Good morning and welcome to the Fourth Quarter 2018 Earnings Conference Call for Orchid Island Capital. This call is being recorded today, February 22, 2019. 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 Chairman and Chief Executive Officer, Mr. Robert Cauley. Please go ahead, sir.

Thank you, operator, good morning everybody. Welcome to our call. I hope everybody has had a chance to download the slide deck off of our website, I also saw that Seeking Alpha had in out there this morning. So I'll be going through the slide as I normally do. I may skip a few but I'll no go out of border. Many of these slides or slides that we use every quarter, so few regular listeners you should be cautioned to seeing these slides. I'll start on Slide 3 which is basically just the table of contents. Just run through a quick outline of what we are going to discuss today. We will start off with -- financial highlights of the quarter ended December 31, 2018. Now, let's spend some time as we usually do, talking about market developments and this was a significant quarter for the markets and the outlook for the economy and rates going forward, and we will discuss our financial results, portfolio characteristics and then our outlook and strategy. Turning now to Slide 4. The financial highlights for the quarter. Orchid Island reported a net loss per share of $0.52 for the quarter, this incurred -- this included $0.80 of incurred losses per share from net realized and unrealized gains and losses on RMBS and derivative instruments, including net interest income on interest rate swaps. Earnings per share of $0.28 excluding unrealized and realized gains and losses on the RMBS and derivative instruments including net interest income, non-interest rate swaps. We have Page 18 in the slide deck for reconciliation of that. Book to value per share was $6.84 at December 31, 2018, a decrease of $0.72 or 9.52% from $7.56 compared to previous quarter. Total dividends paid for the quarter were $0.24. In 2018, the…

[Operator Instructions] Our first question comes from Christopher Nolan of Ladenburg Thalmann. Your line is open.

Looking on the portfolio allocation, I'm on Slide 23 that you highlighted -- and by the way thank you very much for all the great commentary. And I saw you guys lined up on the 30 year 4.5s. Is that sort of an indication by expectations for you that prepays are going to start spiking up in general?

I would say a few words and then I'll turn it over to Hunter. I would say, no. We actually had the benefit from the last few months of being in the seasonal trough. And we have seen a rally in race although that has since kind of abated. We are coming out into the where we typically see a pickup. We have been adding forms of pay up protection typically lower pay ups. So even if we do see some modest uptick, the combination of fact that we are still at relatively higher mortgage rates and we do have forms of call protection, we would not expect to see a spike. I'll let Hunter say more about that.

Yes, a lot of that Chris just had to do with the fact that as Bob alluded to, we were both trying to get manage our leverage in a pretty choppy market in the fourth quarter, and we were also aggressively buying stock back and shrinking the equity base. So, we were selling 4.5s because that was the biggest and the most liquid part of the book. So, the 15 years that we owned, we have lightened up on this a little bit into the first quarter. Those are largely loan balance. So into the rally we think we best to hung onto those. The CMOs were not something we really wanted to sell in the fourth quarter because they are not nearly as liquid as the pools that are booked that had a TBA back stuff. So, it was really just sort of a hotchpotch of few different varieties of 4.5s.

And talking about buybacks, I'm seeing you guys were pretty active in the quarter. What's the thought for the buybacks going forward?

Well, we are not going to change to the extent that the stock trade is materially below book. We don’t have any unofficial level about 90% of book, but that’s not issuing stone. We will buyback. And when the bottom fell out of the market in December and the stock traded down efficiently and with all other pretty much everything else, we got very aggressive, and as I said, we brought back 6.5% of the shares that were outstanding at the end of the third quarter. We are externally managed REIT and I don’t think that’s typical that type of aggressive buying back of shares. But it helps to drive returns because we are doing so adding to book value and of course for the fourth quarter when book value is being plummeted you are kind of net in some of that up by buying back shares so accretively.

Yes, Bob alluded to the fact that risk markets behave poorly in at least the second half of the fourth quarter, but I guess there is a silver lining in all that. It was the equities in particular Orchid stocked turn it. There isn't only as well, so we were able to liquidate some mortgage assets that had double but better than our stock price on a relative basis and buyback pretty aggressively some shares.

[Operator Instructions] Our next question comes from David Walrod of Jones Trading. Your line is open.

Could you give us an update on where book value is today or at the end of the January?

It was up slightly at the end of January, it's actually come back down. It's probably more or less in line with where it was at the end of the year. Most of the recovery we saw was in January and we since given back some of that.

And then both from an asset allocation standpoint and the leverage standpoint, given the decline in equity, given your share repurchases as well as the market conditions, the leverage has picked up, your asset allocation changed and you noted. How should we think about that going forward? Where are you putting run off today? And how should we think about leverage given the current equity levels?

Yes, first on the leverage we put in the slide that I think was 90.1. There were some unsettled sales, so it came off slightly than that plus TBA is short. So, it's actually somewhat lower and that’s closer to 8.4. We will probably going to stay at or near that kind of level. We were so defensive for so long with the tightening cycle that seem like they were never going to end. And then they may resume tightening, but I think it's a stretched to thing. There is a meaningful amount of tightening still to go. So going forward, you would expect eventually to go the other way, who know when exactly that will curve, but it seems like we are probably being ranged bound here for a while. So, we don't have overly concerned with having that risk, we were very fully hedged, maybe too hedges. And so, we will probably take some of that off and then we keep going to the securities yield too. The IO securities that should be the way Hunter say, but there is a lot of two way risk in those so they actually ask -- have some true hedge benefit to them.

Yes, exactly, and their fixed rate securities and themselves have much lower hedge ratios at this point in rates. So, there is less need to hedge, so we expect to curtail some of those positions. With respect to the portfolio allocation, as we alluded to, the percentage allocated to, mortgage derivatives, CMOs and 15 years increase really just because we were selling 30 year fixed rate. So, it will probably be the focus level of the portfolio back out, more in line of what you saw probably in the third quarter, maybe even a larger SKU towards fixed rates, getting shying away from some of the hyper or prepays so into the coupons like 5s and 4.5 as maybe going down a little bit in coupon. But I wouldn’t expect to see meaningful changes, just sort of redistributing the allocation back to where it was prior to the buybacks and deleveraging.

Thank you. And this concludes our Q&A portion. I would like to turn the call back over to Mr. Robert Cauley for closing comments.

Thank you, operator, again, thank you everybody for taking the time to listen. To the extent anybody has any additional questions or only had a chance to listen to the replay, please feel free to reach out to us at the office. We will be here all day as usual. Our number is 772-231-1400. Otherwise, we look forward to talking to everybody at the end of the next quarter. Thank you. Thank you, operator.

Ladies and gentlemen, thank you for your participation in today's conference. You may disconnect. Have a wonderful day.