Good morning and welcome to the Fourth Quarter 2021 Earnings Conference Call for Orchid Island Capital. This call is being recorded today, February 25, 2022. At this time, the Company would like to remind our 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. [Operator Instructions] 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 sorry for the delayed start. We did have some technical difficulties, we got those cleared up. So apologize. Get going here. I hope everybody's had a chance to download the deck as usual. The deck has not changed materially from quarter-to-quarter. So hopefully it’s same. But on our call before you're familiar with the kind of agenda and the format. So kicking off, Slide 3, just a kind of outline of what we're going to discuss, as usual, go over the financial highlights for the quarter ended December 31, 2021. And spend some time talking about market developments, which impacted the results for the quarter and kind of talks about what looks – what things look like going forward. We'll go through our financial results in greater detail and then do the same with respect to portfolio characteristics, our credit counterparties in hedge positions. And this quarter, given the magnitude of the market developments since Q end, we’ll basically expand a discussion on each of those points to kind of bring you up to date for the current quarter. Turning to Slide 4, the results for the quarter ended December 31, we had a Orchid recorded a net loss per share of $0.27. This is comprised of net earnings per share of $0.22 excluding realized and unrealized gains and losses on our RMBS and derivative instruments, including net interest expense on our interest rate swaps. We have a loss of $0.49 per share from net realized and unrealized losses and RMBS and derivative instruments including again net interest expense and our interest rate swaps. Book value per share was $4.34 at December 31, verses $4.77 at September 30. That's an approximately 9% decline. In Q4 2021, the company declared and subsequently paid $0.0195 per share in…

Thank you. [Operator Instructions] We will take our first question from Jason Stewart with Jones Trading. Your line is open.

Great, thanks. Good morning. Thanks for taking the question. How are you? I wanted to start with just two quick things. One, if I missed year-to-date book value, if you could give me that? And then two, maybe a quick update on how you're thinking about share repurchase activity and in light of where – where the stock is relative to book?

Yep. Well, I did not say, it's done close to 20% owned the fact that especially in February, with the move in TBAs, and specs. And with respect to share activity, we have not been able to do that in our blackout period, also, given the magnitude of developments in the market or in the quarter, we certainly feel comfortable, doing anything until that news was fully in the market. So now that it is, we are positioned to continue to use our share repurchase plan, it did increase the size materially in December up to 10% of our outstanding and to the extent the stock is trading below, we have every intention to use that.

Got you. Okay. And then going to thinking about the dividends based on a current book. I mean, that sort of has the current $0.055 run rate is it fairly high ROE or implied ROE payout. How do you sort of foot that with the current economics? And do you feel like you get credit for it? Thoughts on leaving it at $0.055?

I would say that the outlook is not favorable for the dividend. We really want to see what happens in March. And that's a pretty pivotable -- pivotal month decision. As I said, not even two weeks ago, the market was pricing at a pretty high probability at 50. That's come off, especially with developments in the Ukraine, but we really want to see what they do and what they say that this products looks like. And it's quite possible, there may be an adjustment, but we just want to make sure we kind of have a better feel for what we're looking at before we do so. But obviously, I mentioned on the call that the forward curve out even six months is inverted. So this is not a favorable environment for leverage bond investors or limiting investors of any kind. So I hope that you can extract from that what you will.

Right. Right. Got it. Okay. Last one, and then I'll jump out. If we just take a bigger picture view of pay-ups, and sort of, CPR is moving to a natural rate of turnover at some point there's little risk left in owning, specified pools. How much risk do you think is left in the portfolio in terms of pay-ups premium or do you feel like we're already -- we’re sort of at that point where it's an even economic trade and there's only upside?

Yes. I think we're close. I think we’re there. I don’t know if you make much of what happened late yesterday, and today where mortgages have rebounded, but it seems like near term we've gone through a lot of widening and specs have really suffered with the rolls. But we own threes predominately you know, and in the third quarter, fourth quarter, those are one of the $3 prices not their current coupon. So depending on the story those pay-ups are very low. Could they get a little lower? Probably. But the outlook going forward, I think is very asymmetric. And the fact that the long end it is stayed where it is and the market seems comfortable with the Feds ability to contain inflation. I think as we go through the year, and the Fed does hike, they often overshoot as we all know. It could be that not long from now, a year or so from now we're looking at in the market starts pricing in the next recession. And so we're very keen on trying to maintain that optionality. That's why we're not going to sell all these specs, even if there is a little near term pain, because we think long-term but, for instance, we were putting new money to work today. What would you buy? And I think they represent value, our earnings outlook isn't so great just because of the Fed. But from an asset only perspective, they look very attractive. And we're trying to maintain that optionality. We're doing our best with respect to managing our liquidity, trying to keep our leverage ratio prudent, but trying to maximize how many of these we can hold on to, because we think they have good carry in the near term and upside in the long-term.

Got it. Thanks Bob. I appreciate it.

Yes

Okay, next, we'll go to Christopher Nolan with Ladenburg Thalmann. Your line is open.

Hey, Bob. Given that it's an election year, do have you historically, how has the mortgage market responded to them?

I know that they have -- there is much, it's not a presidential year. So the focus will only be on the congressional and Senate races. I don't expect that. I mean, the instance and I will ask Hunter to chime in the only time we really seen elections affect markets is through the Fed and maybe the perceived reluctance on the part of the Fed to do a lot to disturb the economy in the run up to an election, a presidential election. I don't think I've ever seen that with respect to other races. And I wouldn't expect?

No, I don't think I would add to that, it's just to the extent that, it's either going to stoke the fires of inflation or cooled off a little bit in a reversal of some of the energy policies perhaps or if you go kind of the other way, if you have a strong push and a willing Congress to push through some sort of an infrastructure project on top of hyperinflation that we're seeing that could be bad for us. But other than that, I wouldn't expect it to be material.

Great. And I guess, just follow-up in terms of the portfolio declines. Are you anticipating any further reduction in the portfolio size and the rest of the quarter?

We call it yes, if the market continues to move against us. We're doing everything we can to maximize our retention, subject to the constraint that we're not going to let our leverage ratio get out of control, because we need to maintain lots of liquidity. So to the extent the market goes more against us and our book value were to come down, our leverage should go up, we have been clean as needed. In the last few months have been sort of a slower evolving version of the taper tantrum we saw in 2013. And, I think when the dust settles -- when the dust settled then as well as now, there were opportunities to be had and I think that continues to be the case. So for us, we're just taking day to day making sure that we have ample liquidity to deal with continued weakness in the mortgage market, and so that we can meet all of our margin calls and maintain leverage, that's reasonable. And so that's kind of how we're going about this. When things start to calm down a little bit, I think we can reassess and see what the longer term vision is going to be.

Got it. Thanks, guys.

[Operator Instructions] Next, we'll go to Mikhail Goberman with JMP Securities. Your line is open.

Hi, good morning. I just have a quick follow up on that portfolio reduction question. You said you've reduced it by about 20% since here and mostly in two and a half threes to reduce the IO percentage.

So that percentage would be higher.

Right IO's are now bigger percentage of the portfolio. And I think I remember you saying that the TBA shorts he had on as of the end of the year gone now is that right?

As of the end of the year gone. Yeah. And what we will do sometimes when we sell assets will sell TBA and then fill with polls. So that's really not a hedge trade so much. It's just a means to facilitate a trade or sale or we by the same way as we buy on swap as well

All right. That's it for me. It sounds like a pretty difficult environment right now. Wishing you guys best luck going forward.

Yeah, it's been a brutal quarter to be a mortgage investor and kind of abandoned by everybody. Nobody wants to own them. So nobody wants to buy a few billion. Let us know.

I'll keep my eyes.

Okay.

Thanks.

I show we have no further questions. I'll now turn it back over to Bob Cauley for any additional or closing remarks.

Thank you, operator. Thank you, everybody. Appreciate your interest. As always, to the extent you have further calls or questions you want to contact us directly, feel free to contact us at the office. Our number is 772-231-1400. Otherwise, we look forward to talking to you next quarter. Thank you.

That does conclude today's conference call. You may now disconnect.