Orchid Island Capital, Inc. · NYSE:ORC
Orchid Island Capital — Investor Presentation (December 2015)
29 slides from Orchid Island Capital's investor presentation, Dec 3, 2015
Slide 1: Investor Presentation December 2015
Investor Presentation December 2015
Slide 2: Disclaimers
Disclaimers FORWARD-LOOKING INFORMATION This presentation contains forward-looking statements and information. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by,
Slide 3: Overview
Overview Topic Point Slide(s) Management Experience 4 Independent Directors 5 Challenges of the Traditional Model 6 Orchid Business Model 7 Capital Allocation Process 8 Creating Desired Rate Profile 9 Security Selection and Considerations 10 – 14 Risk Mitigation 15 MBS Portfolio Ch
Slide 4: Management Experience
Management Experience Robert E. Cauley G. Hunter Haas, IV Jerry Sintes Chief Executive Officer, President and Chief Financial Officer, Secretary, Chief Vice President, Controller and Treasurer Chairman of the Board Investment Officer and Director 21 years of industry experience 14 years of industry
Slide 5: Independent Directors
Independent Directors John B. Van Heuvelen W Coleman Bitting Frank P. Filipps Ava L. Parker Position at Orchid: Lead Position at Orchid: Independent Position at Orchid: Independent Position at Orchid: Independent Independent Director; audit Director, compensation committee Director, member of audit,
Slide 6: Challenges of the Traditional Model
Challenges of the Traditional Model The traditional REIT investment model: Repo-funded pass-through securities Holders of premium priced Agency RMBS are Equity Issuances vs. Agency Prices(1) $ in 000s Dollars ($) Price Risk vulnerable to losses if prepayments rise 3,000 110 unexpectedly Agency Mor
Slide 7: The Orchid Island Business Model
The Orchid Island Business Model Model Overview Capital allocated to two sub-portfolios 1 A levered pass-through portfolio utilizing funding hedges 2 A structured securities portfolio The two sub-portfolios act as hedges for one another – enhancing book value stability Model Benefits Same expe
Slide 8: Capital Allocation Process
Capital Allocation Process Management seeks a certain rate profile based on market conditions and expectations Over time, market Portfolio is constructed – conditions or blending structured management’s securities and hedged pass-through sub- expectations may portfolios to achieve the change desired
Slide 9: Creating the Desired Rate Profile
Creating the Desired Rate Profile Asset Selection Book Value Stability Embedded Leverage Structured Agency RMBS typically The combined portfolios exhibit far Strategy does not require as exhibit different sensitivity to interest less interest rate sensitivity and much explicit leverage, yet ha
Slide 10: Security Selection – Pass Through Portfolio
Security Selection – Pass Through Portfolio 1 Security Attribute 2 Examples 3 Risk Considerations Security Type of MBS, maturity, Fixed or ARM, 30 year, 15 Duration and convexity – Characteristics coupon, age year, premium or discount, extension risk new vs. seasoned Form of call protection
Slide 11: Specified Pool Payups (Ticks)
Nov-15 Wells Fargo Production Specified Pool Payups Oct-15 Sep-15 Aug-15 Jul-15 Jun-15 May-15 Apr-15 Mar-15 FN 85k Max 4.5 Feb-15 Jan-15 Dec-14 Nov-14 Oct-14 FN CQ/U6 4.0 Sep-14 Aug-14 Jul-14 11 Jun-14 May-14 FN 85k Max 4.0 Apr-14 Mar-14 Feb-14 Jan-14 Dec-13 Nov-13 Oct-13 Sep-13 Aug-13 Jul-13 Jun-13
Slide 12: Security Selection – Structured Securities Portfolio
Security Selection – Structured Securities Portfolio 1 Security Attribute 2 Examples 3 Risk Considerations Security Type of security and IO vs IIO; PAC, XPAC, Interest rate duration, Characteristics structure Sequential, PT, Excess spread duration, convexity Servicing IO’s and IIO’s are leve
Slide 13: Security Holding Period Considerations
Security Holding Period Considerations A significant component of the security selection process is the decision of how long to own an asset Security Specific Factors to Consider Prepayment models base prepayment projections on several variables. Prepayment behavior drives income generation and pri
Slide 14: Security Holding Period Considerations
Security Holding Period Considerations Portfolio specific factors result from the risk management function and the desire to maintain stable book value. Portfolio Specific Factors to Consider The pay-ups for call protection can be very volatile and materially alter the convexity of a security. Thi
Slide 15: Risk Mitigation
Risk Mitigation The primary risk monitored is the expected impact on our book value of various interest rate shocks. We use “Yield Book” to run the shocks and test the sensitivity of the portfolio to instantaneous parallel shifts of the entire term structure of rates. -Up and down scenarios are ru
Slide 16: MBS Portfolio Characteristics
MBS Portfolio Characteristics MBS Valuation Characteristics (in thousands of $s) Realized October Fair Percentage of Weighted Asset Category Current Face Current Price 2015 CPR Value Portfolio Average Coupon (Reported in Nov) As of October 30, 2015 Adjustable Rate MBS $ 2,809 $ 2,995 106.59 0.15% 3.
Slide 17: Credit Counterparties & Trading Activity
Credit Counterparties & Trading Activity Repurchase Agreement Exposure By Counterparty (in thousands of $s) Weighted Average Maturity in As of October 30, 2015 Total Borrowings % Of Total Debt Longest Maturity Days Barclays Capital Inc $10,136 0.56% 14 11/13/2015 Merrill Lynch, Pierce, Fenner & Smit
Slide 18: Growth and Dividend History
Growth and Dividend History Portfolio Size as a Percentage Dividends as a Percentage of of March 31, 2013 Level March 31, 2013 Level 140% 800% 130% 120% 400% 110% ORC ORC NLY NLY 100% AGNC AGNC ANH ANH 90% 200% ARR ARR 80% CMO CMO CYS CYS HTS 70% HTS 100% 60% 50% 50% 40% Mar-13 Jun-13 Sep-13 Dec-13
Slide 19: Sector Analysis
Sector Analysis Comparables: Agency REIT Analysis as of 09/30/2015 (other than as indicated below) (data in millions, excluding per share amounts) Q32015 Current Current Current YTD 1-Year 2-Year Return on Market Current Book Value Dividend Dividend Price to Return on Return on Return on Equity Sinc
Slide 20: Eurodollar Introduction
Eurodollar Introduction 20
Slide 21: Eurodollar Introduction
Eurodollar Introduction Contract Description and Hedging Each contract is a traded future on a 1 or 3 month LIBOR denominated deposit rate -For simplicity this presentation focuses on the quarterly contracts which cash settle on each March, June, September and December At the settlement date the
Slide 22: Eurodollar Introduction …Continued
Eurodollar Introduction …Continued Eurodollar futures trade in $1 million dollar notional values per contract -To replicate the $1 billion swap hedge the Company would sell-short 1,000 contracts for each sequential quarterly expiry over the next 20 quarters in order to achieve the desired 5 year h
Slide 23: Eurodollar Exhibit 1: Illustrative Position
Eurodollar Exhibit 1: Illustrative Position Illustrative Eurodollar Position Long / Notional Current Implied Cumulative + 100 BP + 100 BP Initial Margin Initial Margin Contract Short Position Balance Price Forward Forward Rate Shock Price Shock P&L Per Contract Requirement EDZ5 Comdty Short -1000 (1
Slide 24: Eurodollar Exhibit 2: Market Depth
Eurodollar Exhibit 2: Market Depth Source: Bloomberg 24
Slide 25: March Eurodollar Contract – Yield History
March 16 Eurodollar Contract – Yield History Source: Bloomberg 25
Slide 26: Total Rate of Return Scenarios
Total Rate of Return Scenarios 26
Slide 27: Taxable Income and Book Value
Taxable Income and Book Value Scenario A: LIBOR Remains at 25bps (Repo at 35bps) for 5 Years Beginning BV $10 / Share Swap Hedge Eurodollar Hedge MBS Repo Interest Expense Taxable Mark to Ending Annual Total Interest Expense Taxable Mark to Ending Annualized Share Count Interest Interest Hedge Adjus
Slide 28: Taxable Income and Book Value
Taxable Income and Book Value Scenario B: Forward Curve Exactly Realized Forward Repo / LIBOR Spread 10bps - Beginning BV $10 / Share Swap Hedge Eurodollar Hedge MBS Repo Interest Expense Taxable Mark to Ending Annual Total Interest Expense Taxable Mark to Ending Annualized Share Count Interest Inte
Slide 29: Taxable Income and Book Value
Taxable Income and Book Value Scenario C: Realized +100bps Instantaneous Parallel Curve Shift - Repo / LIBOR Spread 10bps - Beginning BV $10 / Share Swap Hedge Eurodollar Hedge MBS Repo Interest Expense Taxable Mark to Ending Annual Total Interest Expense Taxable Mark to Ending Annualized Share Coun
Orchid Island Capital — Investor Presentation (December 2015) on 6ix