Orchid Capital's Q2 Loss Raises Concerns About RMBS Strategy

Orchid Island Capital reported a net loss of 29 cents per share for Q2 2025, including 45 cents per share of net realized and unrealized losses on RMBS and derivative instruments. The company's RMBS portfolio remains its strength, but its structure amplifies exposure to interest rate risk. Orchid's book value and total return are likely to decline due to net realized and unrealized losses. The company trades at a forward price-to-tangible ratio of 1.03X, above the industry's average of 1X. Estimates for 2025 and 2026 have been unchanged over the past 30 days.

Orchid Island Capital (NYSE: ORC) has released its estimated results for the second quarter of 2025, revealing a net loss of $0.29 per share. This loss includes an estimated $0.45 per share of net realized and unrealized losses on residential mortgage-backed securities (RMBS) and derivative instruments. The company's book value per share declined to $7.21 as of June 30, 2025, a 9.2% decrease from the previous quarter's $7.94 [1]. The total return on equity for the quarter was -4.7%, reflecting a significant decrease in book value per share of $0.73 [1].

Despite the financial challenges, Orchid Island Capital maintained its monthly dividend at $0.12 per share for July 2025. This dividend, payable on August 28, 2025, equates to an annualized distribution of $1.44. However, the sustainability of this dividend is questionable given the quarterly dividend obligation of $0.36 substantially exceeded the negative earnings for the period [1].

The company's outstanding share count increased from 107.8 million on March 31 to 126.6 million on June 30, 2025, suggesting potential capital raising activities. This expanded equity base might provide some stability, but it also highlights the dilution occurring alongside declining per-share values [1].

Orchid Island Capital's focus on Agency-backed RMBS reduces credit risk but makes the portfolio vulnerable to interest rate fluctuations and prepayment risk. The company's forward price-to-tangible ratio of 1.03X is above the industry's average of 1X, indicating that investors are pricing in potential risks [2].

Estimates for 2025 and 2026 have remained unchanged over the past 30 days, reflecting investor expectations of continued challenges. Orchid Island Capital must distribute at least 90% of its taxable income to maintain its REIT status, but the company has not established a guaranteed minimum distribution level, signaling potential future dividend adjustments if performance doesn't improve [1].

References:
[1] https://www.stocktitan.net/news/ORC/orchid-island-capital-announces-estimated-second-quarter-2025-jrgfrx8vqndq.html
[2] https://seekingalpha.com/news/4466302-orchid-island-sees-gaap-net-loss-for-q2-reflecting-rmbs-derivative-losses
[3] https://finance.yahoo.com/news/orchid-projects-loss-q2-rmbs-174900543.html