Orchid Island Capital, Inc. (NYSE:ORC) ("Orchid” or the "Company"),
a real estate investment trust ("REIT"), today announced results of
operations for the three month period ended December 31, 2016.
Fourth Quarter 2016
Highlights
- Net loss of $20.4 million, or $0.72 per common share
- Realized and unrealized losses of $38.0 million, or $1.33 per
share, on RMBS and derivative instruments
- Fourth quarter total dividends declared and paid of $0.42 per
common share
- Book value per share of $10.10 at December 31, 2016
- 6.2% economic loss on common equity for the quarter, or 24.6%
annualized, comprised of $0.42 dividend per common share and $1.11
decrease in net book value per common share, divided by beginning
book value per share
- Company to discuss results on Friday, February 17, 2017, at
10:00 AM ET
Details of Fourth Quarter 2016 Results
of Operations
The Company reported net loss of $20.4 million
for the three month period ended December 31, 2016, compared with
net income of $7.8 million for the three month period ended
December 31, 2015. The fourth quarter net loss of $20.4
million included net interest income of $20.1 million, net
portfolio losses of $38.0 million (which includes realized and
unrealized gains (losses) on securities sold and derivative
instruments), management fees and allocated overhead of $1.6
million, accrued compensation of $0.2 million, audit, legal and
other professional fees of $0.2 million, and other operating,
general and administrative expenses of $0.5 million.
Capital Allocation and Return on
Invested Capital
The Company allocates capital to two RMBS
sub-portfolios, the pass-through RMBS portfolio (“PT RMBS”), and
the structured RMBS portfolio, consisting of interest only (“IO”)
and inverse interest-only (“IIO”) securities. As of September
30, 2016, approximately 59% of the Company’s investable capital
(which consists of equity in pledged PT RMBS, available cash and
unencumbered assets) was deployed in the PT RMBS portfolio.
At December 31, 2016, the allocation to the PT RMBS had decreased
5% to approximately 54%.
The table below details the changes to the
respective sub-portfolios during the fourth quarter, as well as the
returns generated by each.
(in thousands) |
Portfolio Activity for the Fourth
Quarter |
|
|
|
Structured Security Portfolio |
|
|
|
Pass-Through |
Interest Only |
Inverse Interest |
|
|
|
|
Portfolio |
Securities |
Only Securities |
Sub-total |
Total |
Market value - September 30, 2016 |
$ |
2,383,719 |
|
$ |
51,174 |
|
$ |
66,604 |
|
$ |
117,778 |
|
$ |
2,501,497 |
|
Securities
purchased |
|
886,438 |
|
|
10,085 |
|
|
18,496 |
|
|
28,581 |
|
|
915,019 |
|
Securities
sold |
|
(257,693 |
) |
|
- |
|
|
- |
|
|
- |
|
|
(257,693 |
) |
Losses on
sales |
|
(1,412 |
) |
|
- |
|
|
- |
|
|
- |
|
|
(1,412 |
) |
Return of
investment |
|
n/a |
|
(4,563 |
) |
|
(3,512 |
) |
|
(8,075 |
) |
|
(8,075 |
) |
Pay-downs |
|
(67,362 |
) |
|
n/a |
|
|
n/a |
|
|
n/a |
|
|
(67,362 |
) |
Premium
lost due to pay-downs |
|
(6,874 |
) |
|
n/a |
|
|
n/a |
|
|
n/a |
|
|
(6,874 |
) |
Mark to market (losses) gains |
|
(62,601 |
) |
|
13,030 |
|
|
(3,355 |
) |
|
9,675 |
|
|
(52,926 |
) |
Market value - December 31, 2016 |
$ |
2,874,215 |
|
$ |
69,726 |
|
$ |
78,233 |
|
$ |
147,959 |
|
$ |
3,022,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tables below present the allocation of
capital between the respective portfolios at December 31, 2016 and
September 30, 2016, and the return on invested capital for each
sub-portfolio for the three month period ended December 31,
2016. The return on invested capital in the PT RMBS and
structured RMBS portfolios was approximately (17.2)% and 9.4%,
respectively, for the fourth quarter of 2016. The combined
portfolio generated a return on invested capital of approximately
(6.3)%.
($ in thousands) |
Capital Allocation |
|
|
|
Structured Security Portfolio |
|
|
|
Pass-Through |
Interest Only |
Inverse Interest |
|
|
|
|
Portfolio |
Securities |
Only Securities |
Sub-total |
Total |
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
Market
value |
$ |
2,874,215 |
|
$ |
69,726 |
|
$ |
78,233 |
|
$ |
147,959 |
|
$ |
3,022,174 |
|
Cash |
|
94,425 |
|
|
- |
|
|
- |
|
|
- |
|
|
94,425 |
|
Borrowings(1) |
|
(2,793,705 |
) |
|
- |
|
|
- |
|
|
- |
|
|
(2,793,705 |
) |
|
Total |
$ |
174,935 |
|
$ |
69,726 |
|
$ |
78,233 |
|
$ |
147,959 |
|
$ |
322,894 |
|
|
% of Total |
|
54.2 |
% |
|
21.6 |
% |
|
24.2 |
% |
|
45.8 |
% |
|
100.0 |
% |
September 30, 2016 |
|
|
|
|
|
|
|
|
|
|
Market
value |
$ |
2,383,719 |
|
$ |
51,174 |
|
$ |
66,604 |
|
$ |
117,778 |
|
$ |
2,501,497 |
|
Cash(2) |
|
82,907 |
|
|
- |
|
|
- |
|
|
- |
|
|
82,907 |
|
Borrowings(3) |
|
(2,298,097 |
) |
|
- |
|
|
- |
|
|
- |
|
|
(2,298,097 |
) |
|
Total |
$ |
168,529 |
|
$ |
51,174 |
|
$ |
66,604 |
|
$ |
117,778 |
|
$ |
286,307 |
|
|
% of Total |
|
58.9 |
% |
|
17.8 |
% |
|
23.3 |
% |
|
41.1 |
% |
|
100.0 |
% |
(1) At December 31, 2016, there were outstanding repurchase
agreement balances of $33.3 million and $45.5 million secured by IO
and IIO securities, respectively. We entered into these
arrangements to generate additional cash to invest in PT RMBS;
therefore, we have not considered these balances to be allocated to
the structured securities strategy.(2) At September 30, 2016,
total cash had been reduced by unsettled securities purchases of
approximately $72.3 million.(3) At September 30, 2016, there
were outstanding repurchase agreement balances of $22.4 million and
$22.7 million secured by IO and IIO securities, respectively.
We entered into these arrangements to generate additional cash to
invest in PT RMBS; therefore, we have not considered these balances
to be allocated to the structured securities strategy.
|
($ in thousands) |
Returns for the Quarter Ended December 31,
2016 |
|
|
|
Structured Security Portfolio |
|
|
|
Pass-Through |
Interest Only |
Inverse Interest |
|
|
|
|
Portfolio |
Securities |
Only Securities |
Sub-total |
Total |
Income
(loss) (net of borrowing cost) |
$ |
18,672 |
|
$ |
142 |
|
$ |
1,279 |
|
$ |
1,421 |
|
$ |
20,093 |
|
Realized
and unrealized (losses) / gains |
|
(70,887 |
) |
|
13,031 |
|
|
(3,356 |
) |
|
9,675 |
|
|
(61,212 |
) |
Derivative gains |
|
23,207 |
|
|
n/a |
|
|
n/a |
|
|
n/a |
|
|
23,207 |
|
|
Total
Return |
$ |
(29,008 |
) |
$ |
13,173 |
|
$ |
(2,077 |
) |
$ |
11,096 |
|
$ |
(17,912 |
) |
Beginning Capital Allocation |
$ |
168,528 |
|
$ |
51,174 |
|
$ |
66,604 |
|
$ |
117,778 |
|
$ |
286,306 |
|
Return on Invested Capital for the Quarter(1) |
|
(17.2 |
)% |
|
25.7 |
% |
|
(3.1 |
)% |
|
9.4 |
% |
|
(6.3 |
)% |
Average Capital Allocation(2) |
$ |
171,731 |
|
$ |
60,450 |
|
$ |
72,418 |
|
$ |
132,869 |
|
$ |
304,600 |
|
Return on Average Invested Capital for the Quarter(3) |
|
(16.9 |
)% |
|
21.8 |
% |
|
(2.9 |
)% |
|
8.4 |
% |
|
(5.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
Prepayments
For the quarter, Orchid received $76.1 million
in scheduled and unscheduled principal repayments and prepayments,
which equated to a constant prepayment rate (“CPR”) of
approximately 12.2% for the fourth quarter of 2016.
Prepayment rates on the two RMBS sub-portfolios were as follows (in
CPR):
|
|
Structured |
|
|
PT RMBS |
RMBS |
Total |
Three Months Ended, |
Portfolio (%) |
Portfolio (%) |
Portfolio (%) |
December 31, 2016 |
9.7 |
18.4 |
12.2 |
September 30, 2016 |
8.9 |
17.9 |
11.7 |
June 30, 2016 |
8.4 |
15.9 |
11.0 |
March 31, 2016 |
5.5 |
12.4 |
8.2 |
December 31, 2015 |
6.8 |
13.4 |
9.0 |
September 30, 2015 |
6.1 |
16.2 |
10.2 |
June 30, 2015 |
13.8 |
17.9 |
15.3 |
March 31,
2015 |
8.1 |
14.6 |
9.7 |
Portfolio
The following tables summarize Orchid’s PT RMBS
and structured RMBS as of December 31, 2016 and 2015:
($ 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 |
December 31, 2016 |
|
|
|
|
|
|
|
|
|
Adjustable Rate
RMBS |
$ |
2,062 |
0.1 |
% |
3.50 |
% |
219 |
1-Sep-35 |
5.67 |
10.05 |
% |
2.00 |
% |
Fixed Rate RMBS |
|
2,826,694 |
93.5 |
% |
4.21 |
% |
325 |
1-Dec-46 |
NA |
NA |
|
NA |
|
Hybrid
Adjustable Rate RMBS |
|
45,459 |
1.5 |
% |
2.55 |
% |
313 |
1-Aug-43 |
73.08 |
7.55 |
% |
2.00 |
% |
Total
Mortgage-backed Pass-through |
|
2,874,215 |
95.1 |
% |
4.19 |
% |
324 |
1-Dec-46 |
NA |
NA |
|
NA |
|
Interest-Only
Securities |
|
69,726 |
2.3 |
% |
3.59 |
% |
235 |
25-Apr-45 |
NA |
NA |
|
NA |
|
Inverse
Interest-Only Securities |
|
78,233 |
2.6 |
% |
5.40 |
% |
338 |
25-Dec-46 |
NA |
6.14 |
% |
NA |
|
Total
Structured RMBS |
|
147,959 |
4.9 |
% |
4.55 |
% |
290 |
25-Dec-46 |
NA |
NA |
|
NA |
|
Total
Mortgage Assets |
$ |
3,022,174 |
100.0 |
% |
4.20 |
% |
323 |
25-Dec-46 |
NA |
NA |
|
NA |
|
December 31, 2015 |
|
|
|
|
|
|
|
|
|
Adjustable Rate
RMBS |
$ |
2,976 |
0.1 |
% |
3.63 |
% |
224 |
1-Sep-35 |
4.10 |
10.04 |
% |
2.00 |
% |
Fixed Rate RMBS |
|
2,000,623 |
92.7 |
% |
4.22 |
% |
315 |
1-Dec-45 |
NA |
NA |
|
NA |
|
Hybrid
Adjustable Rate RMBS |
|
52,238 |
2.5 |
% |
2.55 |
% |
325 |
1-Aug-43 |
84.93 |
7.55 |
% |
2.00 |
% |
Total
Mortgage-backed Pass-through |
|
2,055,837 |
95.3 |
% |
4.18 |
% |
315 |
1-Dec-45 |
NA |
NA |
|
NA |
|
Interest-Only
Securities |
|
61,574 |
2.9 |
% |
3.58 |
% |
250 |
25-Apr-45 |
NA |
NA |
|
NA |
|
Inverse
Interest-Only Securities |
|
40,599 |
1.8 |
% |
5.97 |
% |
320 |
15-Apr-45 |
NA |
6.36 |
% |
NA |
|
Total
Structured RMBS |
|
102,173 |
4.7 |
% |
4.53 |
% |
278 |
25-Apr-45 |
NA |
NA |
|
NA |
|
Total
Mortgage Assets |
$ |
2,158,010 |
100.0 |
% |
4.19 |
% |
313 |
1-Dec-45 |
NA |
NA |
|
NA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in
thousands) |
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
December 31, 2015 |
|
|
|
|
Percentage of |
|
|
|
Percentage of |
Agency |
|
Fair Value |
|
Entire Portfolio |
|
Fair Value |
|
Entire Portfolio |
Fannie Mae |
$ |
2,226,893 |
|
73.7 |
% |
$ |
1,747,699 |
|
81.0 |
% |
Freddie Mac |
|
785,496 |
|
26.0 |
% |
|
394,256 |
|
18.3 |
% |
Ginnie
Mae |
|
9,785 |
|
0.3 |
% |
|
16,055 |
|
0.7 |
% |
Total
Portfolio |
$ |
3,022,174 |
|
100.0 |
% |
$ |
2,158,010 |
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
|
December 31, 2015 |
Weighted Average
Pass-through Purchase Price |
$ |
108.64 |
|
$ |
108.05 |
Weighted Average
Structured Purchase Price |
$ |
15.39 |
|
$ |
14.18 |
Weighted Average
Pass-through Current Price |
$ |
107.14 |
|
$ |
107.56 |
Weighted Average
Structured Current Price |
$ |
15.49 |
|
$ |
14.17 |
Effective
Duration (1) |
|
4.579 |
|
|
2.753 |
(1) Effective duration of 4.579 indicates that an interest
rate increase of 1.0% would be expected to cause a 4.579% decrease
in the value of the RMBS in the Company’s investment portfolio at
December 31, 2016. An effective duration of 2.753 indicates
that an interest rate increase of 1.0% would be expected to cause a
2.753% decrease in the value of the RMBS in the Company’s
investment portfolio at December 31, 2015. 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 December 31, 2016, the Company had
outstanding repurchase obligations of approximately $2,793.7
million with a net weighted average borrowing rate of 1.00%.
These agreements were collateralized by RMBS with a fair value,
including accrued interest, of approximately $2,970.9 million and
cash pledged to counterparties of approximately $10.8 million. The
Company’s leverage ratio at December 31, 2016 was 8.4 to 1. At
December 31, 2016, the Company’s liquidity was approximately $123.4
million, consisting of unpledged RMBS and cash and cash
equivalents. To enhance our liquidity even further, we may
pledge more of our structured RMBS as part of a repurchase
agreement funding, but retain the cash in lieu of acquiring
additional assets. In this way we can, at a modest cost,
retain higher levels of cash on hand and decrease the likelihood we
will have to sell assets in a distressed market in order to raise
cash. Below is a listing of outstanding borrowings under
repurchase obligations at December 31, 2016.
($ in
thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
Total |
|
|
|
Average |
|
|
Average |
|
|
Outstanding |
|
% of |
|
Borrowing |
|
Amount |
Maturity |
Counterparty |
|
Balances |
|
Total |
|
Rate |
|
at Risk(1) |
in Days |
Citigroup Global
Markets, Inc. |
$ |
292,833 |
|
10.6 |
% |
|
1.05 |
% |
$ |
26,907 |
9 |
J.P. Morgan Securities
LLC |
|
287,239 |
|
10.3 |
% |
|
0.99 |
% |
|
21,510 |
25 |
Cantor Fitzgerald &
Co. |
|
250,000 |
|
8.9 |
% |
|
0.95 |
% |
|
14,243 |
25 |
Wells Fargo Bank,
N.A. |
|
242,554 |
|
8.7 |
% |
|
0.97 |
% |
|
12,944 |
9 |
Mitsubishi UFJ
Securities (USA), Inc. |
|
235,913 |
|
8.4 |
% |
|
0.98 |
% |
|
13,167 |
35 |
RBC Capital Markets,
LLC |
|
230,187 |
|
8.2 |
% |
|
1.03 |
% |
|
12,687 |
18 |
South Street
Securities, LLC |
|
175,201 |
|
6.3 |
% |
|
0.96 |
% |
|
9,632 |
6 |
ICBC Financial Services
LLC |
|
165,927 |
|
5.9 |
% |
|
1.02 |
% |
|
9,835 |
17 |
ED&F Man Capital
Markets Inc. |
|
158,763 |
|
5.7 |
% |
|
0.88 |
% |
|
9,187 |
33 |
Guggenheim Securities,
LLC |
|
150,400 |
|
5.4 |
% |
|
0.98 |
% |
|
8,350 |
59 |
KGS - Alpha Capital
Markets, L.P. |
|
148,808 |
|
5.3 |
% |
|
0.96 |
% |
|
8,469 |
46 |
Goldman Sachs &
Co. |
|
134,670 |
|
4.8 |
% |
|
1.36 |
% |
|
14,462 |
15 |
Daiwa Capital Markets
America, Inc. |
|
107,651 |
|
3.9 |
% |
|
0.97 |
% |
|
5,761 |
10 |
Natixis, New York
Branch |
|
90,050 |
|
3.2 |
% |
|
0.92 |
% |
|
5,531 |
9 |
Mizuho Securities USA,
Inc. |
|
52,574 |
|
1.9 |
% |
|
1.12 |
% |
|
7,056 |
12 |
FHLB-Cincinnati |
|
51,907 |
|
1.9 |
% |
|
0.66 |
% |
|
1,914 |
3 |
Nomura Securities
International, Inc. |
|
15,238 |
|
0.5 |
% |
|
1.00 |
% |
|
881 |
88 |
Suntrust
Robinson Humphrey, Inc. |
|
3,790 |
|
0.1 |
% |
|
0.99 |
% |
|
211 |
6 |
|
$ |
2,793,705 |
|
100.0 |
% |
|
1.00 |
% |
$ |
182,747 |
22 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) Equal to the sum of the fair value of
securities sold, accrued interest receivable and cash posted as
collateral (if any), minus the sum of repurchase agreement
liabilities, accrued interest payable and the fair value of
securities posted by the counterparties (if any).
Hedging
In connection with its interest rate risk
management strategy, the Company economically hedges a portion of
the cost of its repurchase agreement funding against a rise in
interest rates by entering into derivative financial instrument
contracts. The Company has not elected hedging treatment
under U.S. generally accepted accounting principles (“GAAP”) in
order to align the accounting treatment of its derivative
instruments with the treatment of its portfolio assets under the
fair value option election. As such, all gains or losses on these
instruments are reflected in earnings for all periods presented. As
of December 31, 2016, such instruments were comprised of Eurodollar
and Treasury note (“T-Note”) futures contracts and interest rate
swap agreements.
The table below presents information related to
the Company’s Eurodollar and T-Note futures contracts at December
31, 2016.
($ in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
|
|
Average |
|
Weighted |
|
Weighted |
|
|
|
|
|
|
Contract |
|
Average |
|
Average |
|
|
|
|
|
|
Notional |
|
Entry |
|
Effective |
|
|
Open |
Expiration Year |
|
Amount |
|
Rate |
|
Rate |
|
|
Equity(1) |
Eurodollar Futures Contracts (Short
Positions) |
|
|
|
|
|
|
|
|
|
2017 |
$ |
600,000 |
|
1.48 |
% |
|
1.28 |
% |
|
$ |
(1,206 |
) |
2018 |
|
600,000 |
|
1.81 |
% |
|
1.82 |
% |
|
|
76 |
|
2019 |
|
675,000 |
|
2.00 |
% |
|
2.21 |
% |
|
|
1,429 |
|
2020 |
|
700,000 |
|
2.65 |
% |
|
2.45 |
% |
|
|
(1,394 |
) |
Total / Weighted Average |
$ |
643,750 |
|
2.01 |
% |
|
1.97 |
% |
|
$ |
(1,095 |
) |
|
|
|
|
|
|
|
|
|
|
|
Treasury Note Futures Contracts (Short
Position)(2) |
|
|
|
|
|
|
|
|
|
March 2017
10 year T-Note futures |
|
|
|
|
|
|
|
|
|
|
(Mar 2017 - Mar 2027 Hedge Period) |
$ |
465,000 |
|
2.27 |
% |
|
2.24 |
% |
|
$ |
(3,134 |
) |
(1) Open equity represents the cumulative gains (losses)
recorded on open futures positions.(2) T-Note futures contracts
were valued at a price of $124.28 at December 31, 2016. The
nominal value of the short position was $577.9 million.
The table below presents information related to the Company’s
interest rate swap positions at December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
($ in
thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
Net |
|
|
|
|
|
|
Fixed |
|
Average |
|
|
Estimated |
|
Average |
|
|
Notional |
|
Pay |
|
Receive |
|
|
Fair |
|
Maturity |
Expiration |
|
Amount |
|
Rate |
|
Rate |
|
|
Value |
|
(Years) |
> 3
to ≤ 5 years |
$ |
700,000 |
|
1.20 |
% |
|
0.91 |
% |
|
$ |
9,500 |
|
3.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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) |
|
|
|
0.280 |
|
9,245 |
Totals |
|
|
$ |
7.435 |
$ |
116,686 |
|
|
|
|
|
|
|
(1) The effect of the dividends declared in 2017
are not reflected in the Company’s financial statements as of
December 31, 2016.
Peer Performance
The table below presents total return data for
Orchid compared to a selected group of peers for periods through
December 31, 2016.
Portfolio Total Rate of Return Versus Peer
Group Average |
|
|
|
|
|
|
ORC Spread |
|
|
Orchid |
|
|
|
Over / (Under) |
|
|
Total Rate |
|
Peer |
|
Peer |
|
|
of Return(1) |
|
Average(1)(2) |
|
Average(3) |
Second Quarter
2013 |
|
(3.0 |
)% |
|
(10.6 |
)% |
|
7.6 |
% |
Third Quarter 2013 |
|
(2.2 |
)% |
|
0.5 |
% |
|
(2.7 |
)% |
Fourth Quarter
2013 |
|
3.3 |
% |
|
(0.2 |
)% |
|
3.5 |
% |
Stub 2013
(Annualized)(4) |
|
(2.8 |
)% |
|
(13.5 |
)% |
|
10.7 |
% |
First Quarter
2014(5) |
|
(2.9 |
)% |
|
4.3 |
% |
|
(7.2 |
)% |
Second Quarter
2014 |
|
9.0 |
% |
|
7.1 |
% |
|
1.9 |
% |
Third Quarter 2014 |
|
5.8 |
% |
|
1.2 |
% |
|
4.6 |
% |
Fourth Quarter
2014 |
|
2.5 |
% |
|
2.3 |
% |
|
0.2 |
% |
2014 Total
Return(5) |
|
13.6 |
% |
|
15.2 |
% |
|
(1.6 |
)% |
First Quarter 2015 |
|
2.7 |
% |
|
0.2 |
% |
|
2.5 |
% |
Second Quarter
2015 |
|
0.4 |
% |
|
(1.7 |
)% |
|
2.1 |
% |
Third Quarter 2015 |
|
(2.2 |
)% |
|
(2.6 |
)% |
|
0.4 |
% |
Fourth Quarter
2015 |
|
3.2 |
% |
|
(1.1 |
)% |
|
4.3 |
% |
2015 Total Return |
|
3.8 |
% |
|
(2.9 |
)% |
|
6.7 |
% |
First Quarter 2016 |
|
(1.8 |
)% |
|
(2.0 |
)% |
|
0.2 |
% |
Second Quarter
2016(6) |
|
2.5 |
% |
|
3.1 |
% |
|
(0.6 |
)% |
Third Quarter
2016(6) |
|
7.1 |
% |
|
5.2 |
% |
|
1.9 |
% |
Fourth Quarter
2016(6) |
|
(6.2 |
)% |
|
(5.7 |
)% |
|
(0.5 |
)% |
2016 Total
Return(6) |
|
1.1 |
% |
|
0.0 |
% |
|
1.1 |
% |
Two Year Total
Return(5)(6) |
|
4.8 |
% |
|
(2.5 |
)% |
|
7.3 |
% |
Three Year Total
Return(5)(6) |
|
18.3 |
% |
|
13.4 |
% |
|
4.9 |
% |
ORC IPO
to 2016 End (3/31/13 - 12/31/2016)(4)(5)(6) |
|
14.2 |
% |
|
1.8 |
% |
|
12.4 |
% |
Source: Company SEC filings and press releases(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, ANH, CMO, CYS, ARR,
AGNC and AI. HTS was included through Q1 2016.(3) Represents
the total 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. (5) At January 1,
2014, Orchid had 3,341,665 shares outstanding and a book value per
share of $13.40. During the first quarter of 2014, Orchid
completed two secondary offerings in which it sold 5,750,000 shares
at a price of $11.86 per share net of fees and offering
costs. The book value per share as of March 31, 2014 was
$12.47.(6) NLY acquired HTS in Q2 2016. HTS is excluded from any
measurement periods after Q1 2016.
Book Value Per Share
The Company's book value per share at December
31, 2016 was $10.10. The Company computes book value per
share by dividing total stockholders' equity by the total number of
shares outstanding of the Company's common stock. At December 31,
2016, the Company's stockholders' equity was $332.8 million with
32,962,919 shares of common stock outstanding.
Secondary Offerings
On July 29, 2016, Orchid entered into an equity
distribution agreement (the “Equity Distribution Agreement”) with
two sales agents pursuant to which the Company may offer and sell,
from time to time, up to an aggregate amount of $125,000,000 of
shares of the Company’s common stock in transactions that are
deemed to be “at the market” offerings and privately negotiated
transactions. Through December 31, 2016, the Company issued a total
of 10,174,992 shares under the Equity Distribution Agreement for
aggregate proceeds of approximately $108.2 million, net of
commissions and fees.
Management Commentary
Commenting on the fourth quarter, Robert E.
Cauley, Chairman and Chief Executive Officer, said, “The outlook
for the economy, interest rates and the Federal Reserve (the “Fed”)
changed dramatically during the fourth quarter of 2016 as Donald
Trump unexpectedly won the U.S. Presidential election. The
Republican Party retained both houses of Congress, which also
surprised the markets. The markets reacted strongly to these
developments and interest rates moved significantly higher. In what
is commonly referred to as a “risk on” trade, treasury securities
declined in price while other assets that carry more risk –
equities, commodities, riskier bonds, etc. – all increased. The
market expects expansionary fiscal policy – such as tax
cuts/reform, infrastructure spending, less regulation and a very
pro-business administration going forward. As a result, the market
expects the Fed to follow a more aggressive policy in removing
accommodation from the economy, as many of the expected policy
proposals should be both expansionary and inflationary.
Comments by the Fed chair at the conclusion of their December
meeting, a meeting at which they increased the Fed Funds target
rate by 25 basis points, were taken as quite hawkish by the market.
The Summary of Economics Projections, or SEP, implied the Fed
expects three Fed Funds target rate increases in 2017.
“These developments adversely impacted the MBS
market, especially so after the Fed rate hike on December
14th. Up until that point our portfolio of generally higher
coupon, fixed rate 30-year securities had performed reasonably
well, especially given the rather high exposure to specified
pools. However, our PT RMBS portfolio generally widened in
spread to comparable duration treasuries during the second leg of
the market sell-off in the fixed income market that occurred after
the rate hike. The rate hike was the event that really triggered
convexity related selling in the MBS market. By the end of that
week, we observed brief periods where U.S. treasury prices were up
on the day while MBS prices were down several tics. However,
the sell-off was also beneficial to our interest only securities
and prepayment expectations going forward – albeit not enough to
off-set the widening in our PT RMBS portfolio entirely.
“As we move into the first quarter of 2017, the
market is still waiting to see what the Trump administration will
actually deliver for the economy and markets. As developments
unfold over the course of the year and beyond, the markets will be
driven by the extent these developments are consistent with, or
counter to, current market expectations. At this point, there
is no way of predicting this outcome. In the meantime, the
combination of higher rates and slower prepayment speeds should be
supportive of the earnings power of the Company’s portfolio. This
could be offset by additional rate hikes by the Fed, especially if
yields on the Company’s assets do not rise in tandem.”
Earnings Conference Call
Details
An earnings conference call and live audio
webcast will be hosted Friday, February 17, 2017, 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 69568389. 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 March 17, 2017.
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 and (ii) structured Agency RMBS, such as CMOs, 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, inflation, the effect of actions of the U.S.
government, including the Fed and fiscal policy changes by the
Trump administration, market expectations and general economic
conditions, are forward-looking statements as defined in the
Private Securities Litigation Reform Act of 1995. The reader is
cautioned that such forward-looking statements are based on
information available at the time and on management's good faith
belief with respect to future events, and are subject to risks and
uncertainties that could cause actual performance or results to
differ materially from those expressed in such forward-looking
statements. Important factors that could cause such differences are
described in Orchid Island Capital, Inc.'s filings with the
Securities and Exchange Commission, including its most recent
Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.
Orchid Island Capital, Inc. assumes no obligation to update
forward-looking statements to reflect subsequent results, changes
in assumptions or changes in other factors affecting
forward-looking statements.
Summarized Financial
Statements
The following is a summarized presentation of
the unaudited balance sheets as of December 31, 2016 and 2015, and
the unaudited quarterly results of operations for the calendar
quarters and years ended December 31, 2016 and December 31,
2015. Amounts presented are subject to change.
ORCHID ISLAND CAPITAL, INC. |
BALANCE SHEETS |
($ in thousands, except per share
data) |
(Unaudited - Amounts Subject To
Change) |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
December 31, 2015 |
ASSETS: |
|
|
|
|
|
Total
mortgage-backed securities |
$ |
3,022,174 |
|
$ |
2,158,010 |
Cash, cash
equivalents and restricted cash |
|
94,425 |
|
|
69,959 |
Accrued
interest receivable |
|
11,512 |
|
|
8,490 |
Derivative
assets, at fair value |
|
10,365 |
|
|
669 |
Other assets |
|
218 |
|
|
4,709 |
Total Assets |
$ |
3,138,694 |
|
$ |
2,241,837 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
Repurchase
agreements |
$ |
2,793,705 |
|
$ |
1,798,813 |
FHLB
advances |
|
- |
|
|
187,500 |
Accrued
interest payable |
|
1,826 |
|
|
863 |
Due to
affiliates |
|
566 |
|
|
465 |
Derivative
liabilities, at fair value |
|
1,982 |
|
|
- |
Dividends
payable |
|
4,616 |
|
|
- |
Other
liabilities |
|
3,220 |
|
|
941 |
Total
Liabilities |
|
2,805,915 |
|
|
1,988,582 |
Total Stockholders' Equity |
|
332,779 |
|
|
253,255 |
Total Liabilities and Stockholders'
Equity |
$ |
3,138,694 |
|
$ |
2,241,837 |
Common
shares outstanding |
|
32,962,919 |
|
|
21,749,490 |
Book value per share |
$ |
10.10 |
|
$ |
11.64 |
ORCHID ISLAND CAPITAL, INC. |
STATEMENTS OF OPERATIONS |
(in thousands, except per share
data) |
(Unaudited - Amounts Subject to
Change) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
Three Months Ended December 31, |
|
|
|
2016 |
|
|
2015 |
|
|
|
2016 |
|
|
2015 |
|
Interest
income |
$ |
87,127 |
|
$ |
68,811 |
|
|
$ |
25,068 |
|
$ |
19,092 |
|
Interest
expense |
|
(15,604 |
) |
|
(7,271 |
) |
|
|
(4,976 |
) |
|
(2,371 |
) |
Net
interest income |
|
71,523 |
|
|
61,540 |
|
|
|
20,092 |
|
|
16,721 |
|
Losses |
|
(60,451 |
) |
|
(52,575 |
) |
|
|
(38,003 |
) |
|
(6,813 |
) |
Net
portfolio income (loss) |
|
11,072 |
|
|
8,965 |
|
|
|
(17,911 |
) |
|
9,908 |
|
Expenses |
|
9,093 |
|
|
7,894 |
|
|
|
2,508 |
|
|
2,097 |
|
Net income (loss) |
$ |
1,979 |
|
$ |
1,071 |
|
|
$ |
(20,419 |
) |
$ |
7,811 |
|
Basic and diluted net income (loss) per
share |
$ |
0.08 |
|
$ |
0.05 |
|
|
$ |
(0.72 |
) |
$ |
0.36 |
|
Weighted average shares outstanding |
|
|
24,100 |
|
|
20,267 |
|
|
|
28,495 |
|
|
21,794 |
|
Dividends declared per share: |
$ |
1.68 |
|
$ |
1.92 |
|
|
$ |
0.42 |
|
$ |
0.42 |
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
December 31, |
Key Balance Sheet Metrics |
|
2016 |
|
2015 |
|
Average RMBS(1) |
|
$ |
2,761,836 |
|
$ |
2,137,810 |
|
Average
borrowings(1) |
|
|
2,545,901 |
|
|
1,964,806 |
|
Average stockholders'
equity(1) |
|
|
313,587 |
|
|
254,562 |
|
Leverage ratio(2) |
|
|
8.4:1 |
|
|
7.9:1 |
|
|
|
|
|
|
|
Key Performance
Metrics |
|
|
|
|
|
Average yield on
RMBS(3) |
|
|
3.63 |
% |
|
3.57 |
% |
Average cost of
funds(3) |
|
|
0.78 |
% |
|
0.48 |
% |
Average economic cost
of funds(4) |
|
|
1.25 |
% |
|
0.73 |
% |
Average interest rate
spread(5) |
|
|
2.85 |
% |
|
3.09 |
% |
Average
economic interest rate spread(6) |
|
|
2.38 |
% |
|
2.84 |
% |
(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 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.
CONTACT:
Orchid Island Capital, Inc.
Robert E. Cauley, 772-231-1400
Chairman and Chief Executive Officer
www.orchidislandcapital.com
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