Orchid Island Capital, Inc. (NYSE:ORC) ("Orchid” or the
"Company"), a real estate investment trust ("REIT"), today
announced results of operations for the three month period ended
June 30, 2021.
Second Quarter 2021 Highlights
- Net loss of $16.9 million, or $0.17 per common share, which
consists of:
- Net interest income of $27.7 million, or $0.28 per common
share
- Total expenses of $3.7 million, or $0.04 per common share
- Net realized and unrealized losses of $40.8 million, or $0.41
per common share, on RMBS and derivative instruments, including net
interest expense on interest rate swaps
- Second quarter total dividends declared and paid of $0.195 per
common share
- Book value per common share of $4.71 at June 30, 2021
- Total return of (0.7)%, comprised of $0.195 dividend per common
share and $0.23 decrease in book value per common share, divided by
beginning book value per common share
- Company to discuss results on Friday, July 30, 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 second quarter results, Robert E. Cauley,
Chairman and Chief Executive Officer, said, “The economy continued
its strong recovery from the COVID pandemic during the second
quarter of 2021. The surge in COVID cases that occurred during the
first quarter of 2021 abated quickly as inoculations of the new
vaccines were widely distributed throughout the population. The
economic data released during the second quarter tells the story
quite well. GDP is estimated to have expanded at an 8.0% annualized
rate. The housing market is stronger than it was leading up to the
financial crisis. Price pressures are evident due to the
combination of constrained supply channels and robust demand. The
CPI increased by well over 5% year over year in June as well. As
economic activity and inflation accelerated during the second
quarter of 2021, market participants anticipated interest rates
would continue to rise as they had done during the first quarter of
the year. This did not occur. In fact, over the course of the
quarter, longer term interest rates declined slowly – by 27.2 basis
points in the case of the 10-year treasury note and 32.5 basis
points in the case of the 30-year bond. Since quarter end, rates
have accelerated their decline, especially so as the delta variant
of COVID has appeared to spread at an accelerating rate across both
the US and the globe. Market positioning – heavily skewed towards
short positions – likely played the primary role in this outcome
initially. The Federal Reserve (the “Fed”) has insisted these price
pressures are temporary and, based on the persistence of these
interest rate moves, the market appears to agree. However, not all
members of the Federal Open Market Committee or market participants
agree. Herein lies the quandary.
“When we last spoke on our first quarter earnings call, we
mentioned we were positioning the portfolio defensively in light of
the recovery, and this has not changed. The portfolio retains a
bias towards higher rates and the probable tapering of MBS asset
purchases by the Fed. While the leadership of the Fed insists their
policy will remain accommodative for some time, other Fed officials
have hinted at the need for tapering much sooner and the strength
of the housing market appears to confirm this. As a mortgage REIT
focused solely of the Agency RMBS market, we do not have the option
of eliminating our exposure to the sector. What we can do is
minimize our exposure to the sub-sectors of the Agency RMBS market
that will be most adversely affected by the tapering when it does
occur. We believe that these will be the coupons the Fed buys as
part of their asset purchase programs. To wit, we have essentially
no exposure to Ginnie Mae fixed rate RMBS and very little exposure
to 15 and 30-year production coupons. We reduced our exposure to
these sectors during the first quarter of 2021. The extremely rich
valuations of these securities prevented us from adding
subsequently, especially with the inevitable tapering on the
horizon. While this strategy prevents us from taking advantage of
the very attractive dollar roll opportunities available in many of
these securities, especially 30-year, fixed rate production
coupons, we have been able to earn attractive returns in other
sectors of the Agency RMBS market.
“Orchid was able to raise approximately $125 million of
additional capital during the second quarter at very accretive
levels – our weighted average net selling price was approximately
$5.42 per share during the second quarter. We have deployed the
proceeds into higher coupon, specified pools and interest only
securities. Our capital allocation to interest only and inverse
interest only securities increased from 9.5% at March 31, 2021, to
18.0% at June 30, 2021. We have increased the allocation slightly
more so far in the third quarter and may continue to do so, with a
soft target of 25%. With the persistent rally in long-term rates,
we are quite happy with the performance of the portfolio in terms
of prepayment speeds, as the portfolio prepaid at 12.9 CPR in the
aggregate for the second quarter versus 12.0 CPR in the first. The
pass-through portfolio increased from 9.9 CPR during the first
quarter to 10.9 CPR in the second, a very modest increase. Our
realized net interest margin for the quarter was flat with the
level in the first quarter.
“While we did raise additional capital during the quarter, we
have been judicious in putting it to work. Our leverage ratio has
declined from 9.1 to 1 at March 31, 2021, to 8.2 to 1 at June 30,
2021. We maintained some dry powder to be deployed as our asset
class has cheapened, which started to occur in mid-June and into
early July. We are pleased to be able to put this capital to work
at far more attractive levels than existed prior to mid-June.”
Details of Second Quarter 2021 Results of Operations
The Company reported net loss of $16.9 million for the three
month period ended June 30, 2021, compared with net income of $48.8
million for the three month period ended June 30, 2020. The Company
increased its Agency RMBS portfolio over the course of the second
quarter of 2021 through capital raised through two follow-on
offerings completed in the first quarter of 2021 and shares issued
through the ATM program in the second quarter of 2021. Interest
income on the portfolio in the second quarter was up approximately
$2.4 million from the first quarter of 2021. The yield on our
average MBS declined from 2.66% in the first quarter of 2021 to
2.60% for the second quarter of 2021, repurchase agreement
borrowing costs declined from 0.20% for the first quarter of 2021
to 0.14% for the second quarter of 2021, and our net interest
spread remained level at 2.46% in both the first and second
quarters of 2021.
Book value decreased by $0.23 per share in the second quarter of
2021. The decrease in book value reflects our net loss of $0.17 per
share and the dividend distribution of $0.195 per share, offset by
approximately $0.14 per share added through our capital raising
activities. The Company recorded net realized and unrealized losses
of $0.41 per share on Agency RMBS assets and derivative
instruments, including net interest expense on interest rate
swaps.
Prepayments
For the quarter ended June 30, 2021, Orchid received $135.5
million in scheduled and unscheduled principal repayments and
prepayments, which equated to a 3-month constant prepayment rate
(“CPR”) of approximately 12.9%. Prepayment rates on the two RMBS
sub-portfolios were as follows (in CPR):
Structured
PT RMBS
RMBS
Total
Three Months Ended
Portfolio (%)
Portfolio (%)
Portfolio (%)
June 30, 2021
10.9
29.9
12.9
March 31, 2021
9.9
40.3
12.0
December 31, 2020
16.7
44.3
20.1
September 30, 2020
14.3
40.4
17.0
June 30, 2020
13.9
35.3
16.3
March 31, 2020
9.8
22.9
11.9
Portfolio
The following tables summarize certain characteristics of
Orchid’s PT RMBS (as defined below) and structured RMBS as of June
30, 2021 and December 31, 2020:
($ in thousands)
Weighted
Percentage
Average
of
Weighted
Maturity
Fair
Entire
Average
in
Longest
Asset Category
Value
Portfolio
Coupon
Months
Maturity
June 30, 2021
Fixed Rate RMBS
$
4,574,539
97.9%
2.97%
335
1-Jul-51
Total Mortgage-backed Pass-through
4,574,539
97.9%
2.97%
335
1-Jul-51
Interest-Only Securities
92,709
2.0%
3.63%
290
25-May-51
Inverse Interest-Only Securities
3,991
0.1%
3.79%
307
15-Jun-42
Total Structured RMBS
96,700
2.1%
3.64%
291
25-May-51
Total Mortgage Assets
$
4,671,239
100.0%
3.06%
329
1-Jul-51
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
($ in thousands)
June 30, 2021
December 31, 2020
Percentage of
Percentage of
Agency
Fair Value
Entire Portfolio
Fair Value
Entire Portfolio
Fannie Mae
$
3,773,957
80.8%
$
2,733,960
73.4%
Freddie Mac
897,282
19.2%
992,935
26.6%
Total Portfolio
$
4,671,239
100.0%
$
3,726,895
100.0%
June 30, 2021
December 31, 2020
Weighted Average Pass-through Purchase
Price
$
107.37
$
107.43
Weighted Average Structured Purchase
Price
$
17.88
$
20.06
Weighted Average Pass-through Current
Price
$
106.65
$
108.94
Weighted Average Structured Current
Price
$
14.48
$
10.87
Effective Duration (1)
3.830
2.360
(1)
Effective duration of 3.830 indicates that
an interest rate increase of 1.0% would be expected to cause a
3.830% decrease in the value of the RMBS in the Company’s
investment portfolio at June 30, 2021. 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. These figures
include the structured securities in the portfolio, but do not
include the effect of the Company’s funding cost hedges. Effective
duration quotes for individual investments are obtained from The
Yield Book, Inc.
Financing, Leverage and Liquidity
As of June 30, 2021, the Company had outstanding repurchase
obligations of approximately $4,514.7 million with a net weighted
average borrowing rate of 0.13%. These agreements were
collateralized by RMBS with a fair value, including accrued
interest, of approximately $4,678.1 million and cash pledged to
counterparties of approximately $79.1 million. The Company’s
leverage ratio at June 30, 2021 was 8.2 to 1. At June 30, 2021, the
Company’s liquidity was approximately $278.5 million, consisting of
unpledged RMBS and cash and cash equivalents. To enhance our
liquidity even further, we may pledge more of our structured RMBS
as part of a repurchase agreement funding, but retain the cash in
lieu of acquiring additional assets. In this way we can, at a
modest cost, retain higher levels of cash on hand and decrease the
likelihood we will have to sell assets in a distressed market in
order to raise cash. Below is a list of our outstanding borrowings
under repurchase obligations at June 30, 2021.
($ in thousands)
Weighted
Weighted
Total
Average
Average
Outstanding
% of
Borrowing
Amount
Maturity
Counterparty
Balances
Total
Rate
at Risk(1)
in Days
Mirae Asset Securities (USA) Inc.
$
393,954
8.7%
0.14%
$
20,940
34
Wells Fargo Bank, N.A.
378,394
8.4%
0.12%
20,234
14
Mitsubishi UFJ Securities (USA), Inc.
355,357
7.9%
0.20%
30,369
20
J.P. Morgan Securities LLC
345,476
7.7%
0.18%
19,414
62
ASL Capital Markets Inc.
342,467
7.6%
0.11%
19,165
19
RBC Capital Markets, LLC
295,929
6.6%
0.11%
14,968
33
Cantor Fitzgerald & Co.
276,727
6.1%
0.11%
15,599
35
ABN AMRO Bank N.V.
222,136
4.9%
0.12%
7,435
23
ED&F Man Capital Markets Inc.
204,081
4.5%
0.15%
11,798
24
ING Financial Markets LLC
201,506
4.5%
0.12%
8,446
21
Nomura Securities International, Inc.
201,196
4.5%
0.11%
10,993
27
Citigroup Global Markets, Inc.
197,170
4.4%
0.12%
10,673
12
Barclays Capital Inc.
150,511
3.3%
0.12%
5,428
12
Goldman Sachs & Co. LLC
147,558
3.3%
0.11%
8,152
42
Merrill Lynch, Pierce, Fenner & Smith
Inc.
141,275
3.1%
0.14%
5,800
14
BMO Capital Markets Corp.
140,261
3.1%
0.12%
7,129
27
Daiwa Capital Markets America, Inc.
121,577
2.7%
0.12%
5,923
39
Santander Bank, N.A.
101,468
2.2%
0.13%
6,276
85
Austin Atlantic Asset Management Co.
101,075
2.2%
0.14%
4,851
1
South Street Securities, LLC
98,634
2.2%
0.14%
5,140
66
Lucid Cash Fund USG LLC
51,605
1.1%
0.10%
2,978
15
J.V.B. Financial Group, LLC
32,945
0.7%
0.11%
1,687
24
Lucid Prime Fund LLC
13,402
0.3%
0.23%
1,699
15
Total / Weighted Average
$
4,514,704
100.0%
0.13%
$
245,097
29
(1)
Equal to the sum of the fair value of
securities sold, accrued interest receivable and cash posted as
collateral (if any), minus the sum of repurchase agreement
liabilities, accrued interest payable and the fair value of
securities posted by the counterparties (if any).
Hedging
In connection with its interest rate risk management strategy,
the Company economically hedges a portion of the cost of its
repurchase agreement funding against a rise in interest rates by
entering into derivative financial instrument contracts. The
Company has not elected hedging treatment under U.S. generally
accepted accounting principles (“GAAP”) in order to align the
accounting treatment of its derivative instruments with the
treatment of its portfolio assets under the fair value option
election. As such, all gains or losses on these instruments are
reflected in earnings for all periods presented. At June 30, 2021,
such instruments were comprised of Eurodollar and Treasury note
(“T-Note”) 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 June 30, 2021.
($ 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
1.00%
0.17%
$
(207
)
Treasury Note Futures Contracts (Short
Positions)(2)
September 2021 5-year T-Note futures
(Sep 2021 - Sep 2026 Hedge Period)
$
269,000
1.08%
1.16%
788
September 2021 10-year Ultra futures
(Sep 2021 - Sep 2031 Hedge Period)
$
23,500
1.19%
1.02%
$
(608
)
(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 $123.43 at June 30, 2021. The contract values
of the short positions were $332.0 million at June 30, 2021.
10-Year Ultra futures contracts were valued at a price of $147.20
at June 30, 2021. The contract value of the short position was
$34.6 million at June 30, 2021.
The table below presents information related to the Company’s
interest rate swap positions at June 30, 2021.
($ in thousands)
Average
Net
Fixed
Average
Estimated
Average
Notional
Pay
Receive
Fair
Maturity
Expiration
Amount
Rate
Rate
Value
(Years)
> 3 to ≤ 5 years
$
955,000
0.64
%
0.16
%
8,134
4.5
> 5 years
400,000
1.16
%
0.13
%
(282
)
7.8
$
1,355,000
0.79
%
0.15
%
$
7,852
5.5
The following table presents information related to our interest
rate swaption positions as of June 30, 2021.
($ 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
$
4,000
$
1,959
9.2
$
400,000
1.66
%
3 Month
5.0
>1 year ≤ 2 years
25,390
24,323
19.1
1,027,200
2.20
%
3 Month
15.0
$
29,390
$
26,282
16.3
$
1,427,200
2.05
%
3 Month
12.2
Payer Swaptions - short
≤ 1 year
$
(13,400
)
$
(10,358
)
7.8
$
(1,182,850
)
2.10
%
3 Month
11.6
The following table summarizes our contracts to sell TBA
securities as of June 30, 2021.
($ in thousands)
Notional
Net
Amount
Cost
Market
Carrying
Long (Short)(1)
Basis(2)
Value(3)
Value(4)
June 30, 2021
30-Year TBA securities:
3.0%
$
(400,000)
$
(417,750)
$
(416,875)
$
875
$
(400,000)
$
(417,750)
$
(416,875)
$
875
(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)
0.455
45,460
Totals
$
12.110
$
387,423
(1)
On July 14, 2021, the Company declared a
dividend of $0.065 per share to be paid on August 27, 2021. The
effect of this dividend is included in the table above but is not
reflected in the Company’s financial statements as of June 30,
2021.
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 June 30, 2021 and based on book value performance
for periods through March 31, 2021.
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)
Year to Date (1/1/2021 – 6/30/2021)
6.7%
12.6%
(5.9)%
One Year Total Return
27.3%
45.4%
(18.1)%
Two Year Total Return
12.1%
2.6%
9.5%
Three Year Total Return
9.2%
(2.2)%
11.4%
Four Year Total Return
(2.0)%
(1.1)%
(0.9)%
Five Year Total Return
10.0%
23.5%
(13.5)%
Six Year Total Return
20.3%
35.9%
(15.6)%
Seven Year Total Return
20.7%
30.0%
(9.3)%
Inception to Date (2/13/2013 –
6/30/2021)
28.1%
21.3%
6.8%
Source: SEC filings and press releases of
Orchid and Peer Group
(1)
Total Rate of Return for each period is
obtained from Bloomberg and includes reinvested dividends for each
period. Returns are calculated on a monthly basis and compounded
for each respective period.
(2)
The peer average is the unweighted,
simple, average of the total rate of return for each of the
following companies based on the following inclusion periods. AGNC,
NLY, ANH, ARR and CMO have been included since Orchid’s inception.
ANH is included from Orchid’s inception to Q1 2021. HTS is included
from Orchid’s inception to Q1 2016. MTGE is included from Q1 2017
to Q2 2018. CYS is included from Orchid’s inception to Q2 2018. WMC
is included from Orchid’s inception to Q4 2018. DX was added in Q1
2017. AAIC and CHMI were added in Q1 2019.
(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
22.1%
21.1%
1.0%
Two Year Total Return
(2.2)%
(7.4)%
5.2%
Three Year Total Return
(5.6)%
(8.2)%
2.6%
Four Year Total Return
(6.7)%
(2.9)%
(3.8)%
Five Year Total Return
(3.3)%
3.5%
(6.8)%
Six Year Total Return
(3.8)%
(1.3)%
(2.5)%
Seven Year Total Return
16.7%
12.4%
4.3%
Inception to Date (3/31/2013 -
3/31/2021)(4)
11.9%
0.5%
11.4%
Source: SEC filings and press releases of
Orchid and Peer Group
(1)
Total rate of return for each period is
change in book value per share over the period plus dividends per
share declared divided by the book value per share at the beginning
of the period. None of the return calculations are annualized
except for 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 based on the following inclusion periods. AGNC,
NLY, ANH, ARR and CMO have been included since Orchid’s inception.
ANH is included from Orchid’s inception to Q1 2021. HTS is included
from Orchid’s inception to Q1 2016. MTGE is included from Q1 2017
to Q2 2018. CYS is included from Orchid’s inception to Q2 2018. WMC
is included from Orchid’s inception to Q4 2018. DX was added in Q1
2017. AAIC and CHMI were added in Q1 2019.
(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 June 30, 2021 was $4.71.
The Company computes book value per share by dividing total
stockholders' equity by the total number of shares outstanding of
the Company's common stock. At June 30, 2021, the Company's
stockholders' equity was $553.8 million with 117,500,013 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”) and inverse interest-only (“IIO”)
securities. As of March 31, 2021, approximately 90% of the
Company’s investable capital (which consists of equity in pledged
PT RMBS, available cash and unencumbered assets) was deployed in
the PT RMBS portfolio. At June 30, 2021, the allocation to the PT
RMBS portfolio decreased by 8% to approximately 82%.
The table below details the changes to the respective
sub-portfolios during the quarter, as well as the returns generated
by each.
(in thousands)
Portfolio Activity for the
Quarter
Structured Security
Portfolio
Pass-Through
Interest-Only
Inverse Interest
Portfolio
Securities
Only Securities
Sub-total
Total
Market value - March 31, 2021
$
4,297,731
$
35,521
$
5,284
$
40,805
$
4,338,536
Securities purchased
939,022
71,739
-
71,739
1,010,761
Securities sold
(537,538
)
-
-
-
(537,538
)
Gains on sales
1,352
-
-
-
1,352
Return of investment
n/a
(5,149
)
(441
)
(5,590
)
(5,590
)
Pay-downs
(129,001
)
n/a
-
n/a
(129,001
)
Premium lost due to pay-downs
(9,184
)
n/a
-
n/a
(9,184
)
Mark to market gains (losses)
12,157
(9,402
)
(852
)
(10,254
)
1,903
Market value - June 30, 2021
$
4,574,539
$
92,709
$
3,991
$
96,700
$
4,671,239
The tables below present the allocation of capital between the
respective portfolios at June 30, 2021 and March 31, 2021, and the
return on invested capital for each sub-portfolio for the three
month period ended June 30, 2021. The return on invested capital in
the PT RMBS and structured RMBS portfolios was approximately (0.7)%
and (25.2)%, respectively, for the second quarter of 2021. The
combined portfolio generated a return on invested capital of
approximately (3.1)%.
($ in thousands)
Capital Allocation
Structured Security
Portfolio
Pass-Through
Interest-Only
Inverse Interest
Portfolio
Securities
Only Securities
Sub-total
Total
June 30, 2021
Market value
$
4,574,539
$
92,709
$
3,991
$
96,700
$
4,671,239
Cash
379,718
-
-
-
379,718
Borrowings(1)
(4,514,704
)
-
-
-
(4,514,704
)
Total
$
439,553
$
92,709
$
3,991
$
96,700
$
536,253
% of Total
82.0
%
17.3
%
0.7
%
18.0
%
100.0
%
March 31, 2021
Market value
$
4,297,731
$
35,521
$
5,284
$
40,805
$
4,338,536
Cash(2)
271,332
-
-
-
271,332
Borrowings(3)
(4,181,680
)
-
-
-
(4,181,680
)
Total
$
387,383
$
35,521
$
5,284
$
40,805
$
428,188
% of Total
90.5
%
8.3
%
1.2
%
9.5
%
100.0
%
(1)
At June 30, 2021, there were outstanding
repurchase agreement balances of $73.6 million secured by IO
securities and $3.2 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.
(2)
At March 31, 2021, cash was reduced by
unsettled purchases of approximately $212.2 million and increased
by unsettled sales of approximately $155.0 million, which have
already been reflected in the market value of the portfolio.
(3)
At March 31, 2021, there were outstanding
repurchase agreement balances of $22.5 million secured by IO
securities and $4.0 million secured by IIO securities. We entered
into these arrangements to generate additional cash available to
meet margin calls on PT RMBS; therefore, we have not considered
these balances to be allocated to the structured securities
strategy.
($ in thousands)
Returns for the Quarter Ended
June 30, 2021
Structured Security
Portfolio
Pass-Through
Interest-Only
Inverse Interest
Portfolio
Securities
Only Securities
Sub-total
Total
Income / (loss) (net of borrowing
cost)
$
27,730
$
(162
)
$
130
$
(32
)
$
27,698
Realized and unrealized gains /
(losses)
4,325
(9,402
)
(852
)
(10,254
)
(5,929
)
Derivative losses
(34,915
)
n/a
n/a
n/a
(34,915
)
Total Return
$
(2,860
)
$
(9,564
)
$
(722
)
$
(10,286
)
$
(13,146
)
Beginning Capital Allocation
$
387,383
$
35,521
$
5,284
$
40,805
$
428,188
Return on Invested Capital for the
Quarter(1)
(0.7
)%
(26.9
)%
n/a
(25.2
)%
(3.1
)%
Average Capital Allocation(2)
$
413,468
$
64,115
$
4,638
$
68,753
$
482,221
Return on Average Invested Capital for the
Quarter(3)
(0.7
)%
(14.9
)%
(15.6
)%
(15.0
)%
(2.7
)%
(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 could 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 were deemed to be “at the
market” offerings and privately negotiated transactions. We issued
a total of 27,493,650 shares under the August 2020 Equity
Distribution Agreement for aggregate gross proceeds of
approximately $150.0 million, and net proceeds of approximately
$147.4 million, after commissions and fees, prior to its
termination in June 2021.
On January 20, 2021, we entered into an underwriting agreement
(the “January 2021 Underwriting Agreement”) with J.P. Morgan
Securities LLC (“J.P. Morgan”), relating to the offer and sale of
7,600,000 shares of our common stock. J.P. Morgan purchased the
shares of our common stock from the Company pursuant to the January
2021 Underwriting Agreement at $5.20 per share. In addition, we
granted J.P. Morgan 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 J.P. Morgan 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 proceeds to us of
approximately $45.2 million, net of offering expenses.
On March 2, 2021, we entered into an underwriting agreement (the
“March 2021 Underwriting Agreement”) with J.P. Morgan, relating to
the offer and sale of 8,000,000 shares of our common stock. J.P.
Morgan purchased the shares of our common stock from the Company
pursuant to the March 2021 Underwriting Agreement at $5.45 per
share. In addition, we granted J.P. Morgan a 30-day option to
purchase up to an additional 1,200,000 shares of our common stock
on the same terms and conditions, which J.P. Morgan exercised in
full on March 3, 2021. The closing of the offering of 9,200,000
shares of our common stock occurred on March 5, 2021, with proceeds
to us of approximately $50.0 million, net of offering expenses.
On June 22, 2021, we entered into an equity distribution
agreement (the “June 2021 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 $250,000,000 of shares of our
common stock in transactions that are deemed to be “at the market”
offerings and privately negotiated transactions. Through June 30,
2021, we issued a total of 5,750,000 shares under the June 2021
Equity Distribution Agreement for aggregate gross proceeds of
approximately $31.1 million, and net proceeds of approximately
$30.6 million, after commissions and fees. Subsequent to June 30,
2021, and through July 29, 2021, we issued a total of 5,160,000
shares under the June 2021 Equity Distribution Agreement for
aggregate gross proceeds of approximately $26.6 million, and net
proceeds of approximately $26.2 million, after commissions and
fees.
Stock Repurchase Program
On July 29, 2015, the Board of Directors passed a resolution
authorizing the repurchase of up to 2,000,000 shares of the
Company’s common stock. As part of the stock repurchase program,
shares may be purchased in open market transactions, including
through block purchases, privately negotiated transactions, or
pursuant to any trading plan that may be adopted in accordance with
Rule 10b5-1 of the Securities Exchange Act of 1934, as amended.
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 June 30, 2021, the
Company repurchased a total of 5,685,511 shares under the stock
repurchase program at an aggregate cost of approximately $40.4
million, including commissions and fees, for a weighted average
price of $7.10 per share. However, we did not repurchase any shares
of our common stock during the three months ended June 30, 2021. As
of June 30, 2021, 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, July 30, 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 9593539.
The supplemental materials may be downloaded from the investor
relations section of the Company’s website at
https://ir.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 August 30,
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 RMBS, such as
mortgage pass-through certificates and CMOs issued by the GSEs, and
(ii) structured Agency RMBS, such as IOs, IIOs and principal only
securities, 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, inflation, portfolio performance, pledging of our
structured RMBS, funding levels and spreads, prepayment speeds,
returns, portfolio positioning and repositioning, book value,
investment and operating strategy, hedging levels, the supply and
demand for Agency RMBS, the effect of actions of the U.S.
government, including asset purchases by the Fed, market
expectations, future dividends, 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 June 30, 2021, and December 31, 2020, and the
unaudited quarterly statements of operations for the six and three
months ended June 30, 2021 and 2020. Amounts presented are subject
to change.
ORCHID ISLAND CAPITAL,
INC.
BALANCE SHEETS
($ in thousands, except per
share data)
(Unaudited - Amounts Subject
to Change)
June 30, 2021
December 31, 2020
ASSETS:
Total mortgage-backed securities
$
4,671,239
$
3,726,895
Cash, cash equivalents and restricted
cash
379,718
299,506
Accrued interest receivable
12,547
9,721
Derivative assets, at fair value
43,735
20,999
Receivable for securities sold
-
414
Other assets
688
516
Total Assets
$
5,107,927
$
4,058,051
LIABILITIES AND STOCKHOLDERS'
EQUITY
Repurchase agreements
$
4,514,704
$
3,595,586
Dividends payable
7,663
4,970
Derivative liabilities, at fair value
16,769
33,227
Accrued interest payable
1,042
1,157
Due to affiliates
794
632
Other liabilities
13,134
7,188
Total Liabilities
4,554,106
3,642,760
Total Stockholders' Equity
553,821
415,291
Total Liabilities and Stockholders'
Equity
$
5,107,927
$
4,058,051
Common shares outstanding
117,500,013
76,073,317
Book value per share
$
4.71
$
5.46
ORCHID ISLAND CAPITAL,
INC.
STATEMENTS OF
OPERATIONS
($ in thousands, except per
share data)
(Unaudited - Amounts Subject
to Change)
Six
Months Ended June 30,
Three
Months Ended June 30,
2021
2020
2021
2020
Interest income
$
56,110
$
62,929
$
29,254
$
27,258
Interest expense
(3,497
)
(21,002
)
(1,556
)
(4,479
)
Net interest income
52,613
41,927
27,698
22,779
(Losses) gains on RMBS and derivative
contracts
(91,635
)
(79,457
)
(40,844
)
28,749
Net portfolio (loss) income
(39,022
)
(37,530
)
(13,146
)
51,528
Expenses
7,212
4,897
3,719
2,756
Net (loss) income
$
(46,234
)
$
(42,427
)
$
(16,865
)
$
48,772
Basic net (loss) income per
share
$
(0.50
)
$
(0.65
)
$
(0.17
)
$
0.74
Diluted net (loss) income per
share
$
(0.50
)
$
(0.65
)
$
(0.17
)
$
0.73
Weighted Average Shares
Outstanding
92,456,082
65,408,722
99,489,065
66,310,219
Dividends Declared Per Common
Share:
$
0.390
$
0.405
$
0.195
$
0.165
Three Months Ended June
30,
Key Balance Sheet Metrics
2021
2020
Average RMBS(1)
$
4,504,887
$
3,126,779
Average repurchase agreements(1)
4,348,192
2,992,494
Average stockholders' equity(1)
509,999
327,057
Leverage ratio(2)
8.2:1
9.7:1
Key Performance Metrics
Average yield on RMBS(3)
2.60%
3.49%
Average cost of funds(3)
0.14%
0.60%
Average economic cost of funds(4)
0.61%
1.37%
Average interest rate spread(5)
2.46%
2.89%
Average economic interest rate
spread(6)
1.99%
2.12%
(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/20210729006123/en/
Orchid Island Capital, Inc. Robert E. Cauley, 772-231-1400
Chairman and Chief Executive Officer
https://ir.orchidislandcapital.com
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