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VERO BEACH, Fla.–(BUSINESS WIRE)–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, 2023.
Second Quarter 2023 Results
Other Financial Highlights
Management Commentary
Commenting on the second quarter results, Robert E. Cauley, Chairman and Chief Executive Officer, said, “The regional banking crisis that emerged in March of 2023 elicited a severe market reaction, but the Federal Reserve (‘Fed’) and U.S. Treasury were very responsive to these developments and the damage was quickly contained by effective macro-prudential policy. By late April, market focus began to shift away from the prospects of contagion from a couple of high-profile bank failures to an impasse between congressional Republicans and the Biden administration over the debt ceiling. Fortunately, the impasse was resolved in late May. While the debt ceiling impasse was resolved before the government ran out of borrowing capacity and risk sentiment improved modestly, the economic data, particularly with respect to core inflation and the labor market, did not improve at all. The U.S. Treasury curve inversion peaked in early July, interest rates continued to rise as the 2-year U.S. Treasury approached 5% and the futures market priced in nearly two additional rate increases by the Fed with no rate decreases at all in 2023. In short, market expectations were now in sync with Fed rhetoric that funding rates would be higher and for far longer than previously expected. These developments were not good for the Agency RMBS market as the spread between the Agency RMBS current coupon and the 5-year U.S. Treasury reached approximately 187.5 bps on May 26, 2023.
“Orchid has maintained a lower coupon bias throughout the tightening cycle as we believe these securities still offer superior total return potential over new origination, higher coupon securities. We continue to hold these securities for the same reasons. We raised approximately $48 million of new capital in the second quarter and deployed the proceeds into higher coupon, low pay-up specified pools and hedged these positions predominantly with swaps. With the U.S. Treasury curve inverted as much as it is our hedge positions allow us to earn approximately 100 basis points of marginal net interest income on the new securities. We have also taken our economic leverage ratio (total liabilities adjusted for net TBA positions, divided by total stockholders’ equity) up from approximately 6.5 to 1 on March 31, 2023, to approximately 8.1 to 1 on June 30, 2023. We are comfortable doing so because we still believe return prospects on Agency RMBS are skewed to the upside at current rate and spread levels. We added higher coupons to mitigate the lower carry of our legacy assets to allow us to continue to hold them and retain their higher return potential in the event of a normalization of rates and U.S. Treasury curve shape. In late May, when Agency RMBS spreads were at the widest spreads we have observed since the 2008 financial crisis, we moved most of our TBA hedges to rate hedges.
“As the third quarter unfolds, markets and the Fed are closely focused on incoming economic data as it pertains to inflation and the labor markets. Market performance – for all asset classes – will likely be dominated by these developments and their implications for monetary policy going forward. The Federal Deposit Insurance Corporation (‘FDIC’) liquidation sales of Agency RMBS seized from failed banks that began in April have gone well and are nearing an end, far sooner than originally anticipated. We anticipate current interest rate levels and curve shape – while challenging for levered Agency RMBS investors – are at or near the extremes we will experience for the cycle. As such, we do not anticipate changes to our strategy other than possibly adding current income securities hedged with interest rate swaps to increase our net interest income, assuming we can add additional capital at attractive levels. We would not consider these positions long-term holds.”
Details of Second Quarter 2023 Results of Operations
The Company reported net income of $10.2 million for the three month period ended June 30, 2023, compared with a net loss of $60.1 million for the three month period ended June 30, 2022. The Company increased its Agency RMBS portfolio over the course of the second quarter of 2023, from $4.0 billion at March 31, 2023 to $4.4 billion at June 30, 2023. Interest income on the portfolio in the second quarter was up approximately $1.9 million from the first quarter of 2023. The yield on our average Agency RMBS decreased from 4.03% in the first quarter of 2023 to 3.81% for the second quarter of 2023, repurchase agreement borrowing costs increased from 4.72% for the first quarter of 2023 to 4.88% for the second quarter of 2023, and our net interest spread decreased from (0.69)% in the first quarter of 2023 to (1.07)% in the second quarter of 2023.
Book value decreased by $0.39 per share in the first quarter of 2023. The decrease in book value reflects our net income of $0.25 per share and the dividend distribution of $0.48 per share. The Company recorded net realized and unrealized gains of $0.59 per share on Agency RMBS assets and derivative instruments, including net interest income on interest rate swaps.
Prepayments
For the quarter ended June 30, 2023, Orchid received $138.4 million in scheduled and unscheduled principal repayments and prepayments, which equated to a 3-month constant prepayment rate (“CPR”) of approximately 5.3%. Prepayment rates on the two RMBS sub-portfolios were as follows (in CPR):
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Structured |
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PT RMBS |
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|
RMBS |
|
|
Total |
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Three Months Ended |
|
Portfolio (%) |
|
|
Portfolio (%) |
|
|
Portfolio (%) |
|
June 30, 2023 |
|
5.3 |
|
|
7.0 |
|
|
5.3 |
|
March 31, 2023 |
|
3.9 |
|
|
5.7 |
|
|
4.0 |
|
December 31, 2022 |
|
4.9 |
|
|
6.0 |
|
|
5.0 |
|
September 30, 2022 |
|
6.1 |
|
|
10.4 |
|
|
6.5 |
|
June 30, 2022 |
|
8.3 |
|
|
13.7 |
|
|
9.4 |
|
March 31, 2022 |
|
8.1 |
|
|
19.5 |
|
|
10.7 |
|
Portfolio
The following tables summarize certain characteristics of Orchid’s PT RMBS (as defined below) and structured RMBS as of June 30, 2023 and December 31, 2022:
($ in thousands) |
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Weighted |
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Percentage |
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Average |
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of |
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Weighted |
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Maturity |
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Fair |
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Entire |
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Average |
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in |
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Longest |
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Asset Category |
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Value |
|
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Portfolio |
|
|
Coupon |
|
|
Months |
|
Maturity |
|
June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate RMBS |
|
$ |
4,356,203 |
|
|
99.6 |
% |
|
3.80 |
% |
|
337 |
|
1-Jun-53 |
Interest-Only Securities |
|
|
17,448 |
|
|
0.4 |
% |
|
4.01 |
% |
|
228 |
|
25-Jul-48 |
Inverse Interest-Only Securities |
|
|
321 |
|
|
0.0 |
% |
|
0.00 |
% |
|
280 |
|
15-Jun-42 |
Total Mortgage Assets |
|
$ |
4,373,972 |
|
|
100.0 |
% |
|
3.78 |
% |
|
334 |
|
1-Jun-53 |
December 31, 2022 |
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|
|
|
|
Fixed Rate RMBS |
|
$ |
3,519,906 |
|
|
99.4 |
% |
|
3.47 |
% |
|
339 |
|
1-Nov-52 |
Interest-Only Securities |
|
|
19,669 |
|
|
0.6 |
% |
|
4.01 |
% |
|
234 |
|
25-Jul-48 |
Inverse Interest-Only Securities |
|
|
427 |
|
|
0.0 |
% |
|
0.00 |
% |
|
286 |
|
15-Jun-42 |
Total Mortgage Assets |
|
$ |
3,540,002 |
|
|
100.0 |
% |
|
3.46 |
% |
|
336 |
|
1-Nov-52 |
($ in thousands) |
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June 30, 2023 |
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|
December 31, 2022 |
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||||||||
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Fair Value |
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Percentage of Entire Portfolio |
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|
Fair Value |
|
|
Percentage of Entire Portfolio |
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||
Agency |
|
|
|
|
|
|
|
|
||||||
Fannie Mae |
|
$ |
2,897,583 |
|
|
66.2 |
% |
|
$ |
2,320,960 |
|
|
65.6 |
% |
Freddie Mac |
|
|
1,476,389 |
|
|
33.8 |
% |
|
|
1,219,042 |
|
|
34.4 |
% |
Total Portfolio |
|
$ |
4,373,972 |
|
|
100.0 |
% |
|
$ |
3,540,002 |
|
|
100.0 |
% |
|
|
June 30, 2023 |
|
|
December 31, 2022 |
|
||
Weighted Average Pass-through Purchase Price |
|
$ |
105.06 |
|
|
$ |
106.41 |
|
Weighted Average Structured Purchase Price |
|
$ |
18.74 |
|
|
$ |
18.74 |
|
Weighted Average Pass-through Current Price |
|
$ |
92.75 |
|
|
$ |
91.46 |
|
Weighted Average Structured Current Price |
|
$ |
13.25 |
|
|
$ |
14.05 |
|
Effective Duration (1) |
|
|
5.220 |
|
|
|
5.580 |
|
(1) |
Effective duration of 5.220 indicates that an interest rate increase of 1.0% would be expected to cause a 5.220% decrease in the value of the RMBS in the Company’s investment portfolio at June 30, 2023. An effective duration of 5.580 indicates that an interest rate increase of 1.0% would be expected to cause a 5.580% decrease in the value of the RMBS in the Company’s investment portfolio at December 31, 2022. 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, 2023, the Company had outstanding repurchase obligations of approximately $4,201.7 million with a net weighted average borrowing rate of 5.26%. These agreements were collateralized by RMBS with a fair value, including accrued interest, of approximately $4,383.3 million and cash pledged to counterparties of approximately $30.6 million. The Company’s adjusted leverage ratio, defined as the balance of repurchase agreement liabilities divided by stockholders’ equity, at June 30, 2023 was 8.6 to 1. At June 30, 2023, the Company’s liquidity was approximately $204.1 million consisting of cash and cash equivalents and unpledged RMBS (not including unsettled securities purchases). To enhance our liquidity even further, we may pledge more of our structured RMBS as part of a repurchase agreement funding, but retain the cash in lieu of acquiring additional assets. In this way we can, at a modest cost, retain higher levels of cash on hand and decrease the likelihood we will have to sell assets in a distressed market in order to raise cash. Below is a list of our outstanding borrowings under repurchase obligations at June 30, 2023.
($ in thousands) |
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Weighted |
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Weighted |
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Total |
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Average |
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Average |
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Outstanding |
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% of |
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Borrowing |
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Amount |
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Maturity |
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||
Counterparty |
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Balances |
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|
Total |
|
|
Rate |
|
|
at Risk(1) |
|
|
in Days |
|
||
J.P. Morgan Securities LLC |
|
$ |
337,627 |
|
|
8.0 |
% |
|
5.32 |
% |
|
$ |
18,780 |
|
|
13 |
|
ASL Capital Markets Inc. |
|
|
336,720 |
|
|
8.0 |
% |
|
5.27 |
% |
|
|
18,280 |
|
|
41 |
|
Mitsubishi UFJ Securities (USA), Inc. |
|
|
331,790 |
|
|
7.9 |
% |
|
5.25 |
% |
|
|
16,536 |
|
|
19 |
|
Wells Fargo Bank, N.A. |
|
|
328,470 |
|
|
7.8 |
% |
|
5.28 |
% |
|
|
17,626 |
|
|
15 |
|
RBC Capital Markets, LLC |
|
|
315,578 |
|
|
7.5 |
% |
|
5.19 |
% |
|
|
10,406 |
|
|
15 |
|
Citigroup Global Markets, Inc. |
|
|
308,384 |
|
|
7.3 |
% |
|
5.24 |
% |
|
|
16,692 |
|
|
28 |
|
Mirae Asset Securities (USA) Inc. |
|
|
301,508 |
|
|
7.2 |
% |
|
5.23 |
% |
|
|
15,658 |
|
|
78 |
|
Daiwa Capital Markets America, Inc. |
|
|
241,338 |
|
|
5.7 |
% |
|
5.22 |
% |
|
|
10,317 |
|
|
17 |
|
Marex Capital Markets Inc. |
|
|
229,138 |
|
|
5.5 |
% |
|
5.29 |
% |
|
|
9,966 |
|
|
11 |
|
ING Financial Markets LLC |
|
|
225,570 |
|
|
5.4 |
% |
|
5.24 |
% |
|
|
9,738 |
|
|
27 |
|
ABN AMRO Bank N.V. |
|
|
218,376 |
|
|
5.2 |
% |
|
5.30 |
% |
|
|
6,968 |
|
|
13 |
|
Cantor Fitzgerald & Co. |
|
|
217,196 |
|
|
5.2 |
% |
|
5.25 |
% |
|
|
11,486 |
|
|
17 |
|
Merrill Lynch, Pierce, Fenner & Smith Inc. |
|
|
186,631 |
|
|
4.4 |
% |
|
5.26 |
% |
|
|
6,769 |
|
|
15 |
|
StoneX Financial Inc. |
|
|
174,967 |
|
|
4.2 |
% |
|
5.25 |
% |
|
|
9,218 |
|
|
13 |
|
Goldman Sachs & Co. LLC |
|
|
122,836 |
|
|
2.9 |
% |
|
5.30 |
% |
|
|
6,488 |
|
|
11 |
|
South Street Securities, LLC |
|
|
117,859 |
|
|
2.8 |
% |
|
5.36 |
% |
|
|
5,976 |
|
|
88 |
|
Santander Bank, N.A. |
|
|
113,119 |
|
|
2.7 |
% |
|
5.20 |
% |
|
|
5,037 |
|
|
24 |
|
BMO Capital Markets Corp. |
|
|
74,325 |
|
|
1.8 |
% |
|
5.25 |
% |
|
|
3,901 |
|
|
17 |
|
Lucid Cash Fund USG, LLC |
|
|
11,208 |
|
|
0.3 |
% |
|
5.30 |
% |
|
|
576 |
|
|
20 |
|
Lucid Prime Fund, LLC |
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|
9,077 |
|
|
0.2 |
% |
|
5.30 |
% |
|
|
480 |
|
|
20 |
|
Total / Weighted Average |
|
$ |
4,201,717 |
|
|
100.0 |
% |
|
5.26 |
% |
|
$ |
200,898 |
|
|
25 |
|
(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, 2023, such instruments were comprised of U.S. Treasury note (“T-Note”) futures contracts, interest rate swap agreements, interest rate swaption agreements, interest rate caps, interest rate floors and contracts to sell to-be-announced (“TBA”) securities.
The table below presents information related to the Company’s T-Note futures contracts at June 30, 2023.
($ in thousands) |
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June 30, 2023 |
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||||||||||
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Average |
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Weighted |
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Weighted |
|
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|
|
|
|
|
Contract |
|
Average |
|
|
Average |
|
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|
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|
Notional |
|
Entry |
|
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Effective |
|
|
Open |
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||
Expiration Year |
|
Amount |
|
Rate |
|
|
Rate |
|
|
Equity(1) |
|
||
Treasury Note Futures Contracts (Short Positions)(2) |
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|
September 2023 5-year T-Note futures (Sep 2023 – Sep 2028 Hedge Period) |
|
$ |
471,500 |
|
3.69 |
% |
|
4.40 |
% |
|
$ |
9,795 |
|
September 2023 10-year T-Note futures (Sep 2023 – Sep 2033 Hedge Period) |
|
$ |
285,000 |
|
3.76 |
% |
|
4.47 |
% |
|
$ |
3,793 |
|
September 2023 10-year Ultra futures (Sep 2023 – Sep 2033 Hedge Period) |
|
$ |
244,200 |
|
3.71 |
% |
|
3.77 |
% |
|
$ |
2,182 |
|
(1) |
Open equity represents the cumulative gains (losses) recorded on open futures positions from inception. |
|
(2) |
5-Year T-Note futures contracts were valued at a price of $107.1. The contract values of the short positions were $504.9 million. 10-Year T-Note futures contracts were valued at a price of $112.3. The contract values of the short positions were $320.0 million. 10-Year Ultra futures contracts were valued at a price of $118.4. The contract value of the short position was $289.2 million. |
The table below presents information related to the Company’s interest rate swap positions at June 30, 2023.
($ in thousands) |
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Average |
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Fixed |
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Average |
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Average |
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|||
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Notional |
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Pay |
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Receive |
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Maturity |
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||||
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Amount |
|
|
Rate |
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|
Rate |
|
|
(Years) |
|
||||
Expiration > 1 to ≤ 5 years |
|
$ |
500,000 |
|
|
|
0.84 |
% |
|
|
5.53 |
% |
|
|
3.2 |
|
Expiration > 5 years |
|
$ |
1,651,500 |
|
|
|
2.53 |
% |
|
|
5.14 |
% |
|
|
6.9 |
|
|
|
$ |
2,151,500 |
|
|
|
2.13 |
% |
|
|
5.23 |
% |
|
|
6.1 |
|
The following table presents information related to our interest rate swaption positions as of June 30, 2023.
($ in thousands) |
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Option |
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Underlying Swap |
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Weighted Average Months to Expiration |
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Weighted |
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Average |
|
Average |
|
Average |
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Fair |
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|
Notional |
|
|
Fixed |
|
Adjustable |
|
Term |
|
|||
Expiration |
|
Cost |
|
|
Value |
|
|
|
Amount |
|
|
Rate |
|
Rate |
|
(Years) |
|
||||
Payer Swaptions (long positions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
≤ 1 year |
|
$ |
36,685 |
|
|
$ |
5,698 |
|
|
3.6 |
|
$ |
1,250,000 |
|
|
4.09 |
% |
SOFR |
|
10.0 |
|
>1 year |
|
|
10,115 |
|
|
|
12,259 |
|
|
18.7 |
|
|
1,000,000 |
|
|
3.49 |
% |
SOFR |
|
2.0 |
|
|
|
$ |
46,800 |
|
|
$ |
17,957 |
|
|
10.3 |
|
$ |
2,250,000 |
|
|
3.82 |
% |
|
|
6.4 |
|
Payer Swaptions (short positions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
≤ 1 year |
|
$ |
(3,819 |
) |
|
$ |
(68 |
) |
|
0.6 |
|
$ |
(917,000 |
) |
|
4.09 |
% |
SOFR |
|
10.0 |
|
>1 year |
|
$ |
(8,433 |
) |
|
$ |
(10,216 |
) |
|
18.7 |
|
$ |
(1,000,000 |
) |
|
3.74 |
% |
SOFR |
|
2.0 |
|
|
|
$ |
(12,252 |
) |
|
$ |
(10,284 |
) |
|
10.0 |
|
$ |
(1,917,000 |
) |
|
3.91 |
% |
|
|
5.8 |
|
The following table presents information related to our interest cap positions as of June 30, 2023.
($ in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
||
|
|
|
|
|
|
|
|
|
|
Strike |
|
|
|
Estimated |
|
||
|
|
Notional |
|
|
|
|
|
|
Swap |
|
Curve |
|
Fair |
|
|||
Expiration |
|
Amount |
|
|
Cost |
|
|
Rate |
|
Spread |
|
Value |
|
||||
February 8, 2024 |
|
$ |
200,000 |
|
|
$ |
1,450 |
|
|
0.09 |
% |
2Y10Y |
|
$ |
211 |
|
The table below presents information related to the Company’s interest rate floor positions at June 30, 2023.
($ in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
||
|
|
|
|
|
|
|
|
|
|
Strike |
|
|
|
Estimated |
|
||
|
|
Notional |
|
|
|
|
|
|
Swap |
|
|
|
Fair |
|
|||
|
|
Amount |
|
|
Cost |
|
|
Rate |
|
Terms |
|
Value |
|
||||
June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Position |
|
$ |
1,000,000 |
|
|
$ |
2,500 |
|
|
0.13 |
% |
2Y_2s30s |
|
$ |
3,844 |
|
|
Short Position |
|
$ |
(1,000,000 |
) |
|
$ |
(1,358 |
) |
|
(0.37 |
)% |
2Y_2s30s |
|
$ |
(2,573 |
) |
The following table summarizes our contracts to sell TBA securities as of June 30, 2023.
($ in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount Long (Short)(1) |
|
|
|
|
|
|
|
|
|
|
Net |
|
||
|
|
|
|
Cost |
|
|
Market |
|
|
Carrying |
|
|||||
|
|
|
|
Basis(2) |
|
|
Value(3) |
|
|
Value(4) |
|
|||||
June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15-Year TBA securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.00% |
|
$ |
100,000 |
|
|
$ |
99,234 |
|
|
$ |
99,351 |
|
|
$ |
117 |
|
30-Year TBA securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.00% |
|
|
(350,000 |
) |
|
|
(308,494 |
) |
|
|
(308,410 |
) |
|
|
84 |
|
|
|
$ |
(250,000 |
) |
|
$ |
(209,260 |
) |
|
$ |
(209,059 |
) |
|
$ |
201 |
|
(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 |
|
$ |
6.975 |
|
|
$ |
4,662 |
|
2014 |
|
|
10.800 |
|
|
|
22,643 |
|
2015 |
|
|
9.600 |
|
|
|
38,748 |
|
2016 |
|
|
8.400 |
|
|
|
41,388 |
|
2017 |
|
|
8.400 |
|
|
|
70,717 |
|
2018 |
|
|
5.350 |
|
|
|
55,814 |
|
2019 |
|
|
4.800 |
|
|
|
54,421 |
|
2020 |
|
|
3.950 |
|
|
|
53,570 |
|
2021 |
|
|
3.900 |
|
|
|
97,601 |
|
2022 |
|
|
2.475 |
|
|
|
87,906 |
|
2023 – YTD(1) |
|
|
1.120 |
|
|
|
45,531 |
|
Totals |
|
$ |
65.770 |
|
|
$ |
573,001 |
|
(1) |
On July 12, 2023, the Company declared a dividend of $0.16 per share to be paid on August 29, 2023. 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, 2023. |
Book Value Per Share
The Company’s book value per share at June 30, 2023 was $11.16. 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, 2023, the Company’s stockholders’ equity was $490.1 million with 43,896,709 shares of common stock outstanding.
Capital Allocation and Return on Invested Capital
The Company allocates capital to two RMBS sub-portfolios, the pass-through RMBS portfolio, consisting of mortgage pass-through certificates issued by Fannie Mae, Freddie Mac or Ginnie Mae (the “GSEs”) and collateralized mortgage obligations (“CMOs”) issued by the GSEs (“PT RMBS”), and the structured RMBS portfolio, consisting of interest-only (“IO”) and inverse interest-only (“IIO”) securities. As of June 30, 2023, approximately 95.8% 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 March 31, 2023, the allocation to the PT RMBS portfolio was approximately 95.3%.
The table below details the changes to the respective sub-portfolios during the quarter.
(in thousands) |
|
|||||||||||||||||||
Portfolio Activity for the Quarter |
|
|||||||||||||||||||
|
|
|
|
|
|
Structured Security Portfolio |
|
|
|
|
|
|||||||||
|
|
Pass-Through Portfolio |
|
|
Interest-Only Securities |
|
|
Inverse Interest Only Securities |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
Sub-total |
|
|
Total |
|
||||||||
Market value – March 31, 2023 |
|
$ |
3,980,462 |
|
|
$ |
18,962 |
|
|
$ |
482 |
|
|
$ |
19,444 |
|
|
$ |
3,999,906 |
|
Securities purchased |
|
|
521,364 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
521,364 |
|
Securities sold |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Losses on sales |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Return of investment |
|
|
n/a |
|
|
|
(647 |
) |
|
|
– |
|
|
|
(647 |
) |
|
|
(647 |
) |
Pay-downs |
|
|
(76,725 |
) |
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
(76,725 |
) |
Discount accretion due to pay-downs |
|
|
4,886 |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
4,886 |
|
Mark to market losses |
|
|
(73,784 |
) |
|
|
(867 |
) |
|
|
(161 |
) |
|
|
(1,028 |
) |
|
|
(74,812 |
) |
Market value – June 30, 2023 |
|
$ |
4,356,203 |
|
|
$ |
17,448 |
|
|
$ |
321 |
|
|
$ |
17,769 |
|
|
$ |
4,373,972 |
|
The tables below present the allocation of capital between the respective portfolios at June 30, 2023 and March 31, 2023, and the return on invested capital for each sub-portfolio for the three month period ended June 30, 2023.
($ in thousands) |
|
|||||||||||||||||||
Capital Allocation |
|
|||||||||||||||||||
|
|
|
|
|
|
Structured Security Portfolio |
|
|
|
|
|
|||||||||
|
|
Pass-Through Portfolio |
|
|
Interest-Only Securities |
|
|
Inverse Interest Only Securities |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
Sub-total |
|
|
Total |
|
||||||||
June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value |
|
$ |
4,356,203 |
|
|
$ |
17,448 |
|
|
$ |
321 |
|
|
$ |
17,769 |
|
|
$ |
4,373,972 |
|
Cash |
|
|
249,337 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
249,337 |
|
Borrowings(1) |
|
|
(4,201,717 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(4,201,717 |
) |
Total |
|
$ |
403,823 |
|
|
$ |
17,448 |
|
|
$ |
321 |
|
|
$ |
17,769 |
|
|
$ |
421,592 |
|
% of Total |
|
|
95.8 |
% |
|
|
4.1 |
% |
|
|
0.1 |
% |
|
|
4.2 |
% |
|
|
100.0 |
% |
March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value |
|
$ |
3,980,462 |
|
|
$ |
18,962 |
|
|
$ |
482 |
|
|
$ |
19,444 |
|
|
$ |
3,999,906 |
|
Cash |
|
|
185,958 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
185,958 |
|
Borrowings(2) |
|
|
(3,769,437 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(3,769,437 |
) |
Total |
|
$ |
396,983 |
|
|
$ |
18,962 |
|
|
$ |
482 |
|
|
$ |
19,444 |
|
|
$ |
416,427 |
|
% of Total |
|
|
95.3 |
% |
|
|
4.6 |
% |
|
|
0.1 |
% |
|
|
4.7 |
% |
|
|
100.0 |
% |
(1) |
At June 30, 2023, there were outstanding repurchase agreement balances of $14.8 million secured by IO securities and $0.3 million secured by IIO securities. We entered into these arrangements to generate additional cash available to meet margin calls on PT RMBS; therefore, we have not considered these balances to be allocated to the structured securities strategy. |
|
(2) |
At March 31, 2023, there were outstanding repurchase agreement balances of $15.4 million secured by IO securities and $0.3 million secured by IIO securities. We entered into these arrangements to generate additional cash available to meet margin calls on PT RMBS; therefore, we have not considered these balances to be allocated to the structured securities strategy. |
The return on invested capital in the PT RMBS and structured RMBS portfolios was approximately 3.9% and (3.1)%, respectively, for the second quarter of 2023. The combined portfolio generated a return on invested capital of approximately 3.6%.
($ in thousands) |
|
|||||||||||||||||||
Returns for the Quarter Ended June 30, 2023 |
|
|||||||||||||||||||
|
|
|
|
|
|
Structured Security Portfolio |
|
|
|
|
|
|||||||||
|
|
Pass-Through Portfolio |
|
|
Interest-Only Securities |
|
|
Inverse Interest Only Securities |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
Sub-total |
|
|
Total |
|
||||||||
Income (net of borrowing cost) |
|
$ |
(9,176 |
) |
|
$ |
416 |
|
|
$ |
– |
|
|
$ |
416 |
|
|
$ |
(8,760 |
) |
Realized and unrealized losses |
|
|
(68,511 |
) |
|
|
(867 |
) |
|
|
(161 |
) |
|
|
(1,028 |
) |
|
|
(69,539 |
) |
Derivative gains |
|
|
93,367 |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
93,367 |
|
Total Return |
|
$ |
15,680 |
|
|
$ |
(451 |
) |
|
$ |
(161 |
) |
|
$ |
(612 |
) |
|
$ |
15,068 |
|
Beginning Capital Allocation |
|
$ |
396,983 |
|
|
$ |
18,962 |
|
|
$ |
482 |
|
|
$ |
19,444 |
|
|
$ |
416,427 |
|
Return on Invested Capital for the Quarter(1) |
|
|
3.9 |
% |
|
|
(2.4 |
)% |
|
|
(33.4 |
)% |
|
|
(3.1 |
)% |
|
|
3.6 |
% |
Average Capital Allocation(2) |
|
$ |
400,403 |
|
|
$ |
18,205 |
|
|
$ |
402 |
|
|
$ |
18,607 |
|
|
$ |
419,010 |
|
Return on Average Invested Capital for the Quarter(3) |
|
|
3.9 |
% |
|
|
(2.5 |
)% |
|
|
(40.0 |
)% |
|
|
(3.3 |
)% |
|
|
3.6 |
% |
Contacts
Orchid Island Capital, Inc.
Robert E. Cauley, 772-231-1400
Chairman and Chief Executive Officer
https://ir.orchidislandcapital.com
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