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Dec 31, 2020
Orchid Island Q4 2020 Earnings Report
Orchid Island Capital reported strong Q4 2020 results, driven by strategic portfolio adjustments and effective use of the TBA dollar roll market.
Key Takeaways
Orchid Island Capital announced net income of $16.5 million for Q4 2020. The company focused on maximizing returns by shifting its portfolio into lower coupon securities and leveraging the TBA dollar roll market. They also raised $36.1 million through an at-the-market program, which was accretive to earnings.
Orchid Island Capital reported a net income of $16.5 million, or $0.23 per common share, for Q4 2020.
The company generated a 4.0% economic gain on common equity for the quarter.
The portfolio was strategically shifted into lower coupon securities and shorter maturity securities to mitigate prepayment risks.
Orchid Island Capital expanded its use of the TBA dollar roll market to enhance returns.
Forward Guidance
While no explicit forward guidance was given the report indicates the company will likely continue to focus on managing prepayment risks on RMBS, and taking advantage of the TBA dollar roll market.
Positive Outlook
- Focus on maximizing returns on the portfolio by reducing the income draining effects of prepayments on premium RMBS.
- Shifting the portfolio into lower coupon securities and in some cases shorter maturity securities.
- Increased use of the very attractive financing offered by the TBA dollar roll market.
- Continued low financing in the traditional repo markets.
- Ability to raise additional capital from the at-the-market program at attractive prices relative to book value and accretive to earnings.
Challenges Ahead
- Compression of the spread between mortgage rates available to borrowers and rates on an interpolated par priced mortgage backed security.
- Increase of prepayment rate in the fourth quarter was 16.7 CPR, a 2.4 CPR increase over the third quarter of 2020.
Historical Earnings Impact
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