2 unchanged sentences
We refer to these types of RMBS as Agency RMBS.
−Removed: Our investment strategy focuses on, and our portfolio consists of, two categories of Agency RMBS:
−Removed: (i) traditional pass-through Agency RMBS, such as mortgage pass through certificates and collateralized mortgage obligations (“CMOs”) issued by the GSEs and (ii) structured Agency RMBS, such as interest only securities (“IOs”), inverse interest only securities (“IIOs”) and principal only securities (“POs”), among other types of structured Agency RMBS.
+Added: Our portfolio consists of two categories of Agency RMBS:
+Added: (i) traditional pass-through ("PT") Agency RMBS, such as mortgage PT certificates and collateralized mortgage obligations (“CMOs”) issued by the GSEs and (ii) structured Agency RMBS, such as interest only securities (“IOs”), inverse interest only securities (“IIOs”) and principal only securities (“POs”), among other types of structured Agency RMBS.
Our website is located at http://ir.orchidislandcapital.com.
12 unchanged sentences
Additionally, our Manager is a Maryland limited liability company that is a wholly-owned subsidiary of Bimini, which has a long track record of managing investments in Agency RMBS.
−Removed: Bimini commenced active investment management operations in 2003, and self-manages its own portfolio.
+Added: Bimini commenced active investment management operations in 2003.
We believe our relationship with our Manager enables us to leverage our Manager’s established portfolio management resources for each of our targeted asset classes and its infrastructure supporting those resources.
−Removed: Additionally, we have benefitted and expect to continue to benefit from our Manager’s finance and administration functions, which address legal, compliance, investor relations and operational matters, including portfolio management, trade allocation and execution, securities valuation, repurchase agreement trading and clearing, risk management, cybersecurity, information technologies and environmental, social and governance considerations in connection with the performance of its duties.
+Added: Additionally, we have benefitted and expect to continue to benefit from our Manager’s finance and administration functions, which address legal, compliance, investor relations and operational matters, including portfolio management, trade allocation and execution, securities valuation, repurchase agreement trading and clearing, risk management, cybersecurity, information technologies and governance considerations in connection with the performance of its duties.
Our Manager is responsible for administering our business activities and day-to-day operations.
4 unchanged sentences
Our business objective is to provide attractive risk-adjusted total returns to our investors over the long term through a combination of capital appreciation and the payment of regular monthly distributions.
−Removed: We intend to achieve this objective by investing in and strategically allocating capital between pass-through Agency RMBS and structured Agency RMBS.
−Removed: We seek to generate income from (i) the net interest margin on our leveraged pass-through Agency RMBS portfolio and the leveraged portion of our structured Agency RMBS portfolio, and (ii) the interest income we generate from the unleveraged portion of our structured Agency RMBS portfolio.
−Removed: We also seek to minimize the volatility of both the net asset value of, and income from, our portfolio through a process which emphasizes capital allocation, asset selection, liquidity and active interest rate risk management.
−Removed: We fund our pass-through Agency RMBS and certain of our structured Agency RMBS through repurchase agreements.
+Added: We intend to achieve this objective by investing in PT Agency RMBS and structured Agency RMBS.
+Added: We seek to generate income from (i) the net interest margin on our leveraged PT Agency RMBS portfolio and the leveraged portion of our structured Agency RMBS portfolio, and (ii) the interest income we generate from the unleveraged portion of our structured Agency RMBS portfolio.
+Added: We also seek to minimize the volatility of both the net asset value of, and income from, our portfolio through asset selection, liquidity and interest rate risk management.
+Added: We fund our PT Agency RMBS and certain of our structured Agency RMBS through repurchase agreements.
However, we generally do not employ leverage on our structured Agency RMBS that have no principal balance, such as IOs and IIOs, because those securities contain structural leverage.
2 unchanged sentences
Pass-through Agency RMBS
−Removed: We invest in pass-through securities, which are securities secured by residential real property in which payments of both interest and principal on the securities are generally made monthly.
+Added: We invest in PT securities, which are securities secured by residential real property in which payments of both interest and principal on the securities are generally made monthly.
In effect, these securities pass through the monthly payments made by the individual borrowers on the mortgage loans that underlie the securities, net of fees paid to the loan servicer and the guarantor of the securities.
−Removed: Pass-through certificates can be divided into various categories based on the characteristics of the underlying mortgages, such as the term or whether the interest rate is fixed or variable.
−Removed: The payment of principal and interest on mortgage pass-through securities issued by Ginnie Mae, but not the market value, is guaranteed by the full faith and credit of the federal government.
−Removed: Payment of principal and interest on mortgage pass-through certificates issued by the Enterprises, but not the market value, is guaranteed by the respective agency issuing the security.
+Added: PT certificates can be divided into various categories based on the characteristics of the underlying mortgages, such as the term or whether the interest rate is fixed or variable.
+Added: The payment of principal and interest on mortgage PT securities issued by Ginnie Mae, but not the market value, is guaranteed by the full faith and credit of the federal government.
+Added: Payment of principal and interest on mortgage PT certificates issued by the Enterprises, but not the market value, is guaranteed by the respective agency issuing the security.
A key feature of most mortgage loans is the ability of the borrower to repay principal earlier than scheduled.
1 unchanged sentence
Prepayments arise primarily due to sale of the underlying property, refinancing, foreclosure, or accelerated amortization by the borrower.
−Removed: Prepayments result in a return of principal to pass-through certificate holders.
+Added: Prepayments result in a return of principal to PT certificate holders.
This may result in a lower or higher rate of return upon reinvestment of principal.
8 unchanged sentences
This is generally referred to as “extension risk.”
+Added: Pass-through Agency RMBS loans with characteristics such that prepayment risk is reduced when pooled together are referred to as “specified pools”.
+Added: Such securities typically trade at a premium to pools without such favorable characteristics and the magnitude of the premium varies with the perceived benefit of the favorable loan characteristic.
+Added: Such securities are expected to result in higher realized interest income over time.
+Added: Examples of such favorable loan characteristics would be lower loan balances.
+Added: The primary reason is the cost to refinance a mortgage loan is to a large extent fixed.
+Added: Since the benefit of a lower interest rate and the resulting interest savings over time decline as the outstanding loan balance declines, all else equal the decline in the interest rate must be larger as the outstanding loan balance declines in order to justify the cost to refinance the loan.
+Added: Additional examples would be loans to borrowers with lower credit scores since such borrowers typically cannot qualify for lower loans as readily as borrowers with higher credit scores.
+Added: The Company typically allocates a high percentage of its pass-through Agency RMBS to specified pools.
We may also invest in To-Be-Announced Forward Contracts ("TBAs").
6 unchanged sentences
These TBAs are accounted for as derivatives and marked to market through the income statement and are not included in interest income.
−Removed: The mortgage loans underlying pass-through certificates can generally be classified into the following categories:
+Added: The mortgage loans underlying PT certificates can generally be classified into the following categories:
Fixed-Rate Mortgages .
18 unchanged sentences
CMOs are a type of RMBS, the principal and interest of which are paid, in most cases, on a monthly basis.
−Removed: CMOs may be collateralized by whole mortgage loans, but are more typically collateralized by pools of mortgage pass-through securities issued directly by or under the auspices of the GSEs.
+Added: CMOs may be collateralized by whole mortgage loans, but are more typically collateralized by pools of mortgage PT securities issued directly by or under the auspices of the GSEs.
CMOs are structured into multiple classes, with each class bearing a different stated maturity.
43 unchanged sentences
Our investment strategy consists of the following components:
−Removed: investing in pass-through Agency RMBS, CMOs and certain structured Agency RMBS on a leveraged basis to increase returns on the capital allocated to this portfolio;
−Removed: investing in certain structured Agency RMBS, such as IOs and IIOs, generally on an unleveraged basis in order to (i) increase returns due to the structural leverage contained in such securities, (ii) enhance liquidity due to the fact that these securities will be unencumbered or, when encumbered, retain the cash from such borrowings and (iii) diversify portfolio interest rate risk due to the different interest rate sensitivity these securities have compared to pass-through Agency RMBS;
+Added: investing in PT Agency RMBS, including specified pools, CMOs and certain structured Agency RMBS on a leveraged basis to increase returns on the capital allocated to this portfolio;
+Added: investing in certain structured Agency RMBS, such as IOs and IIOs, generally on an unleveraged basis in order to (i) increase returns due to the structural leverage contained in such securities, (ii) enhance liquidity due to the fact that these securities will be unencumbered or, when encumbered, retain the cash from such borrowings and (iii) diversify portfolio interest rate risk due to the different interest rate sensitivity these securities have compared to PT Agency RMBS;
investing in TBAs;
2 unchanged sentences
investing in assets that will allow us to maintain our qualification as a REIT;
+Added: hedging our financing costs in order to protect our net-interest margin during periods of rising short-term interest rates.
We rely on our Manager’s expertise in identifying assets within our target asset class.
4 unchanged sentences
We believe that this strategy, combined with our Manager’s experience, will enable us to provide attractive long-term returns to our stockholders.
−Removed: Capital Allocation Strategy
−Removed: The percentage of capital invested in our two asset categories will vary and will be managed in an effort to maintain the level of income generated by the combined portfolios, the stability of that income stream and the stability of the value of the combined portfolios.
−Removed: Long positions in TBAs are considered a component of the pass-through Agency RMBS category.
−Removed: Typically, pass-through Agency RMBS and structured Agency RMBS exhibit materially different sensitivities to movements in interest rates.
−Removed: Declines in the value of one portfolio may be offset by appreciation in the other, although we cannot assure you that this will be the case.
−Removed: Additionally, our Manager will seek to maintain adequate liquidity as it allocates capital.
−Removed: We allocate our capital to assist our interest rate risk management efforts.
−Removed: The unleveraged portfolio does not require unencumbered cash or cash equivalents to be maintained in anticipation of possible margin calls.
−Removed: To the extent more capital is deployed in the unleveraged portfolio, our liquidity needs will generally be less.
−Removed: During periods of rising interest rates, refinancing opportunities available to borrowers typically decrease because borrowers are not able to refinance their current mortgage loans with new mortgage loans at lower interest rates.
−Removed: In such instances, securities that are highly sensitive to refinancing activity, such as IOs and IIOs, typically increase in value.
−Removed: Our capital allocation strategy allows us to redeploy our capital into such securities when and if we believe interest rates will be higher in the future, thereby allowing us to hold securities, the value of which we believe is likely to increase as interest rates rise.
−Removed: Also, by being able to re-allocate capital into structured Agency RMBS, such as IOs, during periods of rising interest rates, we may be able to offset the likely decline in the value of our pass-through Agency RMBS, which are negatively impacted by rising interest rates.
−Removed: We intend to operate in a manner that will not subject us to regulation under the Investment Company Act.
−Removed: In order to rely on the exemption provided by Section 3(c)(5)(C) under the Investment Company Act, we must maintain at least 55% of our assets in qualifying real estate assets.
−Removed: For purposes of this test, structured Agency RMBS are non-qualifying real estate assets.
−Removed: Accordingly, while we have no explicit limitation on the amount of our capital that we will deploy to the unleveraged structured Agency RMBS portfolio, we will deploy our capital in such a way so as to maintain our exemption from registration under the Investment Company Act.
Financing Strategy
11 unchanged sentences
Our amount of leverage may vary depending on market conditions and other factors that we deem relevant.
−Removed: We allocate our capital between two sub-portfolios.
−Removed: The pass-through Agency RMBS portfolio, which includes CMOs issued by the Enterprises, will be leveraged generally through repurchase agreement funding.
+Added: The PT Agency RMBS portfolio, which includes CMOs issued by the Enterprises, will be leveraged generally through repurchase agreement funding.
The structured Agency RMBS portfolio generally will not be leveraged.
The leverage ratio is calculated by dividing our total liabilities by total stockholders’ equity at the end of each period.
−Removed: Long positions in TBAs are considered a component of the pass-through Agency RMBS category.
−Removed: While there is no explicit leverage applied to TBAs via repurchase agreement borrowings, as is the case with pass-through securities, to accurately reflect our reported leverage ratio, we calculate our leverage both with and without the market value of the net forward agreement as a component of our total leverage exposure for purposes of reporting our leverage ratio and other risk metrics.
+Added: Long positions in TBAs are considered a component of the PT Agency RMBS category.
+Added: While there is no explicit leverage applied to TBAs via repurchase agreement borrowings, as is the case with PT securities, to accurately reflect our reported leverage ratio, we calculate our leverage both with and without the market value of the net forward agreement as a component of our total leverage exposure for purposes of reporting our leverage ratio and other risk metrics.
We include our net TBA position in our measure of leverage because a forward contract to acquire Agency RMBS in the TBA market carries similar risks to Agency RMBS purchased in the cash market and funded with on-balance sheet liabilities.
Similarly, a TBA contract for the forward sale of Agency RMBS has substantially the same effect as selling the underlying Agency RMBS and reducing our on-balance sheet funding commitments.
−Removed: The amount of leverage typically will be a function of the capital allocated to the pass-through Agency RMBS portfolio and the amount of haircuts required by our lenders on our borrowings.
−Removed: When the capital allocation to the pass-through Agency RMBS portfolio is high, we expect that the leverage ratio will be high because more capital is being explicitly leveraged and less capital is un-leveraged.
−Removed: If the haircuts, which are a percentage of the market value of the collateral pledged, required by our lenders on our borrowings are higher, all else being equal, our leverage will be lower because our lenders will lend less against the value of the capital deployed to the pass-through Agency RMBS portfolio.
−Removed: The allocation of capital between the two portfolios will be a function of several factors:
−Removed: The relative durations of the respective portfolios — We generally seek to have a combined hedged duration at or near zero.
−Removed: If our pass-through securities have a longer duration, we will allocate more capital to the structured security portfolio or hedges to achieve a combined duration close to zero.
−Removed: The relative attractiveness of pass-through securities versus structured securities — To the extent we believe the expected returns of one type of security are higher than the other, we will allocate more capital to the more attractive securities, subject to the caveat that its combined duration remains at or near zero and subject to maintaining our qualification for exemption under the Investment Company Act.
−Removed: Liquidity — We seek to maintain adequate cash and unencumbered securities relative to our repurchase agreement borrowings to ensure we can meet any price or prepayment related margin calls from our lenders.
−Removed: To the extent we feel price or prepayment related margin calls will be higher/lower, we will typically allocate less/more capital to the pass-through Agency RMBS portfolio.
−Removed: Our pass-through Agency RMBS portfolio likely will be our only source of price or prepayment related margin calls because we generally will not apply leverage to our structured Agency RMBS portfolio.
−Removed: From time to time we may pledge a portion of our structured securities and retain the cash derived so it can be used to enhance our liquidity.
Risk Management
19 unchanged sentences
We enter into derivative instruments to economically hedge against the possibility that rising rates may adversely impact the cost of our repurchase agreement liabilities.
−Removed: The principal instruments that the Company has used to date are Treasury Note (“T-Note”), SOFR, federal funds ("Fed Funds") and Eurodollar futures contracts, interest rate swaps, options to enter in interest rate swaps (“interest rate swaptions”), interest rate caps and TBA securities transactions, but the Company may enter into other derivatives in the future.
+Added: The principal instruments that the Company has used to date are Treasury Note (“T-Note”), SOFR, federal funds ("Fed Funds") and ERIS SOFR Swap futures contracts, interest rate swaps, options to enter in interest rate swaps (“interest rate swaptions”), interest rate caps and TBA securities transactions, but the Company may enter into other derivatives in the future.
A futures contract is a legally binding agreement to buy or sell a financial instrument in a designated future month at a price agreed upon at the initiation of the contract by the buyer and seller.
6 unchanged sentences
Interest rate caps are often used by borrowers to hedge against floating rate risk.
−Removed: Additionally, our structured Agency RMBS generally exhibit sensitivities to movements in interest rates different than our pass-through Agency RMBS.
+Added: Additionally, our structured Agency RMBS generally exhibit sensitivities to movements in interest rates different than our PT Agency RMBS.
To the extent they do so, our structured Agency RMBS may protect us against declines in the market value of our combined portfolio that result from adverse interest rate movements, although we cannot assure you that this will be the case.
13 unchanged sentences
If prepayment rates are different than our projections, the term of the related hedging instrument may not match the fixed-rate portion of the security, which could cause us to incur losses.
−Removed: Because our business may be adversely affected if prepayment rates are different than our projections, we seek to invest in Agency RMBS backed by mortgages with well-documented and predictable prepayment histories.
+Added: Because our business may be adversely affected if prepayment rates are different than our projections, we seek to invest in specified pools of Agency RMBS backed by mortgages with well-documented and predictable prepayment histories.
To protect against increases in prepayment rates, we invest in Agency RMBS backed by mortgages that we believe are less likely to be prepaid.
For example, we invest in Agency RMBS backed by mortgages (i) with loan balances low enough such that a borrower would likely have little incentive to refinance, (ii) extended to borrowers with credit histories weak enough to not be eligible to refinance their mortgage loans, (iii) that are newly originated fixed-rate or hybrid ARMs or (iv) that have interest rates low enough such that a borrower would likely have little incentive to refinance.
−Removed: To protect against decreases in prepayment rates, we may also invest in Agency RMBS backed by mortgages with characteristics opposite to those described above, which would typically be more likely to be refinanced.
+Added: To protect against decreases in prepayment rates, we may also invest in specified pools of Agency RMBS backed by mortgages with characteristics opposite to those described above, which would typically be more likely to be refinanced.
We may also invest in certain types of structured Agency RMBS as a means of mitigating our portfolio-wide prepayment risks.
32 unchanged sentences
To qualify for the exemption, we make investments so that at least 55% of the assets we own consist of qualifying mortgages and other liens on and interests in real estate, which we refer to as qualifying real estate assets, and so that at least 80% of the assets we own consist of real estate-related assets, including our qualifying real estate assets.
−Removed: We treat whole-pool pass-through Agency RMBS as qualifying real estate assets based on no-action letters issued by the staff of the SEC.
+Added: We treat whole-pool PT Agency RMBS as qualifying real estate assets based on no-action letters issued by the staff of the SEC.
In August 2011, the SEC, through a concept release, requested comments on interpretations of Section 3(c)(5)(C).
To the extent that the SEC or its staff publishes new or different guidance with respect to these matters, we may fail to qualify for this exemption.
−Removed: Our Manager manages our pass-through Agency RMBS portfolio such that we have sufficient whole-pool pass-through Agency RMBS to ensure we maintain our exemption from registration under the Investment Company Act.
+Added: Our Manager manages our PT Agency RMBS portfolio such that we have sufficient whole-pool PT Agency RMBS to ensure we maintain our exemption from registration under the Investment Company Act.
At present, we generally do not expect that our investments in structured Agency RMBS will constitute qualifying real estate assets, but will constitute real estate-related assets for purposes of the Investment Company Act.
9 unchanged sentences
We plan to continue to declare and pay regular monthly dividends to our stockholders.
−Removed: Common Stock Reverse Split
−Removed: On August 30, 2022, the Company effected a 1-for-5 reverse stock split of its common stock and proportionately decreased the number of authorized shares of common stock.
−Removed: All share, per share, deferred stock unit and performance unit information has been retroactively adjusted to reflect the reverse split.
Available Information
4 unchanged sentences
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.