourth quarter, mark to market gains on our hedging
instruments were offset by mark to market losses on our Agency RMBS
assets. Absent mark to market losses related to premium lost from
paydowns, the RMBS portfolio would have had a slightly positive
mark to market gain as spreads on Agency RMBS tightened during the
quarter. Expenses of $2.80 million in the fourth quarter decreased
slightly from $2.85 million in the third quarter.
Details of Full Year 2020 Results of Operations
Orchid generated net income per share of $0.03 during 2020. The
severe market dislocations in the first quarter required the
Company to sell assets and unwind hedge positions to maintain
adequate liquidity. The Company recorded $79.1 million of losses on
derivative instruments and $25.0 million of realized losses on our
Agency RMBS securities for the year, the overwhelming majority of
which occurred in the first quarter. The Company was able to
maintain adequate liquidity to survive the turmoil and was well
positioned to benefit from the recovery in asset prices that
occurred once the Federal Reserve intervened to stabilize the
market. The Company’s book value increased from $4.65 per share on
March 31, 2020 to $5.46 per share on December 31, 2020 as spreads
on our portfolio of specified Agency RMBS and lower coupon TBA
securities tightened. The Company’s stock price recovered as well,
and we were able to raise additional capital at very modest
discounts to book value and deploy the proceeds with very
attractive investment opportunities and tightening asset spreads,
and thus accretive to earnings. Our average RMBS holdings declined
slightly in 2020 from 2019 and with available yields in the market
declining as interest rates fell to all-time low levels, our yield
on average MBS declined from 4.14% in 2019 to 3.45% for 2020.
However, because our average cost of funding declined from 2.53% in
2019 to 0.78% for 2020, our net interest spread increased from
1.61% in 2019 to 2.67% for 2020. For the year we recorded $25.8
million of unrealized gains on Agency RMBS assets. The Company has
also increased its use of TBA securities as they offer more
attractive funding than the repurchase agreement funding we use for
specified pools and do not require us to post collateral to our
repo counterparties as a result of prepayments every month. The
Company has transitioned our hedge positions away from a
concentration in interest rate swaps to a more balanced blend of
swaps and option based instruments, such as swaptions and/or
swaption strategies involving long/short positions. The active
management of these strategies enhances our liquidity management
while also providing better protection for adverse rate movements.
General and administrative expenses, inclusive of our management
fee, increased slightly from $10.39 million in 2019 to $10.54
million in 2020.
Prepayments
For the quarter ended December 31, 2020, Orchid received $139.4
million in scheduled and unscheduled principal repayments and
prepayments, which equated to a 3-month constant prepayment rate
(“CPR”) of approximately 20.1%. Prepayment rates on the two RMBS
sub-portfolios were as follows (in CPR):
Structured
PT RMBS
RMBS
Total
Three Months Ended
Portfolio (%)
Portfolio (%)
Portfolio (%)
December 31, 2020
16.7
44.3
20.1
September 30, 2020
14.3
40.4
17.0
June 30, 2020
13.9
35.3
16.3
March 31, 2020
9.8
22.9
11.9
December 31, 2019
14.3
23.4
16.0
September 30, 2019
15.5
19.3
16.4
June 30, 2019
10.9
12.7
11.4
March 31, 2019
9.5
8.4
9.2
Portfolio
The following tables summarize certain characteristics of
Orchid’s PT RMBS and structured RMBS as of December 31, 2020 and
December 31, 2019:
($ in thousands)
Weighted
Percentage
Average
of
Weighted
Maturity
Fair
Entire
Average
in
Longest
Asset Category
Value
Portfolio
Coupon
Months
Maturity
December 31, 2020
Fixed Rate RMBS
$
3,560,746
95.5%
3.09%
339
1-Jan-51
Fixed Rate CMOs
137,453
3.7%
4.00%
312
15-Dec-42
Total Mortgage-backed Pass-through
3,698,199
99.2%
3.13%
338
1-Jan-51
Interest-Only Securities
28,696
0.8%
3.98%
268
25-May-50
Total Structured RMBS
28,696
0.8%
3.98%
268
25-May-50
Total Mortgage Assets
$
3,726,895
100.0%
3.19%
333
1-Jan-51
December 31, 2019
Adjustable Rate RMBS
$
1,014
0.0%
4.51%
176
1-Sep-35
Fixed Rate RMBS
3,206,013
89.3%
3.90%
342
1-Dec-49
Fixed Rate CMOs
299,205
8.3%
4.20%
331
15-Oct-44
Total Mortgage-backed Pass-through
3,506,232
97.6%
3.92%
341
1-Dec-49
Interest-Only Securities
60,986
1.7%
3.99%
280
25-Jul-48
Inverse Interest-Only Securities
23,703
0.7%
3.34%
285
15-Jul-47
Total Structured RMBS
84,689
2.4%
3.79%
281
25-Jul-48
Total Mortgage Assets
$
3,590,921
100.0%
3.90%
331
1-Dec-49
($ in thousands)
December 31, 2020
December 31, 2019
Percentage of
Percentage of
Agency
Fair Value
Entire Portfolio
Fair Value
Entire Portfolio
Fannie Mae
$
2,733,960
73.4%
$
2,170,668
60.4%
Freddie Mac
992,935
26.6%
1,420,253
39.6%
Total Portfolio
$
3,726,895
100.0%
$
3,590,921
100.0%
December 31, 2020
December 31, 2019
Weighted Average Pass-through Purchase
Price
$
107.43
$
105.16
Weighted Average Structured Purchase
Price
$
20.06
$
18.15
Weighted Average Pass-through Current
Price
$
108.94
$
106.26
Weighted Average Structured Current
Price
$
10.87
$
13.85
Effective Duration(1)
2.360
2.780
(1)
Effective duration is the approximate
percentage change in price for a 100 bps change in rates. An
effective duration of 2.360 indicates that an interest rate
increase of 1.0% would be expected to cause a 2.360% decrease in
the value of the RMBS in the Company’s investment portfolio at
December 31, 2020. An effective duration of 2.780 indicates that an
interest rate increase of 1.0% would be expected to cause a 2.780%
decrease in the value of the RMBS in the Company’s investment
portfolio at December 31, 2019. 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 December 31, 2020, the Company had outstanding repurchase
obligations of approximately $3,595.6 million with a net weighted
average borrowing rate of 0.23%. These agreements were
collateralized by RMBS with a fair value, including accrued
interest, of approximately $3,729.5 million and cash pledged to
counterparties of approximately $58.8 million. The Company’s
leverage ratio at December 31, 2020 was 8.8 to 1. At December 31,
2020, the Company’s liquidity was approximately $227.1 million,
consisting of unpledged RMBS and unrestricted cash and cash
equivalents. To enhance our liquidity even further, we may pledge
more of our structured RMBS as part of a repurchase agreement
funding, but retain the cash in lieu of acquiring additional
assets. In this way we can, at a modest cost, retain higher levels
of cash on hand and decrease the likelihood we will have to sell
assets in a distressed market in order to raise cash. Below is a
list of our outstanding borrowings under repurchase obligations at
December 31, 2020.
($ 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.
$
421,363
11.7%
0.22%
$
22,969
41
Mirae Asset Securities (USA) Inc.
362,434
10.1%
0.25%
19,762
30
Mitsubishi UFJ Securities (USA), Inc.
340,953
9.5%
0.24%
20,112
18
J.P. Morgan Securities LLC
335,287
9.3%
0.24%
19,157
70
ASL Capital Markets Inc.
291,724
8.1%
0.21%
870
35
Citigroup Global Markets, Inc.
222,559
6.2%
0.23%
11,966
12
Cantor Fitzgerald & Co.
214,128
6.0%
0.23%
11,203
24
RBC Capital Markets, LLC
163,155
4.5%
0.22%
9,311
12
Barclays Capital Inc
158,409
4.4%
0.23%
5,499
12
Daiwa Capital Markets America, Inc.
151,432
4.2%
0.24%
7,653
37
Merrill Lynch, Pierce, Fenner & Smith
Inc.
150,672
4.2%
0.22%
5,783
14
ING Financial Markets LLC
126,331
3.5%
0.22%
7,115
14
ED&F Man Capital Markets Inc.
115,495
3.2%
0.22%
6,207
13
ABN AMRO Bank N.V.
109,827
3.1%
0.23%
3,267
13
Nomura Securities International, Inc.
104,422
2.9%
0.21%
5,954
48
South Street Securities, LLC
79,298
2.2%
0.28%
4,618
102
Goldman Sachs & Co.
77,823
2.2%
0.22%
4,376
47
BMO Capital Markets Corp.
69,598
1.9%
0.22%
3,942
42
Lucid Cash Fund USG LLC
51,655
1.4%
0.27%
4,171
14
Austin Atlantic Asset Management Co.
25,465
0.7%
0.26%
1,135
4
J.V.B. Financial Group, LLC
23,556
0.7%
0.23%
1,249
15
Total / Weighted Average
$
3,595,586
100.0%
0.23%
$
176,319
31
(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 and other hedging
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
December 31, 2020, such instruments were comprised of U.S. Treasury
note (“T-Note”) and Eurodollar futures contracts, interest rate
swap agreements, interest rate swaption agreements and
“to-be-announced” (“TBA”) securities transactions.
The table below presents information related to the Company’s
Eurodollar and T-Note futures contracts at December 31, 2020.
($ in thousands)
Average
Weighted
Weighted
Contract
Average
Average
Notional
Entry
Effective
Open
Expiration Year
Amount
Rate
Rate
Equity(1)
Eurodollar Futures Contracts (Short
Positions)
2021
$
50,000
1.03%
0.18%
$
(424)
U.S. Treasury Note Futures Contracts
(Short Positions)(2)
March 2021 5-year T-Note futures
(Mar 2021 - Mar 2026 Hedge Period)
$
69,000
0.72%
0.67%
$
(186)
(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 $126.16 at December 31, 2020. The contract value of the
short position was $87.1 million.
The table below presents information related to the Company’s
interest rate swap positions at December 31, 2020.
($ in thousands)
Average
Net
Fixed
Average
Estimated
Average
Notional
Pay
Receive
Fair
Maturity
Expiration
Amount
Rate
Rate
Value
(Years)
> 3 to ≤ 5 years
$
620,000
1.29%
0.22%
$
(23,760)
3.6
> 5 years
200,000
0.67%
0.23%
(944)
6.4
$
820,000
1.14%
0.23%
$
(24,704)
4.3
The following table presents information related to our interest
rate swaption positions as of December 31, 2020.
($ 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 - Long
≤ 1 year
$
3,450
$
5
2.5
$
500,000
0.95
%
3 Month
4.0
> 1 year ≤ 2 years
13,410
17,428
17.4
675,000
1.49
%
3 Month
12.8
$
16,860
$
17,433
11.0
$
1,175,000
1.26
%
3 Month
9.0
Payer Swaptions - Short
≤ 1 year
$
(4,660
)
$
(7,730
)
5.4
$
507,700
1.49
%
3 Month
12.8
The following table summarizes our contracts to purchase and
sell TBA securities as of December 31, 2020.
($ in thousands)
Notional
Net
Amount
Cost
Market
Carrying
Long (Short)(1)
Basis(2)
Value(3)
Value(4)
December 31, 2020
30-Year TBA securities:
2.00%
$
465,000
$
479,531
$
483,090
$
3,559
3.00%
(328,000
)
(342,896
)
(343,682
)
(786
)
$
137,000
$
136,635
$
139,408
$
2,773
(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 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
1.070
55,814
2019
0.960
54,421
2020
0.790
53,570
2021 - YTD(1)
0.130
11,079
Totals
$
11.785
$
353,042
(1)
On January 14, 2021, the Company declared
a dividend of $0.065 per share to be paid on February 24, 2021. On
February 10, 2021, the Company declared a dividend of $0.065 per
share to be paid on March 29, 2021. The dollar amount of the
dividend declared in February 2021 is estimated based on the number
of shares outstanding at February 25, 2021. The effect of these
dividends are included in the table above, but are not reflected in
the Company’s financial statements as of December 31,
2020.
Peer Performance
The tables below present total return data for Orchid compared
to a selected group of peers based on stock price performance for
periods through December 31, 2020 and based on book value
performance for periods through September 30, 2020.
Portfolio Total Rate of Return
Versus Peer Group Average - Stock Price Performance
ORC Spread
ORC
Over / (Under)
Total Rate
Peer
Peer
of Return(1)
Average(1)(2)
Average(3)
One Year Total Return
5.3%
(13.4)%
18.7%
Two Year Total Return
12.5%
(8.4)%
20.9%
Three Year Total Return
(10.4)%
(8.0)%
(2.4)%
Five Year Total Return
16.2%
22.9%
(6.7)%
Inception to Date (2/13/2013 -
12/31/2020)
20.1%
4.1%
16.0%
Source: SEC filings and press releases of
Orchid and Peer Group
(1)
Source of total rate of return for each
period is the Bloomberg COMP page and includes reinvested dividends
for each period noted.
(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: AGNC,
NLY, ANH, AAIC, ARR, CMO, CHMI and DX.
(3)
Represents the total rate of return for
Orchid minus peer average in each respective measurement
period.
Portfolio Total Rate of Return
Versus Peer Group Average - Book Value Performance
ORC Spread
ORC
Over / (Under)
Total Rate
Peer
Peer
of Return(1)
Average(1)(2)
Average(3)
One Year Total Return
0.9%
(11.7)%
12.6%
Two Year Total Return
(4.3)%
(9.0)%
4.7%
Three Year Total Return
(7.3)%
(9.9)%
2.6%
Five Year Total Return
1.3%
(2.4)%
3.7%
Inception to Date (3/31/2013 -
12/31/2020)(4)
11.9%
(1.4)%
13.3%
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.
(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: AGNC,
NLY, ANH, AAIC, ARR, CMO, CHMI and DX.
(3)
Represents the total rate of return for
Orchid minus peer average in each respective measurement
period.
(4)
Peer book values are not available for
Orchid’s true inception date (2/13/2013). Because all peer book
values are not available as of Orchid’s true inception date
(2/13/2013), the starting point for Orchid and all of the peer
companies is 3/31/2013.
Book Value Per Share
The Company's book value per share at December 31, 2020 was
$5.46. 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 December 31, 2020, the Company's
stockholders' equity was $415.3 million with 76,073,317 shares of
common stock outstanding.
Capital Allocation and Return on Invested Capital
The Company allocates capital to two RMBS sub-portfolios, the
pass-through RMBS portfolio, consisting of mortgage pass-through
certificates issued by Fannie Mae, Freddie Mac or Ginnie Mae (the
“GSEs”) and collateralized mortgage obligations (“CMOs”) issued by
the GSEs (“PT RMBS”), and the structured RMBS portfolio, consisting
of interest-only (“IO”), inverse interest-only (“IIO”) securities
and principal only securities (“POs”), among other types of
structured Agency RMBS. As of September 30, 2020, approximately 92%
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 December 31, 2020, the
allocation to the PT RMBS portfolio increased 1% to approximately
93%.
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 - September 30,
2020
$
3,509,571
$
30,796
$
-
$
30,796
$
3,540,367
Securities purchased
1,846,531
832
-
832
1,847,363
Securities sold
(1,508,306
)
-
-
-
(1,508,306
)
Losses on sales
(465
)
-
-
-
(465
)
Return of investment
n/a
(2,769
)
-
(2,769
)
(2,769
)
Pay-downs
(136,615
)
n/a
n/a
n/a
(136,615
)
Premium lost due to pay-downs
(13,408
)
n/a
n/a
n/a
(13,408
)
Mark to market gains (losses)
891
(163
)
-
(163
)
728
Market value - December 31,
2020
$
3,698,199
$
28,696
$
-
$
28,696
$
3,726,895
The tables below present the allocation of capital between the
respective portfolios at December 31, 2020 and September 30, 2020,
and the return on invested capital for each sub-portfolio for the
three month period ended December 31, 2020. The return on invested
capital in the PT RMBS and structured RMBS portfolios was
approximately 5.4% and (0.7)%, respectively, for the fourth quarter
of 2020. The combined portfolio generated a return on invested
capital of approximately 4.9%.
($ in thousands)
Capital Allocation
Structured Security
Portfolio
Pass-Through
Interest-Only
Inverse Interest-
Portfolio
Securities
Only Securities
Sub-total
Total
December 31, 2020
Market value
$
3,698,199
$
28,696
$
-
$
28,696
$
3,726,895
Cash
299,506
-
-
-
299,506
Borrowings(1)
(3,595,586
)
-
-
-
(3,595,586
)
Total
$
402,119
$
28,696
$
-
$
28,696
$
430,815
% of Total
93.3
%
6.7
%
0.0%
6.7
%
100.0
%
September 30, 2020
Market value
$
3,509,571
$
30,796
$
-
$
30,796
$
3,540,367
Cash(2)
133,694
-
-
-
133,694
Borrowings(3)
(3,281,303
)
-
-
-
(3,281,303
)
Total
$
361,962
$
30,796
$
-
$
30,796
$
392,758
% of Total
92.2
%
7.8
%
0.0%
7.8
%
100.0
%
(1)
At December 31, 2020, there were
outstanding repurchase agreement balances of $20.6 million secured
by IO 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 September 30, 2020, cash was decreased
by unsettled purchases of approximately $113.7 million, which have
already been reflected in the market value of the portfolio.
(3)
At September 30, 2020, there were
outstanding repurchase agreement balances of $22.7 million secured
by IO securities. We entered into these arrangements to generate
additional cash available to meet margin calls on PT RMBS;
therefore, we have not considered these balances to be allocated to
the structured securities strategy.
($ in thousands)
Returns for the Quarter Ended
December 31, 2020
Structured Security
Portfolio
Pass-Through
Interest-Only
Inverse Interest-
Portfolio
Securities
Only Securities
Sub-total
Total
Income / (loss) (net of borrowing
cost)
$
23,921
$
(39
)
$
-
$
(39
)
$
23,882
Realized and unrealized (losses) /
gains
(12,980
)
(163
)
-
(163
)
(13,143
)
Derivative gains
8,538
n/a
-
n/a
8,538
Total Return
$
19,479
$
(202
)
$
-
$
(202
)
$
19,277
Beginning Capital Allocation
$
361,962
$
30,796
$
-
$
30,796
$
392,758
Return on Invested Capital for the
Quarter(1)
5.4
%
(0.7
)%
-
(0.7
)%
4.9
%
Average Capital Allocation(2)
$
382,041
$
29,746
$
-
$
29,746
$
411,787
Return on Average Invested Capital for the
Quarter(3)
5.1
%
(0.7
)%
-
(0.7
)%
4.7
%
(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
Stock Offerings
On August 4, 2020, we entered into an equity distribution
agreement (the “August 2020 Equity Distribution Agreement”) with
four sales agents pursuant to which we may offer and sell, from
time to time, up to an aggregate amount of $150,000,000 of shares
of our common stock in transactions that are deemed to be “at the
market” offerings and privately negotiated transactions. Through
December 31, 2020, we issued a total of 9,848,513 shares under the
August 2020 Equity Distribution Agreement for aggregate gross
proceeds of approximately $52.5 million, and net proceeds of
approximately $51.6 million, net of commissions and fees.
Subsequent to December 31, 2020 through February 25, 2021, we
issued a total of 308,048 shares under the August 2020 Equity
Distribution Agreement for aggregate gross proceeds of
approximately $1.6 million.
On January 20, 2021, we entered into an underwriting agreement
(the “Underwriting Agreement”) with J.P. Morgan Securities LLC (the
“Underwriter”), relating to the offer and sale of 7,600,000 shares
of our common stock. The Underwriter purchased the shares of common
stock from us pursuant to the Underwriting Agreement at $5.20 per
share. In addition, we granted the Underwriter a 30-day option to
purchase up to an additional 1,140,000 shares of our common stock
on the same terms and conditions, which the Underwriter exercised
in full on January 21, 2021. The closing of the offering of
8,740,000 shares of our common stock occurred on January 25, 2021,
with net proceeds to us of approximately $45.3 million after
deduction of estimated offering expenses.
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.
Since inception of the program through December 31, 2020, the
Company repurchased a total of 5,685,511 shares at an aggregate
cost of approximately $40.4 million, including commissions and
fees, for a weighted average price of $7.10 per share. During the
year ended December 31, 2020, the Company repurchased a total of
19,891 shares at an aggregate cost of approximately $0.1 million,
including commissions and fees, for a weighted average price of
$3.42 per share. However, we did not repurchase any shares of our
common stock during the three months ended December 31, 2020. As of
December 31, 2020, the remaining authorization under the repurchase
program is for up to 837,311 shares of the Company’s common
stock.
Earnings Conference Call Details
An earnings conference call and live audio webcast will be
hosted Friday, February 26, 2021, at 10:00 AM ET. The conference
call may be accessed by dialing toll free (833) 794-1168.
International callers dial (236) 714-2726. The conference passcode
is 9406887. 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 https://ir.orchidislandcapital.com and an
audio archive of the webcast will be available until March 29,
2021.
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 and CMOs, such
as mortgage pass-through certificates issued by the GSEs and (ii)
structured Agency RMBS, such as 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, dividends, growth, the supply and
demand for Agency RMBS, the effect of actions of the U.S.
government, including the Federal Reserve, 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.
Summarized Financial Statements
The following is a summarized presentation of the unaudited
balance sheets as of December 31, 2020, and December 31, 2019, and
the unaudited quarterly results of operations for the twelve and
three months ended December 31, 2020 and 2019. Amounts presented
are subject to change.
ORCHID ISLAND CAPITAL,
INC.
BALANCE SHEETS
($ in thousands, except per
share data)
(Unaudited - Amounts Subject
to Change)
December 31, 2020
December 31, 2019
ASSETS:
Total mortgage-backed securities
$
3,726,895
$
3,590,921
Cash, cash equivalents and restricted
cash
299,506
278,655
Accrued interest receivable
9,721
12,404
Derivative assets, at fair value
20,999
-
Receivable for securities sold
414
-
Other assets
516
100
Total Assets
$
4,058,051
$
3,882,080
LIABILITIES AND STOCKHOLDERS'
EQUITY
Repurchase agreements
$
3,595,586
$
3,448,106
Dividends payable
4,970
5,045
Derivative liabilities, at fair value
33,227
20,658
Accrued interest payable
1,157
11,101
Due to affiliates
632
622
Other liabilities
7,188
1,041
Total Liabilities
3,642,760
3,486,573
Total Stockholders' Equity
415,291
395,507
Total Liabilities and Stockholders'
Equity
$
4,058,051
$
3,882,080
Common shares outstanding
76,073,317
63,061,781
Book value per share
$
5.46
$
6.27
ORCHID ISLAND CAPITAL,
INC.
STATEMENTS OF
OPERATIONS
($ in thousands, except per
share data)
(Unaudited - Amounts Subject
to Change)
Years
Ended December 31,
Three
Months Ended December 31,
2020
2019
2020
2019
Interest income
$
116,045
$
142,324
$
25,893
$
37,529
Interest expense
(25,056
)
(83,666
)
(2,011
)
(20,022
)
Net interest income
90,989
58,658
23,882
17,507
(Losses) gains
(78,317
)
(24,008
)
(4,605
)
3,841
Net portfolio income
12,672
34,650
19,277
21,348
Expenses
10,544
10,385
2,798
2,736
Net income
$
2,128
$
24,265
$
16,479
$
18,612
Basic and diluted net income per
share
$
0.03
$
0.43
$
0.23
$
0.29
Weighted Average Shares
Outstanding
67,210,815
56,328,027
70,532,822
63,124,260
Dividends Declared Per Common
Share:
$
0.790
$
0.960
$
0.195
$
0.240
Three Months Ended December
31,
Key Balance Sheet Metrics
2020
2019
Average RMBS(1)
$
3,633,631
$
3,705,920
Average repurchase agreements(1)
3,438,444
3,631,042
Average stockholders' equity(1)
396,016
393,748
Leverage ratio(2)
8.8:1
8.8:1
Key Performance Metrics
Average yield on RMBS(3)
2.85%
4.05%
Average cost of funds(3)
0.23%
2.21%
Average economic cost of funds(4)
0.91%
1.78%
Average interest rate spread(5)
2.62%
1.84%
Average economic interest rate
spread(6)
1.94%
2.27%
(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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210225006183/en/
Orchid Island Capital, Inc. Robert E. Cauley, 772-231-1400
Chairman and Chief Executive Officer
https://ir.orchidislandcapital.com
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