ORC Orchid Island Capital Inc

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.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20220428006044/en/

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