Orchid Island Capital(ORC)2023-10-27 18:47Financial 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].