Orchid Island Capital, Inc. Q3 FY2024 earnings call

• Financial results: Net income per share improved to $0.24 from a loss, book value declined, total return was positive 2.1%, and dividends were declared.
• Market developments: Fed cut in September, economic resilience emerged, election uncertainty impacted the market, mortgage spreads widened significantly, and volatility remained elevated.
• Portfolio positioning: Raised $110 million via ATM, grew portfolio by 20% with higher coupon mortgages, maintained barbell strategy with upper coupon bias, funding costs slightly lower, adjusted hedge positions, and expected modest NIM expansion.

For the third quarter of 2024, Orchid had a net income of $0.24 per share, versus a $0.09 loss in the second quarter. Book value declined modestly from $8.58 to $8.40. The total return for the quarter was positive 2.1%, and they declared $3.12 dividends. The portfolio average balances increased, leverage ratio expanded slightly, speeds increased from 7.6% to 8.8%, and liquidity was relatively in line, up slightly from the second quarter. Revenue contribution details weren't explicitly broken down by product segment beyond the overall portfolio performance.

• Fed pivot may not be as extensive as hoped. Continues to employ barbell strategy with upper coupon bias. Anticipates modest NIM expansion but notes uncertainty in rates and economy.

• Uncertainty in the market due to the election and economic data volatility. Funding pressures emerging over quarter end, month end, year-end. Risk of bear steepening affecting higher coupon mortgages.

Q: Jason Weaver asked about the coupon bias, hedge ratio, and volatility.

A: Robert Cauley and Hunter Haas discussed the upper coupon bias being suited for market conditions, hedge ratio adjustments due to swap spread movement, and volatility likely remaining elevated.

Q: Mikhail Goberman inquired about book value, leverage, and bear steepening risk.

A: Robert Cauley and Hunter Haas provided updates on book value performance, leverage considerations, and the risk of bear steepening affecting higher coupon mortgages.

Q: Jason Stewart asked about repo cost at quarter end.

A: Robert Cauley and Hunter Haas explained repo cost dynamics, including front-loaded portfolio growth affecting average repo expense and funding pressure considerations.

Q: Christopher Nolan asked about economic EPS and shareholder return.

A: Robert Cauley mentioned they don't report adjusted economic EPS, and discussions with the board focus on total return and potential under distribution.

Q: Eric Hagen asked about TBA position and IO derivatives.

A: Robert Cauley and Hunter Haas talked about TBA position adjustments for higher coupons in case of bear steepening and cautious approach to IO derivatives due to uncertainty in refi dynamics.