Orchid Island Capital(ORC) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q1 2025, the company earned $0.18 per share compared to$0.07 in Q4 2024 [8] - Book value at March 31, 2025, was $7.94 per share, down from$8.09 at December 31, 2024 [8] - Total return for the quarter was 2.6% unannualized, compared to 0.6% for Q4 2024 [8] Business Line Data and Key Metrics Changes - The average portfolio size for Q1 was just under $6 billion, up from$5.3 billion in Q4 2024 [9] - The leverage ratio increased to 7.8% at March 31, 2025, from 7.3% at December 31, 2024 [9] - Prepayment speeds were 7.8% in Q1, down from 10.5% in Q4 2024 [9] Market Data and Key Metrics Changes - The market experienced significant volatility due to tariffs and their expected impact on the economy and inflation [11][72] - Swap spreads moved meaningfully negative late in the quarter and into April, affecting mortgage performance [18][22] - The performance of agency mortgages was strong, being the second-best sector in fixed income markets [22] Company Strategy and Development Direction - The company raised $206 million in capital during Q1 2025, selling 25 million shares of stock [42] - The strategy involved deploying proceeds into higher coupon, shorter duration assets while hedging predominantly with longer duration hedges [31] - The company is cautious about future capital raising, considering the current market volatility and the need for liquidity [108][122] Management's Comments on Operating Environment and Future Outlook - The management expressed uncertainty regarding future economic conditions, citing potential slower growth and upward pressure on inflation due to tariffs [71][75] - The company is positioned with a skew towards higher coupon, shorter duration assets, which should benefit from a steeper yield curve [76] - Management remains vigilant and ready to reposition as market conditions evolve [77] Other Important Information - The company declared and paid dividends of$0.36 per share for each quarter [8] - The liquidity position at March 31, 2025, was 52.2%, slightly down from 52.9% at December 31, 2024 [9] Q&A Session Summary Question: What is the duration gap at the end of the quarter and to-date? - The company does not provide duration in numerical terms but uses DV01, which was reported as $13, indicating a very narrow duration gap [84][85] Question: What is the current book value? - As of last Thursday, the estimated book value was$7.24, down 8.8%, but as of last night, it was estimated at $7.28, reflecting a decline of 8.3% quarter-to-date [94][95] Question: Where do you see gross ROE sitting today? - The gross ROE is very high, potentially in the range of 20%, with spreads on 7-year swaps versus current coupon above 200 basis points [103][104] Question: How are you looking at dividend issuance and buybacks? - The company is cautious about buybacks given the current stock price and may consider raising capital for liquidity purposes [108][122] Question: Will the 2025 dividend be 100% taxable income? - It is too early to confirm, but year-to-date, the taxable income has been in line with distributions [127][129]