Orchid Island Capital Announces Second Quarter 2015 Results

VERO BEACH, Fla., July 29, 2015 (GLOBE NEWSWIRE) -- 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, 2015.

Second Quarter 2015 Highlights

• Net loss of $2.8 million, or $0.14 per common share
• Second quarter total dividends declared and paid of $0.54 per common share
• Book Value Per Share of $12.38 at June 30, 2015
• 0.4% economic gain on common equity for the quarter, or 1.6% annualized, comprised of $0.54 dividend per common share and $0.49 decrease in net book value per common share, divided by beginning book value per share
• Company to discuss results on Thursday, July 30, 2015, at 10:00 AM ET

Details of Second Quarter 2015 Results of Operations

The Company reported net loss of $2.8 million for the three month period ended June 30, 2015, compared with net income of $10.6 million for the three month period ended June 30, 2014. The second quarter net loss of $2.8 million included net interest income of $15.2 million, net portfolio losses of $16.0 million (which includes mark-to-market losses, realized losses on securities sold and losses on derivative instruments), management fees of $1.0 million, audit, legal and other professional fees of $0.2 million, and other operating, general and administrative expenses of $0.8 million. During the second quarter of 2015, the Company sold residential mortgage-backed securities ("RMBS") with a market value at the time of sale of $362.3 million, resulting in realized losses of $1.9 million (based on security prices from March 31, 2015). The remaining net loss on RMBS was due to fair value adjustments for the period.

Capital Allocation and Return on Invested Capital

The Company allocates capital to two RMBS sub-portfolios, the pass-through RMBS portfolio ("PT RMBS"), and the structured RMBS portfolio, consisting of interest only ("IO") and inverse interest-only ("IIO") securities. As of March 31, 2015, approximately 64% 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 June 30, 2015, the allocation to the PT RMBS had decreased by 8% to approximately 56%.

The table below details the changes to the respective sub-portfolios during the quarter, as well as the returns generated by each.

The tables below present the allocation of capital between the respective portfolios at June 30, 2015 and March 31, 2015, and the return on invested capital for each sub-portfolio for the three month period ended June 30, 2015. The return on invested capital in the PT RMBS and structured RMBS portfolios was approximately (9.3)% and 15.6%, respectively, for the second quarter of 2015. The combined portfolio generated a return on invested capital of approximately (0.4)%. Due to the deployment of the proceeds of our capital raising activities during the three months ended June 30, 2015, the balances of the respective portfolios increased significantly. Accordingly, returns generated based on the beginning of period capital are larger than returns on a stabilized portfolio. We have added the return on average capital deployed to address this issue.

Prepayments

For the quarter, Orchid received $67.1 million in scheduled and unscheduled principal repayments and prepayments, which equated to a constant prepayment rate ("CPR") of approximately 15.3% for the second quarter of 2015. Prepayment rates on the two RMBS sub-portfolios were as follows (in CPR):

Portfolio

As of June 30, 2015, Orchid's RMBS portfolio consisted of $2,174.9 million of PT RMBS and structured RMBS at fair value and had a weighted average coupon of 4.15%. The following tables summarize Orchid's PT RMBS and structured RMBS as of June 30, 2015 and December 31, 2014:

Financing, Leverage and Liquidity

As of June 30, 2015, the Company had outstanding repurchase obligations of approximately $2,014.1 million with a net weighted average borrowing rate of 0.39%. These agreements were collateralized by RMBS with a fair value, including accrued interest, of approximately $2,123.6 million, and cash pledged to counterparties of approximately $14.4 million. The Company's leverage ratio at June 30, 2015 was 7.1 to 1 (excluding the $7.6 million of payable for unsettled securities purchased at June 30, 2015). At June 30, 2015, the Company's liquidity was approximately $151.8 million, consisting of unpledged RMBS (excluding the value of the unsettled purchases) and cash and cash equivalents. 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 listing of outstanding borrowings under repurchase obligations at June 30, 2015. 

Hedging

In connection with its interest rate risk management strategy, the Company economically hedges a portion of the cost of its repurchase agreement funding 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, 2015, such instruments were comprised of Eurodollar and Treasury note ("T-Note") futures contracts and interest rate swaption agreements, giving the Company the option to enter into a pay fixed interest rate swap ("payer swaption"). The tables below presents information related to the Company's Eurodollar and T-Note futures contracts at June 30, 2015.

The table below presents information related to the Company's interest rate swaption positions at June 30, 2015.

Dividends

In addition to other requirements, 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 during 2015 and 2014.

Book Value Per Share

The Company's Book Value Per Share at June 30, 2015 was $12.38. 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, 2015, the Company's stockholders' equity was $284.1 million with 22,959,817 shares of common stock outstanding.

Secondary Offerings

On March 2, 2015, Orchid entered into an equity distribution agreement (the "Equity Distribution Agreement") with two sales agents pursuant to which the Company may offer and sell, from time to time, up to an aggregate amount of $100,000,000 of shares of the Company's common stock in transactions that are deemed to be "at the market" offerings and privately negotiated transactions. Through June 30, 2015, the Company issued a total of 6,221,102 shares under the Equity Distribution Agreement for aggregate proceeds of approximately $83.1 million, net of commissions and fees. The average price received for shares issued during the three months ended June 30, 2015 was $13.65 per share.

Share Repurchase Program

On July 29, 2015, the Board of Directors passed a resolution authorizing the repurchase of up to 2,000,000 shares of the Company's common stock. As part of the stock repurchase program, shares may be purchased in open market transactions, including through block purchases, through privately negotiated transactions, or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Open market repurchases will be made in accordance with Exchange Act Rule 10b-18, which sets certain restrictions on the method, timing, price and volume of open market stock repurchases. The timing, manner, price and amount of any repurchases will be determined by the Company in its discretion and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors. The authorization does not obligate the Company to acquire any particular amount of common stock and the program may be suspended or discontinued at the Company's discretion without prior notice.

Management Commentary

Commenting on the second quarter, Robert E. Cauley, Chairman and Chief Executive Officer, said, "The second quarter of 2015 was a challenge to levered RMBS investors – and not many market participants saw it coming. The quarter started with a mini prepayment wave triggered by low rates early in the first quarter. Later in the quarter we had to deal with developments in Greece and China. The performance of the rates market in June, particularly the long end, was driven almost entirely by the latest rumors/headlines from abroad. Market participants never knew which direction the next 25 basis points in rates was headed – up or down. This kept fears of a return to lower rates in the minds of investors and the risk of a return to faster prepayment speeds. 

"The impact of events overseas was not limited to the Treasury market. Agency pass-throughs widened in spread to comparable duration treasuries or swaps. The widening, between 5 and 12 basis points depending on the benchmark, exacerbated the performance of mortgages versus hedges. 

"In addition to the developments above, the market continued to price in an even more dovish Federal Reserve for the balance of 2015. This started in the first quarter when economic data was quite soft and the Fed acknowledged an awareness of the impact that the strong dollar and events in Europe were having on domestic growth – namely weak manufacturing and exports due to the strong dollar and depressed mining and extraction in the fracking areas of the country caused by depressed oil prices. Fed funds futures for December moved from 39 basis points at March 31, 2015 to 29.5 basis points on June 30, 2015. 

"In sum, it was not a good quarter to be a levered MBS investor. Prepayment speeds were elevated to start the quarter and remained stubbornly high into the third quarter. Late in the quarter mortgages widened, and continued to do so into early July, although the widening has since abated somewhat."

Earnings Conference Call Details

An earnings conference call and live audio webcast will be hosted Thursday, July 30, 2015, at 10:00 AM ET. The conference call may be accessed by dialing toll free (877) 341-5668. International callers dial (224) 357-2205. The conference passcode is 92927778. 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 until August 20, 2015.

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, including, but not limited to statements regarding the stock repurchase program, 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 and Quarterly Reports 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.

Summarized Financial Statements

The following is a summarized presentation of the unaudited balance sheets as of June 30, 2015, and December 31, 2014, and the unaudited quarterly results of operations for the six and three months ended June 30, 2015 and 2014. Amounts presented are subject to change.