Orchid Island Capital (ORC) Q2 2024 earnings summary

Executive summary

• Reported a net loss of $5.0 million, or $0.09 per share, for Q2 2024, reversing from net income in the prior quarter and Q2 2023; book value per share declined to $8.58 from $9.12 sequentially.

• Total return for Q2 2024 was (1.97)%, with $0.36 per share in dividends declared and paid.

• Portfolio size increased by 16.6% during the quarter, supported by $100.7 million in new equity capital, with average MBS balances rising to $4.2 billion.

• Management anticipates attractive investment opportunities if the Fed eases monetary policy, with the portfolio positioned for a steepening or inverted yield curve.

• Dividend remained steady at $0.36 per share.

Financial highlights

• Interest income for Q2 2024 was $53.1 million, up $13.2 million year-over-year; net interest expense was $0.7 million, with adjusted economic net interest income at $28.8 million.

• Economic income (proxy for taxable income) was $0.50 per share, stable over the last three quarters.

• Net interest spread improved to 2.64% from 2.47% sequentially, with economic cost of funds falling to 2.41% from 2.56%.

• Book value per share at June 30, 2024, was $8.58, with stockholders' equity of $555.9 million.

• Liquidity stood at $265.3 million, representing 48% of stockholders' equity.

Outlook and guidance

• Management expects the Fed may begin rate cuts in 2024, potentially starting in September, with market expectations for two to three 25 bps cuts by year-end.

• Portfolio positioned for a steepening or inverted yield curve, with attractive Agency MBS valuations and plans to deploy additional equity capital if raised.

• Capital deployment will remain focused on higher coupon and "wing" coupons in the Agency RMBS stack.

• Management is comfortable with current hedging and asset allocation, expecting continued strong income.