Financial Performance - For the nine months ended September 30, 2023, the net loss was $66.4 million, or $1.58 per share, compared to a net loss of $293.4 million, or $8.31 per share for the same period in 2022, indicating a significant improvement [141]. - For the three months ended September 30, 2023, the net earnings were $(80,132) thousand, resulting in a loss per share of $(1.68) compared to a net earnings of $10,249 thousand and a gain per share of $0.25 for the previous quarter [146]. - The nine months ended September 30, 2023, reported net earnings of $(66,353) thousand, with a loss per share of $(1.58), an improvement from $(293,379) thousand and a loss per share of $(8.31) for the same period in 2022 [146]. Interest Income and Expense - Interest income for the nine months ended September 30, 2023, was $128.0 million, an increase of 13.6% from $112.7 million in the same period of 2022 [141]. - Interest expense surged to $149.6 million for the nine months ended September 30, 2023, compared to $32.2 million in the same period of 2022, reflecting a substantial increase of 364.5% [141]. - The net interest income (expense) for the nine months ended September 30, 2023, was $(21.6) million, a decrease of 126.8% from $80.5 million in the same period of 2022 [141]. Derivative Instruments - Realized and unrealized gains and losses on derivative instruments for the three months ended September 30, 2023, included a gain of $142,042 thousand attributed to funding hedges [158]. - The company recognized a total of $194,253 thousand in gains on derivative instruments for the nine months ended September 30, 2023, with $67,133 thousand attributed to current periods [158]. - The company has reclassified certain expenses related to derivative instruments, impacting the presentation of net earnings and gains on derivative instruments [148]. Share Repurchase and Equity - The company repurchased a total of 373,041 shares at an aggregate cost of approximately $4.0 million during the nine months ended September 30, 2023, at a weighted average price of $10.62 per share [138]. - As of September 30, 2023, the company had issued a total of 13,190,039 shares under the March 2023 Equity Distribution Agreement for gross proceeds of approximately $129.8 million [134]. - The stock repurchase program has been authorized for up to 6,183,601 shares, representing approximately 18% of the company's outstanding shares as of October 2022 [137]. Economic Indicators - The advanced GDP reading for Q3 2023 was 4.9%, indicating strong economic resilience despite ongoing tightening by the Federal Reserve [220]. - Consumer spending remains robust, supported by a strong labor market and residual savings from pandemic-related stimulus [221]. - The Fed's dot plot indicated a funds rate 50 basis points higher at the end of 2024 compared to the previous estimate, reflecting a strong economy [223]. Agency RMBS Performance - Agency RMBS generated a return of -4.1% in Q3 2023, with the 30-year fixed rate sector returning -4.6% [226]. - The Agency RMBS sector underperformed both investment grade and sub-investment grade corporates in Q3 2023 [227]. - The actual balance sheet reduction of Agency RMBS trended below the cap during 2023 due to rising interest rates and slowed prepayment speeds [228]. Risk Management - The company utilizes derivative and hedging instruments to manage interest rate risk, which may affect future financial performance [151]. - The company may enter into interest rate swaps to protect its net interest margin against increases in short-term interest rates [241]. - The company faces liquidity risk due to financing long-term assets with shorter-term borrowings, which could lead to adverse changes in liquidity if the value of pledged Agency RMBS decreases [268]. Operating Expenses - Total operating expenses for the nine months ended September 30, 2023, were approximately $14.5 million, compared to $13.3 million for the same period in 2022, indicating an increase [187]. - The total expenses for the nine months ended September 30, 2023, were $14,467,000, compared to $13,261,000 in 2022, representing an increase of 9.1% [192]. Cash and Liquidity - Cash and cash equivalents stood at $158.6 million as of September 30, 2023, with cash flows generated from RMBS principal and interest payments totaling $353.4 million [216]. - As of September 30, 2023, the company had unrestricted cash and cash equivalents of $158.6 million and unpledged securities of approximately $5.1 million available for margin calls and corporate purposes [268]. Management and Governance - The management agreement with Bimini Advisors, LLC has been renewed through February 20, 2024, with automatic one-year extension options thereafter [188]. - The effectiveness of the company's disclosure controls and procedures was confirmed by the CEO and CFO as of the evaluation date [273].

Financial Data and Key Metrics Changes - The total return for Q3 2023 was a negative 15.77%, with dividends paid at $0.48, unchanged from the previous quarter [4] - Net income for the quarter was a loss of $1.68 per share compared to income of $0.25 per share last year, and book value decreased over 20% from $11.16 to $8.92 [22] - Economic leverage ratio increased from 8.1 million to 8.5 million but was later reduced to about 7.4% [23][61] Business Line Data and Key Metrics Changes - The average coupon of the portfolio increased from 3.83% to 4.05%, and the realized yield rose from 3.81% to 4.51% [11] - The portfolio size was approximately $3.65 billion, down 18% from the average of Q3 [4] Market Data and Key Metrics Changes - The mortgage market has faced significant challenges, with spreads widening and volatility remaining high [27][28] - The primary-secondary spread is trending downward as mortgage originators attempt to maintain their ability to generate mortgages [10] Company Strategy and Development Direction - The company aims to diversify its portfolio across different coupon rates to avoid excessive concentration [18][30] - The focus is on maintaining high hedge levels due to rising funding costs and the current market environment [18][56] Management's Comments on Operating Environment and Future Outlook - Management expressed that the current mortgage market environment is challenging and expected to remain so [22][28] - There is a belief that a softening of the economy may occur, which could lead to better performance of certain securities [31][59] Other Important Information - The company raised about $80 million through its ATM program to enhance its portfolio [4][11] - Liquidity is currently at the low end of the range, around 30% to 40%, and efforts are being made to improve it [24][61] Q&A Session Summary Question: What is the strategy for diversification within the coupon stack? - The company plans to maintain a slight bias towards lower coupons due to their favorable characteristics, while also considering higher coupons for better carry [39][40] Question: Have there been any margin calls on repo funding this quarter? - The company experiences daily margin call activity, which is managed internally now [48] Question: What flexibility exists regarding the dividend? - The dividend was adjusted to align with earnings, and the current rate of $0.12 seems reasonable given the market conditions [50][68] Question: What is the current status of book value and economic leverage? - Book value has decreased significantly, and economic leverage is down to 7.4% from 8.5% [69]

Financial Highlights - The company's net income per share was $0.25[9] - Excluding realized and unrealized gains/(losses) on RMBS and derivative instruments, the net earnings per share was ($0.34)[9] - The company had a gain of $0.59 per share from net realized and unrealized gains on RMBS and derivative instruments[9] - The book value per share was $11.16 at June 30, 2023, compared to $11.55 at March 31, 2023[9] - The company declared and paid $0.48 per share in dividends in Q2 2023, and has declared a total of $65.77 per share in dividends since its IPO[9] - The total economic gain for the quarter was $0.09 per share, or 0.78%[9] Portfolio Characteristics - As of June 30, 2023, total mortgage assets were valued at $4,473,323,493[57], with a weighted average coupon (CPN) of 3.81%[57] and weighted average maturity (WA Mat) of 331 months[57] - Pass-through MBS comprised 99.60% of the portfolio, with a market value of $4,455,554,930[57] - Structured MBS represented 0.397% of the portfolio, with a market value of $17,768,563[57] - The interest rate sensitivity of the portfolio was $113,489,015 for a -50 BPS shock and ($119,797,621) for a +50 BPS shock[57] Hedge Positions - The company held hedge positions with an average notional balance of ($4,035,200,000)[57] - These hedges included 5-Year Treasury Futures, 10-Year Treasury Futures, 10-Year Ultra Treasury Futures, Swaps, TBA, and Swaptions[57] - The total interest rate sensitivity of the hedge positions was ($99,119,651) for a -50 BPS shock and $100,362,186 for a +50 BPS shock[57]

Financial Data and Key Metrics Changes - Orchid Island generated net income per share of $0.25 for the quarter, with net earnings excluding realized and unrealized gains and losses on RMBS and derivative instruments at negative $0.34 per share [12][55] - The company declared and paid a dividend of $0.48 per share, with a total economic gain of $0.09 per share for the quarter, representing an unannualized figure of 0.08% [43][55] - Book value per share decreased from $11.55 at March 31, 2023, to $11.16 at June 30, 2023 [43] Business Line Data and Key Metrics Changes - The net portfolio income was negative $8.7 million, approximately $0.22 negative per share, with expenses of $4.819 million contributing an additional $0.12 to the negative earnings [29] - The accretion to par of discount securities was approximately $4.9 million, contributing a positive $0.12 to earnings, while hedges added about $23.5 million of income or offset to interest expense, equating to about $0.59 [30] Market Data and Key Metrics Changes - The mortgage sector experienced a recovery in June, although it has not fully returned to pre-pandemic levels [18] - The spread of current coupon mortgages to the 10-year Treasury reached a cycle high of $200 in late May, indicating significant market volatility [19][44] - The performance of risk assets, particularly high yield and emerging market debt, was notably better than other fixed income markets during the quarter [25] Company Strategy and Development Direction - The company has a constructive long-term view on the mortgage market, expecting it to perform well over the balance of 2023 and beyond, despite short-term challenges [37][64] - The strategy includes a heavy skew towards fixed-rate 30-year mortgages, with a recent increase in the weighted average coupon from 3.56% to 3.83% [58][59] - The company is focusing on moving hedges from mortgages to rates, aiming for better positioning in anticipation of a potential pivot by the Fed [62][82] Management's Comments on Operating Environment and Future Outlook - Management noted that the current economic environment is characterized by high interest rates and a hawkish stance from central banks globally, which could lead to a soft landing [6][18] - The company expressed optimism about the specified pool market, despite challenges from FDIC liquidations, and expects gradual improvement as uncertainty diminishes [68][85] - Management highlighted the importance of maintaining a low coupon bias in the portfolio to capitalize on potential price appreciation in the future [64][100] Other Important Information - The company has issued approximately $50 million of equity through its ATM program to increase leverage and acquire a mix of mortgage securities [56] - The current economic cost of funds has stabilized, which is beneficial for the company's financial positioning [61] Q&A Session Summary Question: What are the thoughts on the specified pool market versus TBA in roles? - Management indicated that the specified pool market has been under pressure due to FDIC liquidations but remains optimistic about gradual positive performance moving forward [68][69] Question: Is there a potential for leverage to increase towards the 9 and 10 range? - Management acknowledged that while there is potential for leverage to increase, it may not be significant, but they are currently at a wide level which could allow for some increase [75] Question: How does the dividend sustainability relate to core EPS or GAAP EPS? - Management clarified that the dividend sustainability is somewhat detached from core EPS, emphasizing the importance of maintaining shareholder value without causing unnecessary pain [78][109]

Financial Performance - Net income for the six months ended June 30, 2023, was $13.8 million, or $0.35 per share, compared to a net loss of $208.9 million, or $5.90 per share, for the same period in 2022[140] - For the three months ended June 30, 2023, net earnings were $10,250,000, compared to a loss of $84,513,000 in the same period last year, representing a significant improvement[145] - The net earnings excluding realized and unrealized gains and losses for the six months ended June 30, 2023, were $13,780,000, compared to a loss of $208,866,000 for the same period in 2022[145] - The earnings per share for the three months ended June 30, 2023, was $0.25, up from a loss of $2.40 per share in the same quarter of the previous year[145] - The company reported realized and unrealized gains of $23,828,000 for the three months ended June 30, 2023, compared to $12,739,000 for the previous quarter[145] Interest Income and Expense - Interest income for the six months ended June 30, 2023, was $77.9 million, an increase of $0.8 million from $77.1 million in the same period of 2022[140] - Interest expense for the six months ended June 30, 2023, was $90.9 million, an increase of $80.1 million from $10.8 million in the same period of 2022[140] - Economic net interest income for the six months ended June 30, 2023, was $52,211,000, compared to $280,865,000 for the same period in 2022[156] - For the six months ended June 30, 2023, the company generated net interest expense of $13.0 million, with interest income of $77.9 million and interest expense of $90.9 million[164] - The average cost of funds increased to 4.81% for the six months ended June 30, 2023, compared to 0.46% for the same period in 2022, resulting in an $80.1 million increase in interest expense[176] Portfolio Performance - Gains on RMBS and derivative contracts for the six months ended June 30, 2023, were $36.6 million, compared to losses of $266.2 million in the same period of 2022, representing a change of $302.8 million[140] - Net portfolio income for the six months ended June 30, 2023, was $23.6 million, compared to a loss of $199.9 million in the same period of 2022, reflecting a change of $223.5 million[140] - The yield on average RMBS for the six months ended June 30, 2023, was 3.92%, up from 3.15% in the same period of 2022, reflecting a 77 basis point increase[172] - The company reported a net interest income of $29.7 million on an economic basis for the six months ended June 30, 2023, compared to $66.3 million for the same period in 2022[165] - The economic net interest spread for the six months ended June 30, 2023, was 1.37%, compared to 2.69% for the same period in 2022[170] Shareholder Actions - Total shares repurchased from inception of the stock repurchase program through June 30, 2023, amounted to 4,048,613 shares at an aggregate cost of approximately $68.8 million[137] - The company issued a total of 9,742,188 shares under the October 2021 Equity Distribution Agreement for gross proceeds of approximately $151.8 million before its termination in March 2023[132] - As of June 30, 2023, the company had issued a total of 4,757,953 shares under the March 2023 Equity Distribution Agreement for gross proceeds of approximately $48.1 million[133] - The company’s stock repurchase program has no termination date and has been authorized for up to 6,183,601 shares, representing approximately 18% of the then outstanding shares[136] Economic Conditions and Market Outlook - The outlook indicates persistently high core inflation and strong labor market conditions, which may lead to further interest rate hikes by the Fed[223] - Risk sentiment improved after a settlement was reached regarding the debt ceiling, although economic data remained unchanged[225] - The yield spread between the 2-year U.S. Treasury and the 10-year U.S. Treasury reached a cycle peak of -1.084% in early July 2023[228] - The 30-year mortgage rate averaged 6.62% in Q2 2023, with a high of 6.91% and a low of 6.30%[230] - The Agency RMBS market generated a total return of -0.5% for Q2 2023, outperforming comparable duration SOFR swaps by 1.0%[231] Risk Factors - The company is exposed to spread risk, which could lead to a decline in net book value if the value of Agency RMBS falls more than the fair value increases on hedging instruments[280] - The company faces liquidity risk due to financing long-term assets with shorter-term borrowings, which could lead to increased margin calls if the value of pledged Agency RMBS decreases[281] - Counterparty credit risk exists, as potential losses could arise if counterparties to repurchase agreements and derivative contracts fail to perform their obligations[284] - Prepayment risk is significant, as residential borrowers can prepay their mortgage loans at par, affecting the timing of cash flows and net interest income[278] Operational Metrics - Total operating expenses for the six months ended June 30, 2023, were approximately $9.8 million, compared to $8.9 million for the same period in 2022[189] - The company maintained a total mortgage asset value of $4,373,972,000, with fixed-rate RMBS accounting for 99.6% of the portfolio[199] - The effective duration of the RMBS portfolio as of June 30, 2023, was 5.220, indicating a potential 5.220% decrease in value for a 1.0% interest rate increase[201] - The company had cash and cash equivalents of $198.2 million as of June 30, 2023, and generated cash flows of $209.0 million from principal and interest payments on its RMBS portfolio[219] - The average term to maturity of outstanding repurchase agreements was 25 days as of June 30, 2023, compared to 27 days at December 31, 2022[180]

Financial Data and Key Metrics Changes - The book value per share decreased to $11.55 at March 31, 2023, from $11.93 at the end of 2022, reflecting a decline of approximately 3.2% [54] - The company declared and paid a dividend of $0.48 per share during the quarter, with a total of $65.29 in dividends declared since the last IPO [54][68] - The net income per share was reported at $0.09, while the net earnings per share excluding realized and unrealized gains and losses was negative $0.24 [68] Business Line Data and Key Metrics Changes - The company maintained a low coupon bias, focusing on lower coupon mortgages which are expected to perform well in a slowing economy [1][4] - The weighted average coupon of the portfolio increased slightly to 3.56% at the end of Q1 from 3.47% at the end of the previous year, indicating a modest shift in strategy [35] Market Data and Key Metrics Changes - The mortgage market is experiencing significant volatility, with spreads widening and a notable impact from the liquidation of assets from failed banks [17][22] - The anticipated supply from FDIC liquidations is expected to pressure mortgage performance, particularly for lower coupon assets [17][21] Company Strategy and Development Direction - The company intends to maintain its current strategy, anticipating a pivot from the Fed and a subsequent economic downturn, which would favor their low coupon assets [4][24] - The focus remains on capital allocation towards lower coupon mortgages, avoiding higher coupon assets due to their exposure to market volatility [35][36] Management Comments on Operating Environment and Future Outlook - Management expressed concerns about the potential for prolonged high inflation and the risks associated with further bank failures impacting the mortgage market [3][50] - The outlook suggests that mortgage rates are likely to remain high and sticky until there is clear evidence of a Fed pivot [28] Other Important Information - The company has a leverage ratio of approximately 6.5, which is lower than reported due to extensive use of TBA shorts [33] - The company raised capital early in the quarter, selling approximately 2.7 million shares to fund mortgage purchases [34] Q&A Session Summary Question: Update on book value and economic leverage - The book value was down about 2% as of last Friday, with a current leverage figure of approximately 6.5 [9] Question: View on natural turnover in housing - Natural turnover in housing is very low, with existing home sales expected to remain benign due to high prices and rates [25] Question: Opinion on the MSR market - The MSR market is viewed as having more downside than upside, with large banks moving away from it [26] Question: Dividend sustainability - The company aims to maintain the current dividend level but may reconsider if inflation remains high and the economy does not roll over [61]

Financial Performance - Net income for Q1 2023 was $3.5 million, or $0.09 per share, compared to a net loss of $148.7 million, or $4.20 per share, in Q1 2022[138] - Interest income decreased to $38.0 million in Q1 2023 from $41.9 million in Q1 2022, a decline of approximately 9.2%[138] - Interest expense increased significantly to $42.2 million in Q1 2023 from $2.7 million in Q1 2022, reflecting a rise of approximately 1495.7%[138] - Gains on RMBS and derivative contracts were $12.7 million in Q1 2023, a substantial recovery from losses of $183.6 million in Q1 2022, representing a change of $196.3 million[138] - For the three months ended March 31, 2023, the company reported a net interest loss of $4.2 million, compared to a net interest income of $39.2 million for the same period in 2022[161] - The company generated $15.0 million of economic net interest income for the three months ended March 31, 2023, down from $37.6 million in the same period in 2022[162] - Total operating expenses for the three months ended March 31, 2023, were approximately $5.0 million, an increase of $625,000 compared to $4.4 million for the same period in 2022[182] Shareholder Actions - Total shares repurchased from inception of the stock repurchase program through March 31, 2023, amounted to 4,048,613 shares at an aggregate cost of approximately $68.8 million[135] - The company issued 9,742,188 shares under the October 2021 Equity Distribution Agreement for gross proceeds of approximately $151.8 million before its termination in March 2023[130] - The stock repurchase program has been authorized for up to 6,183,601 shares, representing approximately 18% of the company's outstanding shares as of October 2022[134] - The company declared a dividend of $0.16 per share on April 12, 2023, to be paid on May 26, 2023, contributing to a total of $552.568 million in dividends since its IPO[244] Investment Strategy - The company aims to provide attractive risk-adjusted total returns through capital appreciation and regular monthly distributions from its Agency RMBS investments[127] - The company’s investment strategy involves leveraging both traditional pass-through Agency RMBS and structured Agency RMBS to manage interest rate sensitivity and income stability[127] - The company has not elected to designate its derivative holdings for hedge accounting treatment, meaning fluctuations in their value do not impact reported interest expense[147] - The company utilizes futures contracts, interest rate swaps, and swaptions to hedge against interest rate increases, but effectiveness may vary based on prepayment rates[249] Market Conditions - The Agency RMBS market generated a total return of 2.5% for the first quarter of 2023, underperforming comparable duration SOFR swaps by 0.2%[216] - The yield on the 2-year U.S. Treasury note increased from approximately 4.43% on December 31, 2022, to a high of 5.07% on March 8, 2023, before declining to around 3.77% on March 24, 2023[214] - The Mortgage Bankers Association 30-year survey rate averaged 6.45% for the first quarter of 2023, with a high of 6.79% and a low of 6.18%[215] - The Agency RMBS market experienced a return of -1.2% compared to comparable duration SOFR swaps in Q1 2023[238] Liquidity and Borrowings - The company had cash and cash equivalents of $143.2 million as of March 31, 2023, and generated cash flows of $95.6 million from principal and interest payments on its RMBS portfolio[206] - The company had obligations outstanding under repurchase agreements of approximately $3,769.4 million as of March 31, 2023, with a net weighted average borrowing cost of 4.90%[194] - The average outstanding borrowings decreased to $3,573.9 million in Q1 2023 from $5,354.1 million in Q1 2022, contributing to the increase in interest expense despite the lower borrowing volume[171] - As of March 31, 2023, the ending balance of borrowings was $3,769,437, an increase of 11.56% from $3,378,445 on December 31, 2022[196] Risk Factors - The company faces significant liquidity risk, with potential margin calls increasing if the value of pledged Agency RMBS or derivative instruments decreases[264] - Interest rate sensitivity analysis indicates that a 200 basis point increase in interest rates could lead to a decline of 2.41% in market value and 21.39% in book value as of March 31, 2023[259] - Counterparty credit risk is present due to potential losses from counterparties failing to meet obligations under repurchase agreements and derivative contracts[267] - The company faces potential negative impacts on operations if prepayment rates decrease in a rising interest rate environment, leading to extended average life or duration of fixed-rate assets[266] Regulatory Environment - The Fed committed to purchasing $80 billion of U.S. Treasuries and $40 billion of Agency RMBS each month until tapering began in November 2021, ending net asset purchases by March 2022[218] - The LIBOR Act established SOFR as the new benchmark rate for contracts using LIBOR, providing a safe harbor from litigation for claims related to SOFR[223] - The FHFA allowed Enterprises to increase their capital buffers to $25 billion and $20 billion, respectively, from a prior limit of $3 billion each[220] - The final rule published by the FHFA on February 25, 2022, amended the Enterprise capital framework, including a dynamic leverage buffer and a reduction in the risk weight floor from 10% to 5%[220]

Financial Performance - Net loss for the year ended December 31, 2022, was $258.5 million, or $6.90 per share, compared to a net loss of $64.8 million, or $2.67 per share, for 2021[273]. - For the three months ended December 31, 2022, the company reported a net loss of $3,463,000, with a net loss per share of $0.09[280]. - The total economic net interest income for the year ended December 31, 2022, was $62,216,000, reflecting a significant increase compared to the previous year[288]. - The company reported a net interest income of $62,216,000 for the year ended December 31, 2022, which is a significant improvement from the previous year[288]. - Economic net interest income for the year ended December 31, 2022 was $99.8 million, compared to $109.3 million in 2021[294]. - The company experienced a total of $(320,669) thousand in losses for the year ended December 31, 2022, compared to $(177,119) thousand in 2021[314]. Interest Income and Expense - Interest income for 2022 was $144.6 million, an increase from $134.7 million in 2021, while interest expense rose significantly to $61.7 million from $7.1 million in 2021[273]. - The net interest income decreased to $82.9 million in 2022 from $127.6 million in 2021, primarily due to losses on RMBS and derivative contracts totaling $320.7 million in 2022[273]. - The economic interest expense for the year ended December 31, 2022, was reported at $258,453,000, indicating a substantial increase from $64,760,000 in 2021[288]. - Interest expense on borrowings for the year ended December 31, 2022 was $61.7 million, up from $7.1 million in 2021, attributed to a 138 basis points increase in the average cost of funds[292]. - The average cost of funds for the year ended December 31, 2022 was 1.53%, compared to 0.15% in 2021, indicating a significant rise in borrowing costs[296]. Share Issuance and Repurchase - The company issued a total of 634,145 shares under the January 2020 Equity Distribution Agreement for gross proceeds of $19.8 million before its termination in August 2020[262]. - Under the August 2020 Equity Distribution Agreement, the company issued 5,498,730 shares for gross proceeds of approximately $150.0 million, netting about $147.4 million after commissions and fees[263]. - The stock repurchase program has authorized the repurchase of up to 6,183,601 shares, representing approximately 18% of the company's then outstanding shares[270]. - From inception through December 31, 2022, the company repurchased a total of 3,675,572 shares at an aggregate cost of approximately $64.8 million, with a weighted average price of $17.63 per share[271]. - By December 31, 2022, the company had issued a total of 7,052,188 shares under the October 2021 Equity Distribution Agreement for gross proceeds of approximately $119.6 million, netting approximately $117.6 million[352]. Investment Strategy - The company aims to provide attractive risk-adjusted total returns through capital appreciation and regular monthly distributions from its investments in Agency RMBS[259]. - The company operates to qualify as a REIT, generally avoiding U.S. federal income tax by distributing all REIT taxable income to stockholders[260]. - The company’s investment strategy involves allocating capital between traditional pass-through Agency RMBS and structured Agency RMBS to manage income stability and portfolio value[259]. - The company’s strategy includes investing in TBAs, which are forward contracts for the purchase or sale of Agency RMBS, representing off-balance sheet financing[284]. - The company’s structured RMBS strategy has been a core element of its investment approach, with no leverage applied to this portion of the portfolio[344]. Market Conditions and Risks - The Fed raised the Fed Funds target range to 4.50% at the end of 2022, an increase of 125 basis points during the fourth quarter[356]. - The market expects the Fed Funds rate to peak at approximately 5.125% by mid-2023 and remain above 5% throughout the balance of 2023[356]. - The Agency RMBS market returns for 2022 were negative, down 11.9%, but posted positive returns of 2.1% in the fourth quarter[359]. - Foreclosure starts in 2022 increased by 169% from 2021, although they remained 26% lower than pre-pandemic levels in 2019[363]. - The Agency RMBS sector is still trading at spread levels well above pre-pandemic levels, with risks associated with potential inflation re-acceleration[381]. Liquidity and Capital Management - Cash and cash equivalents as of December 31, 2022, were reported at $205,700,000, providing liquidity for operational needs[345]. - As of December 31, 2022, the company had unrestricted cash and cash equivalents of $205.7 million and unpledged securities of approximately $27.4 million available for margin calls and corporate purposes[415]. - The company faces liquidity risk due to financing long-term assets with shorter-term borrowings through repurchase agreements, which could lead to increased margin calls if the value of pledged assets decreases[415]. - The average life or duration of fixed-rate assets may extend if prepayment rates decrease, potentially leading to realized losses if the company is forced to sell assets to maintain liquidity[417]. Derivative Instruments and Hedging - The company utilized various hedging instruments, including Eurodollar and interest rate swaps, to manage interest rate risk effectively[281]. - The company employs a four-step process to determine the fair value of Agency RMBS, ensuring consistency with observed market prices[384]. - The company utilizes derivative instruments such as Fed Funds, T-Note, Eurodollar futures contracts, interest rate swaps, and TBA securities to manage interest rate risk and other exposures[388]. - The company has not elected to designate its derivative holdings for hedge accounting treatment, which affects the presentation of interest expense[282]. Prepayment and Interest Rate Risks - Prepayment risk is significant, as it can lead to a faster return of principal on investments, affecting net interest income due to reinvestment at potentially lower yields[413]. - Changes in the general level of interest rates can significantly impact net interest income and the value of the RMBS investment portfolio[401]. - Increased prepayment rates may negatively affect the value of Agency RMBS, particularly for interest-only securities, while positively impacting principal-only securities[373]. - The effective duration of the RMBS portfolio increased from 3.39 in 2021 to 5.58 in 2022, indicating greater sensitivity to interest rate changes[329].

Financial Data and Key Metrics Changes - The company generated net income per share of $0.95, with a net earnings per share of negative $0.09 when excluding realized and unrealized gains and losses on RMBS derivative instruments [21] - Book value per share increased to $11.93 at December 31, 2022, from $11.42 at September 30, 2022, reflecting a total economic gain of $0.99 per share for the quarter or 8.67% annualized [28][12] - The economic leverage ratio was reported at 6.3 at the end of 2022, which is low relative to historical norms, indicating potential for increased leverage when market conditions improve [80] Business Line Data and Key Metrics Changes - The weighted average coupon increased from 3.3% at the end of Q3 to 3.55% at the end of Q4, indicating a shift towards slightly higher coupon securities while maintaining a lower coupon bias overall [37] - The company added approximately $400 million to its position in lower coupon securities, reflecting a strategic focus on these assets due to their favorable hedging characteristics [39] Market Data and Key Metrics Changes - The mortgage market saw significant volatility, with spreads widening considerably in late 2022 before tightening again in early 2023, indicating a dynamic market environment [32][61] - The company noted that the entire mortgage universe is currently trading at a discount, which is an unprecedented situation that complicates traditional valuation models [68] Company Strategy and Development Direction - The company remains cautiously optimistic about the market, anticipating that a pivot by the Fed could create favorable conditions for mortgage performance [4] - The strategy focuses on maintaining a lower coupon bias while leveraging hedges to mitigate risks associated with rising funding costs, positioning the company to benefit from potential market rallies [41][45] Management's Comments on Operating Environment and Future Outlook - Management highlighted the uncertainty surrounding the timing of the Fed's tightening cycle but expressed confidence in the company's positioning to capitalize on future market improvements [82] - The company expects to benefit from a potential expansion of net interest margin (NIM) and book value performance as market conditions evolve [83] Other Important Information - The company declared and paid a dividend of $0.48 per share in Q4, with a total of $64.97 per share declared since the IPO [28] - The company has a significant amount of dry powder in the form of TBA shorts, which can be unwound to take advantage of market opportunities [40] Q&A Session Summary Question: Thoughts on natural turnover in the market today - Management indicated that natural turnover is in the single digits, with seasoned low loan balance pools potentially prepaying around 8 to 10 [7] Question: Capital allocation preferences between dividends and stock buybacks - Management discussed the balance between dividends and stock buybacks, noting that they consider buybacks when the stock is trading below book value [8][52] Question: Current book value estimate - The current book value estimate is approximately 4% year-to-date, down from a 10% increase at the end of January [12] Question: Logic behind increased TBA short position - The increase in TBA short positions is a strategic move to hedge against potential market downturns and to lock in gains from previous market performance [13][56]

Orchid Island Capital, Inc. (NYSE:ORC) Q3 2022 Results Conference Call October 28, 2022 10:00 AM ET Company Participants Robert Cauley - Chairman, President & Chief Executive Officer Hunter Haas - Chief Financial Officer and Chief Investment Officer and Director Conference Call Participants Jason Steward - JonesTrading Mikhail Goberman - JMP Securities Christopher Nolan - Ladenburg Thalmann Operator Good morning and welcome to the Third Quarter 2022 Earnings Conference Call for Orchid Island Capital. This c ...