Orchid Island Capital Q2 Earnings Call Highlights

Orchid Island Capital (NYSE:ORC) reported second-quarter 2026 earnings of $0.44 per share, compared with a loss of $0.11 per share in the first quarter, as book value and total return improved during the period. Controller Jerry Sintes said book value rose to $7.22 per share at June 30 from $7.08 at the end of the prior quarter. Total return was 6.2% in the second quarter, reversing a negative 1.3% total return in the first quarter. The company paid a quarterly dividend of $0.30 per share, down from $0.36 in the first quarter. The company’s average investment portfolio was $11.4 billion during the quarter, up slightly from roughly $11 billion at the end of the first quarter. Its economic leverage ratio declined to 7.3-to-1 from 7.9-to-1, while liquidity was 53.7%, compared with 54.5% at the end of March. Prepayment speeds slowed to 10.9% from 14.7% in the first quarter. Portfolio shifted toward lower coupons Chairman and Chief Executive Officer Robert Cauley said Orchid made limited changes to its portfolio during the quarter and was not actively raising significant new capital. The company increased its share count by about 1.5%, he said. Orchid’s portfolio is now composed entirely of 30-year securities and is concentrated in mortgage coupons closest to par, including 5%, 5.5% and 6% coupons. Cauley said the largest concentration was in 5.5% securities. The company moved its portfolio modestly toward lower coupons, citing weaker recent performance from specified pools and low refinancing activity. Cauley said the shift offered lower absolute dollar prices and payups, as well as potential upside should rates decline. The repositioning reduced the portfolio’s average coupon by about 6 basis points. Orchid’s economic net interest spread narrowed by the same amount, reflecting a 1-basis-point decline in portfolio yield to 5.74% and a 5-basis-point increase in economic funding cost. “Not a lot changed,” Cauley said of the quarter’s portfolio activity, characterizing the moves as fine-tuning rather than a major repositioning. Hedge coverage increased as rate uncertainty rose Orchid expanded its hedge positions during the quarter, adding five-year and 10-year interest-rate swaps. The company’s hedge coverage rose to 91% of repo funding at the end of the second quarter, from 72% at the end of the first quarter. Swap notional increased to about $10.1 billion from approximately $7.9 billion. Swaps covered 70% of repo funding, compared with 65% in the prior quarter. The weighted average fixed-pay rate on swaps was 3.61%, up modestly as Orchid added hedges in a higher-rate environment. Cauley said the company also increased short TBA positions and added a swaption position, using long and short positions to reduce the net premium cost. He said the portfolio’s rate-shock sensitivity was “very flat,” though the company may need to make further adjustments during the remainder of the third quarter as market conditions evolve. In response to an analyst question, Cauley said the elevated hedge coverage should provide substantial protection if short-term funding rates rise. However, because the company is not fully hedged, some increase in funding costs could still affect economic returns and, potentially, the dividend depending on asset yields. Management cited higher volatility, mortgage cheapening Cauley said market developments following the quarter had increased uncertainty around interest rates, the economy and Federal Reserve policy. He pointed to a flatter yield curve, more negative swap spreads and heightened uncertainty related to the war in the Middle East. He said mortgage volatility had risen following a spike around February, although the MOVE Index remained within the high end of its range since March as of the prior day’s close. Cauley also said re...