Good morning, and welcome to the Second Quarter 2025 Earnings Conference Call for Orchid Island Capital. This call is being recorded today, July 25, 2025. At this time, the company would like to remind listeners that statements made during this time relate to matters that are not historical facts or forward-looking statements subject to safe harbor provisions of the Private Securities Litigation Act of 195. 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, and good morning. As usual, we'll be going through our deck over the course of the call. Hopefully, you've had a chance to download that from our website. We placed it up there yesterday afternoon. With me today is Hunter Haas, our Chief Investment Officer and Chief Financial Officer; and Jerry Sintes, our Controller. As usual, following the table of contents, the first thing we will do is go over our financial highlights. Jerry will handle that for us. I will go through the market developments and focus on what happened, how that impacted us, our performance and our decision-making. And then Hunter will go over the portfolio characteristics and our hedge positions before we open up the call to questions. So with that, I will turn the call over to Jerry.

Thank you, Bob. If you turn to Page 5, we'll start with the financial highlights for the quarter. During the quarter, we reported a loss of $0.29 per share compared to income of $0.18 per share in Q1. It should be noted that excluding realized and unrealized losses, that was a net income of $0.16 per share, which is the same as Q1. Book value decreased from $7.94 per share at 3/31 to $7.21 at 6/30. Our total return for the quarter was negative 4.66% compared to 2.6% in Q1, and we reported $0.36 of dividends in both quarters. Turning to Page 6, we'll go to portfolio highlights. We had an average MBS during the quarter of $6.9 billion compared to just under $6 billion in Q1. Our leverage ratio at 6/30 was 7.3, which is down from 7.8 at 3/31. Our prepayment speeds during Q2 was 10.1% compared to 7.8% in Q1. Our liquidity at 6/30 was up to 54% from 52%. On Page 7 are our summarized financial statements, which are the same as what was in our earnings release last night, and we'll have more detail presented with our 10-Q that will be filed today. So with that, I'll turn it back over to Rob.

Thanks, Jerry. I will now discuss the market developments from the quarter. There were two significant events, one more impactful than the other. The first was the reciprocal tariffs announced in early April, referred to as Liberation Day. Later in the quarter, the administration passed the One Big Beautiful Bill, which was signed into law on July 4. Although the work to prepare the bill for signing took place late in the quarter and affected the market and outlook, the influence was less pronounced than the earlier tariff announcement. While the situation in April wasn't as severe as the onset of COVID in March 2020, it still brought considerable concern about factors like the integrity of the dollar and capital flowing out of the U.S. This was clearly a chaotic time. However, given our experience, we were well-prepared for this situation. Our cash reserves were very high, and our leverage remained on the lower end of our allowable range. Consequently, we limited our selling to less than 10%. In fact, we repurchased over 1.1 million shares early in the quarter at a significant discount. Once things calmed down throughout the quarter and we stabilized, we maintained a defensive position while accumulating cash reserves. As I mentioned, we continued to stay defensively positioned, keeping our leverage low. Now, I will go through the presentation and highlight the most relevant points. There are two key takeaways I want to stress. On Slide 9, you can see the U.S. treasury curve and the swap curve. The blue line shows where the curve was last Friday, while the green line represents the end of the June and March quarters. The curve steepened and continued to do so in this quarter. I will provide more details on that later. On the right side, the SOFR swap curve reveals that swap spreads have turned extremely negative. For leveraged MBS investors needing to hedge through swaps, this has created an attractive situation due to the available spreads in the market. That is the first takeaway. The second takeaway is on Slide 10, which illustrates mortgage metrics. The top displays the spread we track, with a 15-year history backing current coupon spreads at the 10-year treasury, not swaps. Although this spread is still wide by historical standards, it has decreased from the extreme levels seen in late 2023. However, the scenario is different for swaps. In the bottom left, we show normalized prices for Fannie Mae 30-year coupons, with pricing set to 100 at the beginning of the quarter. While the returns for the mortgage index and the 30-year subcomponent were positive for the quarter, this was mainly due to the income component of the total return. Price returns were negative or nearly negative across the board, except for Fannie 6s, indicating that prices did not fully recover and have continued to decline as we moved into the third quarter. This data supports the second takeaway, which highlights weak mortgage performance despite low volatility, which is contrary to expectations. It suggests that there are appealing assets available to acquire, along with effective ways to hedge them in the swap market. These are the two main takeaways I wanted to highlight. Continuing with the rest of the presentation, Slide 12 shows various swap tenors and the metrics prompting this analysis. Early in April, these rates fell significantly and have since remained stable. This trend is driven by the government’s ongoing deficits, which have led to expectations for continued treasury issuance in the market. This implies that nominal treasuries are perceived as becoming cheaper compared to what is currently regarded as the new risk-free asset, which is the swap yield. Given the expected continuation of heavy treasury issuance, this trend is likely to remain for a while. On the bottom right, our hedge book is weighted by DB01 composition; currently, swaps account for almost 80% while futures make up 21%. Given the current market context, we expect this composition to shift further towards swaps. Moving to Slide 13, you can see data on the mortgage refinancing and housing market. The refinancing index compared to mortgage rates reflects the challenges we face. The refinancing index is at historically low levels while mortgage rates are elevated. Due to the reasons I've highlighted, I expect rates to stay high, and recent sales data shows home prices are at record highs. The inventory-to-sales ratio is at 4.7, the highest since 2016. With consumer hesitance stemming from tariff uncertainties and potential job losses, affordability has reached multi-year lows, leading to subdued refinancing activity. The carrying outlook, particularly for higher coupons, seems quite promising. Therefore, based on current market conditions, the outlook for mortgage and mortgage investing looks very favorable. We have a few more slides before I hand it over to Hunter. Slide 14 shows the U.S. GDP in dollars versus the money supply. The data indicates that government deficits continue to support growth, and notably, despite the Federal Reserve raising interest rates by over 500 basis points in 2022 and 2023, the economy has not slipped into recession. Presently, amid these tariffs, the labor market remains resilient and consumer spending is robust. The ongoing deficit spending is preventing the economy from experiencing the slowdown that would typically occur in such scenarios. I anticipate this strength will persist, suggesting continued strong performance. In the appendix, I will present new data on Slide 26, demonstrating term premiums as measured by the ACM model. While I'm not an expert in ACM, it is highly regarded in the field. The data shows a long-term trend of negative or rarely positive term premiums until around 2015, and we are now starting to see an upward movement that I believe will continue. I think the upward pressure on long-term rates will keep the curve steep, which is appealing for investors like us. On Slide 27, you'll find the spread of the current coupon mortgage to both 7-year and 10-year swaps. Currently, we are at about a 200 basis point spread for the current coupon mortgage to a 7-year swap, a level we haven't seen since late 2023 when the Fed was concluding a significant tightening cycle that impacted mortgages. Thus, this positions us well for the future. On the final slide before I pass it to Hunter, Slide 28 reiterates the Fed's ongoing reduction of mortgage holdings from their balance sheet, while bank holdings are growing at a slower pace. Banks are the key marginal buyers of mortgages. Currently, REITs are expanding but remain smaller than the banking sector. Therefore, the degree of future bank involvement will influence market demand and pricing. Various factors, such as regulatory relief, Fed rate cuts, or bursts of economic strength, could encourage banks to become more active in purchasing mortgages.

Thanks, Rob. If you're following along, we'll return to the investment portfolio section starting on Slide 16. During the second quarter, we continued to reposition our portfolio toward higher coupon allocations. The weighted average coupon increased to 5.45% from 5.32% at the end of the first quarter, while the realized yield slightly declined from 5.41% to 5.38%. Our economic interest spread remains healthy at 243 basis points. We rotated out of lower pay-up Fannie 4s and 5s, amounting to $334 million and $137 million, respectively, and increased our 5.5s, 6s, and 6.5s by $555 million, $145 million, and $86 million, respectively. This marks a continued strategic shift from our barbell approach towards a more concentrated production coupon bias, which has served us well in this recent steepening curve environment that Bob has introduced. Turning to Slide 17, this slide shows the evolution of our coupon allocation over the past couple of quarters. You can see a meaningful decline in exposure to 3.5% to 4.5% coupons with a corresponding increase in exposure for the 5.5% to 6.5% buckets. This shift is deliberate. While lower coupon pools are theoretically easier to hedge, they have shown elevated spread volatility during risk-off events, largely due to redemption-driven selling in the money manager community, as Bob just mentioned. The combination of heightened spread volatility, considerably lower realized yields, and relatively higher hedge costs from a steeper yield curve has contributed to our rationale for this strategic shift towards production coupons. Moving to Slide 18, our repo funding has remained stable. We had a blended rate of 4.48% in the second quarter, which was unchanged from the first quarter. The average maturity shortened slightly to 35 days. Our all-in economic cost of funds rose modestly from 2.83% to 2.95%, primarily influenced by swap portfolio dynamics. We ended the quarter with leverage at 7.3, which is a slight decrease from 7.5, reflecting our disciplined focus on maintaining stable leverage during volatile times. The funding environment remains constructive, with repo spreads relatively stable outside period-end tightness. At June 30, 2025, and extending into the third quarter, we had excess borrowing capacity with 24 active lenders and several more funding sources in the queue. In Slide 19, I will briefly discuss our hedge positions. Our hedge ratio stood at 73% of our repo balance at the quarter's end, which is a slight decrease due to the asset mix shift mentioned earlier. Looking forward, we plan to shorten the hedge mix and increase the notional balance of the hedges aligned with the shorter duration of the assets we've been adding. The book continues to be biased toward interest rate swaps, as has been discussed earlier, with 78% of our DB01 in swaps while the remainder is in futures, predominantly treasury futures. The current configuration places us modestly positioned for a higher rate environment and a steepening curve. The mark-to-market on the hedges in the second quarter totaled $0.47 per share or $53.8 million, with the majority stemming from our swap positions. Both swaps and treasury futures contributed to losses, but treasury hedges outperformed swap hedges, which reflects the sharp tightening in swap spreads following the hedge fund stop-outs in April, where leveraged players were forced to unwind basis trades under stress—distorting the pricing on the treasury curve. Moving to Slide 20, you'll find a comprehensive breakdown of all our hedges, swaps, futures, and TBA positions. Our swap book has a weighted average maturity of 5.7 years with an average fixed rate of 330. Futures remain concentrated in 5, 7s, and 10s. At the end of the quarter, we did not possess any short TBAs or swap positions. Slide 21 illustrates the combination of our assets and hedges in relation to our current risk profile. The current configuration of our portfolio, as I mentioned, is weighted toward lower duration assets, and we have maintained a higher duration in our hedges to accommodate the curve steepening bias alluded to earlier. We expect this positioning to be robust in a bear steepener or higher rate scenario while also capturing meaningful carry, given that spreads of mortgage assets over swaps are quite elevated at the moment. In Slide 22, our dollar DVO1 for RMBS stands at $2.285 million while the hedges register at $2.492 million, leaving us with a modest negative duration gap of $207,000. This represents a 0.17% exposure in a 50 basis point parallel shock, which is quite manageable. Our strategy keeps us agile regarding rate paths, with modest exposure to curve shape and lower rates. Slide 23 provides insights into our prepayment experience. Prepayments have remained relatively muted overall, with a slight seasonal uptick expected. Higher coupons continue to see modest speed increases, but most of them remain in the mid- to high single-digit range. Our deep discount positions still benefit from favorable prepay speeds, primarily in the mid- to upper single-digit range, providing a consistent income source. To wrap up and give a brief outlook, Q2 began with severe volatility reminiscent of March 2020. The tariff announcements triggered a rapid risk-off move and widespread deleveraging. Thanks to our ample liquidity and strong hedge positioning, we managed to avoid large-scale forced sales. As markets stabilized, we successfully raised $140 million in new equity, directing it into higher coupon specified pools and modestly expanding our portfolio by quarter-end. Mark-to-market hedge losses totaled $0.47 per share or $0.53 with swaps accounting for the majority due to the violent swap spread tightening in April. Our portfolio shift toward higher coupons has reduced overall duration. Consequently, our hedge ratio as a percentage of our repo balance saw a slight decline, but we may narrow that gap moving forward. Looking ahead, we believe the investment environment for Agency RMBS remains highly attractive. Production coupon spreads are currently close to 200 basis points over swaps, representing a historically wide level with considerable total return potential, even without a catalyst-driven basis recovery. Our larger equity base, refined coupon allocation, and reduced leverage also grant us flexibility to be opportunistic. Our higher coupon specified pools provide substantial carry, and our hedge structure being biased towards longer tenors aims to mitigate the effects of upward interest rate shocks and a steepening curve. With that, I will turn it back over to Rob for some concluding remarks.

Thanks, Hunter. Before turning to the question-and-answer segment, I want to share a few final thoughts. Although we didn't delve extensively into funding, we've experienced some volatility in funding spreads around month, quarter, and year-end, typically within the range of 3 to 5 basis points. Otherwise, I would characterize funding as stable, with no issues in adding repo counterparties as needed. Our growth indicates that the primary feedback we receive from repo counterparties pertains to their desire for more bonds, not less. Therefore, I would describe funding as ample for our asset class with spreads that are somewhat choppy around period ends, but otherwise stable. Regarding GSE privatization, I believe it isn't on the immediate horizon. While it could occur, the essential takeaway is that with mortgage and housing affordability at multi-decade lows, any risks that could widen mortgage spreads are unlikely to be pursued. Moreover, the President has stated, even if not enacted into law, that they would maintain the implicit guarantee of mortgages, which would lower risks. To sum up, I expect the market to remain favorable for mortgages. As we've discussed, swap spreads remain a point of interest, and while they may continue to erode, we anticipate a steady market. Volatility is low, the curve is steep, and mortgages appear appealing from a carry perspective, all of which bode well for us. With that, I'll turn the call over to questions, operator.

Our first question comes from Jason Weaver with Jones Trading.

So I noted an increase of about $18.8 million in shares over the quarter, which aligns with the $140 million capital raise mentioned. What's your position towards raising additional capital here considering the incremental ROE opportunity that you're seeing?

Well, regarding stock performance, we would prefer to see it higher. When discussing ROEs, context matters, specifically your coupon mix and leverage ratio. Assuming a leverage ratio of 8, which exceeds our current position but is a reasonable base for comparison, increasing our leverage could be warranted in the current environment, given all we've presented. Starting from 8% with our existing coupon mix would yield ROEs around 16%, perhaps 18% at elevated compositions. Thus, that outlines the range we see as viable in this market. Additionally, when it comes to capital raises, pricing considerations become paramount. Although we previously accepted slight dilution to book value in Q2 due to prevailing market conditions and attractive spreads, we ideally aim to be at or above book value consistently, particularly since we're witnessing favorable levels that we haven't seen for a while.

That's insightful. I was also curious, considering your stance on high coupon positioning, how you're addressing premium risk in the 6 and 6.5 pools as they sit at either 1 point or 3 points of premium today on generics? Does that correlate with your view that rates remain higher for longer on the long end?

Yes, indeed. We typically purchase lower pay-up pools, and the prepayment experience on those has consistently been positive. The housing market presents a real challenge regarding affordability and refinancing capabilities. Given the curves and prevailing deficits, along with the resilient economy, major changes on the long end seem unlikely absent some external shock. While this certainly may be deemed an obvious pain trade, I believe the carry on higher coupons remains very attractive.

To add on that, our premium specified pools all come with unique narratives. Therefore, we consider that our main buffer against a large rally premium risk. We have focused on relatively inexpensive stories, ensuring they hold well despite micro refinance waves we've seen over the past year. Additionally, we maintain a decent portion of the portfolio in discount coupons, even though they may currently only feature minor discounts. This strategy minimizes exposure to both minor rally and refinancing spectrums as well. Moreover, higher coupons are performing better as we've approached the upper realms of recent rates.

Understood. One final question if I may. Did you provide an updated quarter-to-date book value estimation?

I apologize if I missed it during my earlier remarks. We did not provide an updated figure. As of last night, though, and these numbers are not audited, our best estimate indicates a $0.03 decline quarter-to-date, reflecting approximately a 3% drop.

Our next question comes from Mikhail Goberman with Citizens JMP.

Thank you for the detailed slide deck. I have a quick question about prepayment speeds. There was an observed spike in the second quarter. What's your outlook for the third quarter concerning prepayments?

I would say very muted. The second quarter typically serves as the peak seasonal period, regardless of whether it's a premium or discount story. The brief refinancing spike was primarily due to the rally we observed early in the quarter, and I don't anticipate that continuing. With ongoing pressure on long-term rates, meaningful recovery seems unlikely.

I agree; I expect them to remain muted. Some of the early spikes can be attributed to natural portfolio seasoning, along with a minimal refinancing opportunity comparable to last year's movements toward year-end, which affected December and January speeds. Moving forward, we should be well-prepared. We've added newer issue spec pools presenting upper coupon rates; this should pull the weighted average speed down slightly.

Would you anticipate something in the mid or low 9s, as opposed to the nearly 8% seen in the first quarter?

Yes, I don't have concrete numbers at the moment. Our slide indicates 3-month speed was about 8.9%, and some 6's were at 14.4%. While I don’t foresee us reaching single digits for those coupons, I expect them to persist in the teens with exceptions occurring for the 7s. Ultimately, mid- to low-teens remain realistic expectations for year-end, along with elevated carrying conditions persisting.

Our next question comes from Jason Stewart with Janney Montgomery Scott.

Rob, regarding your capital activities related to share repurchases and issuances—do you have an estimate of how these affected book value for the quarter, either separately or collectively?

I don't possess specific data on buybacks. However, regarding issuances, it generally fell within a range of about $0.20 to $0.21 negative in Q2, while in Q1, it was closer to $0.21 to $0.22 positive. Due to selling more shares in Q2, that combination brought the total to approximately 99.5% of book value for the first 6 months of the year, net of fees.

Okay. That's clear. Additionally, could you elaborate on the ROE range concerning the dividend? Considering tax variances, if we evaluate the dividend at a book value of approximately $7.24, that's a 99% payout rate, factoring in operational costs. Relative to your ROE estimates in the high teens, can you provide further insights into how those two aspects align, especially regarding taxation versus economic return?

Certainly! It's crucial to understand that mark-to-market portfolio fluctuations will impact the yield. If the portfolio experiences a markdown, the yield will appear elevated. This marks the difference: while the dividend yield may be 20%, it obscures the mark-to-market loss incurred. Although it influences dividend calculations, the yield components are significant. Total returns need to be evaluated against realized or unrealized losses. It’s also important to remember that tax obligations, including the treatment of closed hedges, influence what we regard as cash surplus. Overall, while the dividend yield appears high, it doesn't capture total returns, including mark-to-market losses. Our ROE considers carry on a flatline basis, reflecting historical returns affected by total returns.

That's quite helpful. Can we assert that the current dividend policy driven by the taxable distribution requirements would eventually converge with the future economic circumstances?

Perhaps; I would assess it as potentially being a year or two away. The bulk of the effects will likely diminish in that timeframe. However, it's crucial to consider that as we grow, the relative dollar amount from last year and its effect on future dividends will dilute accordingly. Therefore, the overall magnitude will depend on the company's growth trajectory over the next couple of years.

Considering the first seven months of the year, our taxable income projections align with our dividend distribution.

Our next question comes from Eric Hagen with BTIG.

For clarity concerning the book value update—does that include the dividend accrual?

Yes, indeed.

Your thoughtful approach to market conditions always stands out. Do you expect MBS spreads to be more susceptible to widening or tightening in response to a rate rally, specifically for current coupons? Are there scenarios under which a curve steepener could coexist with a decline in rates?

Mortgages have trended directionally lately. A significant rally's success hinges on its cause. Should credit roll over, we would likely witness pronounced widening. However, while that’s not our house view, it remains a risk to contemplate. With the orderly market conditions we've seen in recent years, as we approach the lower end of the current rate range, we expect higher coupons to weaken as anticipated alongside tighter conditions ensuing from slight discounts that will persist. Conversely, if the economy remains strong—a position we generally favor—there may be re-steepening as Fed cuts move further back, influenced by persistent treasury issuance affecting curve dynamics. This trend became evident within the swap spreads in April. Overall, we have our sights set on this matter closely. We don't foresee enormous widening; from the player perspective, REITs and money managers remain the marginal buyers. Fast money hedge funds frequently rotate in and out. In contrast, banks have not made significant purchasing moves—typically preferring floaters. If credit rolls over, we could expect money managers to allocate more to mortgages. Ultimately, whatever perturbation impacts the market, it will likely spur mortgage buying rather than reduce it. The fundamental positioning looks favorable.

From your assessment, the prevailing MBS spreads don't appear to fully account for the likelihood of the Fed cutting rates before year-end, and it seems necessary for the Fed to act in order to catalyze spread narrowing?

That could be possible. We've been discussing Fed cuts for an extended period — all the way back to late 2023 and through 2024; speculation keeps getting postponed. The economy's resilience poses a challenge for them. Consider this analogy: if the economy resembles a car traveling down a road, when it goes too fast, the Fed will intervene to decelerate it. This can be likened to a truck pushing from behind, which symbolizes government deficits. Regardless of how aggressively the Fed applies brakes, that truck continues to push forward, maintaining growth. A nuanced interpretation of potential growth suggests it to be 2% to 2.5%, while the ongoing deficits dwarf this. Therefore, managing inflation remains complex. The measures from the 'One Big Beautiful Bill' promise significant economic stimulation and the associated job creation from firms establishing operations in the U.S. generates multiplier effects, with capital spending contributing substantially to growth. Thus, I envision sustained economic strength amidst possible inflationary trends. The cumulative weight of these factors suggests that further Fed cuts, while not guaranteed, could occur. Still, it holds true that steepening of the curve should continue given the expectations surrounding term premiums and treasury issuance.

I'm showing no further questions at this time. I would like to turn the call back over to Robert Cauley for any final remarks.

Thank you, operator. Thanks to everyone for joining us today. If any questions arise later or if you happen to miss part of the call and would like to listen to the replay, please feel free to reach out. Our number is (772) 231-1400. Otherwise, we look forward to speaking with you next quarter. Thank you.

Ladies and gentlemen, this concludes today's presentation. You may now disconnect, and have a wonderful day.