Orchid Island Capital Announces Third Quarter 2026 Results

Robert E. Cauley, Chairman and Chief Executive Officer of Orchid Island Capital

“The third quarter of 2026 presented very challenging market conditions as we witnessed a significant increase in interest rates across the globe. Benchmark U.S. treasury yields reached levels last seen in the early 2000s. The Agency RMBS market was particularly impacted and there was widespread deleveraging and forced selling, with implied interest rate volatility spiking higher as well. Going into the sell-off Orchid had hedge coverage at over 90% of our funding levels and a high coupon bias which proved beneficial as higher coupons generated better absolute returns – or less negative – during the period. To counteract the leverage ratio expansion as our book value declined, we opted to focus on our hedges by both increasing both the notional balances – to near 100% coverage – and duration of our hedges versus solely relying on asset sales. Secondly, we used a combination of modest asset sales – less than $400 million – and retaining our monthly pay-downs to limit the leverage expansion. We took advantage of the depressed stock price to repurchase approximately 6.6 million shares to date since the end of the second quarter and did so strategically when the stock price was trading at a significant discount to our book value. Throughout the quarter we were able to maintain ample liquidity. “Our objective was to maximize our book value recovery potential if spreads recovered and/or rates decreased and to sustain the dividend. To the extent our funding levels increase as a result of Fed interest rate hikes, our higher coupon, low premium specified pools should provide enhanced income potential in a slow prepay environment - even more so with the majority of the portfolio now priced below par, allowing for discount accretion. Further buttressing our earnings potential is our nearly 100% hedge coverage. While the cost of our funding hedges has increased modestly with the expansion of the notional balance and duration of the hedge book, the asset yields will be higher across the entire portfolio, offset to some extent by the slight 6.7% reduction in the portfolio size we experienced. To the extent the market has fully stabilized now, we are quite comfortable with our positioning.”