Orchid Island Capital, Inc. 2025 Annual Report: Key Insights for Investors

Executive Overview

Orchid Island Capital, Inc. (“Orchid” or the “Company”) is a specialty finance company focused on investing in residential mortgage-backed securities (RMBS), specifically Agency RMBS. These securities are backed by single-family residential mortgage loans, and their principal and interest payments are guaranteed by government-sponsored enterprises (GSEs) such as Fannie Mae, Freddie Mac, and Ginnie Mae. The Company’s portfolio consists of both traditional pass-through (PT) Agency RMBS and structured Agency RMBS, including IOs (interest-only) and IIOs (inverse interest-only).

Key Points and Business Strategy

• Investment Strategy: Orchid’s objective is to deliver attractive risk-adjusted long-term returns through capital appreciation and monthly distributions. The Company invests in PT Agency RMBS and structured Agency RMBS. Income is generated from net interest margin on leveraged portfolios and interest from unleveraged structured RMBS. The Company aims to minimize volatility in net asset value and income through asset selection, liquidity management, and interest rate risk mitigation.
• Capital Allocation: The Company uses leverage, primarily through repurchase agreements (repos), to finance PT Agency RMBS and certain structured RMBS. Structured RMBS with no principal balance (e.g., IOs, IIOs) are generally unleveraged due to their inherent structural leverage.
• Asset Categories: Orchid targets PT Agency RMBS (including specified pools and CMOs), structured Agency RMBS (IOs, IIOs), TBAs (to-be-announced securities), and assets that support REIT qualification and Investment Company Act exemption.
• Risk Management: The Company employs hedging strategies such as interest rate swaps, caps, options, futures, and TBAs to mitigate interest rate risk and prepayment risk. Portfolio composition is actively managed to reduce the impact of margin calls and liquidity stress.
• Liquidity Management: Orchid maintains cash balances and unencumbered assets well above anticipated margin calls and actively manages collateral to minimize lender demands. Strategies include deploying capital between leveraged and unleveraged portfolios, investing in TBAs, and reducing overall leverage when necessary.
• Tax Structure: Orchid has elected to be taxed as a REIT, requiring annual distribution of at least 90% of taxable income to shareholders. Failure to maintain REIT status would result in significant tax liabilities.
• Investment Company Act Exemption: The Company operates under Section 3(c)(5)(C) exemption, focusing on qualifying real estate assets. Changes in SEC guidance could impact eligibility.
• Human Capital: Orchid has no direct employees; it is externally managed by a third-party manager under a management agreement.
• Competition: The Company competes with a broad array of institutional investors—other REITs, insurance companies, mutual funds, banks, and even the Federal Reserve—for Agency RMBS. Competition may lead to higher prices and lower yields.
• Distributions: To maintain REIT status, Orchid intends to continue monthly dividend payments.

Potentially Price-Sensitive Information

• Dividend Announcements: The Company declared two dividends of \$0.12 per share to be paid in February and March 2026. While these are recorded in tables, they are not yet reflected in financial statements as of December 31, 2025. Regular dividends are crucial for income-focused investors and may be price sensitive.
• Risk Factors: The report highlights several risks that may impact the Company and its share price:
  • Rising interest rates may decrease the value of investments, increase borrowing costs, reduce earnings, or cause losses. This could negatively impact dividend payments and share value.
  • Higher rates may reduce the volume of new Agency RMBS and investor demand, making it harder to acquire assets that meet investment objectives.
  • Interest rate mismatches between assets and borrowings could reduce net interest margin during periods of changing rates.
  • Downgrades of the U.S. credit rating, government shutdowns, or fiscal instability could impact liquidity, financial condition, and earnings.
  • Changes in prepayment rates, volatile market conditions, or contraction in liquidity for mortgages and RMBS could result in losses and affect distributions.
  • Failure to secure adequate repurchase agreement financing or replace maturing financing could adversely impact business and distributions.
  • Changes in SEC guidance regarding Investment Company Act exemptions could affect business structure and compliance costs.
• Outstanding Shares: As of February 19, 2026, Orchid had 190,693,392 shares of common stock outstanding, a key metric for determining market capitalization and shareholder equity.
• Corporate Structure: Orchid is a well-known seasoned issuer and not a shell company. Its common shares, with a \$0.01 par value, are listed on the New York Stock Exchange under the ticker “ORC.”
• Regulatory Compliance: The Company has filed all required reports, submitted Interactive Data Files, and received auditor attestation for internal controls under Sarbanes-Oxley Section 404(b).

Forward-Looking Statements

The report contains numerous forward-looking statements regarding the Company’s strategy, expected operating results, ability to acquire investments, effect of government actions, prepayment rates, access to capital markets, future financing, hedging strategies, market trends, ability to make distributions, maintain REIT status, exempt status under the Investment Company Act, maintain NYSE listing, and the impact of geo-political events and technology. Investors should exercise caution as actual results could differ materially due to various risks and uncertainties.

Conclusion: What Shareholders Need to Know

• The Company’s ability to maintain stable dividends is dependent on interest rates, prepayment rates, and liquidity in the RMBS market.
• The competitive landscape for Agency RMBS is intense, potentially pressuring yields and affecting profitability.
• Regulatory changes, particularly regarding REIT status and Investment Company Act exemptions, could materially affect business operations and compliance costs.
• The Company’s leveraged strategy exposes it to margin call and liquidity risks, which could force asset sales at unfavorable prices and impair shareholder value.
• Rising rates or fiscal instability (e.g., government shutdowns, credit rating downgrades) could negatively impact earnings, liquidity, and dividend payments.
• Forward-looking statements are subject to change based on unpredictable market conditions, regulatory actions, or economic events.

Disclaimer

This article summarizes Orchid Island Capital, Inc.’s 2025 Annual Report for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. Forward-looking statements are subject to risks and uncertainties, and actual outcomes may differ materially. Investors should review the full report and consult their financial advisors before making any investment decisions.

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