8-K
Orchid Island Capital, Inc. (ORC)
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
February 24, 2022
Orchid Island Capital, Inc.
(Exact Name of Registrant as Specified in Charter)
Maryland
001-35236
27-3269228
(State or Other Jurisdiction of
Incorporation)
(Commission File Number)
(IRS Employer Identification No.)
3305 Flamingo Drive
,
Vero Beach
,
Florida
32963
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number,
including area code
(
772
)
231-1400
N/A
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended
to simultaneously satisfy the filing obligation of the
registrant under any of the following provisions:
☐
Written communications pursuant
to Rule 425 under the Securities Act (17 CFR 230.425)
☐
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a
-12)
☐
Pre-commencement communications pursuant to Rule 14d-2(b)
under the Exchange Act (17 CFR 240.14d-2(b))
☐
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
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, par value $0.01 per share
ORC
NYSE
Indicate by check mark whether the registrant is an emerging growth
company as defined in Rule 405 of the Securities Act of
1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange
Act of 1934 (§240.12b-2 of this chapter).
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.
☐
ITEM 2.02. Results of Operations and Financial Condition.
On February 24, 2022, Orchid Island Capital, Inc. (the “Company”) issued the press
release attached hereto as Exhibit 99.1
announcing the Company’s results of
operations for the period ended December 31, 2021. In addition, the
Company posted
supplemental financial information on the investor relations section of its website
(https://ir.orchidislandcapital.com).
The
press release, attached as Exhibit 99.1, is being furnished under this “Item
2.02 Results of Operations and Financial
Condition,” and shall not be deemed “filed” for purposes of Section 18
of the Securities Exchange Act of 1934, nor shall it be
deemed incorporated by reference in any disclosure document of the Company,
except as shall be expressly set forth by
specific reference in such document.
Caution About Forward-Looking Statements.
This Current Report on Form 8-K contains forward-looking statements within
the meaning of the Private Securities Litigation
Reform Act of
1995 and other
federal securities laws,
including, but not limited
to, statements regarding interest
rates, liquidity,
pledging
of our
structured
RMBS, funding
levels and
spreads, prepayment
speeds,
portfolio
positioning
and repositioning,
hedging levels,
dividends, growth,
the supply
and demand
for Agency
RMBS, the
effect of
actual or
expected actions
of the
U.S.
government,
including
the Federal
Reserve,
market
expectations,
the stock
repurchase
program
and general
economic
conditions. These
forward-looking statements
are based
upon the
Company’s
present expectations,
but the
Company cannot
assure investors that
actual results will
not vary from
the expectations contained
in the forward-looking
statements. Investors
should
not
place
undue
reliance
upon
forward-looking
statements.
For
further
discussion
of
the
factors
that
could
affect
outcomes, please refer
to the “Risk Factors” section
of the Company's Annual
Report on Form 10-K
for the fiscal year
ended
December 31,
2020, which
has been
filed with
the Securities
and Exchange
Commission (the
“SEC”), and
other documents
that the Company files with the SEC.
All forward-looking statements speak only as
of the date on which they are made.
New
risks
and
uncertainties
arise
over
time, and
it is
not possible
to
predict
those events
or how
they
may
affect
the Company.
Except
as require
d
by law,
the
Company
is not
obligated
to, and
does not
intend
to,
update or
revise
any
forward-looking
statements, whether as a result of new information, future events or otherwise.
Item 9.01. Financial Statements and Exhibits.
(d)
Exhibits
Exhibit No.
Description
99.1
Press Release Dated February 24, 2022
104
Cover Page Interactive Data File (embedded within the Inline XBRL
document)
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on
its behalf by the undersigned hereunto duly authorized.
Date: February 24, 2022
ORCHID ISLAND CAPITAL,
INC.
By:
/s/ Robert E. Cauley
Robert E. Cauley
Chairman and Chief Executive Officer
orc8k20210225x991
ORCHID ISLAND CAPITAL ANNOUNCES FOURTH QUARTER 2021 RESULTS
VERO BEACH, Fla. (February 24, 2022) – Orchid Island Capital, Inc. (NYSE:ORC)
("Orchid” or the "Company"), a real estate
investment trust ("REIT"), today announced results of operations for the
three month period ended December 31, 2021.
Fourth Quarter 2021 Highlights
●
Net loss of $44.6 million, or $0.27 per common share, which consists
of:
●
Net interest income of $42.4 million, or $0.25 per common share
●
Total
expenses of $4.4 million, or $0.03 per common share
●
Net realized and unrealized losses of $82.6 million, or $0.49 per share, on RMBS and
derivative instruments, including
net interest expense on interest rate swaps
●
Fourth quarter and full year total dividends declared and paid of $0.195 and $0.78
per common share, respectively
●
Since its initial public offering, the Company has declared cash dividends equaling $12.545
per common share
●
Book value per share of $4.34 at December 31, 2021
●
(4.9)% economic loss on common equity for the quarter,
comprised of $0.195 dividend per common share and $0.43
decrease in net book value per common share, divided by beginning book value
per share
●
Company to discuss results on Friday, February 25, 2022, at 10:00 AM ET
●
Supplemental materials to be discussed on the call can be downloaded from the
investor relations section of the Company’s
website at https://ir.orchidislandcapital.com
Management Commentary
Commenting on the fourth quarter results, Robert E. Cauley, Chairman and Chief Executive Officer, said, “Since our last earnings
call the developments unfolding early in the fourth quarter of 2021 accelerated.
Inflation data in particular has reaccelerated after
leveling off briefly during the third quarter of 2021.
Current readings are at the highest levels seen since the early 1980s
and have
become more broad-based, no longer driven solely by areas most affected by pandemic
driven supply channel constraints.
Job growth
has been equally robust and showed little effect from the Omicron variant that emerged in early December
of 2021. Wage growth
continues to surge as the labor market becomes progressively tighter, although real wage growth is still negative.
The Federal
Reserve (the “Fed”) has taken notice and appears ready to begin an aggressive campaign
to remove accommodation.
As these
developments unfolded,
interest rates increased materially and the curve – both for nominal U.S.
Treasury rates as well as U.S. dollar
swap rates – continued to flatten. Since the end of the third quarter of 2021, the
2-year U.S. Treasury has increased by over 120 basis
points, the 5-year U.S. Treasury has increased by approximately 90 basis points and the 10-year U.S. Treasury by approximately
48
basis points. Fed Funds futures pricing has changed materially as well and implies
an overnight rate of just under 2% by July of 2023
versus 8 basis points currently.
This is in sharp contrast to the end of the third quarter of 2021 when market pricing
was for one rate
hike in either late 2022 or early 2023. Note all of this has occurred while the
Fed is still buying U.S. Treasuries and Agency RMBS
every day.
Obviously not your garden variety rate cycle.
“These developments made for a very challenging market environment with very
elevated levels of volatility.
The markets in the
fourth quarter of 2021 were particularly challenging for Agency RMBS securities
and, somewhat surprisingly, specified pools in
particular. This led to mark-to-market losses on our specified pool focused portfolio. We anticipated the Fed was on the verge
of
tapering their asset purchases as we entered the fourth quarter of 2021 and were
positioned so as to minimize the impact tapering
would have on the RMBS market – namely by avoiding the coupons the Fed
was buying. Indeed, last November, the Fed announced
ORC Announces Fourth Quarter 2021 Results
Page 2
February 24, 2022
they would begin tapering their asset purchases later that month and subsequently
accelerated the pace of the tapering to the point
that in January of 2022 they announced they would end incremental purchases altogether
by March of 2022. They also announced
they would begin reducing their balance sheet, and at an accelerated pace,
beginning after their first rate hike, almost certainly to be
announced at the March 2022 meeting. There was also talk of outright sales of Agency
RMBS assets mentioned in the minutes to the
Fed’s January 2022 meeting.
“The Fed tapering was announced as we expected, and the pace has been
accelerated twice, but the impact on the Agency
RMBS market has been somewhat surprising.
While the coupons Fed purchases were concentrated in, both during
the fourth quarter
of 2021 and to a great extent in early 2022, have performed poorly, as expected, dollar rolls have remained robust, even
in higher
coupons. With rates higher, the current coupon has shifted higher as well and currently 3.0% and 3.5% coupons are being
produced
and purchased by the Fed.
In short, dollar roll returns are still very attractive, even if not likely to
persist for long.
As is often the case,
specified pool premiums have suffered in inverse proportion to the degree of dollar roll
specialness. This combination of developments
hurt our performance during the fourth quarter of 2021 and continues to do so
in 2022.
However, the widening in specs has clearly
been exacerbated by the continued dollar roll specialness and we
anticipate the relative performance is likely to reverse as we move
into 2022.
“In sum, we are comfortable with our current positioning.
Our portfolio remains concentrated in specified pools and we have
incurred material mark-to-market losses on these securities, both during the
fourth quarter as well as to date in 2022.
However, the
vast majority of these losses are unrealized as we still own the securities. We have been
able to absorb these mark-to-market losses
because of our liquidity management practices and anticipate we will be able to
continue to do so. The carry these assets yield are
comparable to yields available via dollar rolls and the latter is likely to
decline as the Fed winds their asset purchases down.
Therefore,
we see no reason to liquidate these holdings and reposition the portfolio.
Our conviction is buttressed by the knowledge that specified pools will enter
the Bloomberg MBS indices later this year, adding
demand for the sector from benchmarked managers.
Further, the increased conforming loan limit has degraded the convexity, or
callability of current Agency RMBS production, another factor supporting specified
pools.
So, while the timing of the transition from a
TBA roll-dominated market is taking a little longer to occur and has cost us on
a mark-to-market basis, we are very confident our
positioning is where it needs to be as we move further into 2022.”
Details of Fourth Quarter 2021 Results of Operations
The Company reported net loss of $44.6 million for the three month period
ended December 31, 2021, compared with net income
of $16.5 million for the three month period ended December 31, 2020. The Company
increased its Agency RMBS portfolio over the
course of the fourth quarter of 2021 through capital raised through the at-the-market
program. The yield on our average RMBS
increased from 2.66%
in the third quarter of 2021 to 2.93% for the fourth quarter of 2021, repurchase
agreement borrowing costs
increased from 0.13%
for the third quarter of 2021 to 0.14% for the fourth quarter of 2021,
and our net interest spread increased from
2.53% to 2.79% in the fourth quarter of 2021.
Book value decreased by $0.43 per share in the fourth quarter of 2021. The decrease
in book value reflects our net loss of $0.27
per share, the dividend distribution of $0.195 per share and approximately $0.03
per share added through our capital raising activities.
The Company recorded net realized and unrealized losses of $0.49 per share
on Agency RMBS assets and derivative instruments,
including net interest expense on interest rate swaps.
Details of Full Year 2021
Results of Operations
ORC Announces Fourth Quarter 2021 Results
Page 3
February 24, 2022
Orchid generated a net loss per share of $0.54 during 2021. The Company
recorded net interest income of $127.6 million, offset
by realized and unrealized losses of $177.1 million on Agency RMBS and
derivative instruments.
The yield on our average RMBS
decreased from 3.45% in 2020 to 2.73% for 2021,
repurchase agreement borrowing costs decreased from 1.51%
for 2020 to 0.54%
in
2021, and our net interest spread decreased from 2.71% in 2020 to 2.59%
in 2021.
Book value decreased by $1.12 per share in 2021 from December 31, 2020. The
decrease in book value reflects our net loss of
$0.54 per share, the dividend distributions of $0.78 per share and approximately $0.20
per share added through our capital raising
activities.
Prepayments
For the quarter ended December 31, 2021, Orchid received $178.1
million in scheduled and unscheduled principal repayments
and prepayments, which equated to a 3-month constant prepayment rate (“CPR”)
of approximately 11.4%. Prepayment rates on the
two RMBS sub-portfolios were as follows (in CPR):
Structured
PT RMBS
RMBS
Total
Three Months Ended
Portfolio (%)
Portfolio (%)
Portfolio (%)
December 31, 2021
9.0
24.6
11.4
September 30, 2021
9.8
25.1
12.4
June 30, 2021
10.9
29.9
12.9
March 31, 2021
9.9
40.3
12.0
December 31, 2020
16.7
44.3
20.1
September 30, 2020
14.3
40.4
17.0
June 30, 2020
13.9
35.3
16.3
March 31, 2020
9.8
22.9
11.9
Portfolio
The following tables summarize certain characteristics of Orchid’s PT RMBS and structured
RMBS as of December 31, 2021 and
December 31, 2020:
($ in thousands)
Weighted
Percentage
Average
of
Weighted
Maturity
Fair
Entire
Average
in
Longest
Asset Category
Value
Portfolio
Coupon
Months
Maturity
December 31, 2021
Fixed Rate RMBS
$
6,298,189
96.7%
2.93%
342
1-Dec-51
Total Mortgage-backed Pass-through
6,298,189
96.7%
2.93%
342
1-Dec-51
Interest-Only Securities
210,382
3.2%
3.40%
263
25-Jan-52
Inverse Interest-Only Securities
2,524
0.1%
3.75%
300
15-Jun-42
Total Structured RMBS
212,906
3.3%
3.41%
264
25-Jan-52
Total Mortgage Assets
$
6,511,095
100.0%
3.03%
325
25-Jan-52
December 31, 2020
Fixed Rate RMBS
$
3,560,746
95.5%
3.09%
339
1-Jan-51
Fixed Rate CMOs
137,453
3.7%
4.00%
312
15-Dec-42
Total Mortgage-backed Pass-through
3,698,199
99.2%
3.13%
338
1-Jan-51
ORC Announces Fourth Quarter 2021 Results
Page 4
February 24, 2022
Interest-Only Securities
28,696
0.8%
3.98%
268
25-May-50
Total Structured RMBS
28,696
0.8%
3.98%
268
25-May-50
Total Mortgage Assets
$
3,726,895
100.0%
3.19%
333
1-Jan-51
($ in thousands)
December 31, 2021
December 31, 2020
Percentage of
Percentage of
Agency
Fair Value
Entire Portfolio
Fair Value
Entire Portfolio
Fannie Mae
$
4,719,349
72.5%
$
2,733,960
73.4%
Freddie Mac
1,791,746
27.5%
992,935
26.6%
Total Portfolio
$
6,511,095
100.0%
$
3,726,895
100.0%
December 31, 2021
December 31, 2020
Weighted Average Pass-through Purchase Price
$
107.19
$
107.43
Weighted Average Structured Purchase Price
$
15.21
$
20.06
Weighted Average Pass-through Current Price
$
105.31
$
108.94
Weighted Average Structured Current Price
$
14.08
$
10.87
Effective Duration
(1)
3.390
2.360
(1)
Effective duration is the approximate percentage change in price
for a 100 bps change in rates. An effective duration of 3.390
indicates that an
interest rate increase of 1.0% would be expected to cause a 3.390% decrease in the value
of the RMBS in the Company’s investment portfolio
at December 31, 2021.
An effective duration of 2.360 indicates that an interest rate increase
of 1.0% would be expected to cause a 2.360%
decrease in the value of the RMBS in the Company’s investment portfolio
at December 31, 2020. These figures include the structured securities
in the portfolio, but do not include the effect of the Company’s funding
cost hedges.
Effective duration quotes for individual investments are
obtained from The Yield Book, Inc.
ORC Announces Fourth Quarter 2021 Results
Page 5
February 24, 2022
Financing, Leverage and Liquidity
As of December
31, 2021,
the Company
had outstanding
repurchase
obligations
of approximately
$6,244.1
million with
a net
weighted
average borrowing
rate of 0.15%.
These agreements
were collateralized
by RMBS
with a fair
value, including
accrued
interest,
of approximately
$6,525.2 million
and cash pledged
to counterparties
of approximately
$57.3 million.
The Company’s
leverage
ratio at
December
31, 2021
was 8.2 to
- At December
31, 2021,
the Company’s
liquidity
was approximately
$389.9 million,
consisting
of
unpledged
RMBS and
unrestricted
cash and cash
equivalents.
To enhance our liquidity
even further,
we may pledge
more of our
structured
RMBS as
part of a
repurchase
agreement
funding,
but retain
the cash in
lieu of acquiring
additional
assets.
In this way
we can,
at a modest
cost, retain
higher levels
of cash on
hand and
decrease
the likelihood
we will have
to sell assets
in a distressed
market in
order to
raise cash.
Below is
a list of
our outstanding
borrowings
under repurchase
obligations
at December
31, 2021.
($ in thousands)
Weighted
Weighted
Total
Average
Average
Outstanding
% of
Borrowing
Amount
Maturity
Counterparty
Balances
Total
Rate
at Risk
(1)
in Days
Wells Fargo Bank, N.A.
$
436,954
7.2%
0.13%
$
23,236
29
Mirae Asset Securities (USA) Inc.
425,890
6.8%
0.13%
22,505
62
J.P.
Morgan Securities LLC
424,776
6.8%
0.14%
23,895
31
RBC Capital Markets, LLC
416,185
6.7%
0.14%
13,401
15
ABN AMRO Bank N.V.
407,945
6.5%
0.13%
12,594
44
Merrill Lynch, Pierce, Fenner & Smith Inc.
388,303
6.2%
0.16%
20,805
15
Cantor Fitzgerald & Co.
348,968
5.6%
0.12%
18,100
29
Mitsubishi UFJ Securities (USA), Inc.
345,853
5.5%
0.22%
33,544
49
Goldman Sachs & Co. LLC
339,026
5.4%
0.18%
25,730
21
Citigroup Global Markets, Inc.
318,709
5.1%
0.14%
17,107
15
ED&F Man Capital Markets Inc.
301,941
4.8%
0.11%
16,198
22
Santander Bank, N.A.
299,670
4.8%
0.14%
15,693
17
Nomura Securities International, Inc.
284,851
4.6%
0.13%
15,105
47
ASL Capital Markets Inc.
281,879
4.5%
0.14%
14,458
17
ING Financial Markets LLC
274,333
4.4%
0.13%
11,561
10
BMO Capital Markets Corp.
245,932
3.9%
0.17%
17,262
25
Daiwa Capital Markets America, Inc.
207,575
3.3%
0.15%
10,505
15
South Street Securities, LLC
141,548
2.3%
0.15%
7,261
17
Barclays Capital Inc.
137,691
2.2%
0.14%
4,551
14
Austin Atlantic Asset Management Co.
95,754
1.5%
0.14%
4,039
5
Lucid Cash Fund USG LLC
88,865
1.4%
0.18%
7,853
13
StoneX Financial Inc.
27,869
0.4%
0.13%
1,410
18
Mizuho Securities USA, Inc.
3,589
0.1%
0.56%
1,476
12
Total / Weighted
Average
$
6,244,106
100.0%
0.15%
$
338,289
27
(1)
Equal to the
sum of the fair
value of securities
sold, accrued
interest receivable
and cash posted
as collateral
(if any), minus
the sum of repurchase
agreement liabilities,
accrued interest
payable and
the fair value
of securities
posted by the
counterparties
(if any).
ORC Announces Fourth Quarter 2021 Results
Page 6
February 24, 2022
Hedging
In connection with its interest rate risk management strategy, the Company economically hedges a portion of the cost
of its repurchase
agreement funding against a rise in interest rates by entering into derivative financial
instrument contracts.
The Company has not
elected hedging treatment under U.S. generally accepted accounting principles (“GAAP”)
in order to align the accounting treatment of
its derivative and other hedging instruments with the treatment of its portfolio assets
under the fair value option election. As such, all
gains or losses on these instruments are reflected in earnings for all periods presented.
At December 31, 2021, such instruments were
comprised of U.S. Treasury note (“T-Note”) futures contracts,
interest rate swap agreements, interest rate swaption agreements and
“to-be-announced” (“TBA”) securities transactions.
The table below presents information related to the Company’s T-Note futures contracts at December 31, 2021.
($ in thousands)
Average
Weighted
Weighted
Contract
Average
Average
Notional
Entry
Effective
Open
Expiration Year
Amount
Rate
Rate
Equity
(1)
U.S. Treasury Note Futures Contracts
(Short Positions)
March 2022 5-year T-Note futures
(Mar 2022 - Mar 2027 Hedge Period)
(2)
$
369,000
1.56%
1.62%
$
1,013
March 2022 10-year Ultra futures
(Mar 2022 - Mar 2032 Hedge Period)
(3)
$
220,000
1.22%
1.09%
$
(3,861)
(1)
Open equity represents the cumulative gains (losses) recorded on open
futures positions from inception.
(2)
5-Year T-Note
futures contracts were valued at a price of $120.98 at December 31, 2021.
The contract values of the short positions were
$446.4 million.
(3)
10-Year Ultra futures
contracts were valued at a price of $146.44 at December 31, 2021. The contract
value of the short position was $322.2
million.
The table
below presents
information
related to
the Company’s
interest
rate swap
positions
at December
31, 2021.
($ in thousands)
Average
Net
Fixed
Average
Estimated
Average
Notional
Pay
Receive
Fair
Maturity
Expiration
Amount
Rate
Rate
Value
(Years)
> 3 to ≤ 5 years
$
955,000
0.64%
0.16%
$
21,788
4.0
> 5 years
400,000
1.16%
0.21%
$
4,643
7.3
$
1,355,000
0.79%
0.18%
$
26,431
5.0
ORC Announces Fourth Quarter 2021 Results
Page 7
February 24, 2022
The following
table presents
information
related to
our interest
rate swaption
positions
as of December
31, 2021.
($ in thousands)
Option
Underlying Swap
Weighted
Average
Weighted
Average
Average
Adjustable
Average
Fair
Months to
Notional
Fixed
Rate
Term
Expiration
Cost
Value
Expiration
Amount
Rate
(LIBOR)
(Years)
Payer Swaptions - Long
≤ 1 year
$
4,000
$
1,575
3.2
$
400,000
1.66%
3 Month
5.0
> 1 year ≤ 2 years
32,690
19,918
18.4
1,258,500
2.46%
3 Month
14.1
$
36,690
$
21,493
14.7
$
1,658,500
2.27%
3 Month
11.9
Payer Swaptions - Short
≤ 1 year
$
(16,185)
$
(4,423)
5.3
$
(1,331,500)
2.29%
3 Month
11.4
The following
table summarizes
our contracts
to purchase
and sell
TBA securities
as of December
31, 2021
($ in thousands)
Notional
Net
Amount
Cost
Market
Carrying
Long (Short)
(1)
Basis
(2)
Value
(3)
Value
(4)
December 31, 2021
30-Year TBA securities:
3.00%
$
(575,000)
$
(595,630)
$
(595,934)
$
(304)
$
(575,000)
$
(595,630)
$
(595,934)
$
(304)
(1)
Notional amount represents the par value (or principal balance) of the underlying
Agency RMBS.
(2)
Cost basis represents the forward price to be paid (received) for the underlying
Agency RMBS.
(3)
Market value represents the current market value of the TBA securities
(or of the underlying Agency RMBS) as of period-end.
(4)
Net carrying value represents the difference between the market
value and the cost basis of the TBA securities as of period-end and
is reported
in derivative assets (liabilities) at fair value in our balance sheets.
ORC Announces Fourth Quarter 2021 Results
Page 8
February 24, 2022
Dividends
In addition to other requirements that must be satisfied to qualify as a REIT, we must pay annual dividends to our stockholders of
at least 90% of our REIT taxable income, determined without regard to the deduction
for dividends paid and excluding any net capital
gains. We intend to pay regular monthly dividends to our stockholders and have declared the
following dividends since our February
2013 IPO.
(in thousands, except per share data)
Year
Per Share
Amount
Total
2013
$
1.395
$
4,662
2014
2.160
22,643
2015
1.920
38,748
2016
1.680
41,388
2017
1.680
70,717
2018
1.070
55,814
2019
0.960
54,421
2020
0.790
53,570
2021
0.780
97,601
2022 - YTD
(1)
0.110
19,502
Totals
$
12.545
$
459,066
(1)
On January 13, 2022, the Company declared a dividend of $0.055 per
share to be paid on February 24, 2022. On February 16, 2022, the
Company declared a dividend of $0.055 per share to be paid on March 29, 2022.
The dollar amount of the dividend declared in February 2022
is estimated based on the number of shares outstanding at February
25, 2022. The effect of these dividends are included in the table above,
but are not reflected in the Company’s financial statements as of December
31, 2021.
Peer Performance
The tables
below present
total return
data for
Orchid compared
to a selected
group of
peers based
on stock price
performance
for
periods through
December
31, 2021
and based
on book value
performance
for periods
through September
30, 2021.
Portfolio Total Rate of
Return Versus Peer Group Average
- Stock Price Performance
ORC Spread
ORC
Over / (Under)
Total Rate
Peer
Peer
of Return
(1)
Average
(1)(2)
Average
(3)
One Year Total
Return
0.1%
(0.2)%
0.3%
Two Year
Total Return
5.4%
(10.7)%
16.1%
Three Year Total
Return
12.6%
(4.7)%
17.3%
Five Year Total
Return
(9.3)%
3.0%
(12.3)%
Inception to Date (2/28/2013 - 12/31/2021)
(4)
24.5%
9.4%
15.1%
Source: SEC filings and press releases
of Orchid and Peer Group
(1)
Source of total rate of return for each period is the Bloomberg COMP page
and includes reinvested dividends for each period noted.
(2)
The peer average is the unweighted, simple, average of the total rate of return for
each of the following companies in each respective
measurement period:
AGNC, NLY,
ANH, AAIC, ARR, CMO, CHMI, DX and IVR.
(3)
Represents the total rate of return for Orchid minus peer average in each respective
measurement period.
(4)
Orchid completed its Initial Public Offering on February 13,
- We have elected to start the comparison with Orchid’s first
full month of
operations.
ORC Announces Fourth Quarter 2021 Results
Page 9
February 24, 2022
Portfolio Total Rate of
Return Versus Peer Group Average
- Book Value Performance
ORC Spread
ORC
Over / (Under)
Total Rate
Peer
Peer
of Return
(1)
Average
(1)(2)
Average
(3)
One Year Total
Return
2.3%
1.9%
0.4%
Two Year
Total Return
4.3%
(10.2)%
14.5%
Three Year Total
Return
(1.0)%
(12.0)%
11.0%
Five Year Total
Return
(7.8)%
(8.9)%
1.1%
Inception to Date (3/31/2013 - 9/30/2021)
(4)
16.2%
(1.8)%
18.0%
Source: SEC filings and press releases
of Orchid and Peer Group
(1)
Total rate
of return for each period is change in book value per share over the period plus dividends
per share declared divided by the book
value per share at the beginning of the period.
(2)
The peer average is the unweighted, simple, average of the total rate of return for
each of the following companies in each respective
measurement period:
AGNC, NLY,
ANH, AAIC, ARR, CMO, CHMI, DX and IVR.
(3)
Represents the total rate of return for Orchid minus peer average in each respective
measurement period.
(4)
Peer book values are not available for Orchid’s true inception date
(2/13/2013).
Because all peer book values are not available as of Orchid’s
inception date (2/13/2013), the starting point for Orchid and all of the peer
companies is 3/31/2013.
Book Value Per Share
The Company's book value per share at December 31, 2021 was $4.34.
The Company computes book value per share by
dividing total stockholders' equity by the total number of shares outstanding of the
Company's common stock. At December 31, 2021,
the Company's stockholders' equity was $768.1 million with 176,993,049 shares
of common stock outstanding.
Capital Allocation and Return on Invested Capital
The Company allocates capital to two RMBS sub-portfolios, the pass-through
RMBS portfolio, consisting of mortgage pass-through
certificates issued by Fannie Mae, Freddie Mac or Ginnie Mae (the “GSEs”)
and collateralized mortgage obligations (“CMOs”) issued
by the GSEs (“PT RMBS”), and the structured RMBS portfolio, consisting of interest-only
(“IO”), inverse interest-only (“IIO”) securities
and principal only securities (“POs”), among other types of structured Agency
RMBS. As of September 30, 2021, approximately 79% of
the Company’s investable capital (which consists of equity in pledged PT RMBS, available
cash and unencumbered assets) was
deployed in the PT RMBS portfolio.
At December 31, 2021, the allocation to the PT RMBS portfolio decreased
9% to approximately
70%.
ORC Announces Fourth Quarter 2021 Results
Page 10
February 24, 2022
The table below details the changes to the respective sub-portfolios during the
quarter, as well as the returns generated by each.
(in thousands)
Portfolio Activity for the Quarter
Structured Security Portfolio
Pass-Through
Interest-Only
Inverse Interest-
Portfolio
Securities
Only Securities
Sub-total
Total
Market value - September 30, 2021
$
5,458,562
$
140,078
$
2,783
$
142,861
$
5,601,423
Securities purchased
1,353,698
80,178
-
80,178
1,433,876
Securities sold
(252,816)
-
-
-
(252,816)
Losses on sales
(2,474)
-
-
-
(2,474)
Return of investment
n/a
(9,331)
(326)
(9,657)
(9,657)
Pay-downs
(168,424)
n/a
n/a
n/a
(168,424)
Premium lost due to pay-downs
(11,492)
n/a
n/a
n/a
(11,492)
Mark to market (losses) gains
(78,865)
(543)
67
(476)
(79,341)
Market value - December 31, 2021
$
6,298,189
$
210,382
$
2,524
$
212,906
$
6,511,095
The tables below present the allocation of capital between the respective
portfolios at December 31, 2021 and September 30,
2021, and the return on invested capital for each sub-portfolio for the three month
period ended December 31, 2021.
The return on
invested capital in the PT RMBS and structured RMBS portfolios was approximately
(7.7)% and 0.9%, respectively, for the fourth
quarter of 2021.
The combined portfolio generated a return on invested capital
of approximately (5.9)%.
($ in thousands)
Capital Allocation
Structured Security Portfolio
Pass-Through
Interest-Only
Inverse Interest-
Portfolio
Securities
Only Securities
Sub-total
Total
December 31, 2021
Market value
$
6,298,189
$
210,382
$
2,524
$
212,906
$
6,511,095
Cash
450,442
-
-
-
450,442
Borrowings
(1)
(6,244,106)
-
-
-
(6,244,106)
Total
$
504,525
$
210,382
$
2,524
$
212,906
$
717,431
% of Total
70.3%
29.3%
0.4%
29.7%
100.0%
September 30, 2021
Market value
$
5,458,562
$
140,078
$
2,783
$
142,861
$
5,601,423
Cash
(2)
294,625
-
-
-
294,625
Borrowings
(3)
(5,213,869)
-
-
-
(5,213,869)
Total
$
539,318
$
140,078
$
2,783
$
142,861
$
682,179
% of Total
79.1%
20.5%
0.4%
20.9%
100.0%
(1)
At December 31, 2021, there were outstanding repurchase agreement balances
of $159.0 million secured by IO securities and $2.0 million
secured by IIO securities.
We entered into these arrangements to generate additional cash
available to meet margin calls on PT RMBS;
therefore, we have not considered these balances to be allocated to the structured
securities strategy.
(2)
At September 30, 2021, cash was reduced by unsettled purchases of
approximately $180.6 million, which are reflected in the market value of
the portfolio as of September 30, 2021.
(3)
At September 30, 2021, there were outstanding repurchase agreement balances
of $106.5 million secured by IO securities and $2.1 million
secured by IIO securities.
We entered into these arrangements to generate additional
cash available to meet margin calls on PT RMBS;
therefore, we have not considered these balances to be allocated to the structured
securities strategy.
ORC Announces Fourth Quarter 2021 Results
Page 11
February 24, 2022
($ in thousands)
Returns for the Quarter Ended December 31, 2021
Structured Security Portfolio
Pass-Through
Interest-Only
Inverse Interest-
Portfolio
Securities
Only Securities
Sub-total
Total
Income (net of borrowing cost)
$
40,651
$
1,634
$
113
$
1,747
$
42,398
Realized and unrealized (losses) / gains
(93,067)
(541)
66
(475)
(93,542)
Derivative gains
10,945
n/a
-
n/a
10,945
Total Return
$
(41,471)
$
1,093
$
179
$
1,272
$
(40,199)
Beginning Capital Allocation
$
539,318
$
140,078
$
2,783
$
142,861
$
682,179
Return on Invested Capital for the Quarter
(1)
(7.7)%
0.8%
0
0.9%
(5.9)%
Average Capital Allocation
(2)
$
521,922
$
175,230
$
2,654
$
177,884
$
699,806
Return on Average Invested Capital for the Quarter
(3)
(7.9)%
0.6%
-
0.7%
(5.7)%
(1)
Calculated by dividing the Total
Return by the Beginning Capital Allocation, expressed as a percentage.
(2)
Calculated using two data points, the Beginning and Ending Capital Allocation balances.
(3)
Calculated by dividing the Total
Return by the Average Capital Allocation, expressed as a percentage
Stock Offerings
On June 22, 2021, we entered into an equity distribution agreement (the “June 2021
Equity Distribution Agreement”) with four
sales agents pursuant to which we could offer and sell, from time to time, up to an aggregate
amount of $250,000,000 of shares of our
common stock in transactions that were deemed to be “at the market” offerings and privately
negotiated transactions. We issued a total
of 49,407,336 shares under the June 2021 Equity Distribution Agreement for aggregate
gross proceeds of approximately $250.0
million, and net proceeds of approximately $246.2 million, after commissions
and fees, prior to its termination in October 2021.
On October 29, 2021, we entered into an equity distribution agreement
(the “October 2021 Equity Distribution Agreement”) with
four sales agents pursuant to which we may offer and sell, from time to time, up to an aggregate
amount of $250,000,000 of shares of
our common stock in transactions that are deemed to be “at the market” offerings and privately
negotiated transactions. Through
December 31, 2021, we issued a total of 15,835,700 shares under the October 2021
Equity Distribution Agreement for aggregate gross
proceeds of approximately $78.3 million, and net proceeds of approximately
$77.0 million, after commissions and fees.
Stock Repurchase Program
On July 29, 2015, the Company’s Board of Directors authorized the repurchase of up to 2,000,000
shares of our common stock.
The timing, manner, price and amount of any repurchases is determined by the Company in its discretion and is
subject to economic
and market conditions, stock price, applicable legal requirements and other factors.
The authorization does not obligate the Company
to acquire any particular amount of common stock and the program may
be suspended or discontinued at the Company’s discretion
without prior notice. On February 8, 2018, the Board of Directors approved
an increase in the stock repurchase program for up to an
additional 4,522,822 shares of the Company’s common stock. Coupled with the
783,757 shares remaining from the original 2,000,000
share authorization, the increased authorization brought the total authorization
to 5,306,579 shares, representing 10% of the then
outstanding share count. On December 9, 2021, the Board of Directors approved an
additional increase in the number of shares of the
Company’s common stock available in the stock repurchase program for up to an additional
16,861,994 shares, bringing the remaining
authorization under the stock repurchase program to up to 17,699,305
shares, representing approximately 10% of the Company’s then
outstanding shares of common stock. This stock repurchase program has no
termination date.
From the inception of the stock repurchase program through December 31, 2021,
the Company repurchased a total of 5,685,511
ORC Announces Fourth Quarter 2021 Results
Page 12
February 24, 2022
shares at an aggregate cost of approximately $40.4 million, including commissions
and fees, for a weighted average price of $7.10 per
share. There were no shares repurchased during the year ended December 31,
2021.
Earnings Conference Call Details
An earnings conference call and live audio webcast will be hosted Friday, February 25, 2022, at 10:00 AM ET.
The conference
call may be accessed by dialing toll free (833) 794-1168.
International callers dial (236) 714-2726.
The conference passcode is
9406887.
The supplemental materials may be downloaded from the investor relations
section of the Company’s website at
www.orchidislandcapital.com. A live audio webcast of the conference call can be accessed via the investor
relations section of the
Company’s website at https://ir.orchidislandcapital.com and an audio archive of the webcast will be available until March
28, 2022.
About Orchid Island Capital, Inc.
Orchid Island Capital, Inc. is a specialty finance company that invests on a leveraged
basis in Agency RMBS. Our investment
strategy focuses on, and our portfolio consists of, two categories of Agency RMBS:
(i) traditional pass-through Agency and CMOs,
such as mortgage pass-through certificates issued by the GSEs and (ii) structured Agency
RMBS, such as IOs, IIOs and POs, among
other types of structured Agency RMBS. Orchid is managed by Bimini Advisors,
LLC, a registered investment adviser with the
Securities and Exchange Commission.
Forward Looking Statements
Statements herein relating to matters that are not historical facts, including,
but not limited to statements regarding interest rates,
liquidity, pledging of our structured RMBS, funding levels and spreads, prepayment speeds, portfolio positioning and repositioning,
hedging levels, dividends, growth, the supply and demand for Agency RMBS,
the effect of actual or expected actions of the U.S.
government, including the Federal Reserve, market expectations, the stock repurchase
program and general economic conditions, are
forward-looking statements as defined in the Private Securities Litigation Reform
Act of 1995. The reader is cautioned that such
forward-looking statements are based on information available at the time
and on management's good faith belief with respect to future
events, and are subject to risks and uncertainties that could cause actual performance
or results to differ materially from those
expressed in such forward-looking statements. Important factors that could cause
such differences are described in Orchid Island
Capital, Inc.'s filings with the Securities and Exchange Commission, including
its most recent Annual Report on Form 10-K and
Quarterly Reports on Form 10-Q. Orchid Island Capital, Inc. assumes no obligation
to update forward-looking statements to reflect
subsequent results, changes in assumptions or changes in other factors affecting forward-looking
statements.
CONTACT:
Orchid Island Capital, Inc.
Robert E. Cauley, 772-231-1400
Chairman and Chief Executive Officer
https://ir.orchidislandcapital.com
ORC Announces Fourth Quarter 2021 Results
Page 13
February 24, 2022
Summarized Financial Statements
The following is a summarized presentation of the unaudited balance sheets
as of December 31, 2021, and December 31, 2020,
and the unaudited quarterly results of operations for the twelve and three months
ended December 31, 2021 and 2020.
Amounts
presented are subject to change.
ORCHID ISLAND CAPITAL, INC.
BALANCE SHEETS
($ in thousands, except per share data)
(Unaudited - Amounts Subject to Change)
December 31, 2021
December 31, 2020
ASSETS:
Mortgage-backed securities
$
6,511,095
$
3,726,895
U.S. Treasury Notes
37,175
-
Cash, cash equivalents and restricted cash
450,442
299,506
Accrued interest receivable
18,859
9,721
Derivative assets, at fair value
50,786
20,999
Receivable for securities sold
-
414
Other assets
320
516
Total Assets
$
7,068,677
$
4,058,051
LIABILITIES AND STOCKHOLDERS' EQUITY
Repurchase agreements
$
6,244,106
$
3,595,586
Dividends payable
11,530
4,970
Derivative liabilities, at fair value
7,589
33,227
Accrued interest payable
788
1,157
Due to affiliates
1,062
632
Other liabilities
35,505
7,188
Total Liabilities
6,300,580
3,642,760
Total Stockholders' Equity
768,097
415,291
Total Liabilities
and Stockholders' Equity
$
7,068,677
$
4,058,051
Common shares outstanding
176,993,049
76,073,317
Book value per share
$
4.34
$
5.46
ORC Announces Fourth Quarter 2021 Results
Page 14
February 24, 2022
ORCHID ISLAND CAPITAL, INC.
STATEMENTS
OF OPERATIONS
($ in thousands, except per share data)
(Unaudited - Amounts Subject to Change)
Years Ended December 31,
Three Months Ended December 31,
2021
2020
2021
2020
Interest income
$
134,700
$
116,045
$
44,421
$
25,893
Interest expense
(7,090)
(25,056)
(2,023)
(2,011)
Net interest income
127,610
90,989
42,398
23,882
Losses
(177,119)
(78,317)
(82,597)
(4,605)
Net portfolio (loss) income
(49,509)
12,672
(40,199)
19,277
Expenses
15,251
10,544
4,365
2,798
Net (loss) income
$
(64,760)
$
2,128
$
(44,564)
$
16,479
Basic and diluted net (loss) income per share
$
(0.54)
$
0.03
$
(0.27)
$
0.23
Weighted Average Shares Outstanding
121,144,326
67,210,815
168,143,514
70,532,822
Dividends Declared Per Common Share:
$
0.780
$
0.790
$
0.195
$
0.195
Three Months Ended December 31,
Key Balance Sheet Metrics
2021
2020
Average RMBS
(1)
$
6,056,259
$
3,633,631
Average repurchase agreements
(1)
5,728,988
3,438,444
Average stockholders' equity
(1)
749,363
396,016
Leverage ratio
(2)
8.2:1
8.8:1
Key Performance Metrics
Average yield on RMBS
(3)
2.93%
2.85%
Average cost of funds
(3)
0.14%
0.23%
Average economic cost of funds
(4)
0.70%
0.91%
Average interest rate spread
(5)
2.79%
2.62%
Average economic interest rate spread
(6)
2.23%
1.94%
(1)
Average RMBS, borrowings and stockholders’ equity balances are
calculated using two data points, the beginning and ending balances.
(2)
The leverage ratio is calculated by dividing total ending liabilities by ending
stockholders’ equity.
(3)
Portfolio yields and costs of funds are calculated based on the average balances
of the underlying investment portfolio/borrowings balances
and are annualized for the quarterly periods presented.
(4)
Represents the interest cost of our borrowings and the effect of derivative
agreements attributed to the period related to hedging activities,
divided by average borrowings.
(5)
Average interest rate spread is calculated by subtracting average cost
of funds from average yield on RMBS.
(6)
Average economic interest rate spread
is calculated by subtracting average economic cost of funds from average yield on RMBS.