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 March 31, 2022.
First Quarter 2022 Highlights
-
Net loss of $148.7 million, or $0.84 per common share, which consists of:
- Net interest income of $39.2 million, or $0.22 per common share
- Total expenses of $4.7 million, or $0.03 per common share
- Net realized and unrealized losses of $183.2 million, or $1.04 per common share, on RMBS and derivative instruments, including net interest expense on interest rate swaps
- First quarter total dividends declared and paid of $0.155 per common share
- Book value per common share of $3.34 at March 31, 2022
- Total return of (19.5)%, comprised of $0.155 dividend per common share and $1.00 decrease in book value per common share, divided by beginning book value per common share
- Company to discuss results on Friday, April 29, 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 first quarter results, Robert E. Cauley, Chairman and Chief Executive Officer, said, “The first quarter of 2022 was a period of rapid transition on the part of Federal Reserve (the “Fed”) policy makers. As 2021 came to a close, the Fed was preparing to slowly remove the emergency monetary policy in place since the onset of the COVID-19 pandemic in early 2020 but concluded in the first quarter of 2022 that the accommodative policy needed to be removed very quickly. This process has continued into the second quarter of 2022 as well. Fed speakers uniformly cite the need to get the policy rate (the “Fed Funds” rate) to neutral by the end of 2022. The neutral rate is generally considered to be approximately 2.50% to 2.75%. This means the Fed has to increase the Fed Funds rate by 225-250 basis points in the next 8 months. Interest rates across the yield curve have increased by over 150 basis points on the front of the curve, and by over 80 basis points in the case of the 10-year U.S. treasury note during the first quarter of 2022. The shape of the curve has flattened materially, and we have already seen the spread between the 2-year and 10-year, as well as the spread between the 5-year and 30-year, points go negative for brief periods. Inflation, which has been accelerating since the second quarter of 2021, has accelerated even further. The war in Ukraine caught the world by surprise, and western countries reacted by imposing numerous sanctions as well as boycotts of various Russian goods. Coupled with the disruption in activity in Ukraine itself, which is one of the world’s leading suppliers of food and many other commodities, the war has proven to be a substantial source of inflationary pressure. COVID-19 induced lock-downs across China have exacerbated supply chain issues that were pervasive already. As inflation has accelerated to levels not seen since the early 1980s – both in the U.S. and across the globe – growth has remained very strong, especially so in the U.S. The Fed is clearly signaling a rapid removal of accommodation, which may even involve outright sales from its SOMA portfolio.
“The impact of these developments on the Agency RMBS market was profound and rapid. Levered RMBS investors such as Orchid that invest solely in the Agency RMBS market have limited options to avoid these headwinds. However, we took advantage of every option we had to minimize the impact and are well positioned to take advantage of the opportunities in the Agency RMBS market that will exist when the market stabilizes. We repositioned our hedge positions, and we have reduced the size of the portfolio through outright asset sales and retaining cash received from our monthly paydowns. Our leverage ratio declined from 8.1 to one at the end of 2021 to 7.5 to one at the end of the first quarter of 2022, and is even lower today. We have increased the allocation to the structured securities, interest only portfolio. We have maintained ample liquidity at all times and retained cash balances equal to approximately 50% of our shareholders equity throughout. We took the painful step of reducing our dividend in response to the compression of the gap between our funding costs and asset yields. This step was unavoidable, but we look forward to the return of a more generous funding gap in the future. In the interim, we will continue to seek to preserve our liquidity and minimize the impact of the volatile market on our portfolio so that we are able to take advantage of more favorable market conditions when they arise. Periods such as this are always difficult, but we know from navigating through many such episodes in the past that the key is to preserve Orchid’s liquidity above all else to ensure the Company is able to take advantage of the favorable market conditions that will exist when it ends. Once again, we intend to do just that.”
Details of First Quarter 2022 Results of Operations
The Company reported net loss of $148.7 million for the three month period ended March 31, 2022, compared with net loss of $29.4 million for the three month period ended March 31, 2021. The Company decreased its Agency RMBS portfolio over the course of the first quarter of 2022. Interest income on the portfolio in the first quarter was down approximately $2.6 million from the fourth quarter of 2021. The yield on our average MBS increased from 2.93% in the fourth quarter of 2021 to 3.02% for the first quarter of 2022, repurchase agreement borrowing costs increased from 0.14% for the fourth quarter of 2021 to 0.20% for the first quarter of 2022, and our net interest spread increased from 2.79% in the fourth quarter of 2021 to 2.82% in the first quarter of 2022.
Book value decreased by $1.00 per share in the first quarter of 2022. The decrease in book value reflects our net loss of $0.84 per share and the dividend distribution of $0.155 per share. The Company recorded net realized and unrealized losses of $1.04 per share on Agency RMBS assets and derivative instruments, including net interest expense on interest rate swaps.
Prepayments
For the quarter ended March 31, 2022, Orchid received $157.1 million in scheduled and unscheduled principal repayments and prepayments, which equated to a 3-month constant prepayment rate (“CPR”) of approximately 10.7%. Prepayment rates on the two RMBS sub-portfolios were as follows (in CPR):
|
|
Structured |
|
|
PT RMBS |
RMBS |
Total |
Three Months Ended |
Portfolio (%) |
Portfolio (%) |
Portfolio (%) |
March 31, 2022 |
8.1 |
19.5 |
10.7 |
December 31, 2021 |
9.0 |
24.6 |
11.4 |
September 30, 2021 |
9.8 |
25.1 |
12.4 |
June 30, 2021 |
10.9 |
29.9 |
12.9 |
March 31, 2021 |
9.9 |
40.3 |
12.0 |
Portfolio
The following tables summarize certain characteristics of Orchid’s PT RMBS (as defined below) and structured RMBS as of March 31, 2022 and December 31, 2021:
($ in thousands) |
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
Percentage |
|
Average |
|
|
|
|
of |
Weighted |
Maturity |
|
|
|
Fair |
Entire |
Average |
in |
Longest |
Asset Category |
|
Value |
Portfolio |
Coupon |
Months |
Maturity |
March 31, 2022 |
|
|
|
|
|
|
Fixed Rate RMBS |
$ |
4,372,517 |
95.5% |
3.01% |
336 |
1-Dec-51 |
Interest-Only Securities |
|
206,617 |
4.5% |
3.42% |
257 |
25-Jan-52 |
Inverse Interest-Only Securities |
|
1,460 |
0.0% |
3.75% |
297 |
15-Jun-42 |
Total Mortgage Assets |
$ |
4,580,594 |
100.0% |
3.11% |
318 |
25-Jan-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) |
|
|
|
|
|
|
|
|
|
|
March 31, 2022 |
|
December 31, 2021 |
||||
|
|
|
|
Percentage of |
|
|
|
Percentage of |
Agency |
|
Fair Value |
|
Entire Portfolio |
|
Fair Value |
|
Entire Portfolio |
Fannie Mae |
$ |
3,016,954 |
|
65.9% |
$ |
4,719,349 |
|
72.5% |
Freddie Mac |
|
1,563,640 |
|
34.1% |
|
1,791,746 |
|
27.5% |
Total Portfolio |
$ |
4,580,594 |
|
100.0% |
$ |
6,511,095 |
|
100.0% |
|
|
March 31, 2022 |
|
December 31, 2021 |
Weighted Average Pass-through Purchase Price |
$ |
107.82 |
$ |
107.19 |
Weighted Average Structured Purchase Price |
$ |
15.25 |
$ |
15.21 |
Weighted Average Pass-through Current Price |
$ |
98.85 |
$ |
105.31 |
Weighted Average Structured Current Price |
$ |
15.61 |
$ |
14.08 |
Effective Duration (1) |
|
4.890 |
|
3.390 |
(1) |
Effective duration of 4.890 indicates that an interest rate increase of 1.0% would be expected to cause a 4.890% decrease in the value of the RMBS in the Company’s investment portfolio at March 31, 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 March 31, 2022, the Company had outstanding repurchase obligations of approximately $4,464.1 million with a net weighted average borrowing rate of 0.37%. These agreements were collateralized by RMBS with a fair value, including accrued interest, of approximately $4,591.7 million and cash pledged to counterparties of approximately $113.6 million. The Company’s leverage ratio at March 31, 2022 was 7.8 to 1. At March 31, 2022, the Company’s liquidity was approximately $301.0 million, consisting of cash and cash equivalents and unpledged RMBS (not including unsettled securities purchases). To enhance our liquidity even further, we may pledge more of our structured RMBS as part of a repurchase agreement funding, but retain the cash in lieu of acquiring additional assets. In this way we can, at a modest cost, retain higher levels of cash on hand and decrease the likelihood we will have to sell assets in a distressed market in order to raise cash. Below is a list of our outstanding borrowings under repurchase obligations at March 31, 2022.
($ 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 |
$ |
390,917 |
|
8.6% |
|
0.35% |
$ |
21,978 |
12 |
Merrill Lynch, Pierce, Fenner & Smith Inc. |
|
376,951 |
|
8.4% |
|
0.29% |
|
17,755 |
15 |
ABN AMRO Bank N.V. |
|
357,326 |
|
8.0% |
|
0.33% |
|
10,722 |
12 |
Mitsubishi UFJ Securities (USA), Inc. |
|
326,430 |
|
7.3% |
|
0.50% |
|
28,594 |
35 |
Cantor Fitzgerald & Co. |
|
315,791 |
|
7.1% |
|
0.38% |
|
17,003 |
27 |
ED&F Man Capital Markets Inc. |
|
282,992 |
|
6.3% |
|
0.27% |
|
15,059 |
17 |
Mirae Asset Securities (USA) Inc. |
|
263,899 |
|
5.9% |
|
0.32% |
|
11,986 |
58 |
RBC Capital Markets, LLC |
|
247,015 |
|
5.5% |
|
0.37% |
|
7,996 |
17 |
Goldman Sachs & Co. LLC |
|
238,179 |
|
5.3% |
|
0.44% |
|
20,101 |
24 |
ING Financial Markets LLC |
|
221,203 |
|
5.0% |
|
0.40% |
|
9,495 |
35 |
ASL Capital Markets Inc. |
|
199,024 |
|
4.5% |
|
0.38% |
|
10,575 |
18 |
Santander Bank, N.A. |
|
189,837 |
|
4.3% |
|
0.38% |
|
10,178 |
21 |
Citigroup Global Markets, Inc. |
|
182,158 |
|
4.1% |
|
0.39% |
|
9,828 |
20 |
Nomura Securities International, Inc. |
|
176,167 |
|
3.9% |
|
0.38% |
|
6,845 |
17 |
Daiwa Capital Markets America, Inc. |
|
173,083 |
|
3.9% |
|
0.39% |
|
7,437 |
18 |
Wells Fargo Bank, N.A. |
|
132,026 |
|
3.0% |
|
0.35% |
|
7,124 |
14 |
BMO Capital Markets Corp. |
|
124,021 |
|
2.8% |
|
0.42% |
|
8,196 |
18 |
Austin Atlantic Asset Management Co. |
|
87,245 |
|
2.0% |
|
0.39% |
|
4,605 |
6 |
Lucid Cash Fund USG LLC |
|
82,630 |
|
1.9% |
|
0.42% |
|
7,969 |
14 |
South Street Securities, LLC |
|
65,571 |
|
1.5% |
|
0.37% |
|
3,652 |
18 |
StoneX Financial Inc. |
|
27,648 |
|
0.6% |
|
0.19% |
|
1,674 |
19 |
Mizuho Securities USA, Inc. |
|
3,996 |
|
0.1% |
|
0.90% |
|
1,352 |
12 |
Total / Weighted Average |
$ |
4,464,109 |
|
100.0% |
|
0.37% |
$ |
240,124 |
22 |
(1) |
Equal to the sum of the fair value of securities sold, accrued interest receivable and cash posted as collateral (if any), minus the sum of repurchase agreement liabilities, accrued interest payable and the fair value of securities posted by the counterparties (if any). |
Hedging
In connection with its interest rate risk management strategy, the Company economically hedges a portion of the cost of its repurchase agreement funding against a rise in interest rates by entering into derivative financial instrument contracts. The Company has not elected hedging treatment under U.S. generally accepted accounting principles (“GAAP”) in order to align the accounting treatment of its derivative instruments with the treatment of its portfolio assets under the fair value option election. As such, all gains or losses on these instruments are reflected in earnings for all periods presented. At March 31, 2022, such instruments were comprised of Treasury note (“T-Note”) futures contracts, interest rate swap agreements, and interest rate swaption agreements.
The table below presents information related to the Company’s T-Note futures contracts at March 31, 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) |
|
|
|
|
|
|
|
|
|
|
June 2022 5-year T-Note futures |
|
|
|
|
|
|
|
|
|
|
|
(Jun 2022 - Jun 2027 Hedge Period) |
$ |
1,194,000 |
|
2.25% |
|
2.83% |
|
|
32,928 |
June 2022 10-year Ultra futures |
|
|
|
|
|
|
|
|
|
|
|
(Jun 2022 - Jun 2032 Hedge Period) |
$ |
270,000 |
|
1.68% |
|
2.06% |
|
$ |
10,983 |
(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 $114.69 at March 31, 2022. The contract values of the short positions were $1,369.4 million at March 31, 2022. 10-Year Ultra futures contracts were valued at a price of $135.47 at March 31, 2022. The contract value of the short position was $365.8 million at March 31, 2022. |
The table below presents information related to the Company’s interest rate swap positions at March 31, 2022.
($ in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
Net |
|
|
|
|
|
|
Fixed |
|
Average |
|
|
Estimated |
|
Average |
|
|
Notional |
|
Pay |
|
Receive |
|
|
Fair |
|
Maturity |
Expiration |
|
Amount |
|
Rate |
|
Rate |
|
|
Value |
|
(Years) |
> 3 to ≤ 5 years |
$ |
300,000 |
|
0.95% |
|
0.93% |
|
|
18,138 |
|
4.0 |
> 5 years |
|
1,100,000 |
|
1.51% |
|
0.37% |
|
|
47,056 |
|
7.0 |
|
$ |
1,400,000 |
|
1.39% |
|
0.49% |
|
$ |
65,194 |
|
6.3 |
The following table presents information related to our interest rate swaption positions as of March 31, 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 |
$ |
33,040 |
|
11.3 |
|
$ |
1,282,400 |
|
2.44% |
|
3 Month |
|
11.3 |
>1 year ≤ 2 years |
|
15,300 |
|
27,322 |
|
18.8 |
|
|
728,400 |
|
2.52% |
|
3 Month |
|
10.0 |
|
$ |
47,205 |
$ |
60,362 |
|
14.0 |
|
$ |
2,010,800 |
|
2.47% |
|
3 Month |
|
10.8 |
Payer Swaptions - short |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
≤ 1 year |
$ |
(19,540) |
$ |
(25,535) |
|
5.8 |
|
$ |
(1,433,000) |
|
2.47% |
|
3 Month |
|
10.8 |
The following table presents information related to our interest cap positions as of March 31, 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 |
|
$ |
1,354 |
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) |
|
|
|
0.200 |
|
35,484 |
Totals |
|
|
$ |
12.635 |
$ |
475,048 |
(1) |
On April 13, 2022, the Company declared a dividend of $0.045 per share to be paid on May 27, 2022. The effect of this dividend is included in the table above but is not reflected in the Company’s financial statements as of March 31, 2022. |
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 March 31, 2022 and based on book value performance for periods through December 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 (1/1/2022 - 3/31/2022) |
|
(24.6)% |
|
(7.1)% |
|
(17.5)% |
One Year Total Return |
|
(36.6)% |
|
(15.9)% |
|
(20.7)% |
Two Year Total Return |
|
49.5% |
|
64.6% |
|
(15.1)% |
Three Year Total Return |
|
(20.3)% |
|
(19.6)% |
|
(0.7)% |
Five Year Total Return |
|
(28.6)% |
|
(11.2)% |
|
(17.4)% |
Inception to Date (2/28/2013 - 3/31/2022)(4) |
|
(6.1)% |
|
1.7% |
|
(7.8)% |
| 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 |
|
(6.4)% |
|
(4.8)% |
|
(1.6)% |
Two Year Total Return |
|
(5.2)% |
|
(17.0)% |
|
11.8% |
Three Year Total Return |
|
0.5% |
|
(9.6)% |
|
10.1% |
Five Year Total Return |
|
(6.6)% |
|
(5.4)% |
|
(1.2)% |
Inception to Date (3/31/2013 - 12/31/2021)(4) |
|
10.5% |
|
(4.0)% |
|
14.5% |
| 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 March 31, 2022 was $3.34. 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 March 31, 2022, the Company's stockholders' equity was $592.4 million with 177,117,186 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 December 31, 2021, approximately 70% of the Company’s investable capital (which consists of equity in pledged PT RMBS, available cash and unencumbered assets) was deployed in the PT RMBS portfolio. At March 31, 2022, the allocation to the PT RMBS portfolio decreased by 8% to approximately 62%.
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 - December 31, 2021 |
$ |
6,298,189 |
$ |
210,382 |
$ |
2,524 |
$ |
212,906 |
$ |
6,511,095 |
|
Securities sold |
|
(1,401,012) |
|
(12,029) |
|
- |
|
(12,029) |
|
(1,413,041) |
|
(Losses) Gains on sales |
|
(51,795) |
|
709 |
|
- |
|
709 |
|
(51,086) |
|
Return of investment |
|
n/a |
|
(10,205) |
|
(251) |
|
(10,456) |
|
(10,456) |
|
Pay-downs |
|
(146,653) |
|
n/a |
|
- |
|
n/a |
|
(146,653) |
|
Premium lost due to pay-downs |
|
(8,431) |
|
n/a |
|
- |
|
n/a |
|
(8,431) |
|
Mark to market (losses) gains |
|
(317,781) |
|
17,760 |
|
(813) |
|
16,947 |
|
(300,834) |
|
Market value - March 31, 2022 |
$ |
4,372,517 |
$ |
206,617 |
$ |
1,460 |
$ |
208,077 |
$ |
4,580,594 |
|
The tables below present the allocation of capital between the respective portfolios at March 31, 2022 and December 31, 2021, and the return on invested capital for each sub-portfolio for the three month period ended March 31, 2022. The return on invested capital in the PT RMBS and structured RMBS portfolios was approximately (32.4)% and 9.1%, respectively, for the first quarter of 2022. The combined portfolio generated a return on invested capital of approximately (20.1)%.
($ in thousands) |
|||||||||||
Capital Allocation |
|||||||||||
|
|
|
Structured Security Portfolio |
|
|||||||
|
|
Pass-Through |
Interest-Only |
Inverse Interest |
|
|
|||||
|
|
Portfolio |
Securities |
Only Securities |
Sub-total |
Total |
|||||
March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
Market value |
$ |
4,372,517 |
$ |
206,617 |
$ |
1,460 |
$ |
208,077 |
$ |
4,580,594 |
|
Cash |
|
427,445 |
|
- |
|
- |
|
- |
|
427,445 |
|
Borrowings(1) |
|
(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% |
December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
Market value |
$ |
6,298,189 |
$ |
210,382 |
$ |
2,524 |
$ |
212,906 |
$ |
6,511,095 |
|
Cash |
|
450,442 |
|
- |
|
- |
|
- |
|
450,442 |
|
Borrowings(2) |
|
(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% |
(1) |
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. |
(2) |
At December 31, 2021, there were outstanding repurchase agreement balances of $159.0 million secured by IO securities and $2.0 million secured by IIO securities. We entered into these arrangements to generate additional cash available to meet margin calls on PT RMBS; therefore, we have not considered these balances to be allocated to the structured securities strategy. |
($ in thousands) |
|||||||||||
Returns for the Quarter Ended March 31, 2022 |
|||||||||||
|
|
|
Structured Security Portfolio |
|
|||||||
|
|
Pass-Through |
Interest-Only |
Inverse Interest |
|
|
|||||
|
|
Portfolio |
Securities |
Only Securities |
Sub-total |
Total |
|||||
Income (net of borrowing cost) |
$ |
37,411 |
$ |
1,654 |
$ |
137 |
$ |
1,791 |
$ |
39,202 |
|
Realized and unrealized (losses) / gains |
|
(378,704) |
|
18,469 |
|
(813) |
|
17,656 |
|
(361,048) |
|
Derivative gains |
|
177,816 |
|
n/a |
|
n/a |
|
n/a |
|
177,816 |
|
|
Total Return |
$ |
(163,477) |
$ |
20,123 |
$ |
(676) |
$ |
19,447 |
$ |
(144,030) |
Beginning Capital Allocation |
$ |
504,525 |
$ |
210,382 |
$ |
2,524 |
$ |
212,906 |
$ |
717,431 |
|
Return on Invested Capital for the Quarter(1) |
|
(32.4)% |
|
9.6% |
|
(26.8)% |
|
9.1% |
|
(20.1)% |
|
Average Capital Allocation(2) |
$ |
420,189 |
$ |
208,500 |
$ |
1,992 |
$ |
210,492 |
$ |
630,681 |
|
Return on Average Invested Capital for the Quarter(3) |
|
(38.9)% |
|
9.7% |
|
(33.9)% |
|
9.2% |
|
(22.8)% |
|
(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 March 31, 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 three months ended March 31, 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 March 31, 2022, 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. The Company did not repurchase any shares of its common stock during the three months ended March 31, 2022 or the year ended December 31, 2021.
Earnings Conference Call Details
An earnings conference call and live audio webcast will be hosted Friday, April 29, 2022, at 10:00 AM ET. The conference call may be accessed by dialing toll free (888) 510-2536. 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 May 29, 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 foreign governments or 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 March 31, 2022, and December 31, 2021, and the unaudited quarterly statements of operations for the three months ended March 31, 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) |
||||||
|
|
|
|
|
|
|
|
|
|
March 31, 2022 |
December 31, 2021 |
||
ASSETS: |
|
|
|
|
||
Mortgage-backed securities |
$ |
4,580,594 |
$ |
6,511,095 |
||
U.S. Treasury Notes |
|
36,477 |
|
37,175 |
||
Cash, cash equivalents and restricted cash |
|
427,445 |
|
450,442 |
||
Accrued interest receivable |
|
14,853 |
|
18,859 |
||
Derivative assets, at fair value |
|
126,910 |
|
50,786 |
||
Other assets |
|
1,153 |
|
320 |
||
Total Assets |
$ |
5,187,432 |
$ |
7,068,677 |
||
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
||
Repurchase agreements |
$ |
4,464,109 |
$ |
6,244,106 |
||
Dividends payable |
|
7,996 |
|
11,530 |
||
Derivative liabilities, at fair value |
|
25,535 |
|
7,589 |
||
Accrued interest payable |
|
1,018 |
|
788 |
||
Due to affiliates |
|
1,066 |
|
1,062 |
||
Other liabilities |
|
95,290 |
|
35,505 |
||
Total Liabilities |
|
4,595,014 |
|
6,300,580 |
||
Total Stockholders' Equity |
|
592,418 |
|
768,097 |
||
Total Liabilities and Stockholders' Equity |
$ |
5,187,432 |
$ |
7,068,677 |
||
Common shares outstanding |
|
177,117,186 |
|
176,993,049 |
||
Book value per share |
$ |
3.34 |
$ |
4.34 |
||
ORCHID ISLAND CAPITAL, INC. |
||||||
STATEMENTS OF OPERATIONS |
||||||
($ in thousands, except per share data) |
||||||
(Unaudited - Amounts Subject to Change) |
||||||
|
|
|
|
|
||
|
Three Months Ended March 31, |
|||||
|
|
2022 |
|
|
2021 |
|
Interest income |
$ |
41,857 |
|
$ |
26,856 |
|
Interest expense |
|
(2,655 |
) |
|
(1,941 |
) |
Net interest income |
|
39,202 |
|
|
24,915 |
|
Losses on RMBS and derivative contracts |
|
(183,232 |
) |
|
(50,791 |
) |
Net portfolio loss |
|
(144,030 |
) |
|
(25,876 |
) |
Expenses |
|
4,697 |
|
|
3,493 |
|
Net loss |
$ |
(148,727 |
) |
$ |
(29,369 |
) |
Basic net loss per share |
$ |
(0.84 |
) |
$ |
(0.34 |
) |
Diluted net loss per share |
$ |
(0.84 |
) |
$ |
(0.34 |
) |
Weighted Average Shares Outstanding |
|
176,997,566 |
|
|
85,344,954 |
|
Dividends Declared Per Common Share: |
$ |
0.155 |
|
$ |
0.195 |
|
|
|
Three Months Ended March 31, |
|||
Key Balance Sheet Metrics |
|
2022 |
2021 |
||
Average RMBS(1) |
|
$ |
5,545,844 |
$ |
4,032,716 |
Average repurchase agreements(1) |
|
|
5,354,107 |
|
3,888,633 |
Average stockholders' equity(1) |
|
|
680,258 |
|
440,733 |
Leverage ratio(2) |
|
|
7.8:1 |
|
9.1:1 |
|
|
|
|
|
|
Key Performance Metrics |
|
|
|
|
|
Average yield on RMBS(3) |
|
|
3.02% |
|
2.66% |
Average cost of funds(3) |
|
|
0.20% |
|
0.20% |
Average economic cost of funds(4) |
|
|
0.29% |
|
0.62% |
Average interest rate spread(5) |
|
|
2.82% |
|
2.46% |
Average economic interest rate spread(6) |
|
|
2.73% |
|
2.04% |
(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. |
