Good morning. And welcome to the First Quarter 2018 Earnings Conference Call for The Orchid Island. This call is being recorded today, April 27, 2018. 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 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. 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. I hope everybody had a chance to download our slide deck off of our website as we have in the recent past and the earnings call basically consistent, I mean walk you through the slide deck and at the end of the, of those comments, we’ll open the call up for questions. I’ll start with slide 3, which is a table of comments, this is basically an outline on how long going to proceed today. As is always in case, we’ll start with just a quick overview of our financial highlights for the quarter. And then to really give us an understanding of what happened to, in the markets, what happened to us for the quarter, how we see things going forward. We’ll discuss market developments then we’ll briefly go to our financial results, we’ll touch on the portfolio of characteristics, our hedge positions, our funding positions. And then we’ll go to an outlook and strategy section, I’ll give a very brief overview of our history, simply because I think it’s meaningful this juncture. And then we’ll take a look and how we see things going forward and how we’re positioning for what we see on horizon. Turning to slide 4. Our financial highlights, we had a GAAP net loss of $0.31 a quarter, per share for the quarter. As usual, this includes our mark-to-market gains and losses. We had losses, net losses for the quarter of $0.72. This includes premium loss due to pay down under our accounting treatment. We do not use a straight-line amortization method. We take all of the amortization of premium through gains and losses and that was approximately $0.903 for the quarter. The net of all of this is earnings per share of $0.41 excluding these realized gains and losses. Book…

So just, I think we’ve been over some of the details n, as far as a portfolio change in the first quarter. And I will just highlight that, a lot of the focus there was adding negative duration both in the hedges trying to improve the [indiscernible] profile of the portfolio into a rising rate environment. And the substantial increase in our swaption positions were long, shorter one year and with tails in the long end of the curve, mainly but not in 10-year part of the curve. We added a fair amount of IO in the first quarter and into the second quarter. So those are largely, I think they’re all actually, IOs off of 4% coupon MBS some of the jumbo mortgages, some or just as we brought an excess servicing deal to came out as well. The focus there as we think, while IOs are certainly on the tighten into the spectrum. We feel like the speeds that they have been, speeds in the first few months of this year don’t reflect, what we feel like the speed will be in the current rate environment. So, they’re still paying double-digits and are now out of the money versus where borrowers can finance their homes now. So, they’re no longer re-financeable or at least not re-financeable to a point where it would make economic sense to do so unless you’re taking cash out or moving or something to that effect. So, with respect to the rest of the portfolio, the past of the portion of the portfolio we’ve been focused on selling longer duration again bonds that are going to perform poorly into the next 50-year 100 basis points increase in rates. Some sold approximately $565 million worth of securities that we modeled would be decreased by about 5% and up 100 [REIT shock]. And we’ve replaced those with IOs and short pass-throughs and structured securities to the tune of well roughly the same amount 555 million that we purchased versus 565 million that we’ve sold. The duration on those are much lower. The yield is marginally lower but the risk adjusted return we feel like is much better. So that’s going to be a continue -- where we’re going to continue to focus to the extent that we continue to shift the portfolio be it similar types of assets. Up a 100 shock when I looked at on what we’ve added versus what we’ve sold is what we’ve added we expected would be down 1.75% and up a 100 shock versus what we sold as I mentioned be like -- more like down 5%. So that is going to be the focus going forward and we had too much detail as to what exactly we’re behind because we probably want to continue to buy a bit more of it. But with that, I’ll turn it back to Bob.

Thanks, Hunter. Operator, I think at this point, we’ve concluded our remarks and we can open the call up to questions.

[Operator Instructions]. Our first question or comment comes from the line of David Walrod from Jones Trading. Your line is open.

Your leverage, you mentioned that it ticked up a little bit in the first quarter as you said now more like 7.8 and in written commentary you’ve mentioned that leverage will continue to come down. Where are you targeting leverage going forward?

We don’t have a specific number in mind but I would say the high 6s is probably a stretch probably 7 would be -- that one -- we don’t really look at it with a number in mind. It’s more with the composition of the portfolio with the model sensitivity of the portfolio and then to the extent it will have to be tweaked to get it to a number we’re more comfortable with we adjust it. And that involves allocations between pass-throughs and IOs to the extent we added more towards IOs since they’re not levered it will come down. It usually falls out of the allocation decision, if we’re at to fund a specific target where we sit down until we’re going to get to this number. But I think 7 is probably a reasonable range plus or minus.

You might note in the presentation with the leverage at quarter end was 8.5 we had I think net 130 million of securities that had not settled but had already been sold. So, the risk if you will at quarter end was lower than what’s represented here. If we had to adjust that number, it would be somewhere like 8.1, 8.2.

Can you give us some thoughts about where book value is today relative to the end of the quarter?

We don’t have a specific number but the positioning that we’ve taken has shown up in the results. So, we mark our portfolio on a daily basis that we’re using a pricing service. So those marks are not the same as we might do for quarter end. But so far, I would -- ballparking it $0.05 to $0.10 down.

Okay. And then I guess my final question will be your thoughts on the share buyback that you referenced in the -- in your commentary?

Yes, we would -- we wanted to use that. It’s an efficient use of capital to the extent we are able to buy shares back at a meaningful discount. I don’t know what the stock will close today but in the last month or two, the stock was trading north of, comfortably north of 90% trailing book. And we didn’t really view that as all that attractive, we actually expected after the last dividend cut at the stock would trade at most substantial discount, but it hasn’t. So, it’s on the table, we have an allocation for up to 10% of outstanding shares. And as the stock trades, I think, someone mentioned on our last call, we first introduced they said what's your threshold, and we were saying something around 90% or high-80%, that’s probably still the case, the stock as of yesterday was not trading there. It was several percentage points above there. So, I guess the answer is the same going forward, we will use it. But we prefer to maximize the benefit of the program by doing it at a more substantial discount to book.

Our next question or comment comes from the line of Christopher Nolan from Ladenburg Thalmann. Your line is open.

As a follow-up to Dave’s question, on the buybacks, would you considering doing a tender?

We have not having discussions in that regard, I think the stock is liquid enough that we can do so with just typical share buyback program. And I think it was a bigger discount, if we were stay consistently trading 80% of book and we can do a large sluggish stock in one [indiscernible] we probably would give that serious thought. But I think the way we’re position now with the stock trading in the low-90% range of book, I don’t know that would be well for a while at the moment.

And then can you give us some idea of what the duration of the portfolio is currently?

As you mentioned, we’ve done since quarter end and we’ve taken some steps in that regard, do just one moment. I’ll just speak to the way we have this modelled. So just, the duration of the portfolio is about 355. But when we look at the shocks and again that’s just the mortgage assets. When we look at the shocks, which is what we prefer to do we modelled that we would be with hedges roughly flat and down 50 and off about $0.20 in an up 50 scenario. So, you can get some sense of where not only the duration is, but what the convexity of the portfolio looks like, which is what we’re trying to improve into that up 50 up 100 scenario.

Okay. And then give that your 100% hedge on your liabilities, what’s your assumption in terms of further rate hikes or is it more just thinking about where LIBOR goes?

Well, I’ll add 2 points to that question. First of all, LIBOR, our funding does not track LIBOR that closely. It may have in the past, certainly in the first quarter did not. LIBOR had life of its own. Repo funding today is still in the mid-190s is that for one month.

Yes.

And one-month LIBOR about 190, 191 today actually. As far as rate hikes, I mean, it looks to us like it’s probably going to be at least 2, probably 3 I think in the meeting next week. Even though, they probably won’t take any, there won’t be a press conference in the hike rates, but I wouldn’t be surprised if the wording of the statement tries to cut the market for they view the rest of the year. Certainly, we expect them to hike in June. The key will be is there anything in that language which lead you to believe it’s three more hikes versus two. We are probably leading towards three. A little more uncertainty with respect to next year. There may be some cracks in the wall a little bit, some of data in Europe has been -- actually a lot of data in Europe has been consistently weak. A little bit of stress in the corporate bond market and so forth. Are these the kind of things that have been cause of the fed to slow down but certainly for the balance of the year two to three hikes I think is a very high probability.

And given that you are migrating more and more towards the IOs, I presume that you are just assuming that we might see a flat continued -- flattish but rising yield curve, slowing prepay speeds. I mean anything else here?

No, I mean the one caveat and what we saw actually starting mid last week when the steepening took place, does that reflect fundamentals or does that reflects some character of the market, it flattened so much so quickly. I think it was more of a ladder. What could cause the curve to re-steepened you certainly have to see the data strengthened appreciably I think you start to see inflation data, mid 2% done well beyond that that might cause a volatility to spike up a little higher which is good for reinvesting. But absent those things, I think you just kind of grind this way. I don’t know if the curve necessarily inversed this year but it could continue to flatten and move higher. Don’t forget, we just talk about fed hikes, two to three hikes, the two year has been on a very steady increase for quite some time now, its perhaps 250 [ph] probably on its way to 3, the 7 here is not far from 3% itself. So what does that mean for the 10 year, everybody is hyper focused on the fact that it broke through 3 and some people think this represented a double top and we are going to rally from here while we’re going to rally meaningfully from there, it’s not going to far before you see initially 7s, 10s and 5s invert because the feds looks awfully hellbent on raising this year and that’s going to drive front end of the belly of the curve higher still. They are not that far from 3% as we sit here today. So, is the 10-year going to meaningfully rally? I think it’s just going up because it’s being driven higher by shorter tenures frankly. So, I would not be surprised if it did hit 325 but that still could be relatively flat curve. And who knows, we may finish this year with two years, 10 years and [30] years, all at the three handle. But so, it’s not going to be a great investment environment, never is. We filled calls for investors and people -- [lay out in] the dividend, really reach our counter cyclical stock, they tend to do well when the economy is not doing well and vice versa, well the economy is doing very, very well and the feds are aggressively raising rates. So, it’s going to compress our earnings potential. We position this absolutely best we can for that otherwise you wait it out and wait for the next cycle, down cycle and the fed eases and curve steepens and it’s a phenomenal investment opportunity.

Specific to the IOs I would just add that when we reach the point we feel like the value has been fully extracted out of those positions. We won’t hesitate to sell them and reduce our exposure to that sector. Right now, we feel like there is fair value and then because speeds are continuing to decline. But as we sit today, 90% of the mortgage market is not refinanceable. So, we think throughout this summer and in the next fall, we’ll see a continuing decline in speeds, that should be supportive of that position. But once they have no upside left and then we’ll focus our upward rate hedges on different type of products, we can use it straight derivatives or some other form of protection.

Thank you. [Operator Instructions]. I’m showing no additional audio questions in the queue at this time sir.

Thanks operator. Everybody, thank you for your time. To the extent you have a question that comes up later or you didn’t had a chance to listen to the call live and you want ask a question please feel free to call us. The number here in the office is 772-231-1400. Other we look forward to speaking with you next quarter. Thank you.

Ladies and gentlemen, thank you for participation in today’s conference. This concludes the program. You may now disconnect. Everyone have a wonderful day.