Orchid Island Capital(US:ORC)2023-07-28 17:52Financial 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]