ORC

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, 2022.

Second Quarter 2022 Highlights

• Net loss of $60.1 million, or $0.34 per common share, which consists of:
  • Net interest income of $27.1 million, or $0.15 per common share
  • Total expenses of $4.9 million, or $0.03 per common share
  • Net realized and unrealized losses of $82.3 million, or $0.46 per common share, on RMBS and derivative instruments, including net interest expense on interest rate swaps
• Second quarter total dividends declared and paid of $0.135 per common share
• Book value per common share of $2.87 at June 30, 2022
• Total return of (10.0)%, comprised of $0.135 dividend per common share and $0.47 decrease in book value per common share, divided by beginning book value per common share
• Company to discuss results on Friday, August 5, 2022, 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, “During the latter part of the second quarter of 2022 inflation data drove a material change in Federal Reserve (“Fed”) policy, interest rates and the outlook for the economy. Specifically, the consumer price index (“CPI”) data for May, released in June, increased far more than market expectations. Survey measures of inflation expectations, released on the same day, surged to multi-decade highs. The June CPI reading was released in July and was again well above market expectations. Equally troubling, elevated inflation readings were very broad based, implying inflationary pressures have clearly spread from just those sectors most exposed to COVID-19 related supply constraints. This was the catalyst for the Fed to pivot even more forcefully than they did during late 2021/early 2022, and the Fed raised the Fed Funds rate by 200 basis points collectively at the May, June and July meetings. The market expects the Fed to continuing raising the Fed Funds rate by another 100 basis points by year-end. Increases in the Fed Funds rate are likely to affect economic activity, and the Fed has acknowledged their actions may lead to a recession. Sectors of the economy most sensitive to interest rates – such as housing – have already started to slow and other economic indicators have shown evidence of slowing as well. The manufacturing sector of the economy has clearly begun to slow, and the labor market also has been impacted, as evidenced by initial claims for unemployment in July of 2022 rising by approximately 94,000 above the cycle low reading reported in early March of 2022.

“The Fed pivot that occurred in mid-June led to meaningful widening for Agency RMBS spreads in the days that followed the release of the inflation data and were near the extremes seen in March of 2020. This was particularly true for lower coupon fixed rate Agency RMBS where Orchid’s portfolio is concentrated. The poor performance of Agency RMBS and risk assets generally led to negative returns across the markets and to book value erosion for Orchid. However, while we have recorded significant mark-to-market losses on our portfolio during the second quarter of 2022 and over the last three quarters, most of these losses are unrealized and approximately 81.1% of the pass-through portfolio as of June 30, 2022, was acquired prior to the start of the fourth quarter of 2021.

“It appears the inflation data is sufficiently strong that the Fed sees the need for a more aggressive response, and the market expects the Fed to continue to raise the Fed Funds rate and tighten financial conditions until inflation appears to moderate sufficiently. The chances such tightening of financial conditions does not cause the economy to contract appear remote and, as stated above, we have already seen evidence this has begun to occur. This appears to be the market’s view as well, as evidenced by the inversion of the U.S. Treasury yield curve. It is possible we have already seen the highest levels in long-term U.S. Treasury yields for this cycle.

“If, as we expect, the economy slows over the next several quarters, the lack of any credit risk in the Agency RMBS market should lead to relative outperformance for the sector given the very wide spreads available currently. Further, Orchid’s existing portfolio of discount securities retains very favorable convexity, particularly in a decreasing rate environment as the duration, or rate sensitivity, of the securities should not decline materially if rates were to decrease. We believe these two factors leave Orchid well positioned as we move into the second half of 2022 and beyond. In fact, Agency RMBS have performed very well so far in the third quarter and have reversed most of the widening that occurred in June of 2022.”

Details of Second Quarter 2022 Results of Operations

The Company reported net loss of $60.1 million for the three month period ended June 30, 2022, compared with net loss of $16.9 million for the three month period ended June 30, 2021. The Company decreased its Agency RMBS portfolio over the course of the first six months of 2022, from $6.5 billion at December 31, 2021 to $3.9 billion at June 30, 2022. Interest income on the portfolio in the second quarter was down approximately $6.6 million from the first quarter of 2022. The yield on our average MBS increased from 3.02% in the first quarter of 2022 to 3.31% for the second of 2022, repurchase agreement borrowing costs increased from 0.20% for the first quarter of 2022 to 0.80% for the second quarter of 2022, and our net interest spread decreased from 2.82% in the first quarter of 2022 to 2.51% in the second quarter of 2022.

Book value decreased by $0.47 per share in the second quarter of 2022. The decrease in book value reflects our net loss of $0.34 per share and the dividend distribution of $0.135 per share. The Company recorded net realized and unrealized losses of $0.46 per share on Agency RMBS assets and derivative instruments, including net interest expense on interest rate swaps.

Prepayments

For the quarter ended June 30, 2022, Orchid received $122.4 million in scheduled and unscheduled principal repayments and prepayments, which equated to a 3-month constant prepayment rate (“CPR”) of approximately 9.4%. 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, 2022

8.3

13.7

9.4

March 31, 2022

8.1

19.5

10.7

December 31, 2021

9.0

24.6

11.4

September 30, 2021

9.8

25.1

12.4

June 30, 2021

10.9

29.9

12.9

March 31, 2021

9.9

40.3

12.0

Portfolio

The following tables summarize certain characteristics of Orchid’s PT RMBS (as defined below) and structured RMBS as of June 30, 2022 and December 31, 2021:

($ in thousands)

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

Percentage

 

Average

 

 

 

 

of

Weighted

Maturity

 

 

 

Fair

Entire

Average

in

Longest

Asset Category

 

Value

Portfolio

Coupon

Months

Maturity

June 30, 2022

 

 

 

 

 

 

Fixed Rate RMBS

$

3,766,151

95.6

%

3.10

%

342

1-Jun-52

Interest-Only Securities

 

173,754

4.4

%

3.41

%

249

25-Jan-52

Inverse Interest-Only Securities

 

955

0.0

%

3.02

%

293

15-Jun-42

Total Mortgage Assets

$

3,940,860

100.0

%

3.16

%

322

1-Jun-52

December 31, 2021

 

 

 

 

 

 

Fixed Rate RMBS

$

6,298,189

96.7

%

2.93

%

342

1-Dec-51

Interest-Only Securities

 

210,382

3.2

%

3.40

%

263

25-Jan-52

Inverse Interest-Only Securities

 

2,524

0.1

%

3.75

%

300

15-Jun-42

Total Mortgage Assets

$

6,511,095

100.0

%

3.03

%

325

25-Jan-52

($ in thousands)

 

 

 

 

 

 

 

June 30, 2022

December 31, 2021

 

 

 

Percentage of

 

 

Percentage of

Agency

Fair Value

 

Entire Portfolio

Fair Value

 

Entire Portfolio

Fannie Mae

$

2,591,682

 

65.8

%

$

4,719,349

 

72.5

%

Freddie Mac

 

1,349,178

 

34.2

%

 

1,791,746

 

27.5

%

Total Portfolio

$

3,940,860

 

100.0

%

$

6,511,095

 

100.0

%

 

 

June 30, 2022

 

 

December 31, 2021

Weighted Average Pass-through Purchase Price

$

107.77

 

$

107.19

Weighted Average Structured Purchase Price

$

15.35

 

$

15.21

Weighted Average Pass-through Current Price

$

94.61

 

$

105.31

Weighted Average Structured Current Price

$

16.21

 

$

14.08

Effective Duration (1)

 

5.900

 

 

3.390

(1)

Effective duration of 5.900 indicates that an interest rate increase of 1.0% would be expected to cause a 5.900% decrease in the value of the RMBS in the Company’s investment portfolio at June 30, 2022. An effective duration of 3.390 indicates that an interest rate increase of 1.0% would be expected to cause a 3.390% decrease in the value of the RMBS in the Company’s investment portfolio at December 31, 2021. 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, 2022, the Company had outstanding repurchase obligations of approximately $3,759.0 million with a net weighted average borrowing rate of 1.36%. These agreements were collateralized by RMBS with a fair value, including accrued interest, of approximately $3,939.4 million and cash pledged to counterparties of approximately $51.1 million. The Company’s leverage ratio at June 30, 2022 was 7.8 to 1. At June 30, 2022, the Company’s liquidity was approximately $233.7 million, consisting of cash and cash equivalents and unpledged RMBS (not including unsettled securities purchases). 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, 2022.

($ in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Weighted

 

 

Total

 

 

 

Average

 

 

Average

 

 

Outstanding

 

% of

 

Borrowing

 

Amount

Maturity

Counterparty

 

Balances

 

Total

 

Rate

 

at Risk(1)

in Days

J.P. Morgan Securities LLC

$

355,463

 

9.4

%

 

1.44

%

$

23,431

40

ABN AMRO Bank N.V.

 

332,722

 

8.9

%

 

0.97

%

 

12,527

12

Mitsubishi UFJ Securities (USA), Inc.

 

330,133

 

8.8

%

 

1.69

%

 

35,065

34

Merrill Lynch, Pierce, Fenner & Smith Inc.

 

320,104

 

8.5

%

 

1.15

%

 

15,687

16

Mirae Asset Securities (USA) Inc.

 

291,534

 

7.8

%

 

1.16

%

 

14,802

65

Cantor Fitzgerald & Co.

 

246,670

 

6.6

%

 

1.50

%

 

15,636

28

RBC Capital Markets, LLC

 

228,511

 

6.1

%

 

1.23

%

 

9,416

26

ING Financial Markets LLC

 

196,520

 

5.2

%

 

1.64

%

 

10,070

28

ASL Capital Markets Inc.

 

179,465

 

4.8

%

 

1.57

%

 

11,301

18

Santander Bank, N.A.

 

173,115

 

4.6

%

 

1.34

%

 

10,128

27

Goldman Sachs & Co. LLC

 

158,182

 

4.2

%

 

1.62

%

 

10,858

25

ED&F Man Capital Markets Inc.

 

150,941

 

4.0

%

 

1.02

%

 

7,416

20

Daiwa Capital Markets America, Inc.

 

144,585

 

3.8

%

 

1.58

%

 

7,031

18

Wells Fargo Bank, N.A.

 

123,434

 

3.3

%

 

1.10

%

 

7,373

14

Citigroup Global Markets, Inc.

 

115,434

 

3.1

%

 

1.37

%

 

7,055

21

BMO Capital Markets Corp.

 

115,236

 

3.1

%

 

1.20

%

 

8,471

18

Nomura Securities International, Inc.

 

86,155

 

2.3

%

 

1.61

%

 

5,958

22

Austin Atlantic Asset Management Co.

 

83,356

 

2.2

%

 

1.62

%

 

5,124

6

South Street Securities, LLC

 

60,322

 

1.6

%

 

1.17

%

 

3,595

18

Lucid Cash Fund USG LLC

 

24,157

 

0.6

%

 

1.27

%

 

1,420

14

StoneX Financial Inc.

 

23,337

 

0.6

%

 

1.62

%

 

1,454

28

Lucid Prime Fund LLC

 

19,604

 

0.5

%

 

1.52

%

 

3,790

14

Total / Weighted Average

$

3,758,980

 

100.0

%

 

1.36

%

$

227,608

27

(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, 2022, such instruments were comprised of Treasury note (“T-Note”) futures contracts, interest rate swap agreements, interest rate swaption agreements, interest rate caps and contracts to buy and sell TBA securities.

The table below presents information related to the Company’s T-Note futures contracts at June 30, 2022.

($ in thousands)

 

 

 

 

 

 

 

 

 

 

 

Average

 

Weighted

 

Weighted

 

 

 

 

 

Contract

 

Average

 

Average

 

 

 

 

 

Notional

 

Entry

 

Effective

 

 

Open

Expiration Year

 

Amount

 

Rate

 

Rate

 

 

Equity(1)

Treasury Note Futures Contracts (Short Positions)(2)

 

 

 

 

 

 

 

 

 

September 2022 5-year T-Note futures

 

 

 

 

 

 

 

 

 

(Sep 2022 - Sep 2027 Hedge Period)

$

1,200,500

 

3.13

%

 

3.32

%

 

 

4,138

September 2022 10-year Ultra futures

 

 

 

 

 

 

 

 

 

(Sep 2022 - Sep 2032 Hedge Period)

$

274,500

 

2.64

%

 

2.84

%

 

$

2,442

(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 $112.25 at June 30, 2022. The contract values of the short positions were $1,347.6 million at June 30, 2022. 10-Year Ultra futures contracts were valued at a price of $127.38 at June 30, 2022. The contract value of the short position was $349.6 million at June 30, 2022.

The table below presents information related to the Company’s interest rate swap positions at June 30, 2022.

($ in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

Net

 

 

 

 

 

 

Fixed

 

Average

 

 

Estimated

 

Average

 

 

Notional

 

Pay

 

Receive

 

 

Fair

 

Maturity

Expiration

 

Amount

 

Rate

 

Rate

 

 

Value

 

(Years)

> 3 to ≤ 5 years

$

500,000

 

0.84

%

 

1.95

%

 

 

43,221

 

4.2

> 5 years

 

900,000

 

1.70

%

 

1.32

%

 

 

60,917

 

7.1

 

$

1,400,000

 

1.39

%

 

1.54

%

 

$

104,138

 

6.1

The following table presents information related to our interest rate swaption positions as of June 30, 2022.

($ 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

$

31,905

 

$

65,684

 

 

8.3

 

$

1,282,400

 

 

2.44

%

 

3 Month

 

11.3

>1 year ≤ 2 years

 

24,050

 

 

23,168

 

 

15.8

 

 

728,400

 

 

3.00

%

 

3 Month

 

10.0

 

$

55,955

 

$

88,852

 

 

11.0

 

$

2,010,800

 

 

2.65

%

 

3 Month

 

10.8

Payer Swaptions - short

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

≤ 1 year

$

(22,250

)

$

(43,296

)

 

2.8

 

$

(1,433,000

)

 

2.65

%

 

3 Month

 

10.8

The following table presents information related to our interest cap positions as of June 30, 2022.

($ in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net

 

 

 

 

 

 

 

Strike

 

 

 

 

Estimated

 

 

Notional

 

 

 

 

Swap

 

Curve

 

 

Fair

Expiration

 

Amount

 

 

Cost

 

Rate

 

Spread

 

 

Value

February 8, 2024

$

200,000

 

$

2,350

 

0.09

%

 

10Y2Y

 

$

3,837

The following table summarizes our contracts to purchase and sell TBA securities as of June 30, 2022.

($ in thousands)

 

 

 

 

 

 

 

 

 

 

Notional

 

 

 

 

 

Net

 

 

Amount

 

Cost

 

Market

 

Carrying

 

 

Long (Short)(1)

 

Basis(2)

 

Value(3)

 

Value(4)

June 30, 2022

 

 

 

 

 

 

 

 

30-Year TBA securities:

 

 

 

 

 

 

 

 

2.0%

$

(175,000

)

$

(153,907

)

$

(152,250

)

$

1,657

 

15-Year TBA securities:

 

 

 

 

 

 

 

 

3.5%

 

175,000

 

 

174,434

 

 

174,139

 

 

(295

)

 

$

-

 

$

20,527

 

$

21,889

 

$

1,362

 

(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

 

 

 

0.780

 

97,601

2022 - YTD(1)

 

 

 

0.335

 

59,383

Totals

 

 

$

12.770

$

498,947

(1)

On July 13, 2022, the Company declared a dividend of $0.045 per share to be paid on August 29, 2022. 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, 2022.

Book Value Per Share

The Company's book value per share at June 30, 2022 was $2.87. 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, 2022, the Company's stockholders' equity was $506.4 million with 176,251,193 shares of common stock outstanding.

Capital Allocation and Return on Invested Capital

The table below details the changes to the respective sub-portfolios during the quarter.

(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, 2022

$

4,372,517

 

$

206,617

 

$

1,460

 

$

208,077

 

$

4,580,594

 

Securities purchased

 

190,638

 

 

-

 

 

-

 

 

-

 

 

190,638

 

Securities sold

 

(486,927

)

 

(34,638

)

 

-

 

 

(34,638

)

 

(521,565

)

(Losses) Gains on sales

 

(17,440

)

 

1,997

 

 

-

 

 

1,997

 

 

(15,443

)

Return of investment

 

n/a

 

 

(6,304

)

 

(42

)

 

(6,346

)

 

(6,346

)

Pay-downs

 

(116,595

)

 

n/a

 

 

-

 

 

n/a

 

 

(116,595

)

Discount accretion due to pay-downs

 

726

 

 

n/a

 

 

-

 

 

n/a

 

 

726

 

Mark to market (losses) gains

 

(176,768

)

 

6,082

 

 

(463

)

 

5,619

 

 

(171,149

)

Market value - June 30, 2022

$

3,766,151

 

$

173,754

 

$

955

 

$

174,709

 

$

3,940,860

 

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, 2022, approximately 62% 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, 2022, the allocation to the PT RMBS portfolio remained approximately 62%.

The tables below present the allocation of capital between the respective portfolios at June 30, 2022 and March 31, 2022, and the return on invested capital for each sub-portfolio for the three month period ended June 30, 2022.

($ in thousands)

Capital Allocation

 

 

Structured Security Portfolio

 

 

Pass-Through

Interest-Only

Inverse Interest

 

 

 

Portfolio

Securities

Only Securities

Sub-total

Total

June 30, 2022

 

 

 

 

 

 

 

 

 

 

Market value

$

3,766,151

 

$

173,754

 

$

955

 

$

174,709

 

$

3,940,860

 

Cash

 

283,371

 

 

-

 

 

-

 

 

-

 

 

283,371

 

Borrowings(1)

 

(3,758,980

)

 

-

 

 

-

 

 

-

 

 

(3,758,980

)

Total

$

290,542

 

$

173,754

 

$

955

 

$

174,709

 

$

465,251

 

% of Total

 

62.4

%

 

37.3

%

 

0.2

%

 

37.6

%

 

100.0

%

March 31, 2022

 

 

 

 

 

 

 

 

 

 

Market value

$

4,372,517

 

$

206,617

 

$

1,460

 

$

208,077

 

$

4,580,594

 

Cash

 

427,445

 

 

-

 

 

-

 

 

-

 

 

427,445

 

Borrowings(2)

 

(4,464,109

)

 

-

 

 

-

 

 

-

 

 

(4,464,109

)

Total

$

335,853

 

$

206,617

 

$

1,460

 

$

208,077

 

$

543,930

 

% of Total

 

61.7

%

 

38.0

%

 

0.3

%

 

38.3

%

 

100.0

%

(1)

At June 30, 2022, there were outstanding repurchase agreement balances of $144.9 million secured by IO securities and $0.8 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, 2022, there were outstanding repurchase agreement balances of $157.1 million secured by IO securities and $1.4 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.

The return on invested capital in the PT RMBS and structured RMBS portfolios was approximately (19.7)% and 5.3%, respectively, for the second quarter of 2022. The combined portfolio generated a return on invested capital of approximately (10.1)%.

($ in thousands)

Returns for the Quarter Ended June 30, 2022

 

 

Structured Security Portfolio

 

 

Pass-Through

Interest-Only

Inverse Interest

 

 

 

Portfolio

Securities

Only Securities

Sub-total

Total

Income (net of borrowing cost)

$

23,714

 

$

3,107

 

$

267

 

$

3,374

 

$

27,088

 

Realized and unrealized (losses) / gains

 

(193,657

)

 

8,079

 

 

(463

)

 

7,616

 

 

(186,041

)

Derivative gains

 

103,758

 

 

n/a

 

 

n/a

 

 

n/a

 

 

103,758

 

Total Return

$

(66,185

)

$

11,186

 

$

(196

)

$

10,990

 

$

(55,195

)

Beginning Capital Allocation

$

335,853

 

$

206,617

 

$

1,460

 

$

208,077

 

$

543,930

 

Return on Invested Capital for the Quarter(1)

 

(19.7

)%

 

5.4

%

 

(13.4

)%

 

5.3

%

 

(10.1

)%

Average Capital Allocation(2)

$

313,198

 

$

190,186

 

$

1,208

 

$

191,394

 

$

504,592

 

Return on Average Invested Capital for the Quarter(3)

 

(21.1

)%

 

5.9

%

 

(16.2

)%

 

5.7

%

 

(10.9

)%

(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 October 29, 2021, we entered into an equity distribution agreement (the “October 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, 2022, we issued a total of 15,835,700 shares under the October 2021 Equity Distribution Agreement for aggregate gross proceeds of approximately $78.3 million, and net proceeds of approximately $77.0 million, after commissions and fees. We did not issue any shares under the October 2021 Equity Distribution Agreement during the six months ended June 30, 2022.

Stock Repurchase Program

On July 29, 2015, the Company’s Board of Directors authorized the repurchase of up to 2,000,000 shares of our common stock. 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. 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. 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. Coupled with the 783,757 shares remaining from the original 2,000,000 share authorization, the increased authorization brought the total authorization to 5,306,579 shares, representing 10% of the Company’s then outstanding share count. On December 9, 2021, the Board of Directors approved an increase in the number of shares of the Company’s common stock available in the stock repurchase program for up to an additional 16,861,994 shares, bringing the remaining authorization under the stock repurchase program to 17,699,305 shares, representing approximately 10% of the Company’s then outstanding shares of common stock. This stock repurchase program has no termination date.

From the inception of the stock repurchase program through June 30, 2022, the Company repurchased a total of 6,561,810 shares at an aggregate cost of approximately $42.6 million, including commissions and fees, for a weighted average price of $6.49 per share. During the three months ended June 30, 2022, the Company repurchased a total of 876,299 shares at an aggregate cost of approximately $2.2 million, including commissions and fees, for a weighted average price of $2.53 per share.

Earnings Conference Call Details

An earnings conference call and live audio webcast will be hosted Friday, August 5, 2022, at 10:00 AM ET. The conference call may be accessed by dialing toll free (888) 510-2356. The conference passcode is 8493186. 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 September 4, 2022.

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, 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 actual or expected actions of the U.S. government, including the Federal Reserve, market expectations, future opportunities and prospects of the Company, 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, 2022, and December 31, 2021, and the unaudited quarterly statements of operations for the six and three months ended June 30, 2022 and 2021. 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, 2022

December 31, 2021

ASSETS:

 

 

 

 

Mortgage-backed securities

$

3,940,860

$

6,511,095

U.S. Treasury Notes

 

36,302

 

37,175

Cash, cash equivalents and restricted cash

 

283,371

 

450,442

Accrued interest receivable

 

13,932

 

18,859

Derivative assets, at fair value

 

198,484

 

50,786

Other assets

 

1,420

 

320

Total Assets

$

4,474,369

$

7,068,677

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

Repurchase agreements

$

3,758,980

$

6,244,106

Dividends payable

 

7,960

 

11,530

Derivative liabilities, at fair value

 

43,591

 

7,589

Accrued interest payable

 

3,940

 

788

Due to affiliates

 

1,138

 

1,062

Other liabilities

 

152,398

 

35,505

Total Liabilities

 

3,968,007

 

6,300,580

Total Stockholders' Equity

 

506,362

 

768,097

Total Liabilities and Stockholders' Equity

$

4,474,369

$

7,068,677

Common shares outstanding

 

176,251,193

 

176,993,049

Book value per share

$

2.87

$

4.34

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,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Interest income

$

77,125

 

$

56,110

 

$

35,268

 

$

29,254

 

Interest expense

 

(10,835

)

 

(3,497

)

 

(8,180

)

 

(1,556

)

Net interest income

 

66,290

 

 

52,613

 

 

27,088

 

 

27,698

 

Losses on RMBS and derivative contracts

 

(265,515

)

 

(91,635

)

 

(82,283

)

 

(40,844

)

Net portfolio loss

 

(199,225

)

 

(39,022

)

 

(55,195

)

 

(13,146

)

Expenses

 

9,641

 

 

7,212

 

 

4,944

 

 

3,719

 

Net loss

$

(208,866

)

$

(46,234

)

$

(60,139

)

$

(16,865

)

Basic net loss per share

$

(1.18

)

$

(0.50

)

$

(0.34

)

$

(0.17

)

Diluted net loss per share

$

(1.18

)

$

(0.50

)

$

(0.34

)

$

(0.17

)

Weighted Average Shares Outstanding

 

177,015,963

 

 

92,456,082

 

 

177,034,159

 

 

99,489,065

 

Dividends Declared Per Common Share:

$

0.290

 

$

0.390

 

$

0.135

 

$

0.195

 

 

 

Three Months Ended June 30,

Key Balance Sheet Metrics

 

2022

2021

Average RMBS(1)

 

$

4,260,727

 

$

4,504,887

 

Average repurchase agreements(1)

 

 

4,111,544

 

 

4,348,192

 

Average stockholders' equity(1)

 

 

549,390

 

 

509,999

 

Leverage ratio(2)

 

 

7.8:1

 

 

8.2:1

 

 

 

 

 

 

 

Key Performance Metrics

 

 

 

 

 

Average yield on RMBS(3)

 

 

3.31

%

 

2.60

%

Average cost of funds(3)

 

 

0.80

%

 

0.14

%

Average economic cost of funds(4)

 

 

0.60

%

 

0.61

%

Average interest rate spread(5)

 

 

2.51

%

 

2.46

%

Average economic interest rate spread(6)

 

 

2.71

%

 

1.99

%

(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/20220804005839/en/

Orchid Island Capital, Inc. Robert E. Cauley, 772-231-1400 Chairman and Chief Executive Officer https://ir.orchidislandcapital.com