Orchid Island Capital Swings to a $178.9 Million Loss
Book value fell to $6.02 a share after $231.7 million of net realized and unrealized losses on Agency RMBS and hedges.
Orchid Island Capital, Inc. (ORC), a real estate investment trust that invests on a leveraged basis in Agency residential mortgage-backed securities, reported a net loss of $178.9 million, or $0.90 a share, for the three months ended September 30, 2026, reversing net income of $89.2 million, or $0.44 a share, in the prior quarter.
The swing came from a $231.7 million, or $1.17 a share, net realized and unrealized loss on RMBS and derivative instruments, including net interest income on interest rate swaps, after $36.0 million of net gains in the second quarter. Net interest income was $59.1 million, or $0.30 a share. Total expenses were $6.3 million, or $0.03 a share.
Book value per common share fell $1.20 to $6.02, producing a total return of (12.47)% versus 6.21% in the second quarter. The company declared and paid third-quarter dividends of $0.30 a share.
Chairman and Chief Executive Officer Robert E. Cauley said the quarter presented very challenging market conditions, with a significant increase in interest rates and U.S. Treasury yields at levels last seen in the early 2000s. He said the Agency RMBS market was particularly impacted, with widespread deleveraging and forced selling and higher implied interest-rate volatility.
Going into the sell-off, Cauley said, Orchid had hedge coverage at over 90% of funding levels and a high-coupon bias. To counteract leverage expansion as book value declined, the company increased hedge notional balances to near 100% coverage and extended hedge duration rather than relying solely on asset sales. It used modest asset sales of less than $400 million and monthly pay-downs to limit leverage expansion.
Interest income on the portfolio was down approximately $0.1 million from the second quarter. Yield on average Agency RMBS rose slightly from 5.74% to 5.91%. Repurchase agreement borrowing costs increased from 3.80% to 3.92%.
Scheduled and unscheduled principal repayments and prepayments were $306.0 million, a 3-month constant prepayment rate of approximately 8.4%, down from 10.9% in the quarter ended June 30, 2026.
Total mortgage assets had a fair value of $10,667.1 million at September 30, 2026, with a weighted average coupon of 5.51% and weighted average maturity of 333 months. Effective duration of the RMBS portfolio was 4.327, versus 2.513 at December 31, 2025.
Outstanding repurchase obligations were approximately $10.4 billion, with a net weighted average borrowing rate of 3.99%. Adjusted leverage was 8.8 to 1 and economic leverage 8.6 to 1. Liquidity of cash and cash equivalents and unpledged securities was $515.7 million, or about 44% of stockholders’ equity, down from $776.0 million, or about 54%, at June 30, 2026. Borrowing capacity in excess of outstanding repurchase balances remained spread across 33 active lenders.
The company repurchased 4,946,123 shares in the third quarter at an aggregate cost of about $31.2 million and a weighted average price of $6.30 a share. After quarter-end it bought 1,669,704 shares at about $8.4 million and $5.05 a share. Remaining authorization was 19,996,753 shares as of October 22, 2026. Shares outstanding were 194,661,864 at September 30, 2026.
Cauley said the objective was to maximize book-value recovery potential if spreads recovered and/or rates decreased and to sustain the dividend. He said higher-coupon, low-premium specified pools should provide enhanced income potential in a slow-prepay environment, with the majority of the portfolio now priced below par, and that nearly 100% hedge coverage buttresses earnings potential. He said the company was quite comfortable with its positioning to the extent the market had fully stabilized.
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