SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 1, 2013
Orchid Island Capital, Inc.
(Exact Name of Registrant as Specified in Charter)
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Maryland
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001-35236
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27-3269228
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(State or Other Jurisdiction of Incorporation)
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(Commission File Number)
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(IRS Employer Identification No.)
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3305 Flamingo Drive, Vero Beach, Florida 32963
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number, including area code (772) 231-1400
N/A
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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¨
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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¨
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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¨
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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¨
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
On May 1, 2013, Orchid Island Capital, Inc. (the “Company”) issued the press release attached hereto as Exhibit 99.1 announcing the Company’s consolidated results of operations for the period ended March 31, 2013. The information furnished under this “Item 2.02 Results of Operations and Financial Condition,” including the exhibit related hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any disclosure document of the Company, except as shall be expressly set forth by specific reference in such document.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
(d) Exhibits
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99.1
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Press Release dated May 1, 2013
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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Date: May 2, 2013
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ORCHID ISLAND CAPITAL, INC.
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By:
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/s/ Robert E. Cauley | ||
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Robert E. Cauley
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Chairman and Chief Executive Officer
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Exhibit 99.1
ORCHID ISLAND CAPITAL ANNOUNCES FIRST QUARTER 2013 RESULTS
VERO BEACH, Fla. (May 1, 2013) – Orchid Island Capital, Inc. (NYSE MKT:ORC) ("Orchid” or the "Company"), a real estate investment trust ("REIT"), today announced results of operations for the three month period ended March 31, 2013.
First Quarter 2013 Highlights
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·
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Net income of $0.4 Million, or $0.20 per common share.
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·
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Book Value per Share of $14.98
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·
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MBS Portfolio Remains 100% Invested in Agency MBS
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·
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Company to Discuss Results on Friday, May 3, 2013, at 10:00 AM ET
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Details of First Quarter 2013 Results of Operations
The Company reported a net income of $0.4 million for the three month period ended March 31, 2013, compared with a net income of $0.6 million for three month period ended March 31, 2012. The first quarter net income of $0.4 million included net interest income of $1.2 million, net losses of $0.4 million (which includes non-cash portfolio mark to market losses, realized gains on securities sold and losses on funding hedges), audit, legal and other professional fees of $0.1 million, management fees of $0.1 million, and other operating, general and administrative expenses of $0.2 million. During the first quarter, the Company sold mortgage-backed securities (MBS) with a market value at the time of sale of $57.8 million, resulting in realized gains of $0.1 million (based on security prices from December 31, 2012). The remaining net loss on MBS was due to fair value adjustments for the period.
Capital Allocation and Return on Invested Capital
The Company allocates capital to two MBS sub-portfolios, the pass-through MBS portfolio (“PT MBS”), and the structured MBS portfolio, consisting of interest only (“IO”) and inverse interest-only (“IIO”) securities. The PT MBS sub-portfolio is encumbered under repurchase agreement funding, while the structured MBS sub-portfolio is not. As a result of being encumbered, the PT MBS sub-portfolio requires the Company to maintain cash balances to meet price and/or prepayment related margin calls from lenders. As of December 31, 2012, approximately 60% of the Company’s investable capital (which consists of equity in pledged PT MBS, available cash and unencumbered assets) were deployed in the PT MBS portfolio. At March 31, 2013, the allocation to the PT MBS had decreased 8% to approximately 52%.
-MORE-
The tables below detail the changes to the respective sub-portfolios during the quarter, as well as the returns generated by each.
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Portfolio Activity for the Quarter
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Structured Security Portfolio
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Pass-Through
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Interest Only
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Inverse Interest
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Portfolio
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Securities
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Only Securities
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Sub-total
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Total
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Market Value - December 31, 2012
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$ | 109,604,559 | $ | 2,884,411 | $ | 2,890,604 | $ | 5,775,015 | $ | 115,379,574 | ||||||||||
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Securities Purchased
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289,849,877 | 18,808,886 | - | 18,808,886 | 308,658,763 | |||||||||||||||
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Securities Sold
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(57,755,882 | ) | - | - | - | (57,755,882 | ) | |||||||||||||
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Gain (Loss) on Sale
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99,925 | - | - | - | 99,925 | |||||||||||||||
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Return on Investment
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n/a | (988,944 | ) | (506,300 | ) | (1,495,244 | ) | (1,495,244 | ) | |||||||||||
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Pay-downs
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(4,597,703 | ) | n/a | n/a | n/a | (4,597,703 | ) | |||||||||||||
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Premium Lost Due to Pay-downs
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(259,749 | ) | n/a | n/a | n/a | (259,749 | ) | |||||||||||||
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Mark to Market Gains (Losses)
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(162,638 | ) | 436,422 | (43,195 | ) | 393,227 | 230,589 | |||||||||||||
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Market Value - March 31, 2013
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$ | 336,778,389 | $ | 21,140,775 | $ | 2,341,109 | $ | 23,481,884 | $ | 360,260,273 | ||||||||||
The tables below present the allocation of capital between the respective portfolios at March 31, 2013 and December 31, 2012, and the return on invested capital for each sub-portfolio for the three month period ended March 31, 2013. The return on invested capital in the PT MBS and structured MBS portfolios was approximately 4.7% and 6.8%, respectively, for the quarter. The combined portfolio generated a return on invested capital of approximately 5.5%.
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Capital Allocation
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Structured Security Portfolio
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Pass-Through
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Interest Only
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Inverse Interest
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Portfolio
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Securities
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Only Securities
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Sub-total
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Total
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March 31, 2013
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Market Value
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$ | 336,778,389 | $ | 21,140,775 | $ | 2,341,109 | $ | 23,481,884 | $ | 360,260,273 | ||||||||||
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Cash
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4,701,216 | - | - | - | 4,701,216 | |||||||||||||||
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Repurchase Agreement Obligations
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(316,445,869 | ) | - | - | - | (316,445,869 | ) | |||||||||||||
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Total
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25,033,736 | $ | 21,140,775 | $ | 2,341,109 | $ | 23,481,884 | $ | 48,515,620 | |||||||||||
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% of Total
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51.6 | % | 43.6 | % | 4.8 | % | 48.4 | % | 100.0 | % | ||||||||||
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December 31, 2012
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Market Value
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$ | 109,604,559 | $ | 2,884,411 | $ | 2,890,604 | $ | 5,775,015 | $ | 115,379,574 | ||||||||||
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Cash
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2,986,257 | - | - | - | 2,986,257 | |||||||||||||||
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Repurchase Agreement Obligations
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(103,941,174 | ) | - | - | - | (103,941,174 | ) | |||||||||||||
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Total
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8,649,642 | $ | 2,884,411 | $ | 2,890,604 | $ | 5,775,015 | $ | 14,424,657 | |||||||||||
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% of Total
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60.0 | % | 20.0 | % | 20.0 | % | 40.0 | % | 100.0 | % | ||||||||||
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Returns for the Quarter
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Income / (loss) (net of repo cost)
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$ | 1,213,319 | $ | 65,159 | $ | (67,402 | ) | $ | (2,243 | ) | $ | 1,211,076 | ||||||||
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Realized and unrealized gains / (losses)
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(322,463 | ) | 436,422 | (43,194 | ) | 393,228 | 70,765 | |||||||||||||
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Hedge losses
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(483,925 | ) | n/a | n/a | n/a | (483,925 | ) | |||||||||||||
| $ | 406,931 | $ | 501,581 | $ | (110,596 | ) | $ | 390,985 | $ | 797,916 | ||||||||||
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Return on Invested Capital for the Quarter
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4.7 | % | 17.4 | % | (3.8 | )% | 6.8 | % | 5.5 | % | ||||||||||
-MORE-
Prepayments
For the quarter, Orchid received $6.1 million in scheduled and unscheduled principal repayments and prepayments, which equated to a constant prepayment rate (“CPR”) of approximately 20.0% for the first quarter of 2013. Prepayment rates on the two MBS sub-portfolios were as follows: (in CPR)
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Structured
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PT MBS
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MBS
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Total
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Three Months Ended,
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Portfolio (%)
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Portfolio (%)
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Portfolio (%)
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March 31, 2012
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9.2 | 33.0 | 20.0 | |||||||||
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December 31, 2011
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1.1 | 42.3 | 28.6 | |||||||||
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September 30, 2011
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4.2 | 38.7 | 25.0 | |||||||||
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June 30, 2011
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0.2 | 41.4 | 38.7 | |||||||||
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March 31, 2011
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11.0 | 31.2 | 23.8 | |||||||||
Portfolio
As of March 31, 2013, Orchid’s MBS portfolio consisted of $360.3 million of agency or government MBS at fair value and had a weighted average coupon of 3.14%. The following tables summarize Orchid’s agency and government mortgage related securities as of March 31, 2013 and December 31, 2012:
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(in thousands)
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Weighted
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Weighted
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Percentage
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Average
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Average
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Weighted
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Weighted
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of
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Weighted
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Maturity
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Coupon
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Average
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Average
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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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Reset in
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Lifetime
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Periodic
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Asset Category
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Value
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Portfolio
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Coupon
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Months
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Maturity
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Months
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Cap
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Cap
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March 31, 2013
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Adjustable Rate MBS
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$
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6,485
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1.8%
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4.20%
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255
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1-Sep-35
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2.05
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10.04%
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2.00%
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Fixed Rate MBS
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217,808
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60.5%
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3.27%
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282
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1-Mar-43
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NA
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NA
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NA
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Hybrid Adjustable Rate MBS
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112,485
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31.2%
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2.62%
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356
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1-Feb-43
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106.54
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7.62%
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2.00%
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Total Mortgage-backed Pass-through
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336,778
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93.5%
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3.07%
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306
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1-Mar-43
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100.85
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7.75%
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2.00%
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Interest-Only Securities
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21,141
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5.9%
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3.94%
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245
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25-Dec-42
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NA
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NA
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NA
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Inverse Interest-Only Securities
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2,341
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0.6%
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6.15%
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306
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25-Nov-40
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NA
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6.35%
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NA
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Total Structured MBS
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23,482
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6.5%
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4.16%
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251
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25-Dec-42
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NA
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NA
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NA
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Total Mortgage Assets
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$
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360,260
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100.0%
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3.14%
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303
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1-Mar-43
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NA
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NA
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NA
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December 31, 2012
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Adjustable Rate MBS
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$
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6,531
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5.7%
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4.20%
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258
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1-Sep-35
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3.46
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10.04%
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2.00%
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Fixed Rate MBS
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43,589
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37.8%
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3.24%
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181
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1-Dec-40
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NA
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NA
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NA
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Hybrid Adjustable Rate MBS
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59,485
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51.6%
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2.69%
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357
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1-Nov-42
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100.51
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7.69%
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2.00%
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Total Mortgage-backed Pass-through
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109,605
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95.0%
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3.00%
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281
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1-Nov-42
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90.91
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7.93%
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2.00%
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Interest-Only Securities
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2,884
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2.5%
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3.52%
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151
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25-Dec-39
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NA
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NA
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NA
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Inverse Interest-Only Securities
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2,891
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2.5%
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6.13%
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309
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25-Nov-40
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NA
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6.34%
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NA
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Total Structured MBS
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5,775
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5.0%
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4.83%
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230
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25-Nov-40
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NA
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NA
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NA
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Total Mortgage Assets
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$
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115,380
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100.0%
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3.09%
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278
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1-Nov-42
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NA
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NA
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NA
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-MORE-
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(in thousands)
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March 31, 2013
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December 31, 2012
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Percentage of
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Percentage of
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Agency
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Fair Value
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Entire Portfolio
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Fair Value
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Entire Portfolio
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Fannie Mae
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$ | 228,668 | 63.47 | % | $ | 113,235 | 98.14 | % | ||||||||
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Freddie Mac
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106,817 | 29.65 | % | 2,145 | 1.86 | % | ||||||||||
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Ginnie Mae
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24,775 | 6.88 | % | - | 0.00 | % | ||||||||||
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Total Portfolio
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$ | 360,260 | 100.00 | % | $ | 115,380 | 100.0 | % | ||||||||
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March 31, 2013
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December 31, 2012
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Weighted Average Pass Through Purchase Price
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$ | 105.22 | $ | 105.65 | ||||
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Weighted Average Structured Purchase Price
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$ | 12.05 | $ | 9.91 | ||||
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Weighted Average Pass Through Current Price
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$ | 105.25 | $ | 105.81 | ||||
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Weighted Average Structured Current Price
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$ | 12.18 | $ | 7.84 | ||||
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Effective Duration (1)
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2.911 | 1.209 | ||||||
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(1)
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Effective duration of 2.911 indicates that an interest rate increase of 1.0% would be expected to cause a 2.911% decrease in the value of the MBS in the Company’s investment portfolio at March 31, 2013. An effective duration of 1.209 indicates that an interest rate increase of 1.0% would be expected to cause a 1.209% decrease in the value of the MBS in the Company’s investment portfolio at December 31, 2012. These figures include the structured securities in the portfolio.
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Financing, Leverage and Liquidity
As of March 31, 2013, the Company had outstanding repurchase obligations of approximately $316.4 million with a net weighted average borrowing rate of 0.42%. These agreements were collateralized by MBS with a fair value, including accrued interest, of approximately $334.2 million. The Company’s leverage ratio at March 31, 2013 was 6.3 to 1. At March 31, 2013, the company’s liquidity was approximately $29.6 million, consisting of unpledged MBS and cash and cash equivalents. Below is a listing of outstanding borrowings under repurchase obligations at March 31, 2013.
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(in thousands)
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Weighted
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||||||||||||||||
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Total
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Average
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|||||||||||||||
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Outstanding
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% of
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Amount
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Maturity
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Counterparty
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Balances
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Total
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at Risk(1)
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in Days
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Citigroup Global Markets, Inc.
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$ | 107,287 | 33.9 | % | $ | 6,075 | 18 | |||||||||
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CRT Capital Group, LLC
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45,277 | 14.3 | % | 2,513 | 2 | |||||||||||
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Suntrust Robinson Humphrey, Inc.
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39,475 | 12.5 | % | 2,361 | 19 | |||||||||||
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The PrinceRidge Group, LLC
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35,928 | 11.4 | % | 2,095 | 23 | |||||||||||
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Cantor Fitzgerald & Co.
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30,048 | 9.5 | % | 1,640 | 5 | |||||||||||
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South Street Securities, LLC
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21,587 | 6.8 | % | 1,161 | 6 | |||||||||||
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Pierpont Securities, LLC
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16,322 | 5.2 | % | 651 | 82 | |||||||||||
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Mizuho Securities USA, Inc.
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15,464 | 4.9 | % | 785 | 4 | |||||||||||
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KGS - Alpha Capital Markets, L.P.
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5,057 | 1.5 | % | 424 | 1 | |||||||||||
| $ | 316,445 | 100.0 | % | $ | 17,705 | 17 | ||||||||||
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(1)
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Equal to the fair value of securities sold plus accrued interest receivable, minus the sum of repurchase agreement liabilities and accrued interest payable.
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-MORE-
Hedging
In connection with its interest rate risk management strategy, the Company economically hedges a portion of its interest rate risk by entering into derivative financial instrument contracts. The Company has not elected hedging treatment under GAAP, and as such all gains and losses on these instruments are reflected in earnings for all periods presented. As of March 31, 2013, such instruments were comprised entirely of Eurodollar futures contracts with an average contract notional amount of $250.0 million and a weighted average fixed LIBOR rate of 1.01%.
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(in thousands)
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Average
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||||||||||||
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Weighted
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Contract
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|||||||||||
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Average
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Notional
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Open
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Expiration Year
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LIBOR Rate
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Amount
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Equity(1)
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2013
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0.37 | % | $ | 250,000 | $ | 54 | ||||||
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2014
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0.48 | % | 250,000 | 14 | ||||||||
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2015
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0.75 | % | 250,000 | (98 | ) | |||||||
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2016
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1.29 | % | 250,000 | (155 | ) | |||||||
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2017
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1.99 | % | 250,000 | (299 | ) | |||||||
| 1.01 | % | (484 | ) | |||||||||
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(1)
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Open equity represents the cumulative gains / (losses) recorded on open futures positions.
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Dividends
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 paid our first dividend on March 27, 2013 to stockholders of record as of March 25, 2013 in an amount of $0.135 per share of our common stock. We also declared a dividend on April 10, 2013 to stockholders of record as of April 25, 2013 in an amount of $0.135 per share of our common stock payable on April 30, 2013. We intend to pay regular monthly dividends to our stockholders.
Book Value Per Share
The Company's Book Value Per Share at March 31, 2013 was $14.98. Book Value Per Share is regularly used as a valuation metric by various equity analysts that follow the Company and may be deemed a non-GAAP financial measure pursuant to Regulation G. 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 March 31, 2013, the Company's stockholders' equity was $50.1 million with 3,341,665 Common shares outstanding.
-MORE-
Management Commentary
Commenting on the first quarters, Robert E. Cauley, Chairman and Chief Executive Officer, said, “In February Orchid Island Capital completed its initial public offering and began trading on the NYSE MKT under the ticker “ORC”. Management and Bimini Capital have put a great deal of effort and resources into getting Orchid to this point, but now that it is behind us have much yet to do. We were able to deploy the capital by the end of February and announced our first monthly dividend March 12th. Our capital is deployed with a slight bias towards the pass-through portfolio (51.6%/48.4%) and our funding hedges are exclusively Eurodollar futures, with an outstanding notional balance representing approximately 79% of our repo balance. Our net interest margin for the quarter was approximately 200 basis points, but 108 basis points inclusive of our funding hedges. As we entered the first quarter economic data was strong, especially with respect to job growth as gains in non-farm payrolls averaged just over 220 thousand for the four month period November 2012 through February 2013. During this period interest rates rose and the market began to speculate on when the Federal Reserve would start to unwind their quantitative easing program, or QE3. Prepayment speeds on Agency MBS declined, owing to rising rates and the seasonal impact which we typically see in Q1. We also saw pay-ups on call protected securities decline. The market abruptly reversed course in March however as developments in Europe, especially Cypress, and a material decline in non-farm payroll growth to just 88 thousand led to a rally in rates close to the levels observed just after the announcement of QE3. With this change in economic conditions, expectations of an end in QE3 have been pushed off a few quarters as well. By late April mortgage rates available to borrowers have declined to within 20 basis points of the all-time low seen last December. The cost of call protection has increased as well, although not to the extreme levels observed last fall. With the onset of spring and the typical peak in refinancing activity, we expect speeds to rebound as well. In early April the FHFA also announced a two year extension to the end date of HARP II to December 31, 2015. This should also impact speed expectations somewhat, although the market did expect this development for the most part. For Orchid, we have positioned the portfolio to protect against rising speeds while avoiding the highest premium call protection, while simultaneously exposing the structured portfolio to high paying collateral, since it offers the best convexity when and if rates reverse again. Most of these structured securities offer single digit yields at current speeds, but meaningful upside if rates rise and mortgage cash flows extend as refinancing activity declines. We will continue to balance the exposure of the two portfolios in this fashion as long as these market conditions persist.”
Earnings Conference Call Details
An earnings conference call and live audio webcast will be hosted Friday, May 3, 2013 at 9:00 a.m. ET. The conference call may be accessed by dialing toll free (877) 341-5668. International callers dial (224) 357-2205. The conference passcode is 64380557. 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 for approximately one year. A replay of the call will be available through May 10, 2013 by dialing toll free (855) 859-2056, (404) 537-3406 or (800) 585-8367 and entering conference number 64380557.
The following is a summarized presentation of the unaudited balance sheets as of March 31, 2013, and December 31, 2012, and the unaudited quarterly results of operations for the calendar quarters ended March 31, 2013 and March 31, 2012. Amounts presented are subject to change.
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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 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 or Quarterly Report 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.
CONTACT:
Orchid Island Capital, Inc.
Robert E. Cauley, 772-231-1400
Chairman and Chief Executive Officer
www.orchidislandcapital.com
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ORCHID ISLAND CAPITAL, INC.
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BALANCE SHEETS
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(Unaudited - Amounts Subject To Change)
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March 31, 2013
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December 31, 2012
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ASSETS:
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Total mortgage-backed securities
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360,260,273 | 115,379,574 | ||||||
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Cash, cash equivalents and restricted cash
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4,701,216 | 2,986,257 | ||||||
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Accrued interest receivable
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1,440,407 | 440,877 | ||||||
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Due from affiliates
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75,395 | 45,126 | ||||||
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Prepaid expenses and other assets
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245,427 | 9,122 | ||||||
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Total Assets
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$ | 366,722,718 | $ | 118,860,956 | ||||
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Repurchase agreements
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$ | 316,445,869 | $ | 103,941,174 | ||||
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Accrued interest payable
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64,049 | 54,084 | ||||||
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Accounts payable, accrued expenses and other
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138,591 | 140,723 | ||||||
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Total Liabilities
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316,648,509 | 104,135,981 | ||||||
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Total Stockholders' Equity
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50,074,209 | 14,724,975 | ||||||
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Total Liabilities and Stockholders' Equity
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$ | 366,722,718 | $ | 118,860,956 | ||||
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Common shares outstanding
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3,341,665 | 154,110 | ||||||
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Book value per share
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$ | 14.98 | $ | 95.55 | ||||
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ORCHID ISLAND CAPITAL, INC.
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STATEMENTS OF OPERATIONS
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(Unaudited - Amounts Subject to Change)
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Three Months Ended March 31,
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2013
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2012
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Interest income
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$ | 1,413,258 | $ | 758,757 | ||||
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Interest expense
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(201,420 | ) | (50,667 | ) | ||||
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Net interest income
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1,211,838 | 708,090 | ||||||
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(Losses) gains
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(413,160 | ) | 75,326 | |||||
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Net portfolio income
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798,678 | 783,416 | ||||||
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Expenses
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398,320 | 166,172 | ||||||
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Net income
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$ | 400,358 | $ | 617,244 | ||||
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Basic and diluted net income per share
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$ | 0.20 | $ | 0.63 | ||||
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Dividends Declared Per Common Share:
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$ | 0.135 | $ | - | ||||
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Three Months Ended
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Key Balance Sheet Metrics
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March 31, 2013
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March 31, 2012
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Average MBS
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$ | 237,819,924 | $ | 70,585,381 | ||||
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Average repurchase agreements
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210,193,522 | 59,156,728 | ||||||
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Average stockholders' equity
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32,399,592 | 14,088,254 | ||||||
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Leverage ratio
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6.3:1
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5.2:1
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Key Performance Metrics
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Average yield on MBS
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2.38 | % | 4.30 | % | ||||
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Average cost of funds
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0.38 | % | 0.34 | % | ||||
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Average economic cost of funds
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1.30 | % | 0.50 | % | ||||
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Average interest rate spread
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2.00 | % | 3.96 | % | ||||
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Average economic interest rate spread
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1.08 | % | 3.80 | % | ||||