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): July 25, 2019
Orchid Island Capital, Inc.
(Exact Name of Registrant as Specified in Charter)
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Maryland
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001-35236
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27-3269228
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(State or Other Jurisdiction of Incorporation)
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(Commission File Number)
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(IRS Employer Identification No.)
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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:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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| ☐ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class:
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Trading symbol:
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Name of each exchange on which registered:
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Common Stock, par value $0.01 per share
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ORC
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NYSE
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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 July 25, 2019, 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, 2019. In addition, the Company posted supplemental financial information on the investor
relations section of its website (www.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.
Forward-Looking Statements
Disclaimer
This Current Report on Form 8-K contains “forward-looking statements” made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995, 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, the supply and demand for Agency RMBS, the effect of actions of the U.S. government, including the Fed, market expectations, the stock repurchase program and general economic conditions. Forward-looking statements typically are identified
by use of terms such as “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “may” or similar expressions. Forward-looking statements are based on the Company’s beliefs, assumptions and expectations of the
Company’s future performance, taking into account all information currently available to the Company. The Company cannot assure you that actual results will not vary from the expectations contained in the forward-looking statements. All of the
forward-looking statements are subject to numerous possible events, factors and conditions, many of which are beyond the control of the Company and not all of which are known to the Company, including, without limitation, market conditions and
those described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, which has been filed with the Securities and Exchange Commission. 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 us. 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
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Exhibit No.
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Description
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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.
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Date: July 25, 2019
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ORCHID ISLAND CAPITAL, INC.
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By:
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/s/ Robert E. Cauley
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Robert E. Cauley
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Chairman and Chief Executive Officer
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EXHIBIT 99.1
ORCHID ISLAND CAPITAL ANNOUNCES SECOND QUARTER 2019 RESULTS
VERO BEACH, Fla. (July 25, 2019) – 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, 2019.
Second Quarter 2019 Highlights
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·
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Net income of $3.5 million, or $0.07 per common share, which consists of:
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·
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Net interest income of $14.0 million, or $0.27 per common share
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·
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Total expenses of $2.8 million, or $0.05 per common share
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·
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Net realized and unrealized losses of $7.7 million, or $0.15 per share, on RMBS and derivative instruments, including net interest
income on interest rate swaps
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·
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Second quarter total dividends declared and paid of $0.24 per common share
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·
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Book value per share of $6.63 at June 30, 2019
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·
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0.7% economic gain on common equity for the quarter, or 2.9% annualized, comprised of $0.24 dividend per common share and $0.19
decrease in net book value per common share, divided by beginning book value per share
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·
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Estimated 3.9% total return for the six months ended June 30, 2019, or 7.9% annualized
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·
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Company to discuss results on Friday, July 26, 2019, at 10:00 AM ET
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·
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Supplemental materials to be discussed on the call can be downloaded from the investor relations section of the Company’s website at
www.orchidislandcapital.com
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Details of Second Quarter 2019 Results of Operations
The Company reported net income of $3.5 million for the three month period ended June 30, 2019, compared with net income of
$1.3 million for the three month period ended June 30, 2018. The second quarter net income included net interest income of $14.0 million, net portfolio losses of $7.7 million (which includes realized and unrealized losses on RMBS and derivative
instruments, and net interest income realized on interest rate swaps), management fees and allocated overhead of $1.7 million, audit, legal and other professional fees of $0.4 million, and other operating, general and administrative expenses of
$0.7 million.
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 (“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, 2019, 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, 2019, the allocation to the PT RMBS portfolio increased by 4% to approximately 66%.
The table below details the changes to the respective sub-portfolios during the quarter, as well as the returns generated
by each.
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(in thousands)
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||||||||||||||||||||
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Portfolio Activity for the Quarter
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||||||||||||||||||||
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Structured Security Portfolio
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||||||||||||||||||||
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Pass-Through
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Interest-Only
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Inverse Interest
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||||||||||||||||||
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Portfolio
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Securities
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Only Securities
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Sub-total
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Total
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||||||||||||||||
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Market value - March 31, 2019
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$
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2,964,492
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$
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99,804
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$
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24,218
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$
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124,022
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$
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3,088,514
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||||||||||
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Securities purchased
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1,569,426
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12,265
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-
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12,265
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1,581,691
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|||||||||||||||
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Securities sold
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(1,031,906
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)
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-
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-
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-
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(1,031,906
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)
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|||||||||||||
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Gains on sales
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112
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-
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-
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-
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112
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Return of investment
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n/a
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(6,124
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)
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(1,193
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)
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(7,317
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)
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(7,317
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)
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|||||||||||
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Pay-downs
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(130,344
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)
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n/a
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n/a
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n/a
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(130,344
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)
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|||||||||||||
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Premium lost due to pay-downs
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(6,307
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)
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n/a
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n/a
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n/a
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(6,307
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)
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|||||||||||||
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Mark to market gains (losses)
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33,987
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(4,267
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)
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3,093
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(1,174
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)
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32,813
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Market value - June 30, 2019
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$
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3,399,460
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$
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101,678
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$
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26,118
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$
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127,796
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$
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3,527,256
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||||||||||
The tables below present the allocation of capital between the respective portfolios at June 30, 2019 and March 31, 2019,
and the return on invested capital for each sub-portfolio for the three month period ended June 30, 2019. The return on invested capital in the PT RMBS and structured RMBS portfolios was approximately 2.9% and 0.2%, respectively, for the second
quarter of 2019. The combined portfolio generated a return on invested capital of approximately 1.9%.
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($ in thousands)
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||||||||||||||||||||
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Capital Allocation
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||||||||||||||||||||
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Structured Security Portfolio
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Pass-Through
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Interest-Only
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Inverse Interest
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Portfolio
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Securities
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Only Securities
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Sub-total
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Total
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||||||||||||||||
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June 30, 2019
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||||||||||||||||||||
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Market value
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$
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3,399,460
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$
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101,679
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$
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26,117
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$
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127,796
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$
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3,527,256
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||||||||||
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Cash
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181,093
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-
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-
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-
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181,093
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|||||||||||||||
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Borrowings(1)
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(3,329,527
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)
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-
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-
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-
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(3,329,527
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)
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|||||||||||||
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Total
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$
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251,026
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$
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101,679
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$
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26,117
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$
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127,796
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$
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378,822
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||||||||||
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% of Total
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66.3
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%
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26.8
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%
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6.9
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%
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33.7
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%
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100.0
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%
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||||||||||
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March 31, 2019
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||||||||||||||||||||
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Market value
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$
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2,964,492
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$
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99,804
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$
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24,218
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$
|
124,022
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$
|
3,088,514
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||||||||||
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Cash(2)
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107,905
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-
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-
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-
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107,905
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|||||||||||||||
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Borrowings(3)
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(2,866,738
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)
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-
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-
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-
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(2,866,738
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)
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|||||||||||||
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Total
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$
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205,659
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$
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99,804
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$
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24,218
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$
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124,022
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$
|
329,681
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||||||||||
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% of Total
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62.4
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%
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30.3
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%
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7.3
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%
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37.6
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%
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100.0
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%
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||||||||||
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(1)
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At June 30, 2019, there were outstanding repurchase
agreement balances of $78.5 million secured by IO securities and $11.7 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.
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(2)
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At March 31, 2019, cash was reduced by unsettled
security purchases of approximately $35.0 million, which have already been reflected in the market value of the portfolio.
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(3)
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At March 31, 2019, there were outstanding repurchase agreement balances of $80.7 million secured by IO securities and $11.7 million
secured by IIO securities. We entered into these arrangements to generate additional cash available to meet margin calls on PT RMBS; therefore, we have not considered these balances to be allocated to the structured securities
strategy.
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($ in thousands)
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||||||||||||||||||||
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Returns for the Quarter Ended June 30, 2019
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||||||||||||||||||||
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Structured Security Portfolio
|
||||||||||||||||||||
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Pass-Through
|
Interest-Only
|
Inverse Interest
|
||||||||||||||||||
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Portfolio
|
Securities
|
Only Securities
|
Sub-total
|
Total
|
||||||||||||||||
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Income (net of borrowing cost)
|
$
|
12,561
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$
|
1,233
|
$
|
231
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$
|
1,464
|
$
|
14,025
|
||||||||||
|
Realized and unrealized gains / (losses)
|
27,792
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(4,267
|
)
|
3,093
|
(1,174
|
)
|
26,618
|
|||||||||||||
|
Derivative losses
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(34,288
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)
|
n/a
|
n/a
|
n/a
|
(34,288
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)
|
|||||||||||||
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Total Return
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$
|
6,065
|
$
|
(3,034
|
)
|
$
|
3,324
|
$
|
290
|
$
|
6,355
|
|||||||||
|
Beginning Capital Allocation
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$
|
205,659
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$
|
99,804
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$
|
24,218
|
$
|
124,022
|
$
|
329,681
|
||||||||||
|
Return on Invested Capital for the Quarter(1)
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2.9
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%
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(3.0
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)%
|
13.7
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%
|
0.2
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%
|
1.9
|
%
|
||||||||||
|
Average Capital Allocation(2)
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$
|
228,343
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$
|
100,742
|
$
|
25,168
|
$
|
125,910
|
$
|
354,253
|
||||||||||
|
Return on Average Invested Capital for the Quarter(3)
|
2.7
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%
|
(3.0
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)%
|
13.2
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%
|
0.2
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%
|
1.8
|
%
|
||||||||||
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(1)
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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.
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|
(3)
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Calculated by dividing the Total Return by the Average Capital Allocation, expressed as a percentage.
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Prepayments
For the quarter ended June 30, 2019, Orchid received $137.7 million in scheduled and unscheduled principal repayments and
prepayments, which equated to a 3-month constant prepayment rate (“CPR”) of approximately 11.4%. Prepayment rates on the two RMBS sub-portfolios were as follows (in CPR):
|
Structured
|
||||||||||||
|
PT RMBS
|
RMBS
|
Total
|
||||||||||
|
Three Months Ended
|
Portfolio (%)
|
Portfolio (%)
|
Portfolio (%)
|
|||||||||
|
June 30, 2019
|
10.9
|
12.7
|
11.4
|
|||||||||
|
March 31, 2019
|
9.5
|
8.4
|
9.2
|
|||||||||
|
December 31, 2018
|
6.7
|
9.0
|
7.2
|
|||||||||
|
September 30, 2018
|
7.5
|
11.5
|
8.6
|
|||||||||
|
June 30, 2018
|
8.7
|
11.8
|
9.8
|
|||||||||
|
March 31, 2018
|
6.5
|
11.6
|
7.7
|
|||||||||
Portfolio
The following tables summarize certain characteristics of Orchid’s PT RMBS and structured RMBS as of June 30, 2019 and
December 31, 2018:
|
($ in thousands)
|
|||||||||||||||||||||||||||||
|
Weighted
|
Weighted
|
||||||||||||||||||||||||||||
|
Percentage
|
Average
|
Average
|
Weighted
|
Weighted
|
|||||||||||||||||||||||||
|
of
|
Weighted
|
Maturity
|
Coupon
|
Average
|
Average
|
||||||||||||||||||||||||
|
Fair
|
Entire
|
Average
|
in
|
Longest
|
Reset in
|
Lifetime
|
Periodic
|
||||||||||||||||||||||
|
Asset Category
|
Value
|
Portfolio
|
Coupon
|
Months
|
Maturity
|
Months
|
Cap
|
Cap
|
|||||||||||||||||||||
|
June 30, 2019
|
|||||||||||||||||||||||||||||
|
Adjustable Rate RMBS
|
$
|
1,194
|
0.0
|
%
|
4.78
|
%
|
183
|
1-Sep-35
|
0
|
10.10
|
%
|
2.89
|
%
|
||||||||||||||||
|
Fixed Rate RMBS
|
2,723,688
|
77.2
|
%
|
4.19
|
%
|
314
|
1-Jul-49
|
NA
|
NA
|
NA
|
|||||||||||||||||||
|
Fixed Rate CMOs
|
674,578
|
19.1
|
%
|
4.26
|
%
|
340
|
15-Oct-44
|
NA
|
NA
|
NA
|
|||||||||||||||||||
|
Total Mortgage-backed Pass-through
|
3,399,460
|
96.3
|
%
|
4.20
|
%
|
320
|
1-Jul-49
|
NA
|
NA
|
NA
|
|||||||||||||||||||
|
Interest-Only Securities
|
101,678
|
2.9
|
%
|
3.76
|
%
|
252
|
25-Jul-48
|
NA
|
NA
|
NA
|
|||||||||||||||||||
|
Inverse Interest-Only Securities
|
26,118
|
0.8
|
%
|
2.71
|
%
|
291
|
15-Jul-47
|
NA
|
4.49
|
%
|
NA
|
||||||||||||||||||
|
Total Structured RMBS
|
127,796
|
3.7
|
%
|
3.54
|
%
|
260
|
25-Jul-48
|
NA
|
NA
|
NA
|
|||||||||||||||||||
|
Total Mortgage Assets
|
$
|
3,527,256
|
100.0
|
%
|
4.05
|
%
|
306
|
1-Jul-49
|
NA
|
NA
|
NA
|
||||||||||||||||||
|
December 31, 2018
|
|||||||||||||||||||||||||||||
|
Adjustable Rate RMBS
|
$
|
1,437
|
0.0
|
%
|
4.75
|
%
|
190
|
1-Sep-35
|
4.51
|
10.04
|
%
|
2.76
|
%
|
||||||||||||||||
|
Fixed Rate RMBS
|
2,130,974
|
70.7
|
%
|
4.28
|
%
|
275
|
1-Nov-48
|
NA
|
NA
|
NA
|
|||||||||||||||||||
|
Fixed Rate CMOs
|
741,926
|
24.6
|
%
|
4.27
|
%
|
348
|
15-Oct-44
|
NA
|
NA
|
NA
|
|||||||||||||||||||
|
Total Mortgage-backed Pass-through
|
2,874,337
|
95.3
|
%
|
4.27
|
%
|
294
|
1-Nov-48
|
NA
|
NA
|
NA
|
|||||||||||||||||||
|
Interest-Only Securities
|
116,415
|
3.9
|
%
|
3.74
|
%
|
254
|
25-Jul-48
|
NA
|
NA
|
NA
|
|||||||||||||||||||
|
Inverse Interest-Only Securities
|
23,751
|
0.8
|
%
|
2.65
|
%
|
297
|
15-Jul-47
|
NA
|
4.52
|
%
|
NA
|
||||||||||||||||||
|
Total Structured RMBS
|
140,166
|
4.7
|
%
|
3.55
|
%
|
264
|
25-Jul-48
|
NA
|
NA
|
NA
|
|||||||||||||||||||
|
Total Mortgage Assets
|
$
|
3,014,503
|
100.0
|
%
|
4.06
|
%
|
286
|
1-Nov-48
|
NA
|
NA
|
NA
|
||||||||||||||||||
|
($ in thousands)
|
||||||||||||||||
|
June 30, 2019
|
December 31, 2018
|
|||||||||||||||
|
Percentage of
|
Percentage of
|
|||||||||||||||
|
Agency
|
Fair Value
|
Entire Portfolio
|
Fair Value
|
Entire Portfolio
|
||||||||||||
|
Fannie Mae
|
$
|
2,369,632
|
67.2
|
%
|
$
|
1,527,055
|
50.7
|
%
|
||||||||
|
Freddie Mac
|
1,154,693
|
32.7
|
%
|
1,483,406
|
49.2
|
%
|
||||||||||
|
Ginnie Mae
|
2,931
|
0.1
|
%
|
4,042
|
0.1
|
%
|
||||||||||
|
Total Portfolio
|
$
|
3,527,256
|
100.0
|
%
|
$
|
3,014,503
|
100.0
|
%
|
||||||||
|
June 30, 2019
|
December 31, 2018
|
|||||||
|
Weighted Average Pass-through Purchase Price
|
$
|
104.33
|
$
|
104.57
|
||||
|
Weighted Average Structured Purchase Price
|
$
|
15.24
|
$
|
15.14
|
||||
|
Weighted Average Pass-through Current Price
|
$
|
105.65
|
$
|
103.64
|
||||
|
Weighted Average Structured Current Price
|
$
|
13.02
|
$
|
14.04
|
||||
|
Effective Duration (1)
|
0.940
|
2.078
|
||||||
|
(1)
|
Effective duration of 0.940 indicates that an interest rate increase of 1.0% would be expected to cause a 0.940% decrease in the
value of the RMBS in the Company’s investment portfolio at June 30, 2019. An effective duration of 2.078 indicates that an interest rate increase of 1.0% would be expected to cause a 2.078% decrease in the value of the RMBS in the
Company’s investment portfolio at December 31, 2018. 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, 2019, the Company had outstanding repurchase obligations of approximately $3,329.5 million with a net
weighted average borrowing rate of 2.63%. These agreements were collateralized by RMBS with a fair value, including accrued interest, of approximately $3,518.5 million and cash pledged to counterparties of approximately $32.7 million. The
Company’s leverage ratio at June 30, 2019 was 9.4 to 1. At June 30, 2019, the Company’s liquidity was approximately $157.9 million, consisting of unpledged RMBS (excluding the value of the unsettled purchases) and cash and cash equivalents. To
enhance our liquidity even further, we may pledge more of our structured RMBS as part of a repurchase agreement funding, but retain the cash in lieu of acquiring additional assets. In this way we can, at a modest cost, retain higher levels of
cash on hand and decrease the likelihood we will have to sell assets in a distressed market in order to raise cash. Below is a list of our outstanding borrowings under repurchase obligations at June 30, 2019.
|
($ in thousands)
|
|||||||||
|
Weighted
|
Weighted
|
||||||||
|
Total
|
Average
|
Average
|
|||||||
|
Outstanding
|
% of
|
Borrowing
|
Amount
|
Maturity
|
|||||
|
Counterparty
|
Balances
|
Total
|
Rate
|
at Risk(1)
|
in Days
|
||||
|
RBC Capital Markets, LLC
|
$
|
446,100
|
13.3%
|
2.66%
|
$
|
33,280
|
13
|
||
|
Wells Fargo Bank, N.A.
|
364,358
|
10.9%
|
2.61%
|
20,429
|
20
|
||||
|
Mirae Asset Securities (USA) Inc.
|
299,148
|
9.0%
|
2.63%
|
19,577
|
96
|
||||
|
J.P. Morgan Securities LLC
|
248,438
|
7.5%
|
2.61%
|
18,995
|
130
|
||||
|
ING Financial Markets LLC
|
231,851
|
7.0%
|
2.64%
|
13,120
|
20
|
||||
|
ABN AMRO Bank N.V.
|
215,550
|
6.5%
|
2.63%
|
6,426
|
39
|
||||
|
Mitsubishi UFJ Securities (USA), Inc.
|
212,928
|
6.4%
|
2.60%
|
11,432
|
90
|
||||
|
South Street Securities, LLC
|
176,794
|
5.3%
|
2.59%
|
10,282
|
217
|
||||
|
ASL Capital Markets Inc.
|
175,577
|
5.3%
|
2.60%
|
9,742
|
61
|
||||
|
Citigroup Global Markets, Inc.
|
174,334
|
5.2%
|
2.65%
|
12,027
|
48
|
||||
|
Cantor Fitzgerald & Co.
|
165,541
|
5.0%
|
2.62%
|
9,371
|
44
|
||||
|
ICBC Financial Services, LLC
|
105,687
|
3.2%
|
2.62%
|
6,328
|
43
|
||||
|
ED&F Man Capital Markets Inc.
|
96,365
|
2.9%
|
2.62%
|
5,391
|
63
|
||||
|
Guggenheim Securities, LLC
|
94,331
|
2.8%
|
2.61%
|
5,485
|
62
|
||||
|
FHLB-Cincinnati
|
82,294
|
2.5%
|
2.69%
|
3,003
|
1
|
||||
|
Daiwa Capital Markets America, Inc.
|
49,594
|
1.5%
|
2.60%
|
2,904
|
43
|
||||
|
Lucid Cash Fund USG LLC
|
46,576
|
1.4%
|
2.67%
|
3,835
|
18
|
||||
|
BMO Capital Markets Corp.
|
43,030
|
1.3%
|
2.67%
|
4,417
|
41
|
||||
|
Merrill Lynch, Pierce, Fenner & Smith Inc
|
31,461
|
0.9%
|
2.80%
|
6,323
|
7
|
||||
|
Natixis, New York Branch
|
28,368
|
0.9%
|
2.81%
|
5,836
|
15
|
||||
|
J.V.B. Financial Group, LLC
|
24,554
|
0.7%
|
2.60%
|
1,459
|
20
|
||||
|
Lucid Prime Fund LLC
|
16,648
|
0.5%
|
2.72%
|
2,322
|
6
|
||||
|
Total / Weighted Average
|
$
|
3,329,527
|
100.0%
|
2.63%
|
$
|
211,984
|
58
|
|
(1)
|
Equal to the sum of the fair value of securities sold, accrued interest receivable and cash posted as collateral (if any), minus the
sum of repurchase agreement liabilities, accrued interest payable and the fair value of securities posted by the counterparties (if any).
|
Hedging
In connection with its interest rate risk management strategy, the Company economically hedges a portion of the cost of its repurchase
agreement funding against a rise in interest rates by entering into derivative financial instrument contracts. The Company has not elected hedging treatment under U.S. generally accepted accounting principles (“GAAP”) in order to align the
accounting treatment of its derivative instruments with the treatment of its portfolio assets under the fair value option election. As such, all gains or losses on these instruments are reflected in earnings for all periods presented. At June
30, 2019, such instruments were comprised of Eurodollar and Treasury note (“T-Note”) futures contracts, interest rate swap and swaption agreements and to-be-announced (“TBA”) securities transactions.
The table below presents information related to the Company’s Eurodollar and T-Note futures contracts at June 30, 2019.
|
($ in thousands)
|
||||||||||||||||
|
Average
|
Weighted
|
Weighted
|
||||||||||||||
|
Contract
|
Average
|
Average
|
||||||||||||||
|
Notional
|
Entry
|
Effective
|
Open
|
|||||||||||||
|
Expiration Year
|
Amount
|
Rate
|
Rate
|
Equity(1)
|
||||||||||||
|
Eurodollar Futures Contracts (Short Positions)
|
||||||||||||||||
|
2019
|
$
|
500,000
|
2.88
|
%
|
1.96
|
%
|
$
|
(2,311
|
)
|
|||||||
|
2020
|
500,000
|
2.97
|
%
|
1.61
|
%
|
(6,805
|
)
|
|||||||||
|
Total / Weighted Average
|
$
|
500,000
|
2.94
|
%
|
1.73
|
%
|
$
|
(9,116
|
)
|
|||||||
|
September(2)
|
||||||||||||||||
|
June 2019 5-year T-Note futures
|
||||||||||||||||
|
(Sep 2019 - Sep 2024 Hedge Period)
|
$
|
165,000
|
2.42
|
%
|
2.15
|
%
|
$
|
(2,743
|
)
|
|||||||
|
(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 $118.16 at June 30, 2019. The notional contract value of the short position was
$195.0 million.
|
The table below presents information related to the Company’s interest rate swap positions at June 30, 2019.
|
($ in thousands)
|
||||||||||||||||||||
|
Average
|
Net
|
|||||||||||||||||||
|
Fixed
|
Average
|
Estimated
|
Average
|
|||||||||||||||||
|
Notional
|
Pay
|
Receive
|
Fair
|
Maturity
|
||||||||||||||||
|
Expiration
|
Amount
|
Rate
|
Rate
|
Value
|
(Years)
|
|||||||||||||||
|
> 1 to ≤ 3 years
|
$
|
1,150,000
|
1.70
|
%
|
2.52
|
%
|
$
|
(3,052
|
)
|
1.3
|
||||||||||
|
> 3 to ≤ 5 years
|
560,000
|
2.19
|
%
|
2.35
|
%
|
(14,060
|
)
|
4.6
|
||||||||||||
|
$
|
1,710,000
|
1.86
|
%
|
2.46
|
%
|
$
|
(17,112
|
)
|
2.4
|
|||||||||||
The following table presents information related to our interest rate swaption positions as of June 30, 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)
|
|
Payer Swaptions
|
|||||||
|
≤ 1 year
|
$949
|
$316
|
2.0
|
$250,000
|
2.04%
|
3 Month
|
5.0
|
The following table summarizes our contracts to purchase and sell TBA securities as of June 30, 2019.
|
($ in thousands)
|
|||||||||
|
Notional
|
Net
|
||||||||
|
Amount
|
Cost
|
Market
|
Carrying
|
||||||
|
Long (Short)(1)
|
Basis(2)
|
Value(3)
|
Value(4)
|
||||||
|
June 30, 2019
|
|||||||||
|
30-Year TBA securities:
|
|||||||||
|
3.5%
|
$
|
(125,000)
|
$
|
(127,461)
|
$
|
(127,805)
|
$
|
(344)
|
|
|
$
|
(125,000)
|
$
|
(127,461)
|
$
|
(127,805)
|
$
|
(344)
|
||
|
(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.
|
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 - YTD(1)
|
0.560
|
29,173
|
||||||
|
Totals
|
$
|
10.465
|
$
|
263,145
|
||||
|
(1)
|
On July 17, 2019, the Company declared a dividend of $0.08 per share to be paid on August 30, 2019. 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, 2019.
|
Peer Performance
The table below presents total return data for Orchid compared to a selected group of peers for periods through March 31,
2019.
|
Portfolio Total Rate of Return Versus Peer Group Average
|
||||||||||||
|
ORC Spread
|
||||||||||||
|
ORC
|
Over / (Under)
|
|||||||||||
|
Total Rate
|
Peer
|
Peer
|
||||||||||
|
of Return(1)
|
Average(1)(2)
|
Average(3)
|
||||||||||
|
Stub 2013 (Annualized)(4)
|
(2.8
|
)%
|
(15.4
|
)%
|
12.6
|
%
|
||||||
|
2014 Total Return
|
13.6
|
%
|
15.6
|
%
|
(2.0
|
)%
|
||||||
|
2015 Total Return
|
3.8
|
%
|
(1.6
|
)%
|
5.4
|
%
|
||||||
|
2016 Total Return
|
1.1
|
%
|
0.4
|
%
|
0.7
|
%
|
||||||
|
2017 Total Return
|
3.0
|
%
|
13.1
|
%
|
(10.1
|
)%
|
||||||
|
2018 Total Return
|
(9.2
|
)%
|
(6.1
|
)%
|
(3.1
|
)%
|
||||||
|
First Quarter 2019
|
3.2
|
%
|
4.6
|
%
|
(1.4
|
)%
|
||||||
|
Three Year Total Return
|
0.5
|
%
|
9.7
|
%
|
(9.2
|
)%
|
||||||
|
Five Year Total Return
|
20.5
|
%
|
16.0
|
%
|
4.5
|
%
|
||||||
|
Inception to 3/31/2019(4)
|
12.3
|
%
|
6.0
|
%
|
6.3
|
%
|
||||||
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. None of the return calculations are annualized except the Stub 2013 calculation.
|
|
(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: NLY, AGNC, ANH, CMO and ARR have been included since ORC inception. HTS is included from ORC inception to Q1 2016. MTGE is included from Q1 2017 to Q2 2018. CYS is included from ORC inception to
Q2 2018. WMC is included from ORC inception to Q4 2018. DX was added in Q1 2017. AI and CHMI were added in Q1 2019.
|
|
(3)
|
Represents the total rate of return for Orchid minus peer average in each respective measurement period.
|
|
(4)
|
Orchid completed its Initial Public Offering, or IPO, in February 2013. We have elected to start our comparison
beginning with Orchid's first full operating quarter, which was the second quarter of 2013. The Orchid IPO price was $15.00 per share on February 13, 2013, and Orchid paid its first dividend of $0.135 per share in March 2013. The book
value per share at March 31, 2013 was $14.98.
|
Book Value Per Share
The Company's book value per share at June 30, 2019 was $6.63. 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, 2019, the Company's stockholders' equity was $359.7 million with 54,282,997 shares of common stock outstanding.
Stock Offerings
On August 2, 2017, we entered into an equity distribution agreement (the “August 2017 Equity Distribution Agreement”) with
two sales agents pursuant to which we may offer and sell, from time to time, up to an aggregate amount of $125,000,000 of shares of our common stock in transactions that are deemed to be “at the market” offerings and privately negotiated
transactions. Through June 30, 2019, we issued a total of 13,351,877 shares under the August 2017 Equity Distribution Agreement for aggregate gross proceeds of $113.7 million, and net proceeds of approximately $112.0 million, net of commissions
and fees. Subsequent to June 30, 2019, we issued an additional 1,771,301 shares under the August 2017 Equity Distribution Agreement for aggregate gross proceeds
of approximately $11.3 million, and net proceeds of approximately $11.1 million, net of commissions and fees.
Stock Repurchase Program
On July 29, 2015, the Board of Directors passed a resolution authorizing the repurchase of up to 2,000,000 shares of the
Company’s common stock. As part of the stock repurchase program, shares may be purchased in open market transactions, including through block purchases, 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. 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 is determined by the Company in its discretion and is subject to economic and market conditions, stock price, applicable legal requirements and other factors. 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. 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.
Since inception of the program through June 30, 2019, the Company repurchased a total of 5,665,620 shares under the stock
repurchase program at an aggregate cost of approximately $40.3 million, including commissions and fees, for a weighted average price of $7.11 per share. However, we did not repurchase any shares of our common stock during the three months ended
June 30, 2019. As of June 30, 2019, the remaining authorization under the repurchase program is for up to 857,202 shares of the Company’s common stock.
Management Commentary
Commenting on the second quarter, Robert E. Cauley, Chairman and Chief Executive Officer, said, “The turn in the outlook
for interest rate policy from the Federal Reserve (the “Fed”) was completed during the second quarter of 2019. The multi-year tightening cycle that began in late 2015 ended in December 2018. After a brief period with a balanced outlook, the Fed
appears ready to commence an easing cycle. The Fed, and their outlook for policy, is now aligned with the other major central banks. The strength of the domestic economy alone does not appear to justify the change in policy, at least not yet.
While the manufacturing side of the economy has slowed noticeably from the level observed in 2018, the consumer and consumption side has not. The job market in the U.S. has not generated the gains seen in prior years, but job gains are still
above the level needed to reduce excess slack in the economy, to the extent it exists. Instead, the Fed is focused on international trade – especially trade between the U.S. and China, the threat of escalating tariffs, a global growth
deceleration, especially in China and European Union (the “EU”), a potential no-deal Brexit and fading inflation expectations. The equity markets in the U.S. have performed well year to date due to a large extent on the fact that the world’s
central banks appear ready to intervene in order to sustain the current economic expansion.
“The Agency MBS market generated a positive 2.0% return for the second quarter, although this return lagged that of
comparable duration U.S Treasury securities. In the aggregate, the Agency MBS sector underperformed comparable duration U.S Treasuries by 0.70%. The decline in interest rates stoked fears of increased levels of prepayment activity. With generic
loan characteristics of Agency MBS quite poor, coupled with the seasonal peak in prepayment activity, the decline in rates available to borrowers and subsequent surge in production volumes, overwhelmed Agency MBS performance. Heightened levels of
volatility also negatively impacted performance. Since the end of the second quarter, the rates market appears to have settled into a range and volatility has abated, allowing Agency MBS to do quite well, despite still elevated levels of daily
production of new loans/securities.
“In June of 2019 the Uniform MBS (“UMBS”) began trading. UMBS are passthrough securities representing an interest in a
pool of residential mortgages that are issued and guaranteed by either Fannie Mae or Freddie Mac. The UMBS were designed to eliminate differences in underwriting, servicing and trading levels between Fannie Mae and Freddie Mac securities and to
increase liquidity in the TBA market. It remains to be seen how effective the UMBS program will be at accomplishing these objectives. As mentioned above, the other significant development in the Agency MBS market was the continued deterioration
in the TBA market. With lower rates available to borrowers, and rates continuing to decline into the third quarter, refinancing activity has increased and all agency loans outside of the specified pool market continue to exhibit very poor
prepayment behavior. The collateral generally has historically high gross weighted average coupons for any given coupon, higher loan balances and higher FICO scores – all consistent with higher prepayment expectations. This has led to a
material increase in premiums charged for pools with more desirable prepayment characteristics. While these premiums have increased, and are very high for the current level of rates, the all-in price for specified securities is historically low
for the level of rates. This is because the dollar prices for the various TBA securities is very low for the level of rates – reflecting the very poor prepayment characteristics of the TBA collateral.
“As discussed above, the market and outlook for interest rates and the economy has changed materially since the end of the
third quarter of 2018. We continue to take steps to reposition both the portfolio and hedge positions as a result. With the Fed’s tightening cycle appearing to be over, we repositioned our funding hedges during the first quarter of 2019. On the
asset side, we have continued to add duration to the portfolio by decreasing the allocation of 15 and 20-year passthroughs and shorter CMOs towards 30-year securities. The shift was approximately 10.5% lower/higher to shorter/longer duration
securities. Within the allocation to 30-year securities, we shifted the portfolio down in coupon to further add to our duration. We added a new position in 30-year, 3.0% securities of approximately 7.4%. We increased the allocation to 30-year,
3.5% securities by approximately 4%, and reduced the heavy concentration of 30-year, 4.5% securities – previously approximately 26% of the portfolio, to just 4% of the portfolio. The proceeds were split evenly into 30-year, 4% and 5%
securities. Those two buckets now comprise approximately 22% and 24%, respectively. We continue to have a significant allocation to specified pools. The allocation of specified pools is skewed towards loan balance pools, although not entirely
so.
“On the capital front, we added to our capital base via our At-The-Market program. We sold these shares at a slight
discount to book value, on average, contrary to prior practice. The rationale was that while this adds to the all-in cost of the capital – approximately 3.0-3.3% - with the anticipated expansion in our net-interest margin should the Fed lower
the Fed Funds target range, we would recoup the slight dilution through potentially higher earnings on the new capital. Obviously, this is a calculated risk contingent on actions by the Fed.”
Earnings Conference Call Details
An earnings conference call and live audio webcast will be hosted Friday, July 26, 2019, at 10:00 AM ET. The conference
call may be accessed by dialing toll free (877) 341-5668. International callers dial (224) 357-2205. The conference passcode is 4383908. 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 www.orchidislandcapital.com,
and an audio archive of the webcast will be available until August 26, 2019.
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 issued by Fannie Mae, Fredie Fac or Ginnie Mae and CMOS, 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, the supply and demand for Agency RMBS, the effect of actions of the U.S.
government, including the Fed, 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
www.orchidislandcapital.com
Summarized Financial Statements
The following is a summarized presentation of the unaudited balance sheets as of June 30, 2019, and December 31, 2018, and
the unaudited quarterly results of operations for the six and three months ended June 30, 2019 and 2018. 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, 2019
|
December 31, 2018
|
|||||||
|
ASSETS:
|
||||||||
|
Total mortgage-backed securities
|
$
|
3,527,256
|
$
|
3,014,503
|
||||
|
Cash, cash equivalents and restricted cash
|
181,093
|
126,263
|
||||||
|
Accrued interest receivable
|
13,865
|
13,241
|
||||||
|
Derivative assets, at fair value
|
4,264
|
16,885
|
||||||
|
Receivable for securities sold
|
-
|
221,746
|
||||||
|
Other assets
|
348
|
2,993
|
||||||
|
Total Assets
|
$
|
3,726,826
|
$
|
3,395,631
|
||||
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
|
Repurchase agreements
|
$
|
3,329,527
|
$
|
3,025,052
|
||||
|
Dividends payable
|
4,343
|
3,931
|
||||||
|
Derivative liabilities, at fair value
|
21,404
|
5,948
|
||||||
|
Accrued interest payable
|
10,054
|
6,445
|
||||||
|
Due to affiliates
|
554
|
654
|
||||||
|
Other liabilities
|
1,286
|
17,522
|
||||||
|
Total Liabilities
|
3,367,168
|
3,059,552
|
||||||
|
Total Stockholders' Equity
|
359,658
|
336,079
|
||||||
|
Total Liabilities and Stockholders' Equity
|
$
|
3,726,826
|
$
|
3,395,631
|
||||
|
Common shares outstanding
|
54,282,997
|
49,132,423
|
||||||
|
Book value per share
|
$
|
6.63
|
$
|
6.84
|
||||
|
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,
|
|||||||||||||||
|
2019
|
2018
|
2019
|
2018
|
|||||||||||||
|
Interest income
|
$
|
68,888
|
$
|
78,526
|
$
|
36,455
|
$
|
38,591
|
||||||||
|
Interest expense
|
(41,323
|
)
|
(31,728
|
)
|
(22,431
|
)
|
(16,579
|
)
|
||||||||
|
Net interest income
|
27,565
|
46,798
|
14,024
|
22,012
|
||||||||||||
|
Losses
|
(8,418
|
)
|
(55,789
|
)
|
(7,670
|
)
|
(17,734
|
)
|
||||||||
|
Net portfolio income (loss)
|
19,147
|
(8,991
|
)
|
6,354
|
4,278
|
|||||||||||
|
Expenses
|
5,017
|
6,039
|
2,821
|
2,931
|
||||||||||||
|
Net income (loss)
|
$
|
14,130
|
$
|
(15,030
|
)
|
$
|
3,533
|
$
|
1,347
|
|||||||
|
Basic and diluted net income (loss) per share
|
$
|
0.28
|
$
|
(0.29
|
)
|
$
|
0.07
|
$
|
0.03
|
|||||||
|
Weighted Average Shares Outstanding
|
50,762,883
|
52,794,513
|
52,600,758
|
52,587,472
|
||||||||||||
|
Dividends Declared Per Common Share:
|
$
|
0.48
|
$
|
0.58
|
$
|
0.24
|
$
|
0.27
|
||||||||
|
Three Months Ended June 30,
|
||||||||
|
Key Balance Sheet Metrics
|
2019
|
2018
|
||||||
|
Average RMBS(1)
|
$
|
3,307,885
|
$
|
3,717,690
|
||||
|
Average repurchase agreements(1)
|
3,098,133
|
3,534,567
|
||||||
|
Average stockholders' equity(1)
|
350,036
|
419,325
|
||||||
|
Leverage ratio(2)
|
9.4:1
|
8.6:1
|
||||||
|
Key Performance Metrics
|
||||||||
|
Average yield on RMBS(3)
|
4.41
|
%
|
4.15
|
%
|
||||
|
Average cost of funds(3)
|
2.90
|
%
|
1.88
|
%
|
||||
|
Average economic cost of funds(4)
|
2.71
|
%
|
1.97
|
%
|
||||
|
Average interest rate spread(5)
|
1.51
|
%
|
2.27
|
%
|
||||
|
Average economic interest rate spread(6)
|
1.70
|
%
|
2.18
|
%
|
||||
|
(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.
|