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Jun 30, 2022
Orchid Island Q2 2022 Earnings Report
Orchid Island Capital reported a net loss for Q2 2022 due to losses on RMBS and derivative instruments, but sees potential for outperformance in Agency RMBS due to wide spreads and favorable convexity.
Key Takeaways
Orchid Island Capital reported a net loss of $60.1 million for the second quarter of 2022, driven by net realized and unrealized losses of $82.3 million on RMBS and derivative instruments. Despite the loss, the company believes its portfolio is well-positioned for the second half of 2022 due to favorable convexity and the potential for outperformance in Agency RMBS.
Net loss of $60.1 million, or $0.34 per common share
Net interest income of $27.1 million, or $0.15 per common share
Second quarter total dividends declared and paid of $0.135 per common share
Book value per common share of $2.87 at June 30, 2022
Forward Guidance
Company expects the Fed to continue to raise the Fed Funds rate and tighten financial conditions until inflation appears to moderate sufficiently.
Positive Outlook
- Lack of any credit risk in the Agency RMBS market should lead to relative outperformance for the sector given the very wide spreads available currently.
- Orchid’s existing portfolio of discount securities retains very favorable convexity, particularly in a decreasing rate environment.
- The duration, or rate sensitivity, of the securities should not decline materially if rates were to decrease.
- Agency RMBS have performed very well so far in the third quarter.
- Agency RMBS have reversed most of the widening that occurred in June of 2022.
Challenges Ahead
- Increases in the Fed Funds rate are likely to affect economic activity, and the Fed has acknowledged their actions may lead to a recession.
- Sectors of the economy most sensitive to interest rates – such as housing – have already started to slow and other economic indicators have shown evidence of slowing as well.
Historical Earnings Impact
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Avg. Return Before/After Earnings
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