Orchid Island Capital(US:ORC)2023-02-24 18:47Financial 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]