Good day. Thank you for standing by. Welcome to the Orchid Island Capital Second Quarter 2026 Earnings Call. At this time, all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advise your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Melissa Alfonso, investor relations. Please go ahead. Good morning. Welcome to the second quarter 2026 earnings conference call for Orchid Island Capital. This call is being recorded today, July 24th, 2026. At this time, the company would like to remind the listeners that statements made during today's conference call relating to matters that are not historical facts are forward-looking statements subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Listeners are cautioned that such forward-looking statements are based on information currently available and the management's good faith belief with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in such forward-looking statements. Important factors that could cause such differences are described in the company's filings with the Securities and Exchange Commission, including the company's most recent annual report on Form 10-K. The company assumes no obligation to update such forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting forward-looking statements. I'd like to turn the conference over to the company's Chairman and Chief Executive Officer, Mr. Robert Cauley. Please go ahead, sir. Thank you, Melissa. Good morning. I hope everybody's had a chance to download our deck. As usual, we will be focused on the deck for the call. Just to begin, on slide three, we just have our table of contents. The first order of business will be our Controller, Jerry Sintes, will go over our financial results. I'll go over the market developments that occurred during the quarter. These are what shaped our decision-making and our results. We'll go through the portfolio characteristics, hedge positions, and then also our kind of positioning going forward and our outlook on the market. With that, I will turn it over to Jerry. Thank you, Bob. If we turn to page five, we'll start with the financial highlights for the quarter. During Q2, we earned $0.44 per share. That compares to a loss of $0.11 during Q1. Book value at the end of the quarter was $7.22 compared to $7.08 at the start of the quarter. Total return during the quarter was 6.2% compared to -1.3% in the previous quarter. Our dividend during Q2 was $0.30, which we reduced from $0.36 during Q1. On page six, we'll go over some portfolio highlights. Our average portfolio was $11.4 billion during Q2, up slightly from approximately $11 billion at the end of Q1. Economic leverage ratio at the end of Q2 was 7.3:1 compared to 7.9:1 at the end of Q1. During Q2, we experienced prepayment speeds of 10.9% compared to 14.7% in Q1. Our liquidity is down slightly to 53.7% compared to 54.5% at the end of Q1. With that, I'll turn it back over to Bob to discuss market developments. Thanks, Jerry. I'll start on slide nine. A picture's worth a thousand words. If you look at the top left side of the page, you can see the movement in the curve from year-end, which is the red line. The green line is June 30th. The blue line is last Friday. As we all know, the market has moved quite a bit since then. If you were to put in a line for today, it would be above the blue line. Basically, what has changed? A couple of things. The first was we had a change at the head of the Fed. As you recall, when Fed Chairman Powell left his last meeting, there were three dissent at his meeting in favor or against retaining the easing bias. Kind of a hawkish development. We had the transition in May to Kevin Warsh, and he is very strongly against inflation. In fact, he stated that the fact that inflation has been running above the Fed's target for five years is unacceptable, and he intends to do everything he can to bring it into line. When that type of development occurs, obviously it's going to push the front end higher because the market's going to price in Fed hikes, which is the case. Also from the perspective of the long end of the curve, to the extent the Fed is more hawkish, fighting inflation tends to do well. In fact, on the day of that press conference, the long bond actually was slightly up in price. Both of those forces tend to flatten the curve. In case that's exactly what we've seen. The curve has flattened, and it may continue to flatten depending on how events related to the war unfold and how those events affect the domestic economy. If you look at the swap curve, obviously the only difference between the swap curve and the one on the left, which would be the nominal curve, are swap spreads. Over the last month, swap spreads have been moving more negative, which actually increases the spread between the two curves. The convention is to refer to that as tightening. Swap spreads have tightened, pushing the swap curve down, and it's actually flattened it even more. If you look back on a long horizon, it's actually relatively unchanged, kind of in the middle of the range, but the development of late has really pushed the swap curve down even more. Moving on to slide 10, some more mortgage generic slides. If you look at the top of the page, this is kind of a long-term look back all the way to 2010. This is just the current coupon spread of the 10-year Treasury. As you can see, in early 2023 or mid-2023, actually May of 2023, we kind of hit it at the time, an all-time high spread. Over the next three years, we've been on a tightening trend. It seems like we have leveled off. It's possible this spread tightening is over. Remains to be seen, but it's been on quite a long run here that's been very favorable for mortgages. Looking on the bottom left, you can see just the normalized price changes of various TBA coupons. As you can see at the end of the quarter, with the exception of the highest coupon six, they were all negative. These are price returns only. The absolute returns for those TBAs were actually positive. The lowest return was about 0.2%, and higher belly coupons were a little over 1%. Looking on the right-hand side of the page, these are dollar rolls. Two things. You can see none of them are particularly attractive other than the six roll at the moment. What we've observed over the last several months is when these rolls get hot, tends to be driven by short-term technical factors. They don't tend to persist, and even in the case of the six, you can see that's what's going on. There can be any number of factors driving that. It could be CMO desk demand for the front-month production to use to create CMOs, or it just can be somebody trying to squeeze a certain coupon. Otherwise, the dollar roll market is not terribly attractive and certainly nothing like it was during the days of QE. Moving on to some of the other variables that affect us. Obviously, volatility is very important for mortgage investors. You can see that we've been in a long-term trend where vol was declining going back to Liberation Day in 2025. Obviously, the war caused a significant spike, and you can see that right around February. This is not updated through today. This ends last Friday. It's notable that the closing level of the MOVE Index yesterday was 80, and that really only kind of gets you to the high end of the range that we've been in since March. Still remains to be seen where we go from here, though obviously there's a lot of uncertainty surrounding developments in the Middle East with the war. Moving on. I mentioned earlier on slide 12, this is just swap spreads. They had moved in a positive direction. In other words, less negative. As I mentioned, of late, that has turned around and gone the other way. Yesterday, swap spreads were in anywhere from 0.8 to a little over 1 basis point. In other words, more negative. That affects the performance of swaps as hedges. That's why we mention that on this call. As I said, it's a more recent development. We're not really sure where we go from here. There's just a lot of uncertainty out there. Slide 13 just gives you the backdrop for the refi or prepayment mark level. As you can see on the top left, on the bottom line there, that's just the refi index. We've been very stable at a very low level. Refinancing activity, as you would expect, is extremely subdued. The red line is the mortgage rate. We don't have a firm read on that today, but late yesterday, that was somewhere in the neighborhood of 6.75%. That might even be a little generous. It could be higher. With respect to primary/secondary spreads, two things. Relatively low, but also very volatile. As a proxy, if you look at 6.75 as the current mortgage rate, and the two-year or 10-year Treasury is around 470, you're a little over 200 off the 10-year. That is not tight by historical standards. Finally, slide 14. This is really not anything other than interesting to me. Just shows you the nominal growth in GDP over the course of, this goes back 17 years, and the money supply. This is starting to get a little more attention. It just shows you that when you have inflation running high, that GDP in nominal terms, in other words, not real, which is what we're accustomed to seeing, is accelerated. GDP growth in real terms is fairly stable in the one and a half to, say, 2.5%, but in nominal terms, it is accelerating, and it coincides with growth in the money supply. Let's talk more about the portfolio. I think the most important point to make for us is that not a lot changed. We're not active in raising new capital. We did do so. We increased our share count by about 1.5%. All in all, it was not a very big quarter for growth. We did do some trading. We'll talk about that more in a few minutes. We did shift the kind of profile of the portfolio slightly down in coupon. The largest concentration of our holdings, which by the way, are now all 30 years, are in the 5.5% coupon. Basically, the portfolio is concentrated in the three coupons nearest to par. So fives, five and a halfs, and sixes. The reason we did that, we moved slightly down in coupon, basically to take advantage of the fact that specified pool performance has not been that great of late, especially with the refinancing activity so low. We went down in coupon, lower absolute dollar price, lower absolute payups, with some upside in the event of a rally. Coinciding with the move slightly down in coupon, the hedge book had to adjust slightly as well. We added to our swap positions and tried to move the swap book to coincide and line up better with the portfolio. With respect to the impact on dividend going forward, absent fluctuations in the leverage ratio, it's actually been maintained more or less where it was prior to these changes. As I mentioned, our average coupon, again, it is all exclusively a 30-year portfolio. Average coupon was down about 6 basis points. We had a slight decline in our economic net interest income. A 1 basis point decline in the yield of the portfolio from 575 to 574, and a 5 basis point increase in our economic funding cost resulted in the 6 basis point decline in our net interest spread. Moving on to slide 17. This is kind of more appropriate in prior quarters when we were adding significantly to our capital base at a time when mortgages were attractive. Didn't do so much at all this quarter, so it's really N/A, so to speak, for the quarter. With respect to slide 18, as I said, if you look at the profile, we did move the profile to the left slightly. It was really just driven by the performance of spec pools, which have been fairly weak. Dollar rolls, as I mentioned, there have been sporadic coupons that have gotten special, traded well. The relative attractiveness of spec pools has just not been all that great in this environment. I do have to apologize, there's a slight error. On the bottom left, it shows a four and a half exposure. There is no 15-year exposure at the end of June. That's all in 30 year. Basically, that's it. As I said, this is not a quarter where we did a lot. Just fine-tuning the positioning of the portfolio. Moving on to slide 19, our funding cost. This has been a very welcome development over the last several months in that funding spreads have compressed quite a bit. We've observed periods where SOFR trades through Fed funds, and our funding in the repo market has basically run high single digits to low double-digit spreads. What's been driving this favorable funding market, kind of an offset between two opposite forces. On the one hand, you have the Fed Reserve Management Purchases program, whereby they purchase bills in the market. They take away investments to cash providers and drive them into the repo market. We've also seen very high levels of money market AUM. In other words, cash available. It does appear, just really this week, that we are starting to see some movement away from this very, very attractive levels. Bill issuance by the Treasury is actually increasing. Money market AUM declined slightly. We have seen funding levels drift slightly higher. There's no reason for us to think that there's anything ominous on the horizon. It's just kind of a drift slightly higher from what have been very attractive funding levels. As you can see on this chart or this graph, our economic funding levels continue to converge with the absolute level of SOFR and what we pay in repo. Obviously, with the Fed on the horizon, it's probably likely we're going to see a few hikes. Obviously, the exact timing of those is unknown. That being said, the last easing cycle was three 25 basis points moves. Those were kind of characterized as taking out insurance, if you will, on the potential for a slowing economy. Maybe they take those back. Remains to be seen. We have a new Fed chair, and we have a lot to learn in terms of how he tends to operate in his management of the Fed. We will just stand by and wait for that. Moving on to slide 20. As I mentioned, our hedge position, we did increase. We basically added some five-year and 10-year swap positions. As a result, the percent of our repo funding that is covered by our hedges increased from 72% at the end of Q1 to 91% at the end of Q2. Our swap notional balance increased from about $7.9 billion to $10.1 billion, which meant that our swaps covered 70% of our repo versus 65%. Weighted average pay fixed rate is 361. That's up slightly. It just reflects the fact it's kind of marking to market as we put on new swaps in the current higher rate environment that are at slightly higher levels. Short TBA positions increased. We use those kind of in conjunction with futures opportunistically. For instance, if TBAs have a poor run and perform very poorly over a two or three or even two-month period, sometimes we'll take those off and put on futures and vice versa. They're kind of used not as the predominant hedge vehicle, but used certainly as part of the portfolio, but kind of interchangeably. We also added a swaption position this year or this quarter, which is detailed on the slide below, on slide 21 on the bottom right. This is something we often do where we do a long and a short position. The idea is to kind of offset the cost of premium paid to minimize that. As I mentioned, if you look in the top right, our swap book grew. We added a $500 million five-year swap and a $300 million 10-year swap. That's how major change with respect to the hedge book. Moving to the rest of the slides. 22 is nothing that I need to dwell on. Those are just kind of FYI for our viewers. On slide 23, the sensitivity of the portfolio to shocks, as you can see, is very flat, probably the flattest it's been in memory. Again, we're kind of entering into a new environment here, so there may be needs to adjust that over the course of the balance of Q3. Kind of just going on to, I'm going to skip slide 24. You can see our speeds, as we mentioned, Jerry mentioned at the onset of the call. With rates higher, speeds did slow over the course of the quarter, and I suspect they will continue to slow as mortgage rates drift even higher, offsetting what would otherwise be a seasonal factor that would tend to drive speeds higher. I don't expect we're going to realize that. Kind of to wrap it up on slide 25, where we stand. When I prepared this deck, it was before the last few days, and things have changed. With respect to the war, there's quite a bit of uncertainty with respect to the war, how that's going to impact rates, the economy, and what the Fed's going to do to respond to that. We're kind of just watching with everybody else, we are likely to have to start making some slight changes in the portfolio just to account for the fact that our portfolio is extending. Our leverage ratio, as we mentioned, was 7.3 at the end of Q2. As of last night, it's up to about 7.73. Leverage has extended as book value has moved and mortgages have extended. We will be seeking to address that, but I don't have anything definitive to say. One thing I do want to say, though, is that if you look at our existing portfolio versus the dividend, I tend to look at the dividend in terms of the dividend divided by book value. In other words, what is the book value yield of the portfolio? The way I calculate book value is just to take the beginning and ending values for the quarter, take the average. If I take our average book value for Q2 and use that as the denominator and the numerator as the dividend, get a yield of about 16.8%. Then if I look at what we were earning on the portfolio using GAAP measures, we're right around the same level, right around 16.7%. The portfolio continues to yield something very much in line with the dividend. To the extent we are able to raise capital, I suspect that mortgages may continue to cheapen here. There's a lot of measures you can use to gauge the movement, performance versus hedges or OAS, whichever your preferred measure is. There's no question that mortgages are cheapening over the course of this week, the market's becoming more attractive. That is if we do have the opportunity to raise capital, it's probably not a bad time to deploy it. I do want to give you an update on book value because I know you're going to ask. I want to follow kind of the convention of our peers. I'm going to give you two book value numbers. One is as of last Friday, just to coincide with those who reported earlier in the week, then I'll give you a book value number as of last night. Then I'm going to give you those numbers both with and without the dividend. As of last Friday, our book value was down 2.1%. As of last night, it was down 4.3%. Those do include the dividend accrual. If you back out the dividend accrual, the numbers are as of last Friday, down 0.7%, and last night down 2.9%. That's basically it. That's it for the prepared remarks. Operator, we can open up the call to questions. Thank you. At this time, we'll conduct the question and answer session. As a reminder to ask a question, you'll need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes on line of Doug Harter of BTIG. Your line is now open. Thanks. Hey, Doug. Good morning. Hey. I was hoping you could talk a little bit about slide 19 and how you think that economic cost of funds should trend in kind of the coming quarters, if the forward curve plays out and we get rate hikes. Just how to think about that, and then just any differences on kind of how that shows up in GAAP versus kind of how you think about the dividend. Sure. Just looking at the chart there. You would expect the red line and the average one-month SOFR lines to pivot and start heading higher. Our hedge coverage is at a very high percentage, about, as I mentioned, 91%. Absent changes in the size of the portfolio I would expect our economic cost of funds to remain fairly stable. It should be akin to what we saw in 2023. We would have a pretty sizable protection from the increased funding levels. To the extent that we, of course, try to grow the portfolio, we'd be putting in place more hedges, market-to-market mode, so it would be kind of moving higher with respect to the average pay fixed rate. If we don't and we stay at this level, there will be pressure because we're at 91% coverage, that's not 100. There would be some leakage into our funding cost. The impact on the dividend is going to depend on what happens to the yield on the assets, to the extent that they drift higher or not. All else equal, the fact that we only cover 91% of the funding with hedges implies there's some room there for leakage in terms of compressing the dividend. Again, to put numbers to it really depends on what happens on the asset side. Great. I appreciate that answer. You talked about kind of the current portfolio, kind of the return covering, feeling comfortable relative to the dividend. How do you think about incremental returns? Where do you see them today relative to that required return you talked about for the dividend? Yeah, they're starting to move higher. I would suspect that the move we're in the midst of is not over, simply because I think the forces that are driving this move are far from having played out. An important development yesterday was where the 10-year treasury closed. We had been at a support level or support range somewhere in the 460s. We broke through that level. Now we're in the midst of establishing a new range in rates. Vol was higher yesterday, taking somewhat of a reprieve today. I think the primary driver is the war. I don't see any end in sight of the war. In fact, I suspect that it's probably going to get worse. I think that's going to keep market uncertainty at a high level. There's another development yesterday. Nick Timiraos put out an article. He's kind of been viewed as the mouthpiece of the Fed, in his article, he basically said two things. One, he doesn't have any idea what the Fed's going to do, he also implied that there are members of the FOMC don't know what the Fed's going to do. As we all know, markets don't like uncertainty. You couple that with the developments with respect to the war, vol probably going higher. I suspect we're in the midst of a move to a higher level of rates and cheapening of mortgages. I suspect given all this, our stock's trading well below book, I don't expect that we're going to be able to raise capital. When and if we are, it's probably going to be down the road, and at that point, I wouldn't be surprised if mortgages were quite a bit more attractive than they are now. It's really hard to answer your question precisely just because I think we're breaking into a period of higher vol and certainly higher levels of uncertainty. I really can't handicap exactly where it is we'll be able to put money to work and what ROEs will be at the time. Higher. Other than that, I can't say much more. All right. I appreciate it. Thank you. Yep. One moment for our next question. Our next question comes on the line of Jason Weaver of JonesTrading. Your line is now open. Good morning. Hey, Bob. Hey, Jason. Thanks for all the commentary, are you there? Yeah. I was just saying thanks for the commentary, as always. Just one from me. As you look at the market today, obviously, we're somewhat defensive, but where would you see the most attractive areas within the coupon stack or various specified cohorts for incremental deployment? What do you think the ROE look like presently? Well, presently, they're moving higher. I would've said somewhere in the 16%-17% range. I think they could be moving higher. In terms of what's the most attractive coupons, to the extent we continue to move higher in rates, the extension potential of the highest coupons is going to drive them quite a bit cheaper. They could become the most attractive. Lower coupons have done well in this environment, but they're not something we would typically own, just because of carry that's associated with them. The coupons we're in. Yesterday, the 5% coupon suffered the worst, and that may be kind of a telltale sign of what to expect. It's the cuspious coupon in conjunction with 5.5 by, depending on the measure you looked at, seven to eight ticks wider yesterday. They could continue to cheapen, so they could become the most attractive coupon. Those with higher coupons also. I think those, call it five to six and a half, would be my guess. Two weeks, whatever it is from now, whenever the dust hopefully settles. I think, as I said, the ROE are probably moving higher. I wouldn't be surprised, another 1% or so. It's really hard to say, given that we're in the midst of this move. Thank you. I appreciate that color. Thank you. One moment for our next question. Our next question comes on line of Jason Stewart of Compass Point. Your line is now open. Hey, good morning. Thank you. Hey, Jay. Hey, Bob. Just a quick follow-up on Doug 's question about hedging and passive of rates and the dividend. If we do see the curve flatten, can you talk us through how you think about the 70% hedge on the funding cost versus the total portfolio at 90, and how you think that flows through to your objective impact on the dividend? Yeah. The curve's going to flatten. I think it's going to continue to flatten, and the fact that only 70% of the book is in swaps, I think is what you're saying, and that's kind of locked in. The rest of the book is less explicit. What's really going to drive the dividend is not just going to be what happens to our funding and our funding levels versus our hedge protection. Obviously, there's some leakage there, but it's also going to be what happens on the asset side. I think we're going to see the spreads compress a lot. Spread level's going to compress less than the curve. I think we're going to see mortgages cheapen some more. I don't think the spread between current yields that are going to be available in the market in the near term versus funding are going to compress that much. One drives the other. Because there's a lot of the investor base in mortgage space is levered money, and clearing levels as the Fed is entering a hiking phase are going to have to reflect that. I think that it remains to be seen, but I don't expect a massive compression in spread levels such that you would have dramatic decreases in the dividend. You may have some, but I don't think you're going to have exorbitant ones. Okay. Then as I sort of think through that, being down in coupon, you give a little less carry for some duration protection. When you get to the end of it, you're going to be able to reposition into higher ROE. During that interim period, if you give up a little bit of ROE, are you willing to hold the dividend level for a quarter or however long it takes before the economics flow back through to the bottom line? I don't know that they'd be willing to do that. That's a pretty dramatic move. One thing we found that, as you know, in the past, we've had larger exposures to those coupons. Generally, that's the area of the stack that money managers traffic in. They run money against the index. Those are large components of the index. You tend to see that your performance is impacted a lot by flows into their funds and out of. It doesn't always track what's going on in the rest of the stack, and it can be kind of challenging to manage through. I don't know that we would make wholesale changes to the portfolio just to kind of wait out whatever it happens to be a month or two or three or whatever period. I think we would try to hold tight. I do think we'll make some changes in the portfolio on the margin, I don't think it would be in that direction, certainly not in size. Okay. Thanks for the color, Bob. Appreciate it. Yep. One moment for our next question. Our next question comes from the line of Mikhail Goberman of Citizens JMP. Your line is now open. Hey, good morning, Bob. Most of my questions have already been touched on, but if I could maybe ask about expenses a little bit. The 2% expense ratio that I see in your slide deck, is there any more opportunity you guys think for more positive operating leverage, or is that a level that you guys are kind of comfortable with at the moment? Also, kind of parallel to that, wanted to see what drove the sort of year-over-year increase in expenses from about $5 million to $6.75 million. Thanks. Glad you asked that. Let's go to slide 33, if you would. Yep. I'll give you a chance to get there. That is our expense ratio, as you can see, it did bump up. Two things happened there. One, if you look at where it kind of was back in 2022, quite high, and we had a long downtrend, and we got well under 2%. Management and staff were rewarded with bonuses this year as a kind of a reward for driving the expense ratio down. Two things to say about that. One, the awards are all 100% in shares, stock, no cash. Two, it's not the kind of award I would expect to see repeated in the near future or the future at all. I don't expect to see that kind of dramatic improvement. You did see a bump up there in our expense ratio, it really reflects compensation costs related to the share awards that were made earlier this year. I would expect to see this line continue to trend down. Obviously, the more that we can grow, the lower it gets because our management fee is asymptotic to 1%. All capital raised from this point forward, the management fee is 100 basis points. If you're familiar with our management fee structure, it's 1.5% up to $250 million, 1.25% up to $500 million, then everything after that is 100 basis points, so we're well above that level. If you look at the show on the slide above that, the growth in our expenses has trailed that of the capital by a meaningful amount. As I said, we had this kind of one-off award this year. Otherwise, our incentive comp structure is tied entirely to our relative to performance, most of the awards tend to be modest. This was an exception. Again, I think it's more of a one-off thing. I wish it weren't, but it probably is. As I said, I would expect to see this line start to track back down and our expense ratio to start trending back towards, let's say, 1.7% or so, which is where it was a couple of quarters ago. That's it. Great. Thank you for the color. Appreciate it. Yep. I'm showing no further questions at this time. I'll now turn back to Robert Cauley for closing remarks. Thanks, operator. Thanks, everyone. Appreciate you taking the time to join us today. To the extent that you have any additional call or questions, or you didn't get a chance to listen to the call live, and you have a question, feel free to reach out to us at the office. The number is 772-231-1400. Otherwise, we look forward to talking to you at the end of the third quarter. Thank you. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.