8-K
Orchid Island Capital, Inc. (ORC)
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):
August 4, 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 August 4, 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 June 30, 2022. 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, future opportunities
and prospects of the Company,
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,
2021, 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 required 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 August 4, 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: August 4, 2022
ORCHID ISLAND CAPITAL,
INC.
By:
/s/ Robert E. Cauley
Robert E. Cauley
Chairman and Chief Executive Officer
orc8k202200804x991
ORCHID ISLAND CAPITAL ANNOUNCES SECOND QUARTER 2022 RESULTS
VERO BEACH, Fla. (August 4, 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
June 30, 2022.
Second Quarter 2022 Highlights
●
Net loss of $60.1 million, or $0.34 per common share, which consists
of:
●
Net interest income of $27.1 million, or $0.15 per common share
●
Total
expenses of $4.9 million, or $0.03 per common share
●
Net realized and unrealized losses of $82.3 million, or $0.46 per common share, on RMBS
and derivative instruments,
including net interest expense on interest rate swaps
●
Second quarter total dividends declared and paid of $0.135 per common share
●
Book value per common share of $2.87 at June 30, 2022
●
Total
return of (10.0)%,
comprised of $0.135 dividend per common share and $0.47 decrease
in book value per common
share, divided by beginning book value per common share
●
Company to discuss results on Friday, August 5, 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 second quarter results, Robert E. Cauley, Chairman and Chief Executive Officer, said, “During the latter part of
the second quarter of 2022 inflation data drove a material change in Federal Reserve (“Fed”)
policy, interest rates and the outlook for
the economy.
Specifically, the consumer price index (“CPI”) data for May, released in June, increased far more than market
expectations.
Survey measures of inflation expectations, released on the
same day, surged to multi-decade highs.
The June CPI
reading was released in July and was again well above market expectations.
Equally troubling, elevated inflation readings were very
broad based, implying inflationary pressures have clearly spread from just those
sectors most exposed to COVID-19 related supply
constraints. This was the catalyst for the Fed to pivot even more forcefully
than they did during late 2021/early 2022, and the Fed
raised the Fed Funds rate by 200 basis points collectively at the May, June and July meetings.
The market expects the Fed to
continuing raising the Fed Funds rate by another 100 basis points by year-end.
Increases in the Fed Funds rate are likely to affect
economic activity,
and the Fed has acknowledged their actions may lead to a recession.
Sectors of the economy most sensitive to
interest rates – such as housing – have already started to slow and other economic
indicators have shown evidence of slowing as well.
The manufacturing sector of the economy has clearly begun to slow, and the labor market also has been impacted, as
evidenced by
initial claims for unemployment in July of 2022 rising by approximately 94,000
above the cycle low reading reported in early March of
2022.
ORC Announces Second Quarter 2022 Results
Page 2
August 4, 2022
“The Fed pivot that occurred in mid-June led to meaningful widening for Agency
RMBS spreads in the days that followed the
release of the inflation data and were near the extremes seen in March of 2020.
This was particularly true for lower coupon fixed rate
Agency RMBS where Orchid’s portfolio is concentrated. The poor performance of Agency
RMBS and risk assets generally led to
negative returns across the markets and to book value erosion for Orchid.
However, while we have recorded significant mark-to-
market losses on our portfolio during the second quarter of 2022 and over the last
three quarters, most of these losses are unrealized
and approximately 81.1% of the pass-through portfolio as of June 30, 2022, was acquired
prior to the start of the fourth quarter of 2021.
“It appears the inflation data is sufficiently strong that the Fed sees the need for
a more aggressive response, and the market
expects the Fed to continue to raise the Fed Funds rate and tighten financial
conditions until inflation appears to moderate sufficiently.
The chances such tightening of financial conditions does not cause the economy
to contract appear remote and, as stated above, we
have already seen evidence this has begun to occur.
This appears to be the market’s view as well, as evidenced by the inversion of
the U.S. Treasury yield curve.
It is possible we have already seen the highest levels in long-term U.S. Treasury yields for this
cycle.
“If, as we expect,
the economy slows over the next several quarters,
the lack of any credit risk in the Agency RMBS market should
lead to relative outperformance for the sector given the very wide spreads available
currently.
Further, Orchid’s existing portfolio of
discount securities retains very favorable convexity, particularly in a decreasing rate environment as the duration, or rate
sensitivity, of
the securities should not decline materially if rates were to decrease. We believe these two
factors leave Orchid well positioned as we
move into the second half of 2022 and beyond. In fact, Agency RMBS have
performed very well so far in the third quarter and have
reversed most of the widening that occurred in June of 2022.”
Details of Second Quarter 2022 Results of Operations
The Company reported net loss of $60.1 million for the three month period
ended June 30, 2022, compared with net loss of $16.9
million for the three month period ended June 30, 2021. The Company
decreased its Agency RMBS portfolio over the course of the first
six months of 2022, from $6.5 billion at December 31, 2021 to $3.9 billion
at June 30, 2022. Interest income on the portfolio in the
second quarter was down approximately $6.6 million from the first quarter of 2022.
The yield on our average MBS increased from
3.02% in the first quarter of 2022 to 3.31%
for the second of 2022, repurchase agreement borrowing costs
increased from 0.20% for
the first quarter of 2022 to 0.80% for the second quarter of 2022,
and our net interest spread decreased from 2.82% in the first quarter
of 2022 to 2.51% in the second quarter of 2022.
Book value decreased by $0.47 per share in the second quarter of 2022.
The decrease in book value reflects our net loss of $0.34
per share and the dividend distribution of $0.135 per share. The Company
recorded net realized and unrealized losses of $0.46 per
share on Agency RMBS assets and derivative instruments, including net interest expense
on interest rate swaps.
ORC Announces Second Quarter 2022 Results
Page 3
August 4, 2022
Prepayments
For the quarter ended June 30, 2022, Orchid received $122.4 million in scheduled
and unscheduled principal repayments and
prepayments, which equated to a 3-month constant prepayment rate (“CPR”) of approximately
9.4%. Prepayment rates on the two
RMBS sub-portfolios were as follows (in CPR):
Structured
PT RMBS
RMBS
Total
Three Months Ended
Portfolio (%)
Portfolio (%)
Portfolio (%)
June 30, 2022
8.3
13.7
9.4
March 31, 2022
8.1
19.5
10.7
December 31, 2021
9.0
24.6
11.4
September 30, 2021
9.8
25.1
12.4
June 30, 2021
10.9
29.9
12.9
March 31, 2021
9.9
40.3
12.0
Portfolio
The following tables summarize certain characteristics of Orchid’s PT RMBS (as defined
below) and structured RMBS as of June
30, 2022 and December 31, 2021:
($ in thousands)
Weighted
Percentage
Average
of
Weighted
Maturity
Fair
Entire
Average
in
Longest
Asset Category
Value
Portfolio
Coupon
Months
Maturity
June 30, 2022
Fixed Rate RMBS
$
3,766,151
95.6%
3.10%
342
1-Jun-52
Interest-Only Securities
173,754
4.4%
3.41%
249
25-Jan-52
Inverse Interest-Only Securities
955
0.0%
3.02%
293
15-Jun-42
Total Mortgage Assets
$
3,940,860
100.0%
3.16%
322
1-Jun-52
December 31, 2021
Fixed Rate RMBS
$
6,298,189
96.7%
2.93%
342
1-Dec-51
Interest-Only Securities
210,382
3.2%
3.40%
263
25-Jan-52
Inverse Interest-Only Securities
2,524
0.1%
3.75%
300
15-Jun-42
Total Mortgage Assets
$
6,511,095
100.0%
3.03%
325
25-Jan-52
ORC Announces Second Quarter 2022 Results
Page 4
August 4, 2022
($ in thousands)
June 30, 2022
December 31, 2021
Percentage of
Percentage of
Agency
Fair Value
Entire Portfolio
Fair Value
Entire Portfolio
Fannie Mae
$
2,591,682
65.8%
$
4,719,349
72.5%
Freddie Mac
1,349,178
34.2%
1,791,746
27.5%
Total Portfolio
$
3,940,860
100.0%
$
6,511,095
100.0%
June 30, 2022
December 31, 2021
Weighted Average Pass-through Purchase Price
$
107.77
$
107.19
Weighted Average Structured Purchase Price
$
15.35
$
15.21
Weighted Average Pass-through Current Price
$
94.61
$
105.31
Weighted Average Structured Current Price
$
16.21
$
14.08
Effective Duration
(1)
5.900
3.390
(1)
Effective duration of 5.900 indicates that an interest rate increase of
1.0% would be expected to cause a 5.900% decrease in the value of the
RMBS in the Company’s investment portfolio at June 30, 2022.
An effective duration of 3.390 indicates that an interest rate increase
of 1.0%
would be expected to cause a 3.390% decrease in the value of the RMBS in
the Company’s investment portfolio at December 31, 2021.
These
figures include the structured securities in the portfolio, but do not include the effect
of the Company’s funding cost hedges.
Effective duration
quotes for individual investments are obtained from The Yield
Book, Inc.
Financing, Leverage and Liquidity
As of June
30, 2022,
the Company
had outstanding
repurchase
obligations
of approximately
$3,759.0
million with
a net weighted
average borrowing
rate of 1.36%.
These agreements
were collateralized
by RMBS
with a fair
value, including
accrued interest,
of
approximately
$3,939.4
million and
cash pledged
to counterparties
of approximately
$51.1 million.
The Company’s
leverage
ratio at
June
30, 2022
was 7.8 to
- At June
30, 2022,
the Company’s
liquidity
was approximately
$233.7 million,
consisting
of
cash and cash
equivalents
and unpledged
RMBS (not
including
unsettled
securities
purchases).
To enhance our liquidity
even further,
we may pledge
more of our
structured
RMBS as part
of a repurchase
agreement
funding,
but retain
the cash in
lieu of acquiring
additional
assets.
In this
way we can,
at a modest
cost, retain
higher levels
of cash on
hand and
decrease
the likelihood
we will have
to sell assets
in a distressed
market in
order to
raise cash.
Below is
a list of
our outstanding
borrowings
under repurchase
obligations
at June 30,
2022.
ORC Announces Second Quarter 2022 Results
Page 5
August 4, 2022
($ in thousands)
Weighted
Weighted
Total
Average
Average
Outstanding
% of
Borrowing
Amount
Maturity
Counterparty
Balances
Total
Rate
at Risk
(1)
in Days
J.P.
Morgan Securities LLC
$
355,463
9.4%
1.44%
$
23,431
40
ABN AMRO Bank N.V.
332,722
8.9%
0.97%
12,527
12
Mitsubishi UFJ Securities (USA), Inc.
330,133
8.8%
1.69%
35,065
34
Merrill Lynch, Pierce, Fenner & Smith Inc.
320,104
8.5%
1.15%
15,687
16
Mirae Asset Securities (USA) Inc.
291,534
7.8%
1.16%
14,802
65
Cantor Fitzgerald & Co.
246,670
6.6%
1.50%
15,636
28
RBC Capital Markets, LLC
228,511
6.1%
1.23%
9,416
26
ING Financial Markets LLC
196,520
5.2%
1.64%
10,070
28
ASL Capital Markets Inc.
179,465
4.8%
1.57%
11,301
18
Santander Bank, N.A.
173,115
4.6%
1.34%
10,128
27
Goldman Sachs & Co. LLC
158,182
4.2%
1.62%
10,858
25
ED&F Man Capital Markets Inc.
150,941
4.0%
1.02%
7,416
20
Daiwa Capital Markets America, Inc.
144,585
3.8%
1.58%
7,031
18
Wells Fargo Bank, N.A.
123,434
3.3%
1.10%
7,373
14
Citigroup Global Markets, Inc.
115,434
3.1%
1.37%
7,055
21
BMO Capital Markets Corp.
115,236
3.1%
1.20%
8,471
18
Nomura Securities International, Inc.
86,155
2.3%
1.61%
5,958
22
Austin Atlantic Asset Management Co.
83,356
2.2%
1.62%
5,124
6
South Street Securities, LLC
60,322
1.6%
1.17%
3,595
18
Lucid Cash Fund USG LLC
24,157
0.6%
1.27%
1,420
14
StoneX Financial Inc.
23,337
0.6%
1.62%
1,454
28
Lucid Prime Fund LLC
19,604
0.5%
1.52%
3,790
14
Total / Weighted
Average
$
3,758,980
100.0%
1.36%
$
227,608
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 Second Quarter 2022 Results
Page 6
August 4, 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
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 June 30,
2022, such
instruments
were comprised
of Treasury note
(“T-
Note”) futures
contracts,
interest rate
swap agreements,
interest
rate swaption
agreements,
interest
rate caps
and contracts
to buy and
sell
TBA securities.
The table
below presents
information
related to
the Company’s
T-Note futures
contracts
at June 30,
2022.
($ in thousands)
Average
Weighted
Weighted
Contract
Average
Average
Notional
Entry
Effective
Open
Expiration Year
Amount
Rate
Rate
Equity
(1)
Treasury Note Futures Contracts (Short
Positions)
(2)
September 2022 5-year T-Note futures
(Sep 2022 - Sep 2027 Hedge Period)
$
1,200,500
3.13%
3.32%
4,138
September 2022 10-year Ultra futures
(Sep 2022 - Sep 2032 Hedge Period)
$
274,500
2.64%
2.84%
$
2,442
(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 $112.25
at June 30, 2022.
The contract values of the short positions were $1,347.6
million at June 30, 2022. 10-Year
Ultra futures contracts were valued at a price of $127.38 at June 30, 2022. The
contract value of the short
position was $349.6 million at June 30, 2022.
The table
below presents
information
related to
the Company’s
interest
rate swap
positions
at June 30,
2022.
($ in thousands)
Average
Net
Fixed
Average
Estimated
Average
Notional
Pay
Receive
Fair
Maturity
Expiration
Amount
Rate
Rate
Value
(Years)
> 3 to ≤ 5 years
$
500,000
0.84%
1.95%
43,221
4.2
> 5 years
900,000
1.70%
1.32%
60,917
7.1
$
1,400,000
1.39%
1.54%
$
104,138
6.1
ORC Announces Second Quarter 2022 Results
Page 7
August 4, 2022
The following
table presents
information
related to
our interest
rate swaption
positions
as of June
30, 2022.
($ in thousands)
Option
Underlying Swap
Weighted
Average
Weighted
Average
Average
Adjustable
Average
Fair
Months to
Notional
Fixed
Rate
Term
Expiration
Cost
Value
Expiration
Amount
Rate
(LIBOR)
(Years)
Payer Swaptions - long
≤ 1 year
$
31,905
$
65,684
8.3
$
1,282,400
2.44%
3 Month
11.3
>1 year ≤ 2 years
24,050
23,168
15.8
728,400
3.00%
3 Month
10.0
$
55,955
$
88,852
11.0
$
2,010,800
2.65%
3 Month
10.8
Payer Swaptions - short
≤ 1 year
$
(22,250)
$
(43,296)
2.8
$
(1,433,000)
2.65%
3 Month
10.8
The following
table presents
information
related to
our interest
cap positions
as of June
30, 2022.
($ in thousands)
Net
Strike
Estimated
Notional
Swap
Curve
Fair
Expiration
Amount
Cost
Rate
Spread
Value
February 8, 2024
$
200,000
$
2,350
0.09%
10Y2Y
$
3,837
The following table summarizes our contracts to purchase and sell TBA
securities as of June 30, 2022.
($ in thousands)
Notional
Net
Amount
Cost
Market
Carrying
Long (Short)
(1)
Basis
(2)
Value
(3)
Value
(4)
June 30, 2022
30-Year TBA securities:
2.0%
$
(175,000)
$
(153,907)
$
(152,250)
$
1,657
15-Year TBA securities:
3.5%
175,000
174,434
174,139
(295)
$
-
$
20,527
$
21,889
$
1,362
(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 Second Quarter 2022 Results
Page 8
August 4, 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)
0.335
59,383
Totals
$
12.770
$
498,947
(1)
On July 13, 2022, the Company declared a dividend of $0.045 per share
to be paid on August 29, 2022.
The effect of this dividend is included
in the table above but is not reflected in the Company’s financial statements
as of June 30, 2022.
Book Value Per Share
The Company's book value
per share at June
30, 2022 was $2.87.
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
June
30,
2022, the
Company's
stockholders' equity was $506.4 million with 176,251,193 shares of common stock
outstanding.
Capital Allocation and Return on Invested Capital
The table below details the changes to the respective sub-portfolios during the
quarter.
(in thousands)
Portfolio Activity for the Quarter
Structured Security Portfolio
Pass-Through
Interest-Only
Inverse Interest
Portfolio
Securities
Only Securities
Sub-total
Total
Market value - March 31, 2022
$
4,372,517
$
206,617
$
1,460
$
208,077
$
4,580,594
Securities purchased
190,638
-
-
-
190,638
Securities sold
(486,927)
(34,638)
-
(34,638)
(521,565)
(Losses) Gains on sales
(17,440)
1,997
-
1,997
(15,443)
Return of investment
n/a
(6,304)
(42)
(6,346)
(6,346)
Pay-downs
(116,595)
n/a
-
n/a
(116,595)
Discount accretion due to pay-downs
726
n/a
-
n/a
726
Mark to market (losses) gains
(176,768)
6,082
(463)
5,619
(171,149)
Market value - June 30, 2022
$
3,766,151
$
173,754
$
955
$
174,709
$
3,940,860
ORC Announces Second Quarter 2022 Results
Page 9
August 4, 2022
The Company allocates capital to two RMBS sub-portfolios, the pass-through
RMBS portfolio, consisting of mortgage pass-through
certificates issued by Fannie Mae, Freddie Mac or Ginnie Mae (the “GSEs”)
and collateralized mortgage obligations (“CMOs”) issued
by the GSEs (“PT RMBS”), and the structured RMBS portfolio, consisting of
interest-only (“IO”) and inverse interest-only (“IIO”)
securities.
As of March 31, 2022, approximately 62% 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 June 30, 2022, the allocation to the PT
RMBS portfolio remained approximately 62%.
The tables below present the allocation of capital between the respective
portfolios at June 30, 2022 and March 31, 2022, and the
return on invested capital for each sub-portfolio for the three month period ended
June 30, 2022.
($ in thousands)
Capital Allocation
Structured Security Portfolio
Pass-Through
Interest-Only
Inverse Interest
Portfolio
Securities
Only Securities
Sub-total
Total
June 30, 2022
Market value
$
3,766,151
$
173,754
$
955
$
174,709
$
3,940,860
Cash
283,371
-
-
-
283,371
Borrowings
(1)
(3,758,980)
-
-
-
(3,758,980)
Total
$
290,542
$
173,754
$
955
$
174,709
$
465,251
% of Total
62.4%
37.3%
0.2%
37.6%
100.0%
March 31, 2022
Market value
$
4,372,517
$
206,617
$
1,460
$
208,077
$
4,580,594
Cash
427,445
-
-
-
427,445
Borrowings
(2)
(4,464,109)
-
-
-
(4,464,109)
Total
$
335,853
$
206,617
$
1,460
$
208,077
$
543,930
% of Total
61.7%
38.0%
0.3%
38.3%
100.0%
(1)
At June 30, 2022, there were outstanding repurchase agreement balances of
$144.9 million secured by IO securities and $0.8 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 March 31, 2022, there were outstanding repurchase agreement balances of $157.1
million secured by IO securities
and $1.4 million secured
by IIO securities.
We entered into these arrangements to generate additional
cash available to meet margin calls on PT RMBS; therefore, we
have not considered these balances to be allocated to the structured securities strategy.
The return on invested capital in the PT RMBS and structured RMBS portfolios
was approximately (19.7)% and 5.3%, respectively,
for the second quarter of 2022.
The combined portfolio generated a return on invested capital of approximately (10.1)%.
ORC Announces Second Quarter 2022 Results
Page 10
August 4, 2022
($ in thousands)
Returns for the Quarter Ended June 30, 2022
Structured Security Portfolio
Pass-Through
Interest-Only
Inverse Interest
Portfolio
Securities
Only Securities
Sub-total
Total
Income (net of borrowing cost)
$
23,714
$
3,107
$
267
$
3,374
$
27,088
Realized and unrealized (losses) / gains
(193,657)
8,079
(463)
7,616
(186,041)
Derivative gains
103,758
n/a
n/a
n/a
103,758
Total Return
$
(66,185)
$
11,186
$
(196)
$
10,990
$
(55,195)
Beginning Capital Allocation
$
335,853
$
206,617
$
1,460
$
208,077
$
543,930
Return on Invested Capital for the Quarter
(1)
(19.7)%
5.4%
(13.4)%
5.3%
(10.1)%
Average Capital Allocation
(2)
$
313,198
$
190,186
$
1,208
$
191,394
$
504,592
Return on Average Invested Capital for the Quarter
(3)
(21.1)%
5.9%
(16.2)%
5.7%
(10.9)%
(1)
Calculated by dividing the Total
Return by the Beginning Capital Allocation, expressed as a percentage.
(2)
Calculated using two data points, the Beginning and Ending Capital Allocation balances.
(3)
Calculated by dividing the Total
Return by the Average Capital Allocation, expressed as a percentage.
Stock Offerings
On October 29, 2021, we entered into an equity distribution agreement (the “October
2021 Equity Distribution Agreement”) with
four sales agents pursuant to which we may offer and sell, from time to time, up to an
aggregate amount of $250,000,000 of shares of
our common stock in transactions that are deemed to be “at the market” offerings and privately
negotiated transactions. Through June
30, 2022, we issued a total of 15,835,700 shares under the October 2021
Equity Distribution Agreement for aggregate gross proceeds
of approximately $78.3 million, and net proceeds of approximately $77.0 million,
after commissions and fees. We did not issue any
shares under the October 2021 Equity Distribution Agreement during the
six months ended June 30, 2022.
Stock Repurchase Program
On July 29, 2015, the Company’s Board of Directors authorized the repurchase of up to 2,000,000
shares of our common stock.
The timing, manner, price and amount of any repurchases is determined by the Company in its discretion and is
subject to economic
and market conditions, stock price, applicable legal requirements and other factors.
The authorization does not obligate the Company
to acquire any particular amount of common stock and the program may
be suspended or discontinued at the Company’s discretion
without prior notice. On February 8, 2018, the Board of Directors approved
an increase in the stock repurchase program for up to an
additional 4,522,822 shares of the Company’s common stock. Coupled with the
783,757 shares remaining from the original 2,000,000
share authorization, the increased authorization brought the total authorization
to 5,306,579 shares, representing 10% of the
Company’s then outstanding share count. On December 9, 2021, the Board of Directors
approved an increase in the number of shares
of the Company’s common stock available in the stock repurchase program for up
to an additional 16,861,994 shares, bringing the
remaining authorization under the stock repurchase program to 17,699,305 shares,
representing approximately 10% of the Company’s
then outstanding shares of common stock. This stock repurchase program has no
termination date.
From the inception of the stock repurchase program through June 30, 2022,
the Company repurchased a total of 6,561,810 shares
at an aggregate cost of approximately $42.6 million, including commissions and fees,
for a weighted average price of $6.49 per share.
During the three months ended June 30, 2022, the Company repurchased a total of
876,299 shares at an aggregate cost of
approximately $2.2 million, including commissions and fees, for a weighted average
price of $2.53 per share.
ORC Announces Second Quarter 2022 Results
Page 11
August 4, 2022
Earnings Conference Call Details
An earnings conference call and live audio webcast will be hosted Friday, August 5, 2022, at 10:00 AM ET. The conference call
may be accessed by dialing toll free (888) 510-2356. The conference passcode
is 8493186. The supplemental materials may be
downloaded from the investor relations section of the Company’s website at https://ir.orchidislandcapital.com. A live audio webcast
of
the conference call can be accessed via the investor relations section of the Company’s website at https://ir.orchidislandcapital.com,
and an audio archive of the webcast will be available until September 4, 2022.
About Orchid Island Capital, Inc.
Orchid Island Capital, Inc. is a specialty finance company that invests on a leveraged
basis in Agency RMBS. Our investment
strategy focuses on, and our portfolio consists of, two categories of Agency RMBS:
(i) traditional pass-through Agency RMBS, such as
mortgage pass-through certificates, and CMOs issued by the GSEs, and
(ii) structured Agency RMBS, such as IOs, IIOs and principal
only securities, among other types of structured Agency RMBS. Orchid is managed by
Bimini Advisors, LLC, a registered investment
adviser with the Securities and Exchange Commission.
Forward Looking Statements
Statements herein relating to matters that are not historical facts, including,
but not limited to statements regarding interest rates,
liquidity, pledging of our structured RMBS, funding levels and spreads, prepayment speeds, portfolio positioning and repositioning,
hedging levels, dividends, growth, the supply and demand for Agency RMBS,
the effect of actual or expected actions of the U.S.
government, including the Federal Reserve, market expectations, future opportunities
and prospects of the Company, the stock
repurchase program and general economic conditions, are forward-looking statements
as defined in the Private Securities Litigation
Reform Act of 1995. The reader is cautioned that such forward-looking statements
are based on information available at the time and
on management's good faith belief with respect to future events, and are subject
to risks and uncertainties that could cause actual
performance or results to differ materially from those expressed in such forward-looking statements.
Important factors that could cause
such differences are described in Orchid Island Capital, Inc.'s filings with the Securities
and Exchange Commission, including its most
recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.
Orchid Island Capital, Inc. assumes no obligation to update
forward-looking statements to reflect subsequent results, changes in assumptions
or changes in other factors affecting forward-looking
statements.
CONTACT:
Orchid Island Capital, Inc.
Robert E. Cauley, 772-231-1400
Chairman and Chief Executive Officer
https://ir.orchidislandcapital.com
ORC Announces Second Quarter 2022 Results
Page 12
August 4, 2022
Summarized
Financial
Statements
The following
is a summarized
presentation
of the unaudited
balance sheets
as of June
30, 2022,
and December
31, 2021,
and the
unaudited
quarterly
statements
of operations
for the six
and three
months ended
June 30,
2022 and
- Amounts
presented
are subject
to change.
ORCHID ISLAND CAPITAL, INC.
BALANCE SHEETS
($ in thousands, except per share data)
(Unaudited - Amounts Subject to Change)
June 30, 2022
December 31, 2021
ASSETS:
Mortgage-backed securities
$
3,940,860
$
6,511,095
U.S. Treasury Notes
36,302
37,175
Cash, cash equivalents and restricted cash
283,371
450,442
Accrued interest receivable
13,932
18,859
Derivative assets, at fair value
198,484
50,786
Other assets
1,420
320
Total Assets
$
4,474,369
$
7,068,677
LIABILITIES AND STOCKHOLDERS' EQUITY
Repurchase agreements
$
3,758,980
$
6,244,106
Dividends payable
7,960
11,530
Derivative liabilities, at fair value
43,591
7,589
Accrued interest payable
3,940
788
Due to affiliates
1,138
1,062
Other liabilities
152,398
35,505
Total Liabilities
3,968,007
6,300,580
Total Stockholders' Equity
506,362
768,097
Total Liabilities
and Stockholders' Equity
$
4,474,369
$
7,068,677
Common shares outstanding
176,251,193
176,993,049
Book value per share
$
2.87
$
4.34
ORC Announces Second Quarter 2022 Results
Page 13
August 4, 2022
ORCHID ISLAND CAPITAL, INC.
STATEMENTS
OF OPERATIONS
($ in thousands, except per share data)
(Unaudited - Amounts Subject to Change)
Six Months Ended June 30,
Three Months Ended June 30,
2022
2021
2022
2021
Interest income
$
77,125
$
56,110
$
35,268
$
29,254
Interest expense
(10,835)
(3,497)
(8,180)
(1,556)
Net interest income
66,290
52,613
27,088
27,698
Losses on RMBS and derivative contracts
(265,515)
(91,635)
(82,283)
(40,844)
Net portfolio loss
(199,225)
(39,022)
(55,195)
(13,146)
Expenses
9,641
7,212
4,944
3,719
Net loss
$
(208,866)
$
(46,234)
$
(60,139)
$
(16,865)
Basic net loss per share
$
(1.18)
$
(0.50)
$
(0.34)
$
(0.17)
Diluted net loss per share
$
(1.18)
$
(0.50)
$
(0.34)
$
(0.17)
Weighted Average Shares Outstanding
177,015,963
92,456,082
177,034,159
99,489,065
Dividends Declared Per Common Share:
$
0.290
$
0.390
$
0.135
$
0.195
Three Months Ended June 30,
Key Balance Sheet Metrics
2022
2021
Average RMBS
(1)
$
4,260,727
$
4,504,887
Average repurchase agreements
(1)
4,111,544
4,348,192
Average stockholders' equity
(1)
549,390
509,999
Leverage ratio
(2)
7.8:1
8.2:1
Key Performance Metrics
Average yield on RMBS
(3)
3.31%
2.60%
Average cost of funds
(3)
0.80%
0.14%
Average economic cost of funds
(4)
0.60%
0.61%
Average interest rate spread
(5)
2.51%
2.46%
Average economic interest rate spread
(6)
2.71%
1.99%
(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.