VERO BEACH, Fla.--(BUSINESS WIRE)--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, 2021.
Fourth Quarter 2021 Highlights
- Net loss of $44.6 million, or $0.27 per common share, which consists of:
- Net interest income of $42.4 million, or $0.25 per common share
- Total expenses of $4.4 million, or $0.03 per common share
- Net realized and unrealized losses of $82.6 million, or $0.49 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 $0.78 per common share, respectively
- Since its initial public offering, the Company has declared cash dividends equaling $12.545 per common share
- Book value per share of $4.34 at December 31, 2021
- (4.9)% economic loss on common equity for the quarter, comprised of $0.195 dividend per common share and $0.43 decrease in net book value per common share, divided by beginning book value per share
- Company to discuss results on Friday, February 25, 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 fourth quarter results, Robert E. Cauley, Chairman and Chief Executive Officer, said, “Since our last earnings call the developments unfolding early in the fourth quarter of 2021 accelerated. Inflation data in particular has reaccelerated after leveling off briefly during the third quarter of 2021. Current readings are at the highest levels seen since the early 1980s and have become more broad-based, no longer driven solely by areas most affected by pandemic driven supply channel constraints. Job growth has been equally robust and showed little effect from the Omicron variant that emerged in early December of 2021. Wage growth continues to surge as the labor market becomes progressively tighter, although real wage growth is still negative. The Federal Reserve (the “Fed”) has taken notice and appears ready to begin an aggressive campaign to remove accommodation. As these developments unfolded, interest rates increased materially and the curve – both for nominal U.S. Treasury rates as well as U.S. dollar swap rates – continued to flatten. Since the end of the third quarter of 2021, the 2-year U.S. Treasury has increased by over 120 basis points, the 5-year U.S. Treasury has increased by approximately 90 basis points and the 10-year U.S. Treasury by approximately 48 basis points. Fed Funds futures pricing has changed materially as well and implies an overnight rate of just under 2% by July of 2023 versus 8 basis points currently. This is in sharp contrast to the end of the third quarter of 2021 when market pricing was for one rate hike in either late 2022 or early 2023. Note all of this has occurred while the Fed is still buying U.S. Treasuries and Agency RMBS every day. Obviously not your garden variety rate cycle.
“These developments made for a very challenging market environment with very elevated levels of volatility. The markets in the fourth quarter of 2021 were particularly challenging for Agency RMBS securities and, somewhat surprisingly, specified pools in particular. This led to mark-to-market losses on our specified pool focused portfolio. We anticipated the Fed was on the verge of tapering their asset purchases as we entered the fourth quarter of 2021 and were positioned so as to minimize the impact tapering would have on the RMBS market – namely by avoiding the coupons the Fed was buying. Indeed, last November, the Fed announced they would begin tapering their asset purchases later that month and subsequently accelerated the pace of the tapering to the point that in January of 2022 they announced they would end incremental purchases altogether by March of 2022. They also announced they would begin reducing their balance sheet, and at an accelerated pace, beginning after their first rate hike, almost certainly to be announced at the March 2022 meeting. There was also talk of outright sales of Agency RMBS assets mentioned in the minutes to the Fed’s January 2022 meeting.
“The Fed tapering was announced as we expected, and the pace has been accelerated twice, but the impact on the Agency RMBS market has been somewhat surprising. While the coupons Fed purchases were concentrated in, both during the fourth quarter of 2021 and to a great extent in early 2022, have performed poorly as expected, dollar rolls have remained robust, even in higher coupons. With rates higher, the current coupon has shifted higher as well and currently 3.0% and 3.5% coupons are being produced and purchased by the Fed. In short, dollar roll returns are still very attractive, even if not likely to persist for long. As is often the case, specified pool premiums have suffered in inverse proportion to the degree of dollar roll specialness. This combination of developments hurt our performance during the fourth quarter of 2021 and continues to do so in 2022. However, the widening in specs has clearly been exacerbated by the continued dollar roll specialness and we anticipate the relative performance is likely to reverse as we move into 2022.
“In sum, we are comfortable with our current positioning. Our portfolio remains concentrated in specified pools and we have incurred material mark-to-market losses on these securities, both during the fourth quarter as well as to date in 2022. However, the vast majority of these losses are unrealized as we still own the securities. We have been able to absorb these mark-to-market losses because of our liquidity management practices and anticipate we will be able to continue to do so. The carry these assets yield are comparable to yields available via dollar rolls and the latter is likely to decline as the Fed winds their asset purchases down. Therefore, we see no reason to liquidate these holdings and reposition the portfolio.
Our conviction is buttressed by the knowledge that specified pools will enter the Bloomberg MBS indices later this year, adding demand for the sector from benchmarked managers. Further, the increased conforming loan limit has degraded the convexity, or callability of current Agency RMBS production, another factor supporting specified pools. So, while the timing of the transition from a TBA roll-dominated market is taking a little longer to occur and has cost us on a mark-to-market basis, we are very confident our positioning is where it needs to be as we move further into 2022.”
Details of Fourth Quarter 2021 Results of Operations
The Company reported net loss of $44.6 million for the three month period ended December 31, 2021, compared with net income of $16.5 million for the three month period ended December 31, 2020. The Company increased its Agency RMBS portfolio over the course of the fourth quarter of 2021 through capital raised through the at-the-market program. The yield on our average RMBS increased from 2.66% in the third quarter of 2021 to 2.93% for the fourth quarter of 2021, repurchase agreement borrowing costs increased from 0.13% for the third quarter of 2021 to 0.14% for the fourth quarter of 2021, and our net interest spread increased from 2.53% to 2.79% in the fourth quarter of 2021.
Book value decreased by $0.43 per share in the fourth quarter of 2021. The decrease in book value reflects our net loss of $0.27 per share, the dividend distribution of $0.195 per share and approximately $0.03 per share added through our capital raising activities. The Company recorded net realized and unrealized losses of $0.49 per share on Agency RMBS assets and derivative instruments, including net interest expense on interest rate swaps.
Details of Full Year 2021 Results of Operations
Orchid generated a net loss per share of $0.54 during 2021. The Company recorded net interest income of $127.6 million, offset by realized and unrealized losses of $177.1 million on Agency RMBS and derivative instruments. The yield on our average RMBS decreased from 3.45% in 2020 to 2.73% for 2021, repurchase agreement borrowing costs decreased from 1.51% for 2020 to 0.54% in 2021, and our net interest spread decreased from 2.71% in 2020 to 2.59% in 2021.
Book value decreased by $1.12 per share in 2021 from December 31, 2020. The decrease in book value reflects our net loss of $0.54 per share, the dividend distributions of $0.78 per share and approximately $0.20 per share added through our capital raising activities.
Prepayments
For the quarter ended December 31, 2021, Orchid received $178.1 million in scheduled and unscheduled principal repayments and prepayments, which equated to a 3-month constant prepayment rate (“CPR”) of approximately 11.4%. Prepayment rates on the two RMBS sub-portfolios were as follows (in CPR):
|
|
Structured |
|
|
PT RMBS |
RMBS |
Total |
Three Months Ended |
Portfolio (%) |
Portfolio (%) |
Portfolio (%) |
December 31, 2021 |
9.0 |
24.6 |
11.4 |
September 30, 2021 |
9.8 |
25.1 |
12.4 |
June 30, 2021 |
10.9 |
29.9 |
12.9 |
March 31, 2021 |
9.9 |
40.3 |
12.0 |
December 31, 2020 |
16.7 |
44.3 |
20.1 |
September 30, 2020 |
14.3 |
40.4 |
17.0 |
June 30, 2020 |
13.9 |
35.3 |
16.3 |
March 31, 2020 |
9.8 |
22.9 |
11.9 |
Portfolio
The following tables summarize certain characteristics of Orchid’s PT RMBS and structured RMBS as of December 31, 2021 and December 31, 2020:
($ in thousands) |
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
Percentage |
|
Average |
|
|
|
|
of |
Weighted |
Maturity |
|
|
|
Fair |
Entire |
Average |
in |
Longest |
Asset Category |
|
Value |
Portfolio |
Coupon |
Months |
Maturity |
December 31, 2021 |
|
|
|
|
|
|
Fixed Rate RMBS |
$ |
6,298,189 |
96.7% |
2.93% |
342 |
1-Dec-51 |
Total Mortgage-backed Pass-through |
|
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 Structured RMBS |
|
212,906 |
3.3% |
3.41% |
264 |
25-Jan-52 |
Total Mortgage Assets |
$ |
6,511,095 |
100.0% |
3.03% |
325 |
25-Jan-52 |
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) |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
December 31, 2020 |
|||||
|
|
|
|
Percentage of |
|
|
|
Percentage of |
|
Agency |
|
Fair Value |
|
Entire Portfolio |
|
Fair Value |
|
Entire Portfolio |
|
Fannie Mae |
$ |
4,719,349 |
|
72.5% |
$ |
2,733,960 |
|
73.4% |
|
Freddie Mac |
|
1,791,746 |
|
27.5% |
|
992,935 |
|
26.6% |
|
Total Portfolio |
$ |
6,511,095 |
|
100.0% |
$ |
3,726,895 |
|
100.0% |
|
|
|
December 31, 2021 |
|
December 31, 2020 |
|
Weighted Average Pass-through Purchase Price |
$ |
107.19 |
$ |
107.43 |
|
Weighted Average Structured Purchase Price |
$ |
15.21 |
$ |
20.06 |
|
Weighted Average Pass-through Current Price |
$ |
105.31 |
$ |
108.94 |
|
Weighted Average Structured Current Price |
$ |
14.08 |
$ |
10.87 |
|
Effective Duration(1) |
|
3.390 |
|
2.360 |
(1) |
Effective duration is the approximate percentage change in price for a 100 bps change in rates. 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. 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 December 31, 2021, the Company had outstanding repurchase obligations of approximately $6,244.1 million with a net weighted average borrowing rate of 0.15%. These agreements were collateralized by RMBS with a fair value, including accrued interest, of approximately $6,525.2 million and cash pledged to counterparties of approximately $57.3 million. The Company’s leverage ratio at December 31, 2021 was 8.2 to 1. At December 31, 2021, the Company’s liquidity was approximately $389.9 million, consisting of unpledged RMBS and unrestricted cash and cash equivalents. To enhance our liquidity even further, we may pledge more of our structured RMBS as part of a repurchase agreement funding, but retain the cash in lieu of acquiring additional assets. In this way we can, at a modest cost, retain higher levels of cash on hand and decrease the likelihood we will have to sell assets in a distressed market in order to raise cash. Below is a list of our outstanding borrowings under repurchase obligations at December 31, 2021.
($ 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. |
$ |
436,954 |
|
7.2% |
|
0.13% |
$ |
23,236 |
29 |
|
Mirae Asset Securities (USA) Inc. |
|
425,890 |
|
6.8% |
|
0.13% |
|
22,505 |
62 |
|
J.P. Morgan Securities LLC |
|
424,776 |
|
6.8% |
|
0.14% |
|
23,895 |
31 |
|
RBC Capital Markets, LLC |
|
416,185 |
|
6.7% |
|
0.14% |
|
13,401 |
15 |
|
ABN AMRO Bank N.V. |
|
407,945 |
|
6.5% |
|
0.13% |
|
12,594 |
44 |
|
Merrill Lynch, Pierce, Fenner & Smith Inc. |
|
388,303 |
|
6.2% |
|
0.16% |
|
20,805 |
15 |
|
Cantor Fitzgerald & Co. |
|
348,968 |
|
5.6% |
|
0.12% |
|
18,100 |
29 |
|
Mitsubishi UFJ Securities (USA), Inc. |
|
345,853 |
|
5.5% |
|
0.22% |
|
33,544 |
49 |
|
Goldman Sachs & Co. LLC |
|
339,026 |
|
5.4% |
|
0.18% |
|
25,730 |
21 |
|
Citigroup Global Markets, Inc. |
|
318,709 |
|
5.1% |
|
0.14% |
|
17,107 |
15 |
|
ED&F Man Capital Markets Inc. |
|
301,941 |
|
4.8% |
|
0.11% |
|
16,198 |
22 |
|
Santander Bank, N.A. |
|
299,670 |
|
4.8% |
|
0.14% |
|
15,693 |
17 |
|
Nomura Securities International, Inc. |
|
284,851 |
|
4.6% |
|
0.13% |
|
15,105 |
47 |
|
ASL Capital Markets Inc. |
|
281,879 |
|
4.5% |
|
0.14% |
|
14,458 |
17 |
|
ING Financial Markets LLC |
|
274,333 |
|
4.4% |
|
0.13% |
|
11,561 |
10 |
|
BMO Capital Markets Corp. |
|
245,932 |
|
3.9% |
|
0.17% |
|
17,262 |
25 |
|
Daiwa Capital Markets America, Inc. |
|
207,575 |
|
3.3% |
|
0.15% |
|
10,505 |
15 |
|
South Street Securities, LLC |
|
141,548 |
|
2.3% |
|
0.15% |
|
7,261 |
17 |
|
Barclays Capital Inc. |
|
137,691 |
|
2.2% |
|
0.14% |
|
4,551 |
14 |
|
Austin Atlantic Asset Management Co. |
|
95,754 |
|
1.5% |
|
0.14% |
|
4,039 |
5 |
|
Lucid Cash Fund USG LLC |
|
88,865 |
|
1.4% |
|
0.18% |
|
7,853 |
13 |
|
StoneX Financial Inc. |
|
27,869 |
|
0.4% |
|
0.13% |
|
1,410 |
18 |
|
Mizuho Securities USA, Inc. |
|
3,589 |
|
0.1% |
|
0.56% |
|
1,476 |
12 |
|
Total / Weighted Average |
$ |
6,244,106 |
|
100.0% |
|
0.15% |
$ |
338,289 |
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 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, 2021, such instruments were comprised of U.S. 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 T-Note futures contracts at December 31, 2021.
($ in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
Weighted |
|
Weighted |
|
|
|
|
|
|
Contract |
|
Average |
|
Average |
|
|
|
|
|
|
Notional |
|
Entry |
|
Effective |
|
|
Open |
|
Expiration Year |
|
Amount |
|
Rate |
|
Rate |
|
|
Equity(1) |
|
U.S. Treasury Note Futures Contracts (Short Positions) |
|
|
|
|
|
|
|
|
|
|
March 2022 5-year T-Note futures |
|
|
|
|
|
|
|
|
|
|
(Mar 2022 - Mar 2027 Hedge Period)(2) |
$ |
369,000 |
|
1.56% |
|
1.62% |
|
$ |
1,013 |
|
March 2022 10-year Ultra futures |
|
|
|
|
|
|
|
|
|
|
(Mar 2022 - Mar 2032 Hedge Period)(3) |
$ |
220,000 |
|
1.22% |
|
1.09% |
|
$ |
(3,861 |
) |
| (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 $120.98 at December 31, 2021. The contract values of the short positions were $446.4 million. |
|
| (3) | 10-Year Ultra futures contracts were valued at a price of $146.44 at December 31, 2021. The contract value of the short position was $322.2 million. |
The table below presents information related to the Company’s interest rate swap positions at December 31, 2021.
($ 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% |
|
$ |
21,788 |
|
4.0 |
> 5 years |
|
400,000 |
|
1.16% |
|
0.21% |
|
$ |
4,643 |
|
7.3 |
|
$ |
1,355,000 |
|
0.79% |
|
0.18% |
|
$ |
26,431 |
|
5.0 |
The following table presents information related to our interest rate swaption positions as of December 31, 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 |
$ |
1,575 |
|
3.2 |
|
$ |
400,000 |
|
1.66% |
|
3 Month |
|
5.0 |
> 1 year ≤ 2 years |
|
32,690 |
|
19,918 |
|
18.4 |
|
|
1,258,500 |
|
2.46% |
|
3 Month |
|
14.1 |
|
$ |
36,690 |
$ |
21,493 |
|
14.7 |
|
$ |
1,658,500 |
|
2.27% |
|
3 Month |
|
11.9 |
Payer Swaptions - Short |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
≤ 1 year |
$ |
(16,185) |
$ |
(4,423) |
|
5.3 |
|
$ |
(1,331,500) |
|
2.29% |
|
3 Month |
|
11.4 |
The following table summarizes our contracts to purchase and sell TBA securities as of December 31, 2021
($ in thousands) |
|
|
|
|
|
|
|
|
|||
|
|
Notional |
|
|
|
|
|
Net |
|||
|
|
Amount |
|
Cost |
|
Market |
|
Carrying |
|||
|
|
Long (Short)(1) |
|
Basis(2) |
|
Value(3) |
|
Value(4) |
|||
December 31, 2021 |
|
|
|
|
|
|
|
|
|||
30-Year TBA securities: |
|
|
|
|
|
|
|
|
|||
3.00% |
$ |
(575,000) |
$ |
(595,630) |
$ |
(595,934) |
$ |
(304) |
|||
|
$ |
(575,000) |
$ |
(595,630) |
$ |
(595,934) |
$ |
(304) |
|||
| (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
|
|
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) |
|
|
0.110 |
|
19,502 |
|
Totals |
|
$ |
12.545 |
$ |
459,066 |
|
(1) |
On January 13, 2022, the Company declared a dividend of $0.055 per share to be paid on February 24, 2022. On February 16, 2022, the Company declared a dividend of $0.055 per share to be paid on March 29, 2022. The dollar amount of the dividend declared in February 2022 is estimated based on the number of shares outstanding at February 25, 2022. 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, 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 December 31, 2021 and based on book value performance for periods through September 30, 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) |
One Year Total Return |
|
0.1% |
|
(0.2)% |
|
0.3% |
Two Year Total Return |
|
5.4% |
|
(10.7)% |
|
16.1% |
Three Year Total Return |
|
12.6% |
|
(4.7)% |
|
17.3% |
Five Year Total Return |
|
(9.3)% |
|
3.0% |
|
(12.3)% |
Inception to Date (2/28/2013 - 12/31/2021)(4) |
|
24.5% |
|
9.4% |
|
15.1% |
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, DX and IVR. |
|
| (3) | Represents the total rate of return for Orchid minus peer average in each respective measurement period. |
|
| (4) | Orchid completed its Initial Public Offering on February 13, 2013. We have elected to start the comparison with Orchid's first full month of operations. |
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 |
|
2.3% |
|
1.9% |
|
0.4% |
Two Year Total Return |
|
4.3% |
|
(10.2)% |
|
14.5% |
Three Year Total Return |
|
(1.0)% |
|
(12.0)% |
|
11.0% |
Five Year Total Return |
|
(7.8)% |
|
(8.9)% |
|
1.1% |
Inception to Date (3/31/2013 - 9/30/2021)(4) |
|
16.2% |
|
(1.8)% |
|
18.0% |
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, DX and IVR. |
|
(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 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, 2021 was $4.34. 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, 2021, the Company's stockholders' equity was $768.1 million with 176,993,049 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, 2021, approximately 79% 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, 2021, the allocation to the PT RMBS portfolio decreased 9% to approximately 70%.
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, 2021 |
$ |
5,458,562 |
|
$ |
140,078 |
|
$ |
2,783 |
|
$ |
142,861 |
|
$ |
5,601,423 |
|
||||
Securities purchased |
|
1,353,698 |
|
|
80,178 |
|
|
- |
|
|
80,178 |
|
|
1,433,876 |
|
||||
Securities sold |
|
(252,816 |
) |
|
- |
|
|
- |
|
|
- |
|
|
(252,816 |
) |
||||
Losses on sales |
|
(2,474 |
) |
|
- |
|
|
- |
|
|
- |
|
|
(2,474 |
) |
||||
Return of investment |
|
n/a |
|
|
(9,331 |
) |
|
(326 |
) |
|
(9,657 |
) |
|
(9,657 |
) |
||||
Pay-downs |
|
(168,424 |
) |
|
n/a |
|
|
n/a |
|
|
n/a |
|
|
(168,424 |
) |
||||
Premium lost due to pay-downs |
|
(11,492 |
) |
|
n/a |
|
|
n/a |
|
|
n/a |
|
|
(11,492 |
) |
||||
Mark to market (losses) gains |
|
(78,865 |
) |
|
(543 |
) |
|
67 |
|
|
(476 |
) |
|
(79,341 |
) |
||||
Market value - December 31, 2021 |
$ |
6,298,189 |
|
$ |
210,382 |
|
$ |
2,524 |
|
$ |
212,906 |
|
$ |
6,511,095 |
|
||||
The tables below present the allocation of capital between the respective portfolios at December 31, 2021 and September 30, 2021, and the return on invested capital for each sub-portfolio for the three month period ended December 31, 2021. The return on invested capital in the PT RMBS and structured RMBS portfolios was approximately (7.7)% and 0.9%, respectively, for the fourth quarter of 2021. The combined portfolio generated a return on invested capital of approximately (5.9)%.
($ in thousands) |
|||||||||||||||||||
Capital Allocation |
|||||||||||||||||||
|
|
Structured Security Portfolio |
|
||||||||||||||||
|
Pass-Through |
Interest-Only |
Inverse Interest- |
|
|
||||||||||||||
|
Portfolio |
Securities |
Only Securities |
Sub-total |
Total |
||||||||||||||
December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|||||||||
Market value |
$ |
6,298,189 |
|
$ |
210,382 |
|
$ |
2,524 |
|
$ |
212,906 |
|
$ |
6,511,095 |
|
||||
Cash |
|
450,442 |
|
|
- |
|
|
- |
|
|
- |
|
|
450,442 |
|
||||
Borrowings(1) |
|
(6,244,106 |
) |
|
- |
|
|
- |
|
|
- |
|
|
(6,244,106 |
) |
||||
Total |
$ |
504,525 |
|
$ |
210,382 |
|
$ |
2,524 |
|
$ |
212,906 |
|
$ |
717,431 |
|
||||
% of Total |
|
70.3 |
% |
|
29.3 |
% |
|
0.4 |
% |
|
29.7 |
% |
|
100.0 |
% |
||||
September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|||||||||
Market value |
$ |
5,458,562 |
|
$ |
140,078 |
|
$ |
2,783 |
|
$ |
142,861 |
|
$ |
5,601,423 |
|
||||
Cash(2) |
|
294,625 |
|
|
- |
|
|
- |
|
|
- |
|
|
294,625 |
|
||||
Borrowings(3) |
|
(5,213,869 |
) |
|
- |
|
|
- |
|
|
- |
|
|
(5,213,869 |
) |
||||
Total |
$ |
539,318 |
|
$ |
140,078 |
|
$ |
2,783 |
|
$ |
142,861 |
|
$ |
682,179 |
|
||||
% of Total |
|
79.1 |
% |
|
20.5 |
% |
|
0.4 |
% |
|
20.9 |
% |
|
100.0 |
% |
||||
| (1) | At December 31, 2021, there were outstanding repurchase agreement balances of $159.0 million secured by IO securities and $2.0 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. |
|
| (2) | At September 30, 2021, cash was reduced by unsettled purchases of approximately $180.6 million, which are reflected in the market value of the portfolio as of September 30, 2021. |
|
| (3) | At September 30, 2021, there were outstanding repurchase agreement balances of $106.5 million secured by IO securities and $2.1 million secured by IIO securities. We entered into these arrangements to generate additional cash available to meet margin calls on PT RMBS; therefore, we have not considered these balances to be allocated to the structured securities strategy. |
| ($ in thousands) | ||||||||||||||||||
Returns for the Quarter Ended December 31, 2021 |
||||||||||||||||||
|
|
Structured Security Portfolio |
|
|||||||||||||||
|
Pass-Through |
Interest-Only |
Inverse Interest- |
|
|
|||||||||||||
|
Portfolio |
Securities |
Only Securities |
Sub-total |
Total |
|||||||||||||
Income (net of borrowing cost) |
$ |
40,651 |
|
$ |
1,634 |
|
$ |
113 |
$ |
1,747 |
|
$ |
42,398 |
|
||||
Realized and unrealized (losses) / gains |
|
(93,067 |
) |
|
(541 |
) |
|
66 |
|
(475 |
) |
|
(93,542 |
) |
||||
Derivative gains |
|
10,945 |
|
|
n/a |
|
|
- |
|
n/a |
|
|
10,945 |
|
||||
Total Return |
$ |
(41,471 |
) |
$ |
1,093 |
|
$ |
179 |
$ |
1,272 |
|
$ |
(40,199 |
) |
||||
Beginning Capital Allocation |
$ |
539,318 |
|
$ |
140,078 |
|
$ |
2,783 |
$ |
142,861 |
|
$ |
682,179 |
|
||||
Return on Invested Capital for the Quarter(1) |
|
(7.7 |
)% |
|
0.8 |
% |
|
0 |
|
0.9 |
% |
|
(5.9 |
)% |
||||
Average Capital Allocation(2) |
$ |
521,922 |
|
$ |
175,230 |
|
$ |
2,654 |
$ |
177,884 |
|
$ |
699,806 |
|
||||
Return on Average Invested Capital for the Quarter(3) |
|
(7.9 |
)% |
|
0.6 |
% |
|
- |
|
0.7 |
% |
|
(5.7 |
)% |
||||
(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 June 22, 2021, we entered into an equity distribution agreement (the “June 2021 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 $250,000,000 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 49,407,336 shares under the June 2021 Equity Distribution Agreement for aggregate gross proceeds of approximately $250.0 million, and net proceeds of approximately $246.2 million, after commissions and fees, prior to its termination in October 2021.
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 December 31, 2021, 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.
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 then outstanding share count. On December 9, 2021, the Board of Directors approved an additional 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 up 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 December 31, 2021, 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. There were no shares repurchased during the year ended December 31, 2021.
Earnings Conference Call Details
An earnings conference call and live audio webcast will be hosted Friday, February 25, 2022, 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 28, 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 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 actual or expected 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, 2021, and December 31, 2020, and the unaudited quarterly results of operations for the twelve and three months ended December 31, 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) |
||||||
|
|
|
|
|
||
|
December 31, 2021 |
December 31, 2020 |
||||
ASSETS: |
|
|
|
|
||
Mortgage-backed securities |
$ |
6,511,095 |
$ |
3,726,895 |
||
U.S. Treasury Notes |
|
37,175 |
|
- |
||
Cash, cash equivalents and restricted cash |
|
450,442 |
|
299,506 |
||
Accrued interest receivable |
|
18,859 |
|
9,721 |
||
Derivative assets, at fair value |
|
50,786 |
|
20,999 |
||
Receivable for securities sold |
|
- |
|
414 |
||
Other assets |
|
320 |
|
516 |
||
Total Assets |
$ |
7,068,677 |
$ |
4,058,051 |
||
|
|
|
|
|
||
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
||
Repurchase agreements |
$ |
6,244,106 |
$ |
3,595,586 |
||
Dividends payable |
|
11,530 |
|
4,970 |
||
Derivative liabilities, at fair value |
|
7,589 |
|
33,227 |
||
Accrued interest payable |
|
788 |
|
1,157 |
||
Due to affiliates |
|
1,062 |
|
632 |
||
Other liabilities |
|
35,505 |
|
7,188 |
||
Total Liabilities |
|
6,300,580 |
|
3,642,760 |
||
Total Stockholders' Equity |
|
768,097 |
|
415,291 |
||
Total Liabilities and Stockholders' Equity |
$ |
7,068,677 |
$ |
4,058,051 |
||
Common shares outstanding |
|
176,993,049 |
|
76,073,317 |
||
Book value per share |
$ |
4.34 |
$ |
5.46 |
||
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, |
||||||||||||
|
2021 |
|
2020 |
|
2021 |
|
2020 |
||||||||
Interest income |
$ |
134,700 |
|
$ |
116,045 |
|
$ |
44,421 |
|
$ |
25,893 |
|
|||
Interest expense |
|
(7,090 |
) |
|
(25,056 |
) |
|
(2,023 |
) |
|
(2,011 |
) |
|||
Net interest income |
|
127,610 |
|
|
90,989 |
|
|
42,398 |
|
|
23,882 |
|
|||
Losses |
|
(177,119 |
) |
|
(78,317 |
) |
|
(82,597 |
) |
|
(4,605 |
) |
|||
Net portfolio (loss) income |
|
(49,509 |
) |
|
12,672 |
|
|
(40,199 |
) |
|
19,277 |
|
|||
Expenses |
|
15,251 |
|
|
10,544 |
|
|
4,365 |
|
|
2,798 |
|
|||
Net (loss) income |
$ |
(64,760 |
) |
$ |
2,128 |
|
$ |
(44,564 |
) |
$ |
16,479 |
|
|||
Basic and diluted net (loss) income per share |
$ |
(0.54 |
) |
$ |
0.03 |
|
$ |
(0.27 |
) |
$ |
0.23 |
|
|||
Weighted Average Shares Outstanding |
|
121,144,326 |
|
|
67,210,815 |
|
|
168,143,514 |
|
|
70,532,822 |
|
|||
Dividends Declared Per Common Share: |
$ |
0.780 |
|
$ |
0.790 |
|
$ |
0.195 |
|
$ |
0.195 |
|
|||
|
|
Three Months Ended December 31, |
||||
Key Balance Sheet Metrics |
|
2021 |
|
2020 |
||
Average RMBS(1) |
|
$ |
6,056,259 |
$ |
3,633,631 |
|
Average repurchase agreements(1) |
|
|
5,728,988 |
|
3,438,444 |
|
Average stockholders' equity(1) |
|
|
749,363 |
|
396,016 |
|
Leverage ratio(2) |
|
|
8.2:1 |
|
8.8:1 |
|
|
|
|
|
|
|
|
Key Performance Metrics |
|
|
|
|
|
|
Average yield on RMBS(3) |
|
|
2.93% |
|
2.85% |
|
Average cost of funds(3) |
|
|
0.14% |
|
0.23% |
|
Average economic cost of funds(4) |
|
|
0.70% |
|
0.91% |
|
Average interest rate spread(5) |
|
|
2.79% |
|
2.62% |
|
Average economic interest rate spread(6) |
|
|
2.23% |
|
1.94% |
|
(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. |
