In a notable development for the Company, while overall risk assets have shown signs of recovery following a tumultuous period earlier in the quarter, the Agency RMBS sector has not completely bounced back, particularly when compared to similar duration hedges. This lack of recovery resulted in negative excess returns for the quarter. In response to the challenging market environment in early April, the Company took proactive measures to reduce its balance sheet to maintain prudent leverage levels, which did incur some modest permanent losses. The Agency RMBS market continued to struggle into the third quarter, yet the available returns remain appealing. During the second quarter, the Company expanded its capital base while keeping leverage at the lower end of its historical range. As a result, Orchid is optimistic about its positioning to seize the attractive returns currently available in the market, especially if the Agency RMBS sector rebounds from the widening experienced in the previous quarter.
Overview of Second Quarter 2025 Operational Results
For the three-month period ending June 30, 2025, the Company reported a net loss of $33.6 million, a stark contrast to the net loss of $5.0 million during the same period in 2024. Interest income from the portfolio increased by approximately $11.2 million compared to the first quarter of 2025. The yield on the average Agency RMBS slightly decreased from 5.41% in the first quarter of 2025 to 5.38% in the second quarter, while borrowing costs associated with repurchase agreements dropped from 4.29% to 4.23% during the same time frame. The book value per share fell by $0.73 in the second quarter, reflecting a net loss of $0.29 per share and a dividend distribution of $0.36 per share. The Company also recorded net realized and unrealized losses totaling $51.7 million on its Agency RMBS assets and derivative instruments, including net interest income from interest rate swaps.
Prepayment Details
During the quarter ending June 30, 2025, Orchid received $199.2 million in scheduled and unscheduled principal repayments and prepayments, leading to a three-month constant prepayment rate (CPR) of around 10.1%. Prepayment rates across the two RMBS sub-portfolios are summarized as follows (in CPR): Structured RMBS at 10.1%, PT RMBS at 6.3%, and the combined portfolio also at 10.1%. For comparison, the rates from previous quarters were 7.8%, 4.5%, and 7.8% for March 31, 2025, and 10.6%, 7.0%, and 10.5% for December 31, 2024, respectively.
Portfolio Characteristics
The following tables outline key characteristics of Orchid’s PT RMBS and structured RMBS as of June 30, 2025, compared to December 31, 2024: ($ in thousands) Weighted Average Maturity, Fair Value, and other metrics are detailed. As of June 30, 2025, the Company held $6,978,561 in fixed-rate RMBS, comprising 99.8% of the portfolio with an average coupon of 5.45% and a weighted average maturity of 333 months. Additionally, interest-only securities amounted to $14,550, while inverse interest-only securities totaled $248. The total mortgage assets reached $6,993,359.
Financing, Leverage, and Liquidity
As of June 30, 2025, the Company had approximately $6.7 billion in outstanding repurchase obligations, with a net weighted average borrowing rate of 4.48%. These agreements were secured by RMBS with a fair value of around $7.0 billion, along with approximately $7.9 million in cash pledged to counterparties. The adjusted leverage ratio, which measures repurchase agreement liabilities against stockholders’ equity, stood at 7.3 to 1. The Company maintained liquidity of about $492.5 million, consisting of cash, cash equivalents, and unpledged securities. To enhance liquidity further, the Company may consider pledging more structured RMBS as part of a repurchase agreement funding strategy.
Hedging Strategy
To manage interest rate risk, the Company implements an economic hedging strategy that includes derivative financial instruments to offset a portion of repurchase agreement funding costs against rising interest rates. The Company did not elect hedging treatment under U.S. GAAP, which aligns the accounting treatment of derivative instruments with portfolio assets under the fair value option. As of June 30, 2025, the hedging instruments included U.S. Treasury note futures, interest rate swap agreements, and contracts to sell to-be-announced (TBA) securities.
Dividends and Book Value
To qualify as a Real Estate Investment Trust (REIT), the Company must distribute at least 90% of its taxable income as dividends, not considering the dividend deduction. Since its initial public offering (IPO) in February 2013, the Company has consistently paid monthly dividends to its stockholders. As of June 30, 2025, the Company’s book value per share was calculated at $7.21, determined by dividing total stockholders’ equity by the number of outstanding common shares, totaling 126,566,926 shares and an equity value of $912.0 million.
Capital Allocation and Returns on Invested Capital
The Company allocates capital primarily between two RMBS sub-portfolios: the pass-through RMBS portfolio, which includes mortgage pass-through certificates and collateralized mortgage obligations issued by government-sponsored enterprises (GSEs), and the structured RMBS portfolio, comprising interest-only and inverse interest-only securities. As of June 30, 2025, about 98.1% of the Company’s investable capital was allocated to the PT RMBS portfolio, reflecting a slight increase from 97.9% at the end of the previous quarter. The return on invested capital for the PT RMBS and structured RMBS portfolios was approximately (4.1)% and 3.5%, respectively, leading to a combined return of approximately (4.0)%.
Stock Offerings and Repurchase Program
On March 7, 2023, the Company initiated an equity distribution agreement that allowed for the offering and sale of up to $250 million in common stock. This resulted in the issuance of 24,675,497 shares, generating gross proceeds of around $228.8 million. Subsequent agreements in June 2024 and February 2025 allowed for further capital generation through additional share issuances. The Company also has an ongoing stock repurchase program, which authorizes the repurchase of shares based on market conditions. Since the program’s inception, a total of 6,257,826 shares have been repurchased at an aggregate cost of approximately $84.8 million.
Upcoming Earnings Conference Call
A conference call to discuss earnings results will take place on July 25, 2025, at 10:00 AM ET. Participants can register to receive dial-in information, and a live audio webcast will also be available. An audio archive will be accessible for 30 days post-call.
Company Overview
Orchid Island Capital, Inc. is a specialized finance entity that invests on a leveraged basis in Agency RMBS. Its investment strategy is centered on two categories of Agency RMBS: traditional pass-through RMBS and structured RMBS like interest-only and inverse interest-only securities. The Company is managed by Bimini Advisors, LLC, a registered investment adviser with the SEC.
Forward-Looking Statements
This report includes forward-looking statements related to expectations regarding interest rates, liquidity, portfolio composition, hedging strategies, and market conditions. Such statements are based on current information and management’s beliefs and are subject to various risks and uncertainties that could result in actual outcomes differing from those anticipated. Important factors affecting these statements are detailed in the Company’s filings with the SEC.
Summarized Financial Statements
The following is a summarized presentation of the unaudited balance sheets as of June 30, 2025, and December 31, 2024, along with the unaudited quarterly statements of operations for the six and three months ended June 30, 2025, and 2024. These financial figures are subject to change.
