Orchid Island Capital(US:ORC)2023-07-28 16:53Financial 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]