Orchid Island Capital, Inc. (ORC) Q4 2022 Earnings Call Transcript

Orchid Island Capital, Inc. (NYSE:ORC) Q4 2022 Results Conference Call February 23, 2023 10:00 AM ET

Company Participants

Robert Cauley - Chairman and CEO

Hunter Haas - CFO and CIO and Director

Conference Call Participants

Jason Stewart - JonesTrading

Mikhail Goberman - JMP Securities

Christopher Nolan - Ladenburg Thalmann

Operator

Good greeting and invited to nan Fourth Quarter 2022 Earnings Conference Call for Orchid Island Capital. This telephone is being recorded today, February 24, 2023.

At this time, nan Company would for illustration to punctual listeners that statements made during today's convention telephone relating to matters that are not humanities facts are forward-looking statements taxable to nan Safe Harbor provisions of nan Private Securities Litigation Reform Act of 1995.

Listeners are cautioned that specified forward-looking statements are based connected accusation presently disposable connected nan management's bully religion belief pinch respect to early events and are taxable to risks and uncertainties that could origin existent capacity aliases results to disagree materially from those expressed successful specified forward-looking statements.

Important factors that could origin specified differences are described successful nan Company's filings pinch nan Securities and Exchange Commission, including nan Company's astir caller Annual Report connected Form 10-K. The Company assumes nary responsibility to update specified forward-looking statements to bespeak existent results, changes successful assumptions aliases changes successful different factors affecting forward-looking statements.

Now, I would for illustration to move nan convention complete to nan Company's Chairman and Chief Executive Officer, Mr. Robert Cauley. Please spell ahead, sir.

Robert Cauley

Good greeting and invited everybody.

I dream everybody has had a chance to download our descent position from nan website this morning. I do apologize, we did rumor our property merchandise past nighttime arsenic usual, but nan accompanying and financial statements were not attached. The audit process is taking a small longer than accustomed this year. And so, nan financials were not attached. We will beryllium filing our 10-K astir apt adjacent week arsenic we typically would do today. This process is moving a small precocious and sorry for nan hold but those should beryllium retired adjacent week.

But each of nan numbers that are successful nan property release, you tin trust on, they're each accurate, unchanged and really unchanged from what we released backmost successful January erstwhile we gave our preliminary results.

So pinch that, I will footwear disconnected pinch nan descent deck. As usual, benignant of travel nan aforesaid outline starting connected page 3, pinch nan outline of what we're going to discuss. I'll concisely spell complete nan financial highlights, talk astir nan marketplace developments and really they shaped our performance, and besides our results and outlook for nan future, and past I'll spell into our financial results a small much item and past yet talk astir our portfolio characteristics, our hedge positions and really we're positioning and our outlook for nan marketplace going forward.

So first pinch nan highlights, Orchid Island generated nett income per stock of $0.95, nett net per stock of antagonistic $0.09 excluding realized and unrealized gains and losses connected our RMBS derivative instruments, including an liking income connected liking complaint swaps. We had a summation of $1.04 per stock from nett realized and unrealized losses connected our RMBS and derivative instruments, again, again including nett liking income connected liking complaint swaps.

Book worth per stock of $11.93, astatine December 31, 2022, versus $11.42 astatine September 30, 2022. In Q4, nan Company declared and subsequently paid $0.48 per stock successful dividends. And since our first nationalist offering, nan Company declared $64.97 per share, astatine divided adjusted, including dividends declared successful January, February of this year. The full economical summation is $0.99 per stock for nan 4th aliases 8.67% -- annualized.

I'll now conscionable spell done nan marketplace development. Turning to descent 6.

I’ll make a mates of comments here. First I would constituent retired that [Technical Difficulty] not conscionable see 9/30 and 12/31 numbers, but besides February. We admit [Technical Difficulty] nan quarter, and there's a batch of alteration specified arsenic [Technical Difficulty] arsenic well. So it's been a rather volatile 4th truthful far. And we shall [Technical Difficulty] rate curve is very level from nan 10-year constituent retired and really has been since September 30th.

If you look astatine nan swaps curve, while it's still comparatively flat, it's little so, it's downward sloping. And that conscionable reflects nan truth that switch spreads are negative, SOFR switch spreads and much antagonistic nan further you spell retired nan curve, and nan ramification for that is somewhat significant, successful nan consciousness that if you look astatine swaps arsenic a hedge instrument, 10-year swaps astatine astir 360 arsenic of adjacent past nighttime is still charismatic hedge level, particularly for little coupon securities which person afloat extended, it tin beryllium rather easy hedged pinch longer dated swaps. And yield, moreover 5 CPR for instance, they could still output a decent dispersed supra that level. So I conscionable wanted to constituent that out. That is 1 of nan benefits of an highly inverted curve and arsenic we speak today, fixed nan information that was released earlier, nan curve is moreover much inverted.

Moving connected to page 7, conscionable want to not walk a batch of clip here, but conscionable constituent out, if you look connected nan near manus side, you tin spot that moreover done early into this quarter, rates successful nan agelong extremity really haven't moved a lot, they’re up somewhat today, but astir of nan activity again has been connected nan beforehand end. And you saw that successful nan past descent wherever nan marketplace continues to value successful much Fed hikes, looks for illustration we're going to beryllium hiking into nan mediate of this twelvemonth possibly. And obviously, this is driven by nan astir caller data, but nan agelong extremity of nan curve has not moved anyplace adjacent arsenic much.

Turning to page 8, very important descent for america arsenic owe investors. This shows nan 1 of galore measures that we usage to gauge owe attractiveness aliases nan like. We're fundamentally conscionable showing you nan dispersed of a existent coupon owe to a 10-year treasury. There's galore different metrics you could use. You could usage a dispersed to nan 5s, 10s blend, aliases you could usage a dispersed nan swaps. And I deliberation nan conclusion that you would tie would beryllium nan aforesaid if immoderate of them. And I conscionable want to constituent retired a fewer things.

So, connected nan bottom, we show a very semipermanent look back. This goes each nan measurement backmost to nan opening of 2010. And that's very important for gaining immoderate position connected wherever we are today, which of people is to nan acold right. And past connected nan top, you spot nan aforesaid floor plan only pinch a overmuch shorter look back, conscionable going backmost to nan extremity of 2021.

And arsenic you tin spot successful 2022, mortgages sewage rather cheap. In fact, if you look, astatine nan apical there, you spot -- nan constituent that coincides pinch precocious September, early October, we sewage to astir 190 ground points spread. That is rather wide. In fact, if you look astatine wherever we were successful nan bottommost chart, successful March of 2020, we only sewage to astir 160. So, we were rather a spot wider than that. That was erstwhile nan marketplace was being -- to a ample grade being driven by nan Fed and forced to judge nan truth that nan Fed was going to tighten overmuch much aggressively and nan rates were going to spell higher and mortgages sold off. Of course, that was besides accompanied by a activity and volatility, which besides drove owe spreads wider. And truthful you saw rather a wide move.

And past we started to tighten. But that has since reversed. And that's mostly been nan lawsuit successful February. And we were astatine astir 160 ground points yesterday and possibly a fewer ground points wider than that. So, looking astatine nan blower chart, you spot a prolonged play wherever spreads were reasonably stable, it's seven, eight-year period, wherever those spreads were successful nan high-70s. And there's nary compelling logic that says we're going to person to spell backmost to those levels. But it's reasonable to presume it's that not apt we're going to enactment astatine these utmost levels. And each this leads america and astir of our peers to reason that mortgages are attractive, and they connection very charismatic full complaint of return prospects assuming astatine slightest a return to location adjacent to that range. So, it's rather a large move if we were to spell from 160 aliases higher towards high-70s, 80s scope aliases moreover adjacent to that. So, mortgages look charismatic to us.

Moving connected descent 9, this conscionable shows you -- floor plan that we’ve utilized much successful nan past, little applicable today, to show you nan dispersed betwixt nan 5 and 30-year points connected nan curve. And arsenic you saw, nan descent a fewer before, that portion of nan curve is somewhat inverted, not meaningfully. So, each nan inversion really occurs successful nan very beforehand end. So for instance, nan dispersed betwixt nan 2 and nan 10-year aliases Fed costs and nan 10-year, that's nan meaningful inversion. And it's apt to enactment wherever it is if not moreover get higher arsenic we move guardant until nan extremity of nan tightening cycle.

Slide 10, this is simply a image that moves itself [Technical Difficulty] conscionable show you holdings by ample commercialized banks and nan Fed [Technical Difficulty] successful spot and reserve being withdrawn from [Technical Difficulty] pace. We've seen this earlier backmost successful ‘19 erstwhile arguably reserves sewage excessively tight and caused immoderate problems successful nan markets. [Technical Difficulty] this mightiness hap again, nan Fed [Technical Difficulty] put successful spot nan 2nd repo installation successful nan arena [Technical Difficulty] occur. In immoderate event, I don't deliberation it's an rumor for nan contiguous future. But thing worthy watching and that's benignant of why we person this descent successful here.

Slide 11 is very important. This is erstwhile we're looking specifically astatine nan owe market. And if you look astatine nan apical left, what we coming present is we normalize nan prices for respective coupons, Fannie 3s, 4s, 5s and 6s, truthful giving you a wide scope of coupons. And arsenic you tin see, early successful nan 4th quarter, particularly arsenic we moved into precocious October, mortgages and rates performed rather poorly, and mortgages successful peculiar did rather poorly. But past it started to move astir and we closed nan 4th connected a large upswing. That's why we had nan book worth capacity we had. And arsenic you tin spot successful early January, they did very well.

And I want to constituent retired and accent present that if you look astatine nan coupon performance, little coupon versus higher coupon successful nan play of nan quarter, immoderate of these periods erstwhile we were rallying, did very well. And there's respective reasons for this, obviously, they person longer duration. But besides what we've seen complete nan people of nan precocious 4th quarter, into early first 4th this year, is money managers and nan for illustration coming backmost into nan market, astir of whom were astir apt underweight nan assemblage and adding to their positions to get neutral aliases astatine slightest adjacent to neutral. We don't person immoderate information for February, truthful I can't really opportunity wherever we deliberation money managers are comparative to their bogeys. But we do know, I conscionable publication coming that enslaved costs person seen 8 consecutive weeks of inflows.

So, moreover to nan grade that they're neutral, nan truth that they would effort to enactment truthful pinch enslaved inflows, it's beneficial for nan sector. And it's bully news for us, because we've been connected nan different broadside of that equation for rather a while past year. So nan truth that money is coming into nan abstraction bodes well, peculiarly for these debased coupons. In particular, anybody that runs a portfolio against nan index, because nan scale is very heavy skewed towards little coupons. Obviously, they were nan ones that were produced for astir of nan past 10 years, successful opposition to opportunity Fannie 6s aliases 6.5s which weren't moreover produced until recently, for rather a agelong time. So to nan grade there's index, money managers coming into nan market, they're going to beryllium progressive successful those sectors. And those securities person performed well, and we would expect they would execute well, if and erstwhile nan Fed were to pivot and nan marketplace would commencement spell successful nan different direction.

In contrast, if you look connected nan bottommost left, you spot rolls, different than nan Fannie 6, nan rolls are each very low, they do not connection overmuch successful nan measurement of driblet income. With nan objection of 6s, it's been a very method marketplace successful 6s, truthful that rotation tin get very typical aliases little typical very quickly. The generic -- mostly speaking, rotation marketplace has not been charismatic of late.

The apical correct conscionable show specified pools. These are conscionable representative. As you tin imagine, arsenic we rallied successful January, specs had a decent run, particularly pinch rolls being soft, but now we've had different backup successful February. And I fishy that rolls mightiness soften again, but it remains to beryllium seen. We don't person meaningful information points yet, we'll get that successful early March. The rotation marketplace -- aliases nan specified excavation marketplace fixed that nan marketplace is astatine specified an utmost discount, moreover successful a bully day, there's not a batch of capacity to beryllium had there. So, it's much of a generic aliases a debased payup pools that we heard much desirable to own.

Turning to descent 12, we show a image of volatility. This is conscionable 1 -- 1 measure, three-month by 10-year normalized vol. And arsenic you tin see, it's been precocious and very elevated and it remains elevated. Again, we're showing information done February 17th, which is past Friday. It's moreover elevated much arsenic we speak. One constituent I would make is that owe capacity and dispersed levels person been reasonably highly correlated pinch vol arsenic they ever are, but it seems moreover much truthful complete nan past 12 aliases 14 months. So, vol levels are very important, thing we ever support an oculus connected because they do effect owe performance, ever person and ever will.

Just moving connected slides -- 13. This is -- nan near side, we show OAS levels. As you tin see, they've been reasonably stable. Different investors put much banal aliases little than OAS levels. Now, nan problem pinch OAS, if you're a skeptic, is that you recognize that these are nan products of models. And fixed wherever we are complaint wise and nan truth that we person almost nan full owe beingness astatine a discount, those are -- we've ne'er seen an situation for illustration this before. And models person built disconnected of empirical data.

So, it's a challenge, I would argue, for nan models to beryllium arsenic meticulous arsenic they mightiness beryllium otherwise, there's been predominant changes to a batch of nan model, particularly connected nan thoroughfare output book and nan like. But that being said, location are a number of investors who waste and acquisition disconnected of OAS level, truthful you can't disregard them. But they would show you that mortgages are reasonably attractive, not great. And we'll person a small much to opportunity connected that comparative attractiveness successful a moment.

Moving on, conscionable immoderate return data, conscionable truthful we tin benignant of summation immoderate position and not suffer tract of nan truth that while we're exclusively MBS investors, we run successful a world of investors who run crossed each sectors. And we person 3 tables here. The apical 1 shows you nan Q4 returns. And arsenic you tin see, it was very overmuch a consequence on, arsenic we for illustration to say, type of quarter. The champion returns were generated by nan S&P, emerging market, precocious yield, home precocious yield, et cetera.

The little consequence sectors specified arsenic agency owe has had affirmative returns. But that lagged nan much risky sectors, which is benignant of what you would expect. What you don't expect is what we saw for nan afloat twelvemonth of 2022 connected nan bottom. And this is very overmuch successful crisp opposition to humanities norms. If you spot nan numbers here, from nan acold right, nan S&P was down 18%, treasuries were down 12.5%, mortgages almost 12%. Very different to spot each of these sectors person specified highly correlated returns and each negative. That was 1 of nan astir singular aspects of 2022 is nan affirmative relationship betwixt bonds and successful astir risky assets, it's very typically not nan case, it's nan other much often than not. So, very different year. And it conscionable reflected nan truth that we had unprecedented things going on, we had nan believable removal of accommodation by nan Fed successful nan shape of their tightening. And past besides we had seen specified unthinkable monetary -- fiscal argumentation from nan government, which was past stopped past year. So, it was fundamentally nan withdrawal of tremendous amounts of accommodation. And that's what led to these types of returns.

Slide 15, we conscionable show that 4th to day done February 17th. Nothing overmuch to opportunity here, different than, well, they are each positive, which is good. But it will beryllium absorbing to spot really this array looks arsenic we move done nan twelvemonth and we attack nan extremity of nan year. It could look a batch different.

Slide 17, this is much of nan same. We're conscionable showing you dispersed levels crossed nan fixed income markets crossed nan ratings spectrum. And I'm not really going to opportunity overmuch astir this, you tin look astatine this astatine your leisure. We do show levels astatine nan extremity of 2021, 2022, current. Current is arsenic of February 9th, and past we show twelvemonth to day changes. And past 1 point we do person present is this 1 file adjacent nan correct side, it says 2022 highs. And of course, those levels were each very, very precocious successful 2022. And you tin spot successful nan farthest correct column. Most of nan plus classes person moved in, but not astir that much. They're surely still each supra wherever they were astatine nan extremity of 2021. So mostly speaking, astir sectors of nan fixed income marketplace are trading astatine levels overmuch wider than they ended 2021.

The adjacent slide, descent 17, not overmuch to opportunity here. The apical near shows you nan refi scale versus nan owe rate. And arsenic you tin imagine, pinch owe rates highly precocious levels, nan refi scale is astatine multi-decade low. The percent of nan beingness that’s financeable is highly low, very debased azygous digits. But 1 point that is worthy pointing out, if you look astatine this apical right, we person nan superior secondary spread. And this is really applicable for originators and what we tin expect from them. You tin spot nan existent level is much aliases little successful nan mediate of nan scope it's been and going backmost a fewer years. But 1 point we do cognize and we've seen successful nan past, moreover going backmost to nan days earlier nan financial situation that erstwhile owe originators are successful a slow market, they tin judge tighter spreads successful bid to support business volumes astatine aliases -- astatine sustainable levels. And truthful for that reason, we whitethorn spot a flimsy tightening successful this dispersed rates -- agelong extremity rates were to spell up a small spot higher conscionable truthful they tin support levels, which intends that we whitethorn spot refinancing activity aliases acquisition activity enactment a small much robust than it would person otherwise. But that each being said, time off nary uncertainty that refinancing activity is still very low, and moreover acquisition activity is astatine very debased levels.

Now, we tin talk astir our financial results connected descent 19. And this is simply a floor plan that we coming each quarter. And I want to walk immoderate clip arsenic I did past 4th and talk astir nan near manus side. As you tin see, for nan existent quarter, our halfway income proxy is negative. It's $0.09 negative, evidently pinch a $0.48 dividend. You wonderment really we tin screen that. And conscionable arsenic I said nan past time, you person to understand that successful nan correct file location wherever we person these realized and unrealized gains, because of our accounting treatment, immoderate of nan things that would usually beryllium components of halfway income are alternatively captured successful those numbers. So for instance, unrealized gains connected MBS see accretion of discount. Our full portfolio trades astatine a discount to par. And immoderate accretion done pay-downs is captured successful that number. So that number for nan 4th was 6.75 million. So, that's astir $0.1834 that would different person been captured successful nan $0.09 number.

And we besides person hedges. Now for nan quarter, our liking complaint futures and swaps had antagonistic mark-to-market. But that's conscionable because they went from very, very acold successful nan money to somewhat little so. But nevertheless -- needless to say, they were each successful nan money for nan quarter. And so, we were receiving much than we were paying out, for lawsuit connected our swaps. And that number was astir 11.1 cardinal for nan 4th quarter, which is astir $0.3011. So, erstwhile you adhd those 2 numbers to nan antagonistic $0.09, you get astir $0.395, which I recognize is somewhat little than nan $0.48 dividend. And I'm going to reside that, but I'm going to do truthful successful a fewer moments erstwhile I get into chat of nan specifications of nan portfolio. So for now, let's conscionable clasp that thought. We’ll beryllium coming backmost to that momentarily.

Next, I want to talk astir descent 20. And this -- again, this is humanities information that we've presented. But I want to constituent thing retired very important. If you look astatine nan apical chart, you spot a coagulated reddish line. That represents our economical liking cost, which was 226 ground points for nan 4th quarter. Now granted, that's astatine a higher level than it's been recently, but if you look backmost astatine wherever those numbers were successful 2019, for instance, moreover into early 2020, they were astatine higher levels. So, our economical liking disbursal was higher than it is now, moreover though nan benchmark indices are much than 200 ground points higher coming than they were then. And this speaks to nan magnitude of hedges that we person successful place, and nan bequest hedges which we've closed, but for taxation purposes still are applicable because nan measurement taxation accounting works. For instance, if you participate into a 10-year switch and a twelvemonth later you adjacent that position, immoderate nan unfastened equity is successful that position astatine nan day that you adjacent it is applied complete nan remainder of that 10-year switch period. So, successful this case, it would beryllium 9 much years. So for instance, if that switch are closed pinch affirmative equity, it would correspond a simplification successful your liking disbursal complete nan remaining 9 years. And we person a batch of bequest swaps, successful summation to our existent swaps that are going to beryllium disposable to america for taxation purposes, and truthful dividend calculation purposes, for galore years to come. And I'll springiness you nan specifications of those numbers successful a moment. But location is simply a batch of use being derived from those hedges.

Just moving done nan descent deck, I'm not going to opportunity overmuch astir '21, this is conscionable humanities information. But I want to walk immoderate clip connected page 22. This shows our leverage ratio, connected nan near manus side. Keep successful mind, this is GAAP leverage. So this is showing our full liabilities divided by our shareholders’ equity. We do backmost retired -- unsettled information purchases, but those are mostly not material.

That number was 7.8 astatine nan extremity of nan year, which is connected nan debased extremity of our range. But support successful mind, this is GAAP leverage ratio. And for illustration galore of our peers who usage TBAs, typically they’re agelong TBA, truthful their economical leverage ratio, arsenic we referred to is typically higher than their reported GAAP. In our case, we're short TBAs, we're not long. And so, our economical leverage ratio was really 6.3 astatine nan extremity of 2022. So, it's very debased comparative to our humanities norms. And it's astir 6.4 today. So, our leverage ratio, successful position of our emblematic range, which is possibly six to nine, we're astatine nan debased extremity of our range. So, we person rather a spot of barren powder that we tin deploy erstwhile and if nan marketplace -- nan Fed pivots, truthful nan marketplace turns around, and we commencement to spot prospects for a meaningful rally successful rates, particularly connected nan beforehand end, and nan imaginable for mortgages to tighten backmost towards humanities norms. We person barren powder. It could beryllium arsenic elemental arsenic buying backmost our shorts. So for instance, if nan marketplace starts to rally and mortgages commencement to tighten, we person a batch of TBA shorts that we could unwind that would let america to use and recognize this leverage ratio you spot present versus nan existent economical 1 we person today. So it would beryllium beneficial to us.

Page 23, I'm not going to opportunity overmuch astir this. Our allocation connected nan near to pass-throughs is higher, simply because IOs pinch rates arsenic precocious arsenic they are, fundamentally tapped out. I mean, they can't spell up successful value anymore, reside can't spell immoderate lower. In fact, what we saw for nan second half of 2022 is very mediocre capacity from nan portion of IOs because location were really a batch of investors trading and trying to return profits. So value appreciation was limited. And we don't spot immoderate benefit. There's thing -- there's much downside successful owning IOs coming than upside. So we've been moving into a overmuch much heavy concentrated vulnerability to pass-throughs.

Now descent 25, we tin talk astir our positioning present and benignant of really we're positioned and why. If you look astatine this page, I'll conscionable item a fewer things. If you announcement that -- for instance, I'm going to commencement pinch our coupon. Our weighted mean coupon astatine nan extremity of nan twelvemonth was 3.47%, it was astir 3.3% astatine nan extremity of nan 3rd quarter, and it's astir 3.55% today. So from nan extremity of nan 3rd 4th to today, it's gone from 3.3% to 3.55%. It's not that much. We still person a very dense little coupon bias. And that mightiness beryllium successful opposition to our peers who person gone to a overmuch larger grade up successful coupon successful an effort to make existent income and to screen existent backing costs. We person not done truthful arsenic overmuch arsenic they have, successful fact, much, overmuch less.

One point I will constituent retired here, if you look astatine our position connected 30 years, beautiful overmuch 30-year 3, 3.5, 4 and 4.5, astir of those positions did not alteration complete nan people of nan 4th fourth different than pay-downs. But we did adhd astir 400 cardinal to our position successful 5s. And since nan extremity of nan year, we've added to our vulnerability successful 4s by astir 150 million, and we added astir 160 cardinal to 5s. So, we person brought nan coupon off, arsenic I mentioned to 3.55%. But it still has a overmuch little coupon bias. And then, I would besides mention that nan full portfolio is up astir 400 million.

With respect to our hedges connected nan bottommost of nan page, we person TBA shorts of 675 million. That's nan number I was referencing erstwhile I said our economical leverage ratio was little than our GAAP. We've added to that since year-end, it's now astir 875 million. So, we person a batch of barren powder successful nan shape of TBA shorts that tin beryllium unwound, successful nan arena that nan marketplace turns.

And truthful now, conscionable benignant of giving immoderate much colour connected why we're positioned nan measurement we are, and pinch this little coupon bias. Two things that really mitigate nan negative, if you will, ramifications of owning these little coupons. I mentioned nan truth that we had a batch of hedges, some bequest hedges, successful different words, hedges that were closed, and existing hedges that tin beryllium utilized to offset accrued backing costs. And these numbers conscionable -- aliases these hedges really started to travel into nan money successful nan 2nd half of 2022. And for illustration I did today, and for illustration I did successful nan past quarter, I showed you these numbers that we received successful nan shape of an offset to our liking expense.

Going forward, those numbers are moreover higher, truthful they're higher than they were, successful nan early than they were successful 2022. And what we did is to benignant of do immoderate study astir this, we looked astatine each of our closed hedge positions, and we calculated aliases tabulated nan publication to liking disbursal successful nan future. And then, we took nan 2nd measurement of taking each of our hedges that were successful spot astatine nan extremity of 2022. And assuming they had been closed that day, and past find what use we would deduce from those complete nan remainder of nan hedge periods and underlying them, and past conscionable tabulated them crossed time. And I tin springiness you immoderate numbers. For instance, successful 2023, we person astir $58.5 cardinal disposable to offset liking disbursal successful nan existent year. In 2024, that number goes to $70.2 million. In 2025, it's $77.2 million. And it stays comparatively precocious done nan equilibrium of nan decade. The full is astir $417 cardinal complete nan remaining lives of those hedges. So, that's a large mitigant successful our minds, and is why we are not comfortable trying to pursuit existent income successful nan shape of premium mortgages today. We consciousness we person a batch of this hedge use that we tin utilize.

And nan 2nd logic is that arsenic we do always, we look astatine these finance opportunities from a full complaint of return perspective, truthful not solely focused connected existent income, and we make -- nan little coupon securities which are very easy to hedge because they're afloat extended. We person longer tenor hedges successful place. And we've seen already successful nan 4th fourth and earlier this 4th successful a rally they do very good and we explicate why we deliberation they would proceed to do so. The truth that mortgages are wide and nan truth that money managers thin to tally against indices, which are heavy weighted towards these coupons, we deliberation they connection very bully full complaint of return opportunities. And that's why we want to favour these.

On nan different hand, we position existent coupon mortgages arsenic rather unattractive. And while they mightiness connection existent -- precocious existent income, they would astir apt grounds highly mediocre convexity. In a rally, they're going to execute poorly, because they're going to short, because they are -- nan mortgages are going to beryllium nan astir readily refinanced. These are recently originated loans, they person caller documents, they would beryllium nan lowest hanging consequence and prepay fast. In nan arena of our sell-off, they're going to expand. As a result, pinch that horrible convexity, they're very challenging to hedge, and nan costs of hedging would beryllium high.

So again, erstwhile I talk astir their evident existent carry, you person to recognize that erstwhile you spell to hedge that, it materially eats into nan cost. And we don't person akin costs pinch respect to nan coupons that we own. And that's for -- we request to person moreover amended full complaint of return prospects, coupled pinch our bequest hedge liking -- benefit. And we are very comfortable maintaining nan positioning that we person successful spot and we astir apt proceed to do truthful going forward.

One last constituent connected nan positioning, and this is successful a somewhat related vein, pinch respect to superior raising. We were very constructive connected that successful early January and early February, still somewhat, are, possibly a small little truthful and we will astir apt admit that transportation successful this environment’s a small little than bequest assets. But that being said, arsenic I mentioned, if you tin bargain heavy discount mortgages that are afloat extended and hedge them with, for instance, 10-year swaps aliases a guardant starting swap, you tin still fastener successful beautiful charismatic spreads. And successful conjunction pinch nan full complaint of return imaginable of those securities, you still get returns successful nan double-digits. So, they're attractive. And superior raising is surely thing we would consider. And pinch nan astir caller cheapening we've seen nan past 2 aliases 3 weeks, they moreover look much compelling. So, there's decidedly benefits to caller superior being deployed today.

Just moving on, descent 26, this conscionable shows our speeds. On nan bottommost right, you tin spot that our speeds comparative to nan cohorts arsenic we move done 2022 benignant of converge. So, they're much successful statement pinch nan cohort. That being said, speeds successful nan cohorts are each overmuch slower and will astir apt enactment that measurement for immoderate time. So, there's nary mobility that speeds mostly speaking are very debased and apt to enactment that way.

Going done nan equilibrium of nan this deck, descent 28, we show our backing costs successful nan bluish statement versus nan reddish line, which is conscionable our aggregate costs of funds, and you really can't rather spot it, but we besides person 1 period SOFR there, they're beautiful overmuch connected apical of each other, nan reddish and nan grey line. But nan bluish line, you tin spot that spread is ample and growing. And arsenic we've moved into 2023, it's continued to expand. And that again leads to nan benefits of both, our bequest and existent hedges which are very overmuch successful nan money.

And so, that's beautiful overmuch it. One past descent connected nan hedging positions. The apical near are our futures. They are mostly unchanged done nan extremity of nan twelvemonth and early this year. We did rotation them. One waste and acquisition we did do is unwind immoderate of our futures and replaced them pinch a guardant starting swap. With respect to our switch agreements, different than nan 1 we conscionable added, those were unchanged complete nan people of nan quarter. And successful nan bottommost right, we show our swaptions and complaint derivatives. That's wherever we do astir of our move hedging arsenic nan markets move. So nan positions location do alteration much quickly than nan rest. But those are ways but we tin beryllium benignant of nimble, and return advantage of opportunities arsenic they coming themselves successful nan marketplace to benignant of heighten our wide hedge effectiveness.

And past finally, I conscionable want to reason pinch benignant of our outlook, and really we position nan world. Obviously, pinch what's happened of precocious pinch nan information turning astir and going successful nan other direction, which it had been, we're seeing ostentation commencement to reaccelerate, we're seeing wage, nonfarm payrolls are very robust. So, I'm not judge erstwhile nan tightening rhythm is going to end. It’s difficult to person a batch of conviction. But 1 point you tin person condemnation is nan truth that assuming that nan Fed is going to do arsenic they opportunity and proceed to tighten, yet this rhythm will end. And location will beryllium a pivot. We're not judge erstwhile but we are very overmuch looking guardant to that because we deliberation we're very overmuch very good positioned to return advantage of that successful galore ways. We tin get done this environment, arsenic I mentioned, for nan reasons we conscionable discussed. And we for illustration nan upside erstwhile and if that happens. We person one, imaginable for NIM description if to nan grade that nan fed eases; we besides person each of our important hedge positions, which are going to support our NIM, which would do truthful moreover much successful nan arena of a Fed tightening -- aliases easing. But we besides person book worth description potential. The existent coupon mortgages are wide. We don't cognize really overmuch they tin tighten. They whitethorn aliases whitethorn not get backmost to humanities norms, but they are very wide comparative to those. And besides vol could normalize, which again would beryllium adjuvant successful bringing spreads in, nan vol is very elevated.

The different point is -- 2nd constituent would beryllium our vulnerability to afloat index, extended debased coupon mortgages, which we deliberation tin do very good successful a rally. And nan truth that we person a debased economical leverage ratio, which we tin easy summation by 2 aliases 2.5 turns to return advantage of that. And we don't person immoderate vulnerability to precocious coupon premiums, which we deliberation would beryllium formed very severely erstwhile and if nan Fed pivots. So for each of those reasons, we deliberation we person nan imaginable for very bully book worth capacity and NIM description .

And then, 1 last insignificant point, I would conscionable opportunity that, to nan grade we do person a downturn successful nan economy, you would expect agency mortgages to execute connected a comparative ground rather well, conscionable because we person nary in installments exposure. And you could spot immoderate in installments widening successful different sectors.

So for each those reasons, we are cautiously optimistic connected nan market. As I said, we don't really cognize erstwhile nan marketplace is going to turn, erstwhile nan Fed’s going to pivot. But nan much they tighten, nan much they person to constrain economical activity, conscionable benignant of increases nan chances that it will yet move complete and they'll beryllium successful. And erstwhile they do, we guidelines to use from that environment. So, that's benignant of it. Operator, pinch that we tin unfastened nan telephone up to questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first mobility will travel from nan statement of Jason Stewart pinch JonesTrading. Please spell ahead.

Jason Stewart

Thanks for taking nan question. And I admit each nan comments connected nan portfolio, particularly connected nan coupon stack. Do you person a thought connected wherever earthy turnover is successful nan marketplace today?

Robert Cauley

It's, I would say, azygous digits. The 1 point that I'll opportunity astir that is that successful nan past erstwhile personification asked you that question, you would look to immoderate discount information location was, and location typically would only beryllium one, possibly two, and say, okay, what is 2 aliases three-year old, Fannie aliases Freddie X. And what's it prepaying? And that's my proxy for turnover. Well, now, nan full beingness is simply a discount, and we person seasoning. But it seems that everything is tending towards mid to moreover low-single-digits. Some of nan debased indebtedness equilibrium pools that are seasoned, arsenic discounts tin prepay astir 10 -- 8 to 10. But that's nan range, I would say, telephone it 3 to 10, depending connected security, but very low.

Jason Stewart

Yes. Okay. And then, erstwhile you return that into -- going down nan coupon stack, and related to superior allocation, what's much attractive, nan dividend, banal buybacks? How should we deliberation astir that equation successful your mind?

Robert Cauley

Well, we did do immoderate stock buybacks successful nan 4th quarter, astir 2.5 cardinal shares. Weighted mean value was for illustration 9.30. So, erstwhile we're astatine a 90%, that's benignant of our period book. When we get beneath that, we commencement reasoning astir buybacks. I deliberation erstwhile we did those, we were person to 80%. So, 90 to 100 is nan grey area. If we're successful nan high-90s and nan finance opportunities are very good, we whitethorn moreover rumor shares. Obviously, for supra book and nan finance opportunities are decent, we will rumor shares. And then, we get beneath 9, past we commencement reasoning of buying backmost shares. But we deliberation nan little coupons, moreover 5 CPR for life, which you whitethorn not recognize for nan adjacent six months, but for life, nan yields connected those are still 100 complete bridges 10-year switch aliases much depending connected which coupon you buy, 3 aliases 3.5 aliases 4. So, those are not bad returns, pinch decent imaginable for value related performance. So, you tin get full returns successful nan double-digits. It whitethorn conscionable not beryllium each successful nan shape of existent carry, but you whitethorn recognize that transportation down nan roadworthy conscionable won't beryllium beforehand loaded.

Hunter Haas

And pinch tremendous upside to nan grade that rates move, they're overmuch easier to hedge into a sell-off. And to nan grade that we rally and spreads tighten moreover further, which we would expect, a batch of that dispersed long is going to play retired done a longer rate travel and we would enactment and spot a imaginable use location arsenic well.

Operator

Our adjacent mobility will travel from nan statement of Mikhail Goberman pinch JMP Securities. Please spell ahead.

Mikhail Goberman

Good morning. I dream you gentlemen are doing well. Those extended comments beautiful overmuch covered each nan questions that I had successful nan mobility of buybacks versus stock issuance was conscionable covered arsenic well. I conscionable person a mobility astir if you could supply a existent book worth estimate. That's it for me.

Robert Cauley

Yes. I meant to mention that. Using nan mark-to-market connected nan portfolio and hedges, we were up astir 10% astatine nan extremity of January. So obviously, we had a bully tally successful January. We had a batch of debased coupon exposure. But pinch nan sell-off, since past we've fixed up astatine slightest half of that. My astir caller estimate, again, conscionable utilizing mark-to-market of nan portfolio, it's not a purely GAAP number, we were astir 4% year-to-date. So, we gave backmost a small complete half of that. We'll spot what nan early holds. But truthful far, we're up connected quarter.

Operator

Your adjacent mobility will travel from nan statement of Christopher Nolan pinch Ladenburg Thalmann. Please spell ahead.

Christopher Nolan

Hey Bob. Could you springiness a small item arsenic to nan logic down nan accrued TBA short position, please?

Robert Cauley

Yes. What we did location was, arsenic I mentioned successful January, for illustration nan very earliest days of February, little coupons had a really bully run, performed very well. And we conscionable it was benignant of a measurement to fastener successful immoderate gains, if you will, beautiful much. Hunter, do you want to adhd to that? But that was benignant of...

Hunter Haas

No, I deliberation that's nan instrumentality that -- a lever, I guess, that we'll usage to nan grade that we deliberation a definite coupon, conscionable nan TBA successful wide has had a outsized run, we will put immoderate long related hedges connected successful nan shape of TBA shorts, and successful lieu of different complaint hedges. So it's really much of a ground trade. And pinch our precocious vulnerability to Fannie 3s, it's conscionable thing that -- I don't expect to beryllium location forever, but mortgage, for illustration we said, owe did awesome successful nan 4th quarter. Even, it continued -- that continued into nan first quarter. And so, we lagged successful a small spot much to our bases hedge. And to nan grade that we spot things spread wider, which we have, we whitethorn reallocate to rates.

Christopher Nolan

Okay. I conjecture my follow-up mobility turns connected nan dividend. I cognize it was decreased this quarter. And fixed that nan marketplace has been -- I mean, nan liking complaint marketplace has been truthful topsy-turvy and everything else. Given that and fixed your comments successful position of each nan taxable transportation guardant you have, what's your reasoning of nan sustainability of nan existent dividend?

Robert Cauley

We spot it arsenic sustainable, and arsenic I mentioned. We were a small short successful 4th quarter, but that's conscionable purely connected an income basis. The portfolio's full return was overmuch higher than nan dividend because we had nan value appreciation that we had. And I besides mentioned that nan hedges really started to footwear in, successful nan 2nd half of 2022. They really do truthful this year. So, we've sewage that important tailwind, truthful to speak astatine our backs. And moreover pinch these little coupons, while they not screen nan dividend successful and retired of themselves, successful conjunction pinch nan benefits of nan hedge -- bequest hedge plus and nan truth that they person specified awesome full complaint of return potential, moreover if there's a humble shortcoming -- shortfall successful nan near-term, which I'm not judge that would be, we still position this arsenic overmuch much desirable. I deliberation it's -- Hunter mentioned, it's very challenging to effort to -- successful my mind, beryllium myopic and effort to conscionable spell up and coupon and seizure much liking income, because that's fleeting. It's really not what you deliberation it is, because those assets are highly difficult and truthful costly to hedge pinch mediocre full complaint of return prospects.

Hunter Haas

Yes. I think, conscionable to chime successful connected that, I deliberation this is conscionable an situation that's much analyzable than conscionable looking economical income aliases NIM. There's a batch of income that is not quantified successful nether that much simplistic measurement of looking astatine things. For example, successful nan heavy discounts, successful our portfolio, each of nan pay-downs to nan grade that they are 12 to 14 points aliases accretive to america successful adjacent worth terms, that's really to maine -- erstwhile I deliberation astir these assets, that's an income component, but it shows up successful a adjacent worth adjustment. So it's really difficult to disaggregate those changes successful marketplace value. A batch of that -- book worth appreciation that we saw successful January and year-to-date and successful December, comes from nan truth that there's a affirmative rotation up constituent successful our hedges, there's a propulsion nan par and our heavy discounts that we own. So looking astatine things done nan accepted lens of conscionable NIM aliases economical income is simply a small spot challenging successful this environment.

Operator

[Operator Instructions] We person nary further questions astatine this time. I'll move nan convention backmost complete to guidance for immoderate closing remarks.

Robert Cauley

Thanks, operator, and convey you everybody for your time. To nan grade further questions travel up, please consciousness free to telephone america successful nan office, aliases to nan grade that you aren't capable to perceive to nan telephone unrecorded and want to telephone america afterwards, aft perceive to a replay, nan number successful nan agency is 772-231-1400. We’re ever consenting and capable to return your questions. Otherwise, person a bully time and person a bully weekend. Thank you.

Operator

That concludes today's meeting. Thank you each for joining. You whitethorn now disconnect.