10-K/A
Orchid Island Capital, Inc. (ORC)
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-K/A
(Amendment No. 1)
☒
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended
December 31, 2020
☐
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __ to __
Commission File Number
:
001-35236
Orchid Island Capital, Inc.
(Exact name of registrant as specified in its charter)
Maryland
27-3269228
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
3305 Flamingo Drive
,
Vero Beach
,
Florida
32963
(Address of principal executive offices) (Zip Code)
(
772
)
231-1400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol:
Name of Each Exchange on Which
Registered
Common Stock, $0.01 par value
ORC
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
☐
No
☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
☐
No
☒
Indicate by check
mark whether the
registrant (1) has filed
all reports required
to be filed
by Section 13 or
15(d) of the
Securities Exchange Act
of
1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such
reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes
☒
No
☐
Indicate by check mark whether
the registrant has submitted electronically
every Interactive Data File required
to be submitted pursuant to
Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required
to submit such
files).
Yes
☒
No
☐
Indicate by check mark whether the
registrant is a large accelerated
filer, an accelerated filer,
a non-accelerated filer, a
smaller reporting company or
an emerging growth company.
See the definitions of “large accelerated
filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2
of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☒
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company,
indicate by check mark if the registrant has elected
not to use the extended transition period for complying with
any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark
whether the registrant has
filed a report on and
attestation to its management's assessment
of the effectiveness of
its internal
control over financial
reporting under Section
404(b) of the
Sarbanes-Oxley Act (15
U.S.C. 7262(b)) by
the registered public
accounting firm that
prepared or issued its audit report.
☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
☐
No
☒
As of June 30, 2020 the aggregate market value of the common stock held by nonaffiliates was $
298,895,633
Number of shares outstanding at March 11, 2021:
94,321,365
DOCUMENTS INCORPORATED
BY REFERENCE:
Portions of the Registrant's definitive
Proxy Statement, to be issued
in connection with the 2021
Annual Meeting of Stockholders
of the Registrant, are incorporated by reference
into Part III of this Annual Report on Form 10-K.
EXPLANATORY NOTE
On February 26, 2021, Orchid Island Capital, Inc. (the “Company”) filed its annual report on Form 10-K for the fiscal year ended
December 31, 2020 (“2020 Form 10-K”). The Company is filing this Amendment No. 1 on Form 10-K/A (“Amendment No. 1”) solely to
correct typographical errors that resulted during the creation of the EDGAR version of the 2020 Form 10-K. These typographical errors
are limited to correcting the numbering of the notes to the financial statements included in Item 8.
Except as described above, no changes have been made to the 2020 Form 10-K, and this Amendment No. 1 does not modify,
amend or update in any way any of the financial or other information contained in the 2020 Form 10-K. This Amendment No. 1 does
not reflect events that may have occurred subsequent to February 26, 2021. Accordingly, this Amendment No. 1 should be read in
conjunction with the 2020 Form 10-K.
Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended, this Amendment No. 1 also contains new
certifications of the Company’s Chief Executive Officer and Chief Financial Officer, which are filed as exhibits hereto.
1
ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial
Statements
Page
Report of
Independent
Registered
Public Accounting
Firm
2
Balance Sheets
4
Statements
of Operations
5
Statements
of Stockholders’
Equity
6
Statements
of Cash Flows
7
Notes to Financial
Statements
8
2
Report of Independent Registered Public Accounting Firm
Stockholders and Board of Directors
Orchid Island Capital, Inc.
Vero Beach, Florida
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Orchid Island Capital, Inc. (the “Company”) as of December
31, 2020 and
2019, the related statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended
December 31, 2020, and the related notes (collectively referred to as the “financial statements”).
In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and
the
results of its operations and its cash flows for each of the three years in the period ended
December 31, 2020
,
in conformity with
accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States)
(“PCAOB”), the Company's internal control over financial reporting as of December 31,
2020, based on criteria established in
Internal
Control – Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”)
and our report dated February 26, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB
and are required to
be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement, whether due to error or
fraud.
Our audits included performing procedures to assess the risks of material misstatement
of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current
period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that: (1)
relates to accounts or disclosures that are material
to the financial statements and (2) involved our especially challenging, subjective,
or complex judgments. The communication
of the critical audit matter does not alter in any way our opinion on the financial statements,
taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts
or disclosures
to which it relates.
Valuation of Investments in Mortgage-Backed Securities
As described in Notes
1
and
12
to the financial statements, the Company
accounts for its
Level 2
mortgage-backed securities at fair
value, which
totaled
$3.7
billion at December 31, 2020.
The fair value of mortgage-backed securities is
based on independent pricing
sources and/or third-party broker
quotes, when available. Because the price estimates may vary, management must make certain
judgments and assumptions about the appropriate price to use to calculate the fair
values based on various techniques including
observing the most recent market for like or identical assets (including security
coupon rate, maturity, yield, prepayment speed), market
credit spreads, and model driven approaches.
3
We identified the valuation of mortgage-backed securities
as
a critical audit matter.
The principal considerations for our determination
are: (i)
the potential for bias in how management subjectively selects the price from
multiple pricing sources to determine the fair value
of the mortgage-backed securities and (ii)
the audit effort involved, including the use of
valuation
professionals with specialized skill and
knowledge.
The primary procedures we performed to address this critical audit matter included:
●
Testing the
design and operating
effectiveness of
controls
relating to the valuation of mortgaged-backed securities,
including
controls over
management’s
process to select the price from multiple pricing sources.
●
Reviewing
the
range of values used for each investment position,
and
assessing
the price selected
for management bias
by comparing the price
to the high, low and average of the range of pricing sources.
●
Testing the reasonableness of fair values determined by management by comparing the fair value of certain securities to
recent transactions, if applicable.
●
Utilizing
a
third-party valuation specialist
to
develop an independent estimate of the fair value of each investment
position
by considering the stated security coupon rate, yield, maturity, and prepayment speeds, and comparing to the fair
value used by management.
/s/ BDO USA, LLP
Certified Public Accountants
We have served as the Company's auditor since 2011.
West Palm Beach, Florida
February 26, 2021
4
ORCHID ISLAND CAPITAL, INC.
BALANCE SHEETS
($ in thousands, except per share data)
December 31, 2020
December 31, 2019
ASSETS:
Mortgage-backed securities, at fair value
Pledged to counterparties
$
3,719,906
$
3,584,354
Unpledged
6,989
6,567
Total mortgage
-backed securities
3,726,895
3,590,921
Cash and cash equivalents
220,143
193,770
Restricted cash
79,363
84,885
Accrued interest receivable
9,721
12,404
Derivative assets, at fair value
20,999
-
Receivable for securities sold, pledged to counterparties
414
-
Other assets
516
100
Total Assets
$
4,058,051
$
3,882,080
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Repurchase agreements
$
3,595,586
$
3,448,106
Dividends payable
4,970
5,045
Derivative liabilities, at fair value
33,227
20,658
Accrued interest payable
1,157
11,101
Due to affiliates
632
622
Other liabilities
7,188
1,041
Total Liabilities
3,642,760
3,486,573
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $
0.01
par value;
100,000,000
shares authorized; no shares issued
and outstanding as of December 31, 2020 and December 31, 2019
-
-
Common Stock, $
0.01
par value;
500,000,000
shares authorized,
76,073,317
shares issued and outstanding as of December 31, 2020 and
63,061,781
shares issued
and outstanding as of December 31, 2019
761
631
Additional paid-in capital
432,524
414,998
Accumulated deficit
(17,994)
(20,122)
Total Stockholders' Equity
415,291
395,507
Total Liabilities
and Stockholders' Equity
$
4,058,051
$
3,882,080
See Notes to Financial Statements
5
ORCHID ISLAND CAPITAL, INC.
STATEMENTS
OF OPERATIONS
For the Years Ended December 31, 2020,
2019 and 2018
($ in thousands, except per share data)
2020
2019
2018
Interest income
$
116,045
$
142,324
$
154,581
Interest expense
(25,056)
(83,666)
(70,360)
Net interest income
90,989
58,658
84,221
Realized losses on mortgage-backed securities
(24,986)
(10,877)
(30,289)
Unrealized gains (losses) on mortgage-backed securities
25,761
38,045
(110,668)
(Losses) gains on derivative instruments
(79,092)
(51,176)
24,311
Net portfolio income (loss)
12,672
34,650
(32,425)
Expenses:
Management fees
5,281
5,528
6,204
Allocated overhead
1,514
1,380
1,567
Accrued incentive compensation
38
115
407
Directors' fees and liability insurance
998
998
968
Audit, legal and other professional fees
1,045
1,105
851
Direct REIT operating expenses
1,057
997
1,631
Other administrative
611
262
334
Total expenses
10,544
10,385
11,962
Net income (loss)
$
2,128
$
24,265
$
(44,387)
Basic and diluted net income (loss) per share
$
0.03
$
0.43
$
(0.85)
Weighted Average Shares Outstanding
67,210,815
56,328,027
52,198,175
See Notes to Financial Statements
6
ORCHID ISLAND CAPITAL, INC.
STATEMENT
OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 2020,
2019 and 2018
(in thousands, except per share data)
Additional
Retained
Common Stock
Paid-in
Earnings
Shares
Par Value
Capital
(Deficit)
Total
Balances, January 1, 2018
53,062
$
531
$
461,680
$
-
$
462,211
Net loss
-
-
-
(44,387)
(44,387)
Cash dividends declared, $1.07 per share
-
-
(55,814)
-
(55,814)
Stock based compensation
49
-
492
-
492
Shares repurchased and retired
(3,979)
(40)
(26,383)
-
(26,423)
Balances, December 31, 2018
49,132
491
379,975
(44,387)
336,079
Net income
-
-
-
24,265
24,265
Cash dividends declared, $0.96 per share
-
-
(54,421)
-
(54,421)
Issuance of common stock pursuant to public offerings, net
14,377
145
92,169
-
92,314
Stock based compensation
23
-
294
-
294
Shares repurchased and retired
(470)
(5)
(3,019)
-
(3,024)
Balances, December 31, 2019
63,062
631
414,998
(20,122)
395,507
Net income
-
-
-
2,128
2,128
Cash dividends declared, $0.79 per share
-
-
(53,570)
-
(53,570)
Issuance of common stock pursuant to public offerings, net
13,019
130
70,920
-
71,050
Stock based compensation
12
-
244
-
244
Shares repurchased and retired
(20)
-
(68)
-
(68)
Balances, December 31, 2020
76,073
$
761
$
432,524
$
(17,994)
$
415,291
See Notes to Financial Statements
7
ORCHID ISLAND CAPITAL, INC.
STATEMENTS
OF CASH FLOWS
For the Years Ended December 31, 2020,
2019 and 2018
($ in thousands)
2020
2019
2018
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)
$
2,128
$
24,265
$
(44,387)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Stock based compensation
244
294
492
Realized and unrealized (gains) losses on mortgage-backed securities
(775)
(27,168)
140,957
Realized and unrealized losses on interest rate swaptions
2,972
1,379
1,502
Realized and unrealized losses (gains) on interest rate swaps
59,055
39,471
(1,027)
Realized and unrealized losses on U.S. Treasury Securities
95
-
-
Realized (gains) losses on forward settling to-be-announced securities
(3,231)
4,357
(4,527)
Changes in operating assets and liabilities:
Accrued interest receivable
2,683
837
1,203
Other assets
(446)
80
(3)
Accrued interest payable
(9,944)
4,656
(71)
Other liabilities
2,583
22
4
Due to affiliates
10
(32)
(143)
NET CASH PROVIDED BY OPERATING
ACTIVITIES
55,374
48,161
94,000
CASH FLOWS FROM INVESTING ACTIVITIES:
From mortgage-backed securities investments:
Purchases
(4,859,434)
(4,241,822)
(3,893,828)
Sales
4,200,536
3,321,206
3,885,817
Principal repayments
523,699
594,833
373,934
Payments on U.S. Treasury securities
(139,807)
-
-
Proceeds from U.S. Treasury securities
139,712
-
-
Net proceeds from reverse repurchase agreements
30
-
-
(Payments on) proceeds from net settlement of to-be-announced securities
(881)
(8,423)
7,292
Purchase of derivative financial instruments, net of margin cash received
(63,195)
(20,600)
6,805
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES
(199,340)
(354,806)
380,020
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from repurchase agreements
33,140,625
45,595,010
52,096,292
Principal payments on repurchase agreements
(32,993,145)
(45,171,956)
(52,605,026)
Cash dividends
(53,645)
(53,307)
(59,312)
Proceeds from issuance of common stock, net of issuance costs
71,050
92,314
-
Common stock repurchases
(68)
(3,024)
(26,423)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
164,817
459,037
(594,469)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS
AND RESTRICTED
CASH
20,851
152,392
(120,449)
CASH, CASH EQUIVALENTS AND
RESTRICTED CASH, beginning of the period
278,655
126,263
246,712
CASH, CASH EQUIVALENTS AND
RESTRICTED CASH, end of the period
$
299,506
$
278,655
$
126,263
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest
$
35,000
$
79,010
$
70,431
SUPPLEMENTAL DISCLOSURE OF
NONCASH INVESTING ACTIVITIES:
Securities sold settled in later period
$
-
$
-
$
220,655
See Notes to Financial Statements
8
ORCHID ISLAND
CAPITAL, INC.
NOTES TO FINANCIAL
STATEMENTS
DECEMBER
31, 2020
NOTE 1.
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
and Business
Description
Orchid Island
Capital, Inc.
(“Orchid”
or the “Company”),
was incorporated
in Maryland
on August
17, 2010 for
the purpose
of creating
and managing
a leveraged
investment
portfolio
consisting
of residential
mortgage-backed
securities
(“RMBS”).
From incorporation
to
February 20,
2013 Orchid
was a wholly
owned subsidiary
of Bimini Capital
Management,
Inc. (“Bimini”).
Orchid began
operations
on
November 24,
2010 (the
date of commencement
of operations).
From incorporation
through November
24, 2010,
Orchid’s only
activity
was the issuance
of common stock
to Bimini.
On August 2, 2017, Orchid entered into an equity distribution agreement (the “August 2017
Equity Distribution Agreement”) with
two sales agents pursuant to which the Company could offer and sell, from time to time, up
to an aggregate amount of $
125,000,000
of
shares of the Company’s common stock in transactions that were deemed to be “at the market” offerings and privately
negotiated
transactions.
The Company issued a total of
15,123,178
shares under the August 2017 Equity Distribution Agreement for aggregate
gross proceeds of approximately $
125.0
million, and net proceeds of approximately $
123.1
million, net of commissions and fees,
prior
to its termination in July 2019.
On July 30, 2019, Orchid entered into an underwriting agreement (the “2019 Underwriting
Agreement”) with Morgan Stanley & Co.
LLC, Citigroup Global Markets Inc. and J.P. Morgan Securities LLC, as representatives of the underwriters named therein, relating to
the offer and sale of
7,000,000
shares of the Company’s common stock at a price to the public of $
6.55
per share. The underwriters
purchased the shares pursuant to the 2019 Underwriting Agreement at a price of $
6.3535
per share. The closing of the offering of
7,000,000
shares of common stock occurred on August 2, 2019, with net proceeds to the Company
of approximately $
44.2
million after
deduction of underwriting discounts and commissions and other estimated offering expenses.
On January 23, 2020, Orchid entered into an equity distribution agreement (the
“January 2020 Equity Distribution Agreement”) with
three sales agents pursuant to which the Company could offer and sell, from time to time, up
to an aggregate amount of $
200,000,000
of shares of the Company’s common stock in transactions that were deemed to be “at the market” offerings and
privately negotiated
transactions.
The Company issued a total of
3,170,727
shares under the January 2020 Equity Distribution Agreement for aggregate
gross proceeds of $
19.8
million, and net proceeds of approximately $
19.4
million, net of commissions and fees, prior to its termination
in August 2020.
On August 4, 2020, Orchid entered into an equity distribution agreement (the “August 2020
Equity Distribution Agreement”) with
four sales agents pursuant to which the Company may offer and sell, from time to time, up to
an aggregate amount of $
150,000,000
of
shares of the Company’s common stock in transactions that are deemed to be “at the market”
offerings and privately negotiated
transactions.
Through December 31, 2020, the Company issued a total of
9,848,513
shares under the August 2020 Equity Distribution
Agreement for aggregate gross proceeds of approximately $
52.5
million, and net proceeds of approximately $
51.6
million, net of
commissions and fees. Subsequent to December 31, 2020 through February 26, 2021,
the Company issued a total of
308,048
shares
under the August 2020 Equity Distribution Agreement for aggregate gross proceeds of approximately
$
1.6
million.
COVID-19
Impact
Beginning
in mid-March
2020, the
global pandemic
associated
with the novel
coronavirus
(“COVID-19”)
and related
economic
conditions
began to impact
our financial
position and
results of
operations.
As a result
of the economic,
health and
market turmoil
brought
about by COVID-19,
the Agency
RMBS market
experienced
severe dislocations.
This resulted
in falling
prices of our
assets and
increased
9
margin calls
from our repurchase
agreement
lenders. Further,
as interest
rates declined,
we faced additional
margin calls
related to
our
various hedge
positions.
In order
to maintain
sufficient cash
and liquidity, reduce
risk and satisfy
margin calls,
we were forced
to sell assets
at levels significantly
below their
carrying values
and closed
several hedge
positions.
During this
period, we
sold approximately
$
1.1
billion
of Agency
RMBS, resulting
in losses of
approximately
$
31.4
million.
Also during
this period,
we terminated
interest rate
swap positions
with an aggregate
notional value
of $
860.0
million and
incurred
approximately
$
45.0
million in
fair value
losses on the
positions
through the
date of the
respective
terminations.
The Agency
RMBS market
largely stabilized
after the
Federal Reserve
announced
on March 23,
2020 that
it would purchase
Agency
RMBS and
U.S. Treasuries
in the amounts
needed to
support smooth
market functioning.
As of December
31, 2020,
we had timely
satisfied all
margin calls.
Although the
Company cannot
estimate the
length or
gravity of
the impact
of the COVID-19
outbreak at
this time,
if the pandemic
continues,
it may continue
to have adverse
effects on the
Company’s results
of future
operations,
financial position,
and liquidity
in fiscal
year 2021.
In addition,
President
Trump signed
into law the
Coronavirus
Aid, Relief,
and Economic
Security (CARES)
Act, which
has provided
billions of
dollars of
relief to
individuals,
businesses,
state and local
governments,
and the health
care system
suffering the
impact of
the
pandemic, including
mortgage
loan forbearance
and modification
programs to
qualifying
borrowers
who may have
difficulty making
their
loan payments.
As certain
time limits
imposed in
the CARES
Act programs
began to expire,
on December
27, 2020,
President
Trump
signed into
law an additional
coronavirus
aid package
as part of
the Consolidated
Appropriations
Act, 2021,
providing for
extensions of
many of the
CARES Act
policies and
programs as
well as billions
of dollars
of additional
relief. The
Company has
evaluated the
provisions
of the CARES
Act and the
Consolidated
Appropriations
Act, 2021
and has determined
that it will
not have a
material effect
on the
Company’s business,
results of
operations
and financial
condition.
Basis of
Presentation
and Use of
Estimates
The accompanying
financial
statements
have been
prepared in
accordance
with accounting
principles
generally accepted
in the
United States
(“GAAP”).
The preparation
of financial
statements
in conformity
with GAAP
requires management
to make estimates
and
assumptions
that affect
the reported
amounts of
assets and
liabilities
and disclosure
of contingent
assets and
liabilities
at the date
of the
financial
statements
and the reported
amounts of
revenues and
expenses during
the reporting
period. Actual
results could
differ from
those
estimates.
The significant
estimates
affecting the
accompanying
financial statements
are the fair
values of RMBS
and derivatives.
Management
believes the
estimates
and assumptions
underlying
the financial
statements
are reasonable
based on the
information
available as
of December
31, 2020;
however, uncertainty
over the ultimate
impact that
COVID-19
will have on
the global
economy
generally, and on
Orchid’s business
in particular,
makes any
estimates and
assumptions
as of December
31, 2020 inherently
less certain
than they
would be absent
the current
and potential
impacts of
COVID-19.
Variable Interest Entities (VIEs)
We obtain interests in VIEs through our investments in mortgage-backed securities.
Our interests in these VIEs are passive in
nature and are not expected to result in us obtaining a controlling financial interest in
these VIEs in the future.
As a result, we do not
consolidate these VIEs and we account for our interest in these VIEs as mortgage-backed
securities.
See Note 2 for additional
information regarding our investments in mortgage-backed securities.
Our maximum exposure to loss for these VIEs is the carrying
value of the mortgage-backed securities.
Cash and Cash Equivalents and Restricted Cash
Cash and cash
equivalents
include cash
on deposit
with financial
institutions
and highly
liquid investments
with original
maturities
of
three months
or less at
the time
of purchase.
Restricted
cash includes
cash pledged
as collateral
for repurchase
agreements
and other
10
borrowings,
and interest
rate swaps
and other
derivative
instruments.
The following
table provides
a reconciliation
of cash, cash
equivalents,
and restricted
cash reported
within the
statement
of financial
position that
sum to the
total of the
same such amounts
shown in
the statement
of cash flows.
(in thousands)
December 31, 2020
December 31, 2019
Cash and cash equivalents
$
220,143
$
193,770
Restricted cash
79,363
84,885
Total cash, cash equivalents
and restricted cash
$
299,506
$
278,655
The Company
maintains cash
balances at
three banks
and excess
margin on
account with
two exchange
clearing members.
At times,
balances may
exceed federally
insured limits.
The Company
has not experienced
any losses
related to
these balances.
The Federal
Deposit Insurance
Corporation
insures eligible
accounts up
to $250,000
per depositor
at each financial
institution.
Restricted
cash
balances are
uninsured,
but are held
in separate
customer accounts
that are segregated
from the general
funds of the
counterparty.
The
Company limits
uninsured
balances to
only large,
well-known
banks
and exchange
clearing members
and believes
that it is
not exposed
to
any significant
credit risk
on cash and
cash equivalents
or restricted
cash balances.
Mortgage-Backed
Securities
The Company
invests primarily
in mortgage
pass-through
residential
mortgage backed
certificates
issued by Freddie
Mac, Fannie
Mae or Ginnie
Mae (“RMBS”),
collateralized
mortgage obligations
(“CMOs”),
interest-only
(“IO”) securities
and inverse
interest-only
(“IIO”)
securities
representing interest in or obligations backed by pools of RMBS. We refer to RMBS
and CMOs as PT RMBS.
We refer to IO
and IIO securities as structured RMBS. The Company has elected to account for
its investment in RMBS under the fair value
option. Electing the fair value option requires the Company to record changes in
fair value in the statement of operations, which, in
management’s view, more appropriately reflects the results of our operations for a particular reporting period and is consistent with the
underlying economics and how the portfolio is managed.
The Company
records RMBS
transactions
on the trade
date. Security
purchases that
have not
settled as
of the balance
sheet date
are included
in the RMBS
balance with
an offsetting
liability recorded,
whereas securities
sold that
have not settled
as of the
balance sheet
date are removed
from the RMBS
balance with
an offsetting
receivable recorded.
Fair value
is defined
as the price
that would
be received
to sell the
asset or paid
to transfer
the liability
in an orderly
transaction
between market
participants
at the measurement
date.
The fair value
measurement
assumes that
the transaction
to sell the
asset or
transfer the
liability either
occurs in
the principal
market for
the asset or
liability, or in
the absence
of a principal
market, occurs
in the most
advantageous
market for
the asset or
liability. Estimated
fair values
for RMBS
are based
on independent
pricing sources
and/or third
party
broker quotes,
when available.
Income on PT
RMBS securities
is based on
the stated
interest rate
of the security.
Premiums or
discounts present
at the date
of
purchase are
not amortized.
Premium lost
and discount
accretion
resulting from
monthly principal
repayments
are reflected
in unrealized
gains (losses)
on RMBS in
the statements
of operations.
For IO securities,
the income
is accrued
based on the
carrying value
and the
effective yield.
The difference
between income
accrued and
the interest
received on
the security
is characterized
as a return
of investment
and serves
to reduce
the asset’s
carrying value.
At each reporting
date, the
effective yield
is adjusted
prospectively
for future
reporting
periods
based on the
new estimate
of prepayments
and the contractual
terms of the
security. For IIO
securities,
effective yield
and income
recognition
calculations
also take
into account
the index value
applicable
to the security.
Changes in
fair value
of RMBS during
each
reporting
period are
recorded in
earnings and
reported as
unrealized
gains or losses
on mortgage-backed
securities
in the accompanying
statements
of operations.
Derivative Financial Instruments
11
The Company
uses derivative
and other
hedging instruments
to manage
interest rate
risk, facilitate
asset/liability
strategies
and
manage other
exposures,
and it may
continue to
do so in the
future. The
principal instruments
that the Company
has used to
date are
Treasury Note
(“T-Note”),
Fed Funds and
Eurodollar
futures contracts,
short positions
in U.S. Treasury
securities,
interest rate
swaps,
options to
enter in interest
rate swaps
(“interest
rate swaptions”)
and “to-be-announced”
(“TBA”) securities
transactions,
but the Company
may enter
into other
derivative
and other
hedging instruments
in the future.
The Company
accounts for
TBA securities
as derivative
instruments.
Gains and losses
associated
with TBA
securities
transactions
are reported
in gain (loss)
on derivative
instruments
in the accompanying
statements
of operations.
Derivative
and other
hedging instruments
are carried
at fair value,
and changes
in fair value
are recorded
in earnings
for each period.
The Company’s
derivative
financial
instruments
are not designated
as hedge accounting
relationships,
but rather
are used as
economic
hedges of
its portfolio
assets and
liabilities.
Holding derivatives
creates exposure
to credit
risk related
to the potential
for failure
on the part
of counterparties
and exchanges
to
honor their
commitments.
In the event
of default
by a counterparty,
the Company
may have difficulty
recovering
its collateral
and may not
receive payments
provided for
under the
terms of the
agreement.
The Company’s
derivative
agreements
require it
to post or
receive
collateral
to mitigate
such risk.
In addition,
the Company
uses only
registered
central clearing
exchanges and
well-established
commercial
banks as counterparties,
monitors positions
with individual
counterparties
and adjusts
posted collateral
as required.
Financial
Instruments
The fair value
of financial
instruments
for which
it is practicable
to estimate
that value
is disclosed,
either in
the body of
the financial
statements
or in the
accompanying
notes. RMBS,
Eurodollar,
Fed Funds
and T-Note
futures contracts,
interest rate
swaps, interest
rate
swaptions
and TBA securities
are accounted
for at fair
value in the
balance sheets.
The methods
and assumptions
used to estimate
fair
value for
these instruments
are presented
in Note 12
of the financial
statements.
The estimated
fair value
of cash and
cash equivalents,
restricted
cash, accrued
interest receivable,
receivable
for securities
sold,
other assets,
due to affiliates,
repurchase
agreements,
payable for
unsettled securities
purchased,
accrued interest
payable and
other
liabilities
generally approximates
their carrying
values as of
December
31, 2020 and
December 31,
2019 due to
the short-term
nature of
these financial
instruments.
Repurchase
Agreements
The Company
finances the
acquisition
of the majority
of its RMBS
through the
use of repurchase
agreements
under master
repurchase
agreements.
Repurchase
agreements
are accounted
for as collateralized
financing
transactions,
which are
carried at
their
contractual
amounts, including
accrued interest,
as specified
in the respective
agreements.
Reverse Repurchase
Agreements
and Obligations
to Return Securities
Borrowed under
Reverse Repurchase
Agreements
The Company
borrows securities
to cover short
sales of U.S.
Treasury securities
through reverse
repurchase
transactions
under our
master repurchase
agreements.
We account for
these as securities
borrowing
transactions
and recognize
an obligation
to return the
borrowed
securities
at fair value
on the balance
sheet based
on the value
of the underlying
borrowed
securities
as of the
reporting date.
The securities
received as
collateral
in connection
with our reverse
repurchase
agreements
mitigate our
credit risk
exposure to
counterparties.
Our reverse
repurchase
agreements
typically
have maturities
of 30 days
or less.
Manager Compensation
The Company
is externally
managed by
Bimini Advisors,
LLC (the
“Manager”
or “Bimini
Advisors”),
a Maryland
limited liability
company and
wholly-owned
subsidiary
of Bimini.
The Company’s
management
agreement
with the
Manager provides
for payment
to the
12
Manager of
a management
fee and reimbursement
of certain
operating
expenses, which
are accrued
and expensed
during the
period for
which they
are earned
or incurred.
Refer to
Note 13 for
the terms of
the management
agreement.
Earnings
Per Share
Basic earnings
per share
(“EPS”) is
calculated
as net income
or loss attributable
to common stockholders
divided by
the weighted
average number
of shares
of common stock
outstanding
or subscribed
during the
period. Diluted
EPS is calculated
using the treasury
stock or two-class
method, as
applicable,
for common
stock equivalents,
if any. However, the
common stock
equivalents
are not included
in computing
diluted EPS
if the result
is anti-dilutive.
Income Taxes
Orchid has qualified and elected to be taxed as a REIT under the Code.
REITs are generally not subject to federal income tax on
their REIT taxable income provided that they distribute to their stockholders
at least 90% of their REIT taxable income on an annual
basis. In addition, a REIT must meet other provisions of the Code to retain its tax
status.
Orchid assesses the likelihood, based on their technical merit, that uncertain tax positions
will be sustained upon examination
based on the facts, circumstances and information available at the end of each period.
All of Orchid’s tax positions are categorized as
highly certain.
There is no accrual for any tax, interest or penalties related to Orchid’s tax position
assessment.
The measurement of
uncertain tax positions is adjusted when new information is available, or
when an event occurs that requires a change.
Recent Accounting
Pronouncements
On January 1, 2020, we adopted Accounting Standards Update (“ASU”) 2016-13,
Financial Instruments – Credit Losses (Topic
326): Measurement of Credit Losses on Financial Instruments.
ASU 2016-13 requires credit losses on most financial assets measured
at amortized cost and certain other instruments to be measured using an expected credit
loss model (referred to as the current
expected credit loss model). The Company’s adoption of this ASU did not have a material effect on its financial
statements as its
financial assets were already measured at fair value through earnings.
13
In March 2020, the FASB issued ASU 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate
Reform on Financial Reporting.”
ASU 2020-04 provides optional expedients and exceptions to GAAP requirements for
modifications
on debt instruments, leases, derivatives, and other contracts, related to the expected market
transition from the London Interbank
Offered Rate (“LIBOR”), and certain other floating rate benchmark indices, or collectively, IBORs, to alternative reference rates. ASU
2020-04 generally considers contract modifications related to reference rate reform to
be an event that does not require contract
remeasurement at the modification date nor a reassessment of a previous accounting
determination. The guidance in ASU 2020-04 is
optional and may be elected over time, through December 31, 2022, as reference
rate reform activities occur. The Company does not
believe the adoption of this ASU will have a material impact on its financial statements.
In January 2021, the FASB issued ASU 2021-01 “Reference Rate Reform (Topic 848).
ASU 2021-01 expands the scope of ASC
848 to include all affected derivatives and give market participants the ability to apply certain
aspects of the contract modification and
hedge accounting expedients to derivative contracts affected by the discounting transition. In
addition, ASU 2021-01 adds
implementation guidance to permit a company to apply certain optional expedients
to modifications of interest rate indexes used for
margining, discounting or contract price alignment of certain derivatives as a result
of reference rate reform initiatives and
extends
optional expedients to account for a derivative contract modified as a continuation of
the existing contract and to continue hedge
accounting when certain critical terms of a hedging relationship change to modifications
made as part of the discounting transition. The
guidance in ASU 2021-01 is effective immediately and available generally through December
31, 2022, as reference rate reform
activities occur. The Company does not believe the adoption of this ASU will have a material impact on its financial statements.
NOTE 2.
MORTGAGE-BACKED SECURITIES
The following
table presents
the Company’s
RMBS portfolio
as of December
31, 2020 and
December 31,
2019:
(in thousands)
December 31, 2020
December 31, 2019
Pass-Through RMBS Certificates:
Adjustable-rate Mortgages
$
-
$
1,014
Fixed-rate Mortgages
3,560,746
3,206,013
Fixed-rate CMOs
137,453
299,205
Total Pass-Through
Certificates
3,698,199
3,506,232
Structured RMBS Certificates:
Interest-Only Securities
28,696
60,986
Inverse Interest-Only Securities
-
23,703
Total Structured
RMBS Certificates
28,696
84,689
Total
$
3,726,895
$
3,590,921
NOTE 3.
REPURCHASE AGREEMENTS
The Company
pledges certain
of its RMBS
as collateral
under repurchase
agreements
with financial
institutions.
Interest rates
are
generally fixed
based on prevailing
rates corresponding
to the terms
of the borrowings,
and interest
is generally
paid at the
termination
of a
borrowing.
If the fair
value of the
pledged securities
declines,
lenders will
typically require
the Company
to post additional
collateral
or pay
down borrowings
to re-establish
agreed upon
collateral
requirements,
referred to
as "margin
calls." Similarly,
if the fair
value of the
pledged
securities
increases,
lenders may
release collateral
back to the
Company. As of December
31, 2020,
the Company
had met all
margin call
requirements.
As of December
31, 2020 and
2019, the
Company’s repurchase
agreements
had remaining
maturities
as summarized
below:
($ in thousands)
OVERNIGHT
BETWEEN 2
BETWEEN 31
GREATER
(1 DAY OR
AND
AND
THAN
14
LESS)
30 DAYS
90 DAYS
90 DAYS
TOTAL
December 31, 2020
Fair market value of securities pledged, including
accrued interest receivable
$
-
$
2,112,969
$
1,560,798
$
55,776
$
3,729,543
Repurchase agreement liabilities associated with
these securities
$
-
$
2,047,897
$
1,494,500
$
53,189
$
3,595,586
Net weighted average borrowing rate
-
0.23%
0.22%
0.30%
0.23%
December 31, 2019
Fair market value of securities pledged, including
accrued interest receivable
$
-
$
2,470,263
$
1,005,517
$
120,941
$
3,596,721
Repurchase agreement liabilities associated with
these securities
$
-
$
2,361,378
$
964,368
$
122,360
$
3,448,106
Net weighted average borrowing rate
-
2.04%
1.94%
2.60%
2.03%
In addition,
cash pledged
to counterparties
as collateral
for repurchase
agreements
was approximately
$
58.8
million and
$
65.9
million
as of December
31, 2020 and
2019, respectively.
If, during
the term of
a repurchase
agreement,
a lender files
for bankruptcy,
the Company
might experience
difficulty recovering
its
pledged assets,
which could
result in
an unsecured
claim against
the lender
for the difference
between the
amount loaned
to the Company
plus interest
due to the
counterparty
and the fair
value of the
collateral
pledged to
such lender,
including the accrued interest receivable
and cash posted by the Company as collateral. At December
31, 2020,
the Company
had an aggregate
amount at
risk (the difference
between the
amount loaned
to the Company,
including interest
payable and
securities
posted by
the counterparty
(if any),
and the fair
value of securities
and cash pledged
(if any),
including accrued
interest on
such securities)
with all
counterparties
of approximately
$
176.3
million.
The Company
did not have
an amount
at risk with
any individual
counterparty
greater than
10% of the
Company’s equity
at
December 31,
2020 and 2019
.
15
NOTE 4. DERIVATIVE AND OTHER HEDGING INSTRUMENTS
The table
below summarizes
fair value
information
about our
derivative
and other
hedging instruments
assets and
liabilities
as of
December 31,
2020 and 2019.
(in thousands)
Derivative and Other Hedging Instruments
Balance Sheet Location
December 31, 2020
December 31, 2019
Assets
Interest rate swaps
Derivative assets, at fair value
$
7
$
-
Payer swaptions (long positions)
Derivative assets, at fair value
17,433
-
TBA securities
Derivative assets, at fair value
3,559
-
Total derivative
assets, at fair value
$
20,999
$
-
Liabilities
Interest rate swaps
Derivative liabilities, at fair value
$
24,711
$
20,146
Payer swaptions (short positions)
Derivative liabilities, at fair value
7,730
-
TBA securities
Derivative liabilities, at fair value
786
512
Total derivative
liabilities, at fair value
$
33,227
$
20,658
Margin Balances Posted to (from) Counterparties
Futures contracts
Restricted cash
$
489
$
1,338
TBA securities
Restricted cash
284
246
TBA securities
Other liabilities
(2,520)
-
Interest rate swaption contracts
Other liabilities
(3,563)
-
Interest rate swap contracts
Restricted cash
19,761
17,450
Total margin
balances on derivative contracts
$
14,451
$
19,034
Eurodollar, Fed
Funds and
T-Note futures
are cash settled
futures contracts
on an interest
rate, with
gains and losses
credited
or
charged to
the Company’s
cash accounts
on a daily
basis. A
minimum balance,
or “margin”,
is required
to be maintained
in the account
on
a daily basis.
The tables
below present
information
related to
the Company’s
Eurodollar
and T-Note futures
positions at
December 31,
2020 and 2019.
($ in thousands)
December 31, 2020
Average
Weighted
Weighted
Contract
Average
Average
Notional
Entry
Effective
Open
Expiration Year
Amount
Rate
Rate
Equity
(1)
Eurodollar Futures Contracts (Short Positions)
2021
$
50,000
1.03%
0.18%
$
(424)
U.S. Treasury Note Futures Contracts
(Short Position)
(2)
March 2021 5-year T-Note futures
(Mar 2021 - Mar 2026 Hedge Period)
$
69,000
0.72%
0.67%
$
(186)
16
($ in thousands)
December 31, 2019
Average
Weighted
Weighted
Contract
Average
Average
Notional
Entry
Effective
Open
Expiration Year
Amount
Rate
Rate
Equity
(1)
Eurodollar Futures Contracts (Short Positions)
2020
$
500,000
2.97%
1.67%
$
(6,505)
U.S. Treasury Note Futures Contracts
(Short Position)
(2)
March 2020 5 year T-Note futures
(Mar 2020 - Mar 2025 Hedge Period)
$
69,000
1.96%
2.06%
$
302
(1)
Open equity represents the cumulative gains (losses) recorded on open
futures positions from inception.
(2)
T-Note futures contracts were valued
at a price of $
126.16
at December 31, 2020 and $
118.61
at December 31, 2019.
The contract values of
the short positions were $
87.1
million and $
81.8
million at December 31, 2020 and December 31, 2019, respectively.
Under our
interest rate
swap agreements,
we typically
pay a fixed
rate and receive
a floating
rate based
on LIBOR ("payer
swaps").
The floating
rate we receive
under our
swap agreements
has the effect
of offsetting
the repricing
characteristics
of our repurchase
agreements
and cash flows
on such liabilities.
We are typically
required to
post collateral
on our interest
rate swap
agreements.
The table
below presents
information
related to
the Company’s
interest rate
swap positions
at December
31, 2020 and
2019.
($ in thousands)
Average
Net
Fixed
Average
Estimated
Average
Notional
Pay
Receive
Fair
Maturity
Amount
Rate
Rate
Value
(Years)
December 31, 2020
Expiration > 3 to ≤ 5 years
$
620,000
1.29%
0.22%
$
(23,760)
3.6
Expiration > 5 years
$
200,000
0.67%
0.23%
$
(944)
6.4
$
820,000
1.14%
0.23%
$
(24,704)
4.3
December 31, 2019
Expiration > 1 to ≤ 3 years
$
360,000
2.05%
1.90%
$
(3,680)
2.3
Expiration > 3 to ≤ 5 years
910,000
2.03%
1.93%
(16,466)
4.4
$
1,270,000
2.03%
1.92%
$
(20,146)
3.8
The table
below presents
information
related to
the Company’s
interest rate
swaption positions
at December
31, 2020.
There were
no
open swaption
positions at
December 31,
2019.
($ 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)
December 31, 2020
Payer Swaptions (long positions)
≤ 1 year
$
3,450
$
5
2.5
500,000
0.95%
3 Month
4.0
> 1 year ≤ 2 years
13,410
17,428
17.4
675,000
1.49%
3 Month
12.8
$
16,860
$
17,433
11.0
$
1,175,000
1.26%
3 Month
9.0
Payer Swaptions (short positions)
≤ 1 year
$
(4,660)
$
(7,730)
5.4
$
507,700
1.49%
3 Month
12.8
The following table summarizes our contracts to purchase and sell TBA
securities as of December 31, 2020 and 2019.
17
($ in thousands)
Notional
Net
Amount
Cost
Market
Carrying
Long (Short)
(1)
Basis
(2)
Value
(3)
Value
(4)
December 31, 2020
30-Year TBA securities:
2.0%
$
465,000
$
479,531
$
483,090
$
3,559
3.0%
(328,000)
(342,896)
(343,682)
(786)
Total
$
137,000
$
136,635
$
139,408
$
2,773
December 31, 2019
30-Year TBA securities:
4.5%
$
(300,000)
$
(315,426)
$
(315,938)
$
(512)
Total
$
(300,000)
$
(315,426)
$
(315,938)
$
(512)
(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.
Gain (Loss) From Derivative and Other Hedging Instruments, Net
The table below presents the effect of the Company’s derivative and other hedging instruments on the statements of operations for
the years ended December 31, 2020, 2019 and 2018.
(in thousands)
2020
2019
2018
Eurodollar futures contracts (short positions)
$
(8,337)
$
(13,860)
$
7,170
U.S. Treasury Note futures contracts (short position)
(4,707)
(5,175)
5,507
Fed Funds futures contracts (short positions)
-
177
-
Interest rate swaps
(66,212)
(26,582)
8,609
Receiver swaptions
-
-
105
Payer swaptions (long positions)
98
(1,379)
(1,607)
Payer swaptions (short positions)
(3,070)
-
-
TBA securities (short positions)
(6,719)
(6,264)
4,327
TBA securities (long positions)
9,950
1,907
200
U.S. Treasury securities (short positions)
(95)
-
-
Total
$
(79,092)
$
(51,176)
$
24,311
Credit Risk-Related Contingent Features
The use
of derivatives
and other
hedging instruments
creates exposure
to credit
risk relating
to potential
losses that
could be
recognized in the event
that the counterparties to
these instruments fail to
perform their obligations
under the contracts. We
minimize this
risk by limiting our counterparties for instruments which are not centrally cleared on a registered exchange to major financial institutions
with acceptable credit ratings and monitoring
positions with individual counterparties. In addition, we
may be required to pledge assets
as collateral for our derivatives, whose
amounts vary over time based on
the market value, notional amount and
remaining term of the
derivative contract. In
the event of
a default by
a counterparty, we may
not receive payments
provided for under
the terms of
our derivative
agreements, and may
have difficulty obtaining
our assets pledged
as collateral for
our derivatives. The
cash and cash
equivalents pledged
as collateral for our derivative instruments are included in restricted cash on our
balance sheets.
18
It is
the Company's
policy not
to offset
assets and
liabilities associated
with open
derivative contracts.
However, the
Chicago
Mercantile Exchange
(“CME”) rules
characterize variation
margin transfers
as settlement
payments, as
opposed to
adjustments to
collateral. As a
result, derivative assets
and liabilities associated
with centrally cleared
derivatives for which
the CME serves
as the central
clearing party are presented as if these derivatives had been settled as of the reporting
date.
NOTE 5. PLEDGED ASSETS
Assets Pledged
to Counterparties
The table
below summarizes
our assets
pledged as
collateral
under our
repurchase
agreements
and derivative
agreements
by type,
including securities
pledged related
to securities
sold but not
yet settled,
as of December
31, 2020 and
2019.
(in thousands)
December 31, 2020
December 31, 2019
Repurchase
Derivative
Repurchase
Derivative
Assets Pledged to Counterparties
Agreements
Agreements
Total
Agreements
Agreements
Total
PT RMBS - fair value
$
3,692,811
$
-
$
3,692,811
$
3,500,394
$
-
$
3,500,394
Structured RMBS - fair value
27,095
-
27,095
83,960
-
83,960
Accrued interest on pledged securities
9,636
-
9,636
12,367
-
12,367
Restricted cash
58,829
20,534
79,363
65,851
19,034
84,885
Total
$
3,788,371
$
20,534
$
3,808,905
$
3,662,572
$
19,034
$
3,681,606
Assets Pledged
from Counterparties
The table
below summarizes
our assets
pledged to
us from counterparties
under our
repurchase
agreements
and derivative
agreements
as of December
31, 2020 and
2019.
(in thousands)
December 31, 2020
December 31, 2019
Repurchase
Derivative
Repurchase
Derivative
Assets Pledged to Orchid
Agreements
Agreements
Total
Agreements
Agreements
Total
Cash
$
120
$
6,083
$
6,203
$
1,418
$
-
$
1,418
U.S. Treasury securities - fair value
253
-
253
-
-
-
Total
$
373
$
6,083
$
6,456
$
1,418
$
-
$
1,418
PT RMBS and
U.S. Treasury
securities
received as
margin under
our repurchase
agreements
are not recorded
in the balance
sheets
because the
counterparty
retains ownership
of the security.
Cash received
as margin is
recognized
in cash and
cash equivalents
with a
corresponding
amount recognized
as an increase
in repurchase
agreements
or other liabilities
in the balance
sheets.
NOTE 6. OFFSETTING ASSETS AND LIABILITIES
The Company’s
derivative
agreements
and repurchase
agreements
are subject
to underlying
agreements
with master
netting or
similar arrangements,
which provide
for the right
of offset in
the event
of default
or in the
event of bankruptcy
of either
party to the
transactions.
The Company
reports its
assets and
liabilities
subject to
these arrangements
on a gross
basis.
The following
table presents
information
regarding
those assets
and liabilities
subject to
such arrangements
as if the Company
had
presented
them on a
net basis as
of December
31, 2020 and
2019.
(in thousands)
19
Offsetting of Assets
Gross Amount Not
Net Amount
Offset in the Balance Sheet
of Assets
Financial
Gross Amount
Gross Amount
Presented
Instruments
Cash
of Recognized
Offset in the
in the
Received as
Received as
Net
Assets
Balance Sheet
Balance Sheet
Collateral
Collateral
Amount
December 31, 2020
Interest rate swaps
$
7
$
-
$
7
$
-
$
-
$
7
Interest rate swaptions
17,433
-
17,433
-
(3,563)
13,870
TBA securities
3,559
-
3,559
-
(2,520)
1,039
$
20,999
$
-
$
20,999
$
-
$
(6,083)
$
14,916
(in thousands)
Offsetting of Liabilities
Gross Amount Not
Net Amount
Offset in the Balance Sheet
of Liabilities
Financial
Gross Amount
Gross Amount
Presented
Instruments
of Recognized
Offset in the
in the
Posted as
Cash Posted
Net
Liabilities
Balance Sheet
Balance Sheet
Collateral
Collateral
Amount
December 31, 2020
Repurchase Agreements
$
3,595,586
$
-
$
3,595,586
$
(3,536,757)
$
(58,829)
$
-
Interest rate swaps
24,711
-
24,711
-
(19,761)
4,950
Interest rate swaptions
7,730
-
7,730
-
-
-
TBA securities
786
-
786
-
(284)
502
$
3,628,813
$
-
$
3,628,813
$
(3,536,757)
$
(78,874)
$
5,452
December 31, 2019
Repurchase Agreements
$
3,448,106
$
-
$
3,448,106
$
(3,382,255)
$
(65,851)
$
-
Interest rate swaps
20,146
-
20,146
-
(17,450)
2,696
TBA securities
512
-
512
-
(246)
266
$
3,468,764
$
-
$
3,468,764
$
(3,382,255)
$
(83,547)
$
2,962
The amounts
disclosed for
collateral
received by
or posted
to the same
counterparty
up to and
not exceeding
the net amount
of the
asset or liability
presented
in the balance
sheets. The
fair value
of the actual
collateral
received by
or posted
to the same
counterparty
typically exceeds
the amounts
presented.
See Note
5 for a discussion
of collateral
posted or
received against
or for repurchase
obligations
and derivative
and other
hedging instruments.
NOTE 7.
CAPITAL STOCK
Common Stock
Issuances
During 2020
and 2019,
the Company
completed the
following
public offerings
of shares
of its common
stock.
($ in thousands, except per share amounts)
Weighted
Average
Price
Received
Net
Type of Offering
Period
Per Share
(1)
Shares
Proceeds
(2)
2020
At the Market Offering Program
(3)
First Quarter
$
6.23
3,170,727
$
19,447
At the Market Offering Program
(3)
Third Quarter
5.15
3,073,326
15,566
20
At the Market Offering Program
(3)
Fourth Quarter
5.41
6,775,187
36,037
13,019,240
$
71,050
2019
At the Market Offering Program
(3)
First Quarter
$
6.84
1,267,894
$
8,503
At the Market Offering Program
(3)
Second Quarter
6.70
4,337,931
28,495
At the Market Offering Program
(3)
Third Quarter
6.37
1,771,301
11,098
Follow-on Offering
(3)
Third Quarter
6.35
7,000,000
44,218
14,377,126
$
92,314
(1)
Weighted average price received per share is before deducting
the underwriters’ discount, if applicable, and other offering costs.
(2)
Net proceeds are net of the underwriters’ discount, if applicable, and
other offering costs.
(3)
As of December 31, 2020, the Company had entered into eight equity distribution
agreements, seven of which have either been terminated
because all shares were sold or were replaced with a subsequent agreement.
Stock Repurchase Program
On July 29, 2015, the Company’s Board of Directors authorized the repurchase of up to
2,000,000
shares of the Company’s
common stock. 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 2,0000,000
share authorization, the increased authorization brought the total authorization to
5,306,579
shares, representing 10% of the then
outstanding share count. As part of the stock repurchase program, shares may be purchased
in open market transactions, block
purchases, through privately negotiated transactions, or pursuant to any trading
plan that may be adopted in accordance with Rule
10b5-1 of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”).
Open market repurchases will be made in
accordance with Exchange Act Rule 10b-18, which sets certain restrictions on
the method, timing, price and volume of open market
stock repurchases. The timing, manner, price and amount of any repurchases will be determined by the Company in
its discretion and
will be 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.
From the inception of the stock repurchase program through December 31, 2020, 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. During the year ended December 31, 2020, the Company repurchased a
total of
19,891
shares at an aggregate cost of
approximately $
0.1
million, including commissions and fees, for a weighted average price of
$
3.42
per share. During the year ended
December 31, 2019, the Company repurchased a total of
469,975
shares at an aggregate cost of approximately $
3.0
million, including
commissions and fees, for a weighted average price of $
6.43
per share. During the year ended December 31, 2018, the Company
repurchased a total of
3,979,402
shares at an aggregate cost of approximately $
26.4
million, including commissions and fees, for a
weighted average price of $
6.64
per share. The remaining authorization under the repurchase program as of December
31, 2020 is
837,311
shares.
Cash Dividends
The table below presents the cash dividends declared on the Company’s common stock.
(in thousands, except per share amounts)
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
21
2018
1.070
55,814
2019
0.960
54,421
2020
0.790
53,570
2021 - YTD
(1)
0.130
11,079
Totals
$
11.785
$
353,042
(1)
On January 14, 2021, the Company declared a dividend of $0.065 per
share to be paid on February 24, 2021. On February 10, 2021, the
Company declared a dividend of $0.065 per share to be paid on March
29, 2021. The dollar amount of the dividend declared in February 2021
is estimated based on the number of shares outstanding at February
26, 2021. 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, 2020.
NOTE 8.
STOCK INCENTIVE PLAN
In October 2012, the Company’s Board of Directors adopted and Bimini, then the Company’s sole stockholder, approved, the
Orchid Island Capital, Inc. 2012 Equity Incentive Plan (the “Incentive Plan”)
to recruit and retain employees, directors and other service
providers, including employees of the Manager and other affiliates. The Incentive Plan provides
for the award of stock options, stock
appreciation rights, stock award, performance units, other equity-based awards
(and dividend equivalents with respect to awards of
performance units and other equity-based awards) and incentive awards.
The Incentive Plan is administered by the Compensation
Committee of the Company’s Board of Directors except that the Company’s full Board of Directors
will administer awards made to
directors who are not employees of the Company or its affiliates.
The Incentive Plan provides for awards of up to an aggregate of
10
%
of the issued and outstanding shares of our common stock (on a fully diluted
basis) at the time of the awards, subject to a maximum
aggregate
4,000,000
shares of the Company’s common stock that may be issued under the Incentive Plan.
Stock Awards
The Company may in the future issue immediately vested common stock under
the Incentive Plan to certain executive officers and
employees of its Manager. Although no such awards were granted in fiscal years 2020 or 2019, such awards
have previously been
issued.
Performance Units
The Company has issued, and may in the future issue additional performance units under
the Incentive Plan to certain executive
officers and employees of its Manager.
“Performance Units” vest after the end of a defined performance period,
based on satisfaction
of the performance conditions set forth in the performance unit agreement. When
earned, each Performance Unit will be settled by the
issuance of one share of the Company’s common stock, at which time the Performance
Unit will be cancelled.
The Performance Units
contain dividend equivalent rights, which entitle the Participants to receive distributions
declared by the Company on common stock,
but do not include the right to vote the underlying shares of common stock.
Performance Units are subject to forfeiture should the
participant no longer serve as an executive officer or employee of the Company.
Compensation expense for the Performance Units is
recognized over the remaining vesting period once it becomes probable that
the performance conditions will be achieved.
The following table presents information related to Performance Units outstanding during the
years ended December 31, 2020 and
2019.
($ in thousands, except per share data)
2020
2019
Weighted
Weighted
Average
Average
Grant Date
Grant Date
Shares
Fair Value
Shares
Fair Value
Unvested, beginning of period
19,021
$
7.78
43,672
$
8.34
22
Forfeited
(1,607)
7.45
-
-
Vested and issued
(12,860)
7.93
(24,651)
8.78
Unvested, end of period
4,554
$
7.45
19,021
$
7.78
Compensation expense during period
$
38
$
115
Unrecognized compensation expense, end of period
$
4
$
42
Intrinsic value, end of period
$
24
$
111
Weighted-average remaining vesting term (in years)
0.4
0.8
The number of shares of common stock issuable upon the vesting of the remaining
outstanding Performance Units was reduced
as a result of the book value impairment event that occurred pursuant to the Company's
Long Term Incentive Compensation Plans (the
"Plans"). The book value impairment event occurred when the Company's book value
per share declined by more than 15% during the
quarter ended March 31, 2020 and the Company's book value per share
decline from January 1, 2020 to June 30, 2020 was more than
10%. The Plans provide that if such a book value impairment event occurs, then
the number of outstanding Performance Units that are
outstanding as of the last day of such two-quarter period shall be reduced by 15%.
Deferred Stock Units
Non-employee directors began to receive a portion of their compensation
in the form of deferred stock unit awards (“DSUs”)
pursuant to the Incentive Plan beginning with the awards for the second quarter of 2018.
Each DSU represents a right to receive one
share of the Company’s common stock. The DSUs are immediately vested and are settled at
a future date based on the election of the
individual participant.
The DSUs contain dividend equivalent rights, which entitle the participant
to receive distributions declared by the
Company on common stock.
These distributions will be made in the form of cash or additional DSUs at the
participant’s election. The
DSUs do not include the right to vote the underlying shares of common stock.
The following table presents information related to the DSUs outstanding during the years
ended December 31, 2020 and 2019.
($ in thousands, except per share data)
2020
2019
Weighted
Weighted
Average
Average
Grant Date
Grant Date
Shares
Fair Value
Shares
Fair Value
Outstanding, beginning of period
43,570
$
6.56
12,434
$
7.37
Granted and vested
47,376
4.41
31,136
6.23
Outstanding, end of period
90,946
$
5.44
43,570
$
6.56
Compensation expense during period
$
180
$
180
Intrinsic value, end of period
$
473
$
255
NOTE 9.
COMMITMENTS AND CONTINGENCIES
From time to time, the Company may become involved in various claims and
legal actions arising in the ordinary course of
business. Management is not aware of any reported or unreported contingencies
at December 31, 2020.
NOTE 10.
INCOME TAXES
The Company
will generally
not be subject
to federal
income tax
on its REIT
taxable income
to the extent
that it distributes
its REIT
taxable income
to its stockholders
and satisfies
the ongoing
REIT requirements,
including meeting
certain asset,
income and
stock
ownership
tests.
A REIT must
generally distribute
at least 90%
of its REIT
taxable income
to its stockholders,
of which 85%
generally
must be distributed
within the
taxable year, in
order to avoid
the imposition
of an excise
tax.
The remaining
balance may
be distributed
up
23
to the end
of the following
taxable year, provided
the REIT
elects to treat
such amount
as a prior
year distribution
and meets
certain other
requirements.
REIT taxable
income (loss)
is computed
in accordance
with the Code,
which is different
than the Company’s
financial statement
net
income (loss)
computed in
accordance
with GAAP. Book to
tax differences
primarily relate
to the recognition
of interest
income on RMBS,
unrealized
gains and losses
on RMBS,
and the amortization
of losses on
derivative
instruments
that are treated
as hedges for
tax
purposes.
As of December
31, 2020,
we had distributed
all of our
estimated
REIT taxable
income through
fiscal year
- Accordingly,
no
income tax
provision was
recorded
for 2020,
2019 and 2018.
NOTE 11.
EARNINGS PER SHARE (EPS)
The Company
had dividend
eligible Performance
Units and
Deferred Stock
Units that
were outstanding
during the
years ended
December 31,
2020, 2019
and 2018.
The basic and
diluted per
share computations
include these
unvested Performance
Units and
Deferred
Stock Units
if there is
income available
to common
stock, as
they have dividend
participation
rights. The
unvested Performance
Units and
Deferred
Stock Units
have no contractual
obligation
to share in
losses. Because
there is
no such obligation,
the unvested
Performance
Units and
Deferred Stock
Units are
not included
in the basic
and diluted
EPS computations
when no income
is available
to
common stock
even though
they are considered
participating
securities.
The table
below reconciles
the numerator
and denominator
of EPS for
the years
ended December
31, 2020,
2019 and 2018.
(in thousands, except per-share information)
2020
2019
2018
Basic and diluted EPS per common share:
Numerator for basic and diluted EPS per share of common stock:
Net income (loss) - Basic and diluted
$
2,128
$
24,265
$
(44,387)
Weighted average shares of common stock:
Shares of common stock outstanding at the balance sheet date
76,073
63,062
49,132
Unvested dividend eligible share based compensation
outstanding at the balance sheet date
96
63
-
Effect of weighting
(8,958)
(6,797)
3,066
Weighted average shares-basic and diluted
67,211
56,328
52,198
Net income (loss) per common share:
Basic and diluted
$
0.03
$
0.43
$
(0.85)
Anti-dilutive incentive shares not included in calculation.
-
-
56
NOTE 12.
FAIR VALUE
The framework
for using
fair value
to measure
assets and
liabilities
defines fair
value as the
price that
would be received
to sell an
asset or paid
to transfer
a liability
(an exit price).
A fair value
measure should
reflect the
assumptions
that market
participants
would use
in
pricing the
asset or liability,
including
the assumptions
about the
risk inherent
in a particular
valuation
technique,
the effect of
a restriction
on the sale
or use of
an asset and
the risk of
non-performance.
Required disclosures
include stratification
of balance
sheet amounts
measured at
fair value
based on
inputs the
Company uses
to derive
fair value
measurements.
These stratifications
are:
●
Level 1 valuations,
where the
valuation
is based on
quoted market
prices for
identical assets
or liabilities
traded in
active markets
(which include
exchanges and
over-the-counter
markets with
sufficient volume),
●
Level 2 valuations,
where the
valuation
is based on
quoted market
prices for
similar instruments
traded in
active markets,
quoted
prices for
identical or
similar instruments
in markets
that are not
active and
model-based
valuation
techniques
for which
all
significant
assumptions
are observable
in the market,
and
24
●
Level 3 valuations,
where the
valuation
is generated
from model-based
techniques
that use significant
assumptions
not
observable
in the market,
but observable
based on Company-specific
data. These
unobservable
assumptions
reflect the
Company’s own
estimates for
assumptions
that market
participants
would use
in pricing
the asset or
liability. Valuation
techniques
typically
include option
pricing models,
discounted
cash flow
models and
similar techniques,
but may also
include the
use of market
prices of assets
or liabilities
that are not
directly comparable
to the subject
asset or liability.
The Company's
RMBS and
TBA securities
are Level
2 valuations,
and such valuations
are determined
by the Company
based on
independent
pricing sources
and/or third
party broker
quotes, when
available.
Because the
price estimates
may vary, the Company
must
make certain
judgments and
assumptions
about the
appropriate
price to use
to calculate
the fair
values. The
Company and
the
independent
pricing sources
use various
valuation techniques
to determine
the price
of the Company’s
securities.
These techniques
include observing
the most recent
market for
like or identical
assets (including
security coupon,
maturity, yield,
and prepayment
speeds),
spread pricing
techniques
to determine
market credit
spreads (option
adjusted spread,
zero volatility
spread, spread
to the U.S.
Treasury
curve or spread
to a benchmark
such as a TBA),
and model driven
approaches
(the discounted
cash flow
method, Black
Scholes and
SABR models
which rely
upon observable
market rates
such as the
term structure
of interest
rates and volatility).
The appropriate
spread
pricing method
used is based
on market
convention.
The pricing
source determines
the spread
of recently
observed trade
activity or
observable
markets for
assets similar
to those being
priced. The
spread is then
adjusted based
on variances
in certain
characteristics
between the
market observation
and the asset
being priced.
Those characteristics
include: type
of asset, the
expected life
of the asset,
the
stability and
predictability
of the expected
future cash
flows of the
asset, whether
the coupon
of the asset
is fixed or
adjustable,
the
guarantor
of the security
if applicable,
the coupon,
the maturity, the
issuer, size of
the underlying
loans, year
in which the
underlying
loans
were originated,
loan to value
ratio, state
in which the
underlying
loans reside,
credit score
of the underlying
borrowers
and other
variables
if appropriate.
The fair value
of the security
is determined
by using the
adjusted spread.
The Company’s
futures contracts
are Level
1 valuations,
as they are
exchange-traded
instruments
and quoted
market prices
are
readily available.
Futures contracts
are settled
daily. The Company’s
interest rate
swaps and
interest rate
swaptions
are Level 2
valuations.
The fair value
of interest
rate swaps
is determined
using a discounted
cash flow
approach
using forward
market interest
rates
and discount
rates, which
are observable
inputs. The
fair value
of interest
rate swaptions
is determined
using an option
pricing model.
RMBS (based
on the fair
value option),
derivatives
and TBA securities
were recorded
at fair value
on a recurring
basis during
the
years ended
December 31,
2020, 2019
and 2018.
When determining
fair value
measurements,
the Company
considers the
principal or
most advantageous
market in which
it would transact
and considers
assumptions
that market
participants
would use
when pricing
the
asset. When
possible, the
Company looks
to active and
observable
markets to
price identical
assets.
When identical
assets are
not traded
in active markets,
the Company
looks to market
observable
data for
similar assets.
The following
table presents
financial assets
(liabilities)
measured
at fair value
on a recurring
basis as of
December 31,
2020 and
2019.
Derivative
contracts are
reported as
a net position
by contract
type, and
not based
on master
netting arrangements.
(in thousands)
Quoted Prices
in Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
Assets
Inputs
Inputs
(Level 1)
(Level 2)
(Level 3)
December 31, 2020
Mortgage-backed securities
$
-
$
3,726,895
$
-
Interest rate swaps
-
(24,704)
-
Interest rate swaptions
-
9,703
-
TBA securities
-
2,773
-
December 31, 2019
Mortgage-backed securities
$
-
$
3,590,921
$
-
25
Interest rate swaps
-
(20,146)
-
TBA securities
-
(512)
-
During the years ended December 31, 2020 and 2019, there were no transfers of financial
assets or liabilities between levels 1, 2
or 3.
NOTE 13. RELATED PARTY TRANSACTIONS
Management Agreement
The Company is externally managed and advised by the “Manager” pursuant to
the terms of a management agreement. The
management agreement has been renewed through
February 20, 2022
and provides for automatic
one-year
extension options
thereafter and is subject to certain termination rights.
Under the terms of the management agreement, the Manager is responsible for
administering the business activities and day-to-day operations of the Company.
The Manager receives a monthly management fee in
the amount of:
●
One-twelfth of 1.5% of the first $250 million of the Company’s month-end equity, as defined in the management agreement,
●
One-twelfth of 1.25% of the Company’s month-end equity that is greater than $250 million
and less than or equal to $500
million, and
●
One-twelfth of 1.00% of the Company’s month-end equity that is greater than $500
million.
The Company is obligated to reimburse the Manager for any direct expenses incurred
on its behalf and to pay the Manager the
Company’s pro rata portion of certain overhead costs set forth in the management agreement.
Should the Company terminate the
management agreement without cause, it will pay the Manager a termination
fee equal to three times the average annual management
fee, as defined in the management agreement, before or on the last day of the term of
the agreement.
Total
expenses recorded for the management fee and costs incurred were approximately
$
6.8
million, $
6.9
million and $
7.8
million for the years ended December 31, 2020, 2019 and 2018, respectively.
Other Relationships with Bimini
Robert Cauley, our Chief Executive Officer and Chairman of our Board of Directors, also serves as Chief Executive Officer and
Chairman of the Board of Directors of Bimini and owns shares of common stock of
Bimini. George H. Haas, our Chief Financial Officer,
Chief Investment Officer, Secretary and a member of our Board of Directors, also serves as the Chief Financial Officer, Chief
Investment Officer and Treasurer of Bimini and owns shares of common stock of Bimini. In addition, as of December
31, 2020, Bimini
owned
2,595,357
shares, or
3.4
%, of the Company’s common stock.
NOTE 14.
QUARTERLY RESULTS
(UNAUDITED)
The following
is a presentation
of the quarterly
results of
operations for
the years ended
December 31,
2020 and 2019.
(in thousands, except per share information)
Quarter Ended
March 31, 2020
June 30, 2020
September 30, 2020
December 31, 2020
Interest income
$
35,671
$
27,258
$
27,223
$
25,893
Interest expense
(16,523)
(4,479)
(2,043)
(2,011)
Net interest income
19,148
22,779
25,180
23,882
Losses (gains)
(108,206)
28,749
5,745
(4,605)
Net portfolio income (loss)
(89,058)
51,528
30,925
19,277
26
Expenses:
Management fees and overhead expenses
1,724
1,616
1,629
1,826
Other expenses
417
1,140
1,220
972
Total expenses
2,141
2,756
2,849
2,798
Net income (loss)
$
(91,199)
$
48,772
$
28,076
$
16,479
Basic net (loss) income per share
$
(1.41)
$
0.74
$
0.42
$
0.23
Diluted net (loss) income per share
$
(1.41)
$
0.73
$
0.42
$
0.23
Weighted Average Shares Outstanding
64,590
66,310
67,302
70,497
Dividends declared per share
$
0.240
$
0.165
$
0.190
$
0.195
Quarter Ended
March 31, 2019
June 30, 2019
September 30, 2019
December 31, 2019
Interest income
$
32,433
$
36,455
$
35,907
$
37,529
Interest expense
(18,892)
(22,431)
(22,321)
(20,022)
Net interest income
13,541
14,024
13,586
17,507
Losses
(748)
(7,670)
(19,431)
3,841
Net portfolio income (loss)
12,793
6,354
(5,845)
21,348
Expenses:
Management fees and overhead expenses
1,608
1,653
1,791
1,856
Other expenses
588
1,168
841
880
Total expenses
2,196
2,821
2,632
2,736
Net income (loss)
$
10,597
$
3,533
$
(8,477)
$
18,612
Basic and diluted net income (loss) per share
$
0.22
$
0.07
$
(0.14)
$
0.29
Weighted Average Shares Outstanding
48,905
52,601
60,419
63,124
Dividends declared per share
$
0.24
$
0.24
$
0.24
$
0.24
Earnings per share (EPS) in each quarter is computed using the weighted-average number of shares outstanding
during that quarter while EPS for the full year is computed using the weighted-average number of shares outstanding during
the year.
The sum of the four quarters’ EPS may not equal the full year EPS.
NOTE 15. SUBSEQUENT EVENTS
January 2021 Stock Offering
On January 20, 2021, Orchid entered into an underwriting agreement (the “2021
Underwriting Agreement”) with J.P. Morgan
Securities LLC (the “Underwriter”), relating to the offer and sale of
7,600,000
shares of the Company’s common stock. The Underwriter
purchased the shares of the Company’s common stock from the Company pursuant to the 2021
Underwriting Agreement at $
5.20
per
share. In addition, the Company granted the Underwriter a 30-day option to
purchase up to an additional
1,140,000
shares of the
Company’s common stock on the same terms and conditions, which the Underwriter exercised
in full on January 21, 2021. The closing
of the offering of
8,740,000
shares of the Company’s common stock occurred on January 25, 2021, with net proceeds
to the Company
of approximately $
45.3
million after deduction of estimated offering expenses payable by the Company.
27
COVID-19 and CARES Act Update
The Federal Housing Financing Agency (the “FHFA”) has instructed the GSEs on how they will handle servicer advances
for
loans that back Agency RMBS that enter into forbearance, which should limit prepayments
during the forbearance period that could
have resulted otherwise. On January 29, 2021, the CDC issued guidance extending
eviction moratoriums for covered persons through
March 31, 2021. In addition, on February 9, 2021, the FHFA announced that the foreclosure moratorium begun under the
CARES Act
for loans backed by Fannie Mae and Freddie Mac and the eviction moratorium
for real estate owned by Fannie Mae and Freddie Mac
were extended until March 31, 2021. On February 16, 2021, the U.S. Housing
and Urban Development Department announced the
extension of the FHA eviction and foreclosure moratorium to June 30, 2021. The moratoriums
on foreclosures and evictions will likely
delay potential defaults on loans that would otherwise be bought out of Agency MBS pools.
Depending on the ultimate resolution of the
foreclosure or evictions, when and if it occurs, these loans may be removed from
the pool into which they were securitized. If this were
to occur, it would have the effect of delaying a prepayment on the Company’s securities until such time. As the majority of the
Company’s Agency RMBS assets were acquired at a premium to par, this will tend to increase the realized yield on the asset in
question.
28
ITEM 15. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES
a.
Financial Statements. The financial statements of the Company,
together with the report of Independent Registered Public
Accounting Firm thereon, are set forth in Part II-Item
8 of this Form 10-K and are incorporated herein by reference.
The following
information is
filed as part
of this Form 10-K:
Page
Report of Independent
Registered Public
Accounting Firm
2
Balance Sheets
4
Statements of
Operations
5
Statements of
Stockholders’
Equity
6
Statements of
Cash Flows
7
Notes to Financial
Statements
8
b.
Financial Statement Schedules.
Not applicable.
c.
Exhibits.
Exhibit No.
Description
Articles of Amendment and Restatement of Orchid Island Capital, Inc. (filed as Exhibit 3.1
to the Company’s Registration Statement on Amendment No. 1 to Form S-11 (File
No.333-184538) filed on November 28, 2012 and incorporated herein by reference)
Certificate of Correction of Orchid Island Capital, Inc. (filed as Exhibit 3.2 to the
Company’s Annual Report on Form 10-K filed on February 22, 2019 and incorporated
Amended and Restated Bylaws of Orchid Island Capital, Inc. (filed as Exhibit 3.1 to the
Company’s Current Report on Form 8-K filed on March 19, 2019)
Specimen Certificate of common stock of Orchid Island Capital, Inc. (filed as Exhibit 4.1
to the Company’s Registration Statement on Amendment No. 1 to Form S-11 (File
No.333-184538) filed on November 28, 2012 and incorporated herein by reference)
Description of Securities (filed as Exhibit 4.2 to the Company’s Annual Report on Form
10-K filed on February 21, 2020 and incorporated herein by reference)
Management Agreement between Orchid Island Capital, Inc. and Bimini Advisors, LLC,
dated as of February 20, 2013 (filed as Exhibit 10.2 to the Company's Current Report on
Form 8 K filed on April 3, 2014 and incorporated herein by reference)*
First Amendment to Management Agreement, effective as of April 1, 2014 (filed as
Exhibit 10.1 to the Company's Current Report on Form 8‑K filed on April 3, 2014 and
incorporated herein by reference)*
Second Amendment to Management Agreement, effective as of June 30, 2014 (filed as
Exhibit 10.1 to the Company's Current Report on Form 8-K filed on July 3, 2014 and
incorporated herein by reference)*
Form of Investment Allocation Agreement by and among Orchid Island Capital, Inc.,
Bimini Advisors, LLC and Bimini Capital Management, Inc. (filed as Exhibit 10.2 to the
Company’s Registration Statement on Amendment No. 1 to Form S-11 (File No.333-
184538) filed on November 28, 2012 and incorporated herein by reference)*
2012 Equity Incentive Plan (filed as Exhibit 10.3 to the Company’s Registration Statement
on Amendment No. 1 to Form S-11 (File No.333-184538) filed on November 28, 2012
and incorporated herein by reference)*
29
Form of Indemnification Agreement by and between Orchid Island Capital, Inc. and
Indemnitee (filed as Exhibit 10.4 to the Company’s Registration Statement on Amendment
No. 1 to Form S-11 (File No.333 -184538) filed on November 28, 2012 and incorporated
Form of Master Repurchase Agreement (filed as Exhib it 10.5 to the Company’s
Registration Statement on Amendment No. 1 to Form S-11 (File No.333-184538) filed on
November 28, 2012 and incorporated herein by reference)
Performance Unit Award Agreement by Orchid Island Capital, Inc. to Robert E. Cauley
dated January 21, 2015 (filed as Exhibit 99.2 to Form 8-K filed on January 23, 2015 and
incorporated herein by reference)*
Performance Unit Award Agreement by Orchid Island Capital, Inc. to George H. Haas, IV
dated January 21, 2015 (filed as Exhibit 99.4 to Form 8-K filed on January 23, 2015 and
incorporated herein by reference)*
2015 Long Term Incentive Compensation Plan (filed as Exhibit 99.1 to Form 8-K filed on
March 25, 2015 and incorporated herein by reference)*
2016 Long Term Incentive Compensation Plan (filed as Exhibit 10.1 to Form 10-Q filed
on April 28, 2016 and incorporated herein by reference)*
2017 Long Term Incentive Compensation Plan (filed as Exhibit 10.2 to Form 10-Q filed
on April 28, 2017 and incorporated herein by reference)*
2018 Long Term Incentive Compensation Plan (filed as Exhibit 10.5 to Form 10-Q filed
on April 27, 2018 and incorporated herein by reference)*
2019 Long Term Incentive Compensation Plan (filed as Exhibit 10.1 to Form 10-Q filed
on April 26, 2019 and incorporated herein by reference)*
2020 Long Term Incentive Compensation Plan (filed as Exhibit 10.1 to Form 10-Q filed
on May 1, 2020 and incorporated herein by reference)*
Form of Deferred Stock Unit Grant Notice and Agreement (filed as Exhibit 10.6 to Form
10-Q filed on April 27, 2018 and incorporated herein by reference)*
Subsidiaries of the Company (filed as Exhibit 21.1 to the Company’s Annual Report on
Form 10-K filed on February 26, 2021 and incorporated herein by reference)
Certification of Robert E. Cauley, Chief Executive Officer and President of the Registrant,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.**
Certification of George H. Haas, IV, Chief Financial Officer of the Registrant, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.**
Certification of Robert E. Cauley, Chief Executive Officer and President of the Registrant,
pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-
Certification of George H. Haas, IV, Chief Financial Officer of the Registrant, pursuant to
18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
Exhibit 101.INS
XBRL
Instance Document ****
Exhibit 101.SCH
XBRL
Taxonomy Extension
Schema Document ****
Exhibit 101.CAL
XBRL
Taxonomy Extension
Calculation Linkbase Document****
Exhibit 101.DEF
XBRL
Additional Taxonomy
Extension Definition Linkbase Document Created****
Exhibit 101.LAB
XBRL
Taxonomy Extension
Label Linkbase Document ****
30
Exhibit 101.PRE
XBRL
Taxonomy Extension
Presentation Linkbase Document ****
Exhibit 104
Cover Page Interactive Data File (embedded within the
Inline XBRL document)
* Represents
a management contract or compensatory plan or arrangement.
** Filed
herewith.
*** Furnished
herewith.
**** Submitted
electronically herewith.
31
Signatures
Pursuant to the requirements of
Section 13 or 15(d) of
the Securities Exchange Act of
1934, as amended, the registrant
has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Orchid Island Capital, Inc
.
Registrant
Date:
March 12, 2021
By:
/s/ Robert E. Cauley
Robert E. Cauley
Chief Executive Officer, President and Chairman of the Board
Date:
March 12, 2021
By:
/s/ George H. Haas, IV
George H. Haas,
IV
Secretary, Chief Financial Officer, Chief Investment Officer and
Director (Principal Financial and Accounting Officer)
orc10k20201231x231
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
Orchid Island Capital, Inc.
Vero Beach, Florida
We hereby
consent to the
incorporation by reference
in the Registration
Statements on Form
S-8 (No.
333-187632) and Forms S-3
(333-236144)
of Orchid Island Capital, Inc. of
our reports dated February 26,
2021, relating to
the financial statements,
and the effectiveness
of Orchid Island
Capital, Inc.’s
internal
control over financial reporting which appear in this Annual Report on Form 10-K/A.
West Palm Beach, Florida
/s/ BDO USA, LLP
March 12, 2021
Certified Public Accountants
orc10k20201231x311
Exhibit 31.1
CERTIFICATIONS
I, Robert E. Cauley, certify that:
1.
I have reviewed this annual report on Form 10-K/A of Orchid Island Capital, Inc.
(the "registrant");
2.
Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances
under which such
statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly
present in all material respects the financial condition, results of operations and cash
flows of the registrant as
of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining
disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to
be designed under our supervision, to ensure that material information relating to
the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the
period in which this report is being prepared;
b)
designed such internal control over financial reporting, or caused such internal
control over financial
reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in
accordance with
generally accepted accounting principles;
c)
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented
in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as
of the end of
the period covered by this report based on such evaluation; and
d)
disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of
an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation
of internal
control over financial reporting, to the registrant's auditors and the audit committee
of the registrant's board of
directors (or persons performing equivalent functions):
a)
all significant deficiencies and material weakness in the design or operation of
internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record,
process,
summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees
who have a significant
role in the registrant's internal control over financial reporting.
Date: March 12, 2021
/s/ Robert E. Cauley
Robert E. Cauley
Chairman of the Board, Chief Executive Officer and
President
orc10k20201231x312
Exhibit 31.2
CERTIFICATIONS
I, G. Hunter Haas, certify that:
1.
I have reviewed this annual report on Form 10-K/A of Orchid Island Capital, Inc.
(the "registrant");
2.
Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances
under which such
statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly
present in all material respects the financial condition, results of operations and cash
flows of the registrant as
of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining
disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to
be designed under our supervision, to ensure that material information relating to
the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the
period in which this report is being prepared;
b)
designed such internal control over financial reporting, or caused such internal
control over financial
reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in
accordance with
generally accepted accounting principles;
c)
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented
in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as
of the end of
the period covered by this report based on such evaluation; and
d)
disclosed in this report any change in the registrant’s internal control over financial
reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of
an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation
of internal
control over financial reporting, to the registrant's auditors and the audit committee
of the registrant's board of
directors (or persons performing equivalent functions):
a)
all significant deficiencies and material weakness in the design or operation of
internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record,
process,
summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees
who have a significant
role in the registrant's internal control over financial reporting.
Date: March 12, 2021
/s/ G. Hunter Haas, IV
G. Hunter Haas, IV
Chief Financial Officer
orc10k20201231x321
Exhibit 32.1
CERTIFICATION
PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002, 10 U.S.C. SECTION 1350
In connection with the annual report on Form 10-K/A of Orchid Island Capital, Inc.
(the “Company”) for the period
ended December 31, 2020 to be filed with the Securities and Exchange Commission on
or about the date hereof (the
”Report”), I, Robert E. Cauley, Chairman of the Board and Chief Executive Officer of the Company, certify, pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of
1934, as amended; and
2.
The information contained in the Report fairly presents, in all material respects,
the financial condition and
results of operations of the Company at the dates of, and for the periods covered
by, the Report.
It is not intended that this statement be deemed to be filed for purposes of the Securities
Exchange Act of 1934.
March 12, 2021
/s/ Robert E. Cauley
Robert E. Cauley,
Chairman of the Board and
Chief Executive Officer
orc10k20201231x322
Exhibit 32.2
CERTIFICATION
PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002, 10 U.S.C. SECTION 1350
In connection with the annual report on Form 10-K/A of Orchid Island Capital, Inc.
(the “Company”) for the period
ended December 31, 2020 to be filed with the Securities and Exchange Commission on
or about the date hereof (the
”Report”), I, G. Hunter Haas, Chief Financial Officer of the Company, certify, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of
1934, as amended; and
2.
The information contained in the Report fairly presents, in all material respects, the financial
condition and
results of operations of the Company at the dates of, and for the periods covered
by, the Report.
It is not intended that this statement be deemed to be filed for purposes of the Securities
Exchange Act of 1934.
March 12, 2021
/s/ G. Hunter Haas, IV
G. Hunter Haas, IV
Chief Financial Officer