Orchid Island Capital(ORC) - 2024 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q1 2024, the company's net income decreased to $0.38 from$ 0.52 in Q4 2023, while book value increased slightly by $0.02 [3] - Total return was 4.18% compared to 6.05% in Q4 2023, and the dividend remained unchanged for the quarter [3] - The economic cost of funds decreased from 2.67% to 2.56% during the quarter [16] Business Line Data and Key Metrics Changes - The average coupon of the portfolio increased by 5 basis points, with the realized yield rising from 4.71% to 5.03% for the quarter [59] - The economic net interest spread improved to 2.47% from 2.04% in the previous quarter [59] Market Data and Key Metrics Changes - The repo market showed no signs of stress, with adequate funding and no changes in haircuts [44][69] - Volatility decreased significantly, which supported mortgage performance during the first quarter [29] Company Strategy and Development Direction - The company is focusing on a barbell strategy, increasing exposure to both lower and higher coupons while avoiding the belly of the coupon stack [19][64] - The company plans to reassess its dividend policy after Q2 based on taxable income estimates and market conditions [27][73] Management's Comments on Operating Environment and Future Outlook - Management noted that the current economic environment is characterized by high rates and uncertainty regarding future Fed actions, which could impact book value and earnings [35][84] - The company believes it can maintain stable book value and cover the dividend under current conditions, despite potential volatility [84] Other Important Information - The company has maintained a high level of hedging, which has been effective in protecting book value [17][66] - The portfolio has migrated towards higher coupons and lower duration assets, which helps in managing risks associated with interest rate movements [19][38] Q&A Session Summary Question: Can you talk about the repo markets and the overall health? - Management indicated no signs of stress in the repo markets, with adequate funding and stable haircuts [44] Question: Have you continued to add higher coupons in the second quarter? - Management stated that while they have not yet added higher coupons, it is on the horizon and they plan to continue this strategy [45][70] Question: Can you clarify your comments on the dividend going forward? - Management confirmed that the dividend is currently$ 0.12 and will be reevaluated mid-year based on taxable income estimates [48][73] Question: What do you see benefiting more, earnings or book value? - Management suggested that if the curve remains inverted, book value should be stable, allowing for dividend coverage [103]