Earnings Call: Orchid Island Capital Reports Q3 Loss, Plans Portfolio Diversification

Orchid (NS: ORCD ) Island Capital (NASDAQ: ORC) reported a net loss of $1.68 per share for the third quarter of 2023 in its earnings conference call on October 27, 2023. The company's book value decreased by over 20% to $892 from $11.16, and the total return for the quarter was a negative 15.77%. Despite these setbacks, the company has plans to diversify its portfolio across coupon rates and maintain high hedge levels to protect against rising borrowing costs and interest rate sell-offs.

Key takeaways from the call include:

• Orchid Island Capital reported a net loss of $1.68 for the third quarter of 2023, compared to income of $0.25 the previous year.
• The company's book value decreased by over 20% to $892 from $11.16, and the total return for the quarter was a negative 15.77%.
• The company aims to diversify its portfolio across coupon rates and maintain high hedge levels to protect against market volatility.
• The company has hedging positions in place that exceed their repo funding liabilities, helping to lower their economic interest expense.
• The company plans to maintain appropriate leverage ratio and liquidity levels in response to the challenging market environment.
• Orchid Island Capital has adjusted its dividend to align with its earnings, tracking its taxable earnings and maintaining some flexibility in distributing dividends.

During the call, company representatives Robert Cauley and Hunter Haas discussed the factors impacting mortgage spreads, including the lack of sponsorship from large investors and the current shape of the yield curve. Despite a disappointing third quarter due to quantitative tightening and a lack of marginal buyers, they expressed optimism about potential improvements in the banking sector and the mortgage market.

The representatives also highlighted the company's strategy to reduce exposure to the 3% coupon by about 40% and maintain a bias towards lower coupon securities. They noted that their hedging strategy, which includes interest rate swaps, futures options, rate derivatives, and short TBAs, helps to lower their economic interest expense and protect against market volatility.

The call concluded with an invitation to contact the company for further questions or information.

InvestingPro Insights

Drawing from the latest data and insights provided by InvestingPro, Orchid Island Capital (NASDAQ: ORC) has shown remarkable revenue growth, with a 93.25% increase in the last twelve months as of Q2 2023. Despite this, the company's stock price has suffered significantly, trading near its 52-week low with a 40.83% decrease over the last three months.

InvestingPro Tips provides further insight. Notably, the company pays a significant dividend to shareholders, maintaining this for 11 consecutive years. However, it's important to note that the stock is currently in oversold territory, as indicated by the Relative Strength Index (RSI), suggesting potential for a price rebound.

For more detailed insights and tips, consider subscribing to the InvestingPro package, which offers access to over 12 additional InvestingPro Tips and a wealth of real-time data metrics.

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