Good morning and welcome to the Third Quarter 2017 Earnings Conference Call for the Orchid Island Capital. This call is being recorded today, October 27, 2017. 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 on the management's good faith, belief with respect to the 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 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. Now, I would like to turn the conference over to the Company's Chairman and Chief Executive Officer, Mr. Robert Cauley. Please go ahead, sir.

Thank you, operator, and as we done in the past, I would request that our readers if you haven't already done so to download our slide deck of our website, I'll be flipping to the slide deck as we go through the call. And obviously, it'd be much easier for everybody to follow along, if possible. If you are ready to go, I'm going to start on Page 4. This is just a tables of contents just kind of go over the kind of your order of the conversations today. The first thing we will do is we will give our brief overview of our financial highlights for the quarter. Then, I'll spend some time talking about the market developments basically going over the developments during the quarter that provided a backdrop for our performance. I’ll then go through our financial results basically then go through how these developments affected us. And then finally, I'll go through the portfolio of characteristics, credit counterparties and hedge positions. This gives us a chance to describe how we manage the portfolio through this backdrop and how we are positioned for what we see going forward. Turning now to Slide 5, just quickly go over this. We reported GAAP net income of $0.33 per share, as you're well aware, if you've been following the Company for a long lease what is known as available [indiscernible] county. What that means is that any mark-to-market realized or unrealized gains and losses in both our assets and all of our derivative or hedge instruments go through the earnings and income statement. We reported losses of $0.18 per share for this quarter. Excluding those mark-to-market gains and losses, we reported $0.52 of earnings. We will go through this in a little more detail later on as I said.…

Sure, so as I think Bob alluded to earlier, we saw rates go down in the mid third quarter and start to sort of rebound, which in a continuation of that and inverse IOs and IOs in particular performed very well. We spent quite a bit enough time and capital in the first quarter buying at IO positions off of mortgage bank securities that had jumbo balances, balances in the $500,000 to $600,000 to $700,000 pro-loan area. Those performed as you would expect relatively poorly as rates came down in the first seven or eight months of the year and then have since start to rebound quite nicely. So, it doesn’t leave us with the lot of options with respect to the IO and inverse IO book. Inverse IO is a sort of run out of what we will recall negative duration, so the ones that with the exception of maybe some of the more generic inverse IOs we have off of of Fannie and Freddie, 4.5 have really sort of their IOs component has extended to sort of maximum or at least there is not much room left for it to extend at this point. So that puts us in a position where those particular assets have more LIBOR risk than we kind of like on the books with the mix of hedges that we have in place. So we really did increase hedges or decrease that run-off the number of those assets. We’re still sort of muddling on which of those past wouldn’t take most likely we’ll continue to have more or less the same position. We might less of it run off or so to pieces which you just don’t put our risk profile at this point in time. If we can find IOs, we’ll certainly add them but they are hard to find and relatively tighten prices. So, we probably won’t do too much there. So, I wouldn’t be surprised if our allocation towards specified pools grew in the coming months particularly, if we raise any capital.

Thanks. If you go back Slide 15 for a moment, this as I said, this is snapshot of the portfolio. There is not a whole lot to talk about here. The third column from the right is the allocation, as you can see the fix rate were 95.17%, push back to assets, we don’t apply leverage to the structure securities. So in terms of the percentage of our assets allocated to our portfolio very small capitals of course much higher. I also mentioned that we have been deemphasizing the 20 year securities. This particular quarter they grew slightly and as a result, our weighted average coupon of the fix rates was 4.37% and had been 4.42% last quarter. But as Hunter said, we’ll probably continue to run the fix rate portfolio at or above these levels. And I think it makes a lot of sense given where we are for several reasons. One, we’re kind of at the end of the calendar years. We typically tend to see a slowdown. And prepayment speeds for the most recent month, our fix rate portfolio prepaid at 8.1 CPR, that’s actually probably slightly high end of the range what we realize for the year. But we would expect that to moderate. And then also with the back up in rates that should put even more pressure, downward pressure on speeds. And as a result it allows us to feel more comfortable owing those securities. And as Hunter mentioned, the ability to IOs to extend meaningfully and provide operating protection is somewhat limited in the space, so they really not an attractive asset to add to the mix. Turning now to slide 17, I did -- we have two things on this table. First, just our repo counterparties and our weighted average borrowing rates,…

[Operator Instructions] And our first question comes from the line of Christopher Nolan from Ladenburg Thalmann. You may begin sir.

Quick question on your comments. Is it correct to say that if the Fed tightens in December the euro/dollar futures start to go and the money? Is that really correct?

Not quite, weighted average strike for next year is 1.845% and that off course is the underlying is index is pretty much LIBOR. It would be still out of the money with that one hike, but it's getting closer. We don’t know what the Fed will do next year whether it's one, two or three actually none. But the breakeven given where we assuming Fed hikes of December would be about 1.5 hikes more than 1.5 hikes would get those in the money.

So, it starts not to December hike, but if we get a normal pace of hikes say quarterly or something of effect, it doesn’t take very in many before it turned and goes the other way. Also worth noting that well we are not hedged to 100% on the front end of the curve, we have taken some steps to pretty dramatically increase our longer term funding positions. So we put a I don’t know, it was the few $100 million worth of one year repo on at sort of the rate lows that struck in I think in a blended basis in the lower 150s. So those should be in the money and we've also been rolling over. The December hike is still not a 100% priced in and so we've been taking advantage of that by locking in rates and the kind of the 139 to 140 area which take us well into January.

And then it looks like you guys really slowed down your equity issuance this quarter. Is that correct?

Yes.

Yes, that was in fact a product of two things. This one was just the fact the stock price through most of the quarter was not trading at very high premium to book value and then secondly we had a lot of tightening in the mortgage base, as you know some of our peers were active in raising capital and that put some pressure on pay up premiums for the very specified pools. So, it's just -- in the combination of a modest premium to book on the stock price and not necessarily really attractive investment opportunities kind of due to the crowding out of our peers. We just think it was good time to do so.

We've seen a widening in mortgage assets since quarter end and also we’ve -- our stock prices trading relatively well especially today. If that holds in then I think that creates a different dynamic than we saw in the third quarter.

You have a fair amount of cash liquidity on the balance sheet. Should we expect that to be deployed?

Not necessarily, that can just affect timing, unsettled security purchases in the like -- it might be just modestly above where we would typically keep it. So, not, we have to do capital raising, I would not reach too much into that unless there is capital raising. The cash balance today is not reflective of eminent new investments as of September 30.

Final question, in your comments you dictated that you were decreasing your exposure to 10-year futures and going 30-year TBA short. So, is it fair to say that you sort of expecting a steeper yield curve in the 30 year part for the curve?

Well, we did talk about two -- I don't a week or so ago [indiscernible] happen, we had such a pronounced flattening of the curve. Those shorts are getting very people owned and mortgages were tightening at the same time. So, it just really didn’t make sense to continue to have that hedge to that magnitude that point in the curve. And it seems -- by the impact way, we're shorting TBAs, we’re shorting the 3% coupon, which is a pretty long duration of assets. So, to the extent the market turned around and went meaningfully the other way, you would expect that 30 year mortgage to 3% to extent coupled with the factor that it had been tightening. So, we just thought it was more effective hedges instrument and we also entered into some swaptions. The belly of the curve had led the rally into early September. The middle of the curve is the most sensitive to long-term Fed expectations and as the market was pricing out the Fed, the belly of the curve was rallying quite strong and volatility was very, very low right. And so that was just an easy trade to get into. So they just seem to be more effective hedges at the time.

Yes, if I could just chime in on that. I think that what we saw was, as rates were coming down towards the low 2%, the convexity in our portfolio was getting -- gets pretty bad. So, I mentioned we have some of those jumble IOs, we have a lot of prepaid sensitive assets. So, if rates were to breakthrough sort of the psychological barrier of 2%, hedging with treasury notes future is not necessary where it want to be in. So, mortgage is tightening like crazy into the -- into the third quarter, volatility was very low. So that was really more a function -- that was really where more of our hedges were than anything. One, we wanted to shift reduced our basis exposure by getting out of treasury back MBS product or treasury back product and then into MBS hedges. [indiscernible] was very low, so we thought it was a good opportunity to maybe buy a little bit back. So, we bought the 5 year and 7 year swaptions. And then that also allow us to improve the convexity of the portfolio because now as more MBS portfolio would, we would expect underperform into more of a rally, but into a selloff we would -- we have a little bit of positive convexity through purchase a option hedges or conditional hedges as opposed to just straight rationing based hedges.

And they were out of the money too so they were sort of in the position where their durations could go from being relatively low to sort of increasing -- at an increasing rate as sold off.

Thank you. [Operator Instructions] Our next question comes from the line of David Walrod from JonesTrading. You may begin.

You mentioned that it wasn’t a lot of capital raising done in the third quarter, but there was quite a bit in the second quarter. Was there any leftover or hangover or earnings drag that was realized in the third quarter from the deployment of capital that was raised in the second quarter?

Yes, that was typically the case especially it was so back loaded. Most of that capital raising was in May and June. There is slight downward pressure, but that only lasts for month. But it effects July basically.

And then your speed ticked up a little bit. I know you said you think that move backed down, but have you attempted to quantify the impact on this quarter results of the uptick in speeds?

Well, we have the one number with, as you know, we call it premium law suite of pay down because under the fair value option, we don’t amortize premium directly into the interest income. And that was probably about a $1 million slightly above last quarter and they'll be a 1.5 million at the most and in terms it's about 45 million shares outstanding. So 2% or 3% increase, so it definitely had some slightly modest impact. And as I've said, we do expect that to reverse in this quarter. But as I -- don't forget, we hit the year-to-date low in rates in early September 2.04% on the close. So in the speeds and the past structure well, so I would expect that to be the high watermark for the year. And so premium amortization even using our methodology was probably peaked for the year.

We're pretty bullish on speeds are going into the next 3 or 4 or 5 months so especially at base rate levels 248 or above 10-year treasury levels hold. One, we are going to have the seasonal slowdown which has been more -- the season of the nature of pay downs has been more pronounced as it seems like in recent years than was previously the case. And also just -- we've had -- we've moved over a very costing part of our portfolio in terms of where mortgage rates are now and we would just expect to see the declines in the speeds particularly in the IO book.

And we have a follow-up question from the line of Mr. Christopher Nolan from Ladenburg Thalmann. You may begin, sir.

Actually, Dave just answered my question. So, thank you very much.

Hi, Chris, thank you

And I'm showing no further questions at this time. I would now like to turn the call back to Mr. Robert Cauley for any closing remarks.

Thank you, Operator. To the extent anybody has any questions they pop up later or they don’t listen to the call live and listen to the reply and have questions, feel free to call us in the office. The number is 772-231-1400. I always willing to take any questions otherwise we look forward to just speaking to you at the end of the year. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. And you may all disconnect. Everyone have a great day.