Good day and thank you for standing by. Welcome to the Orchid Island Capital Second Quarter 2026 Earnings Call. At this time, all participants are on listen-only mode. After this speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message if your hand is raised. To withdraw your question, please press star 11 again. Please advise that today's conference will be recorded. I would like to hand the conference over to your first speaker today, Lisa Alfonso, Investor Relations. Please go ahead.

Good morning, and welcome to the second quarter 2026 earnings conference call for Orchid Island Capital. This call is being recorded today, July 24, 2026. 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'd like to turn the conference over to the company's chairman and chief executive officer, Mr. Robert Colley. Please go ahead, sir.

Thank you, Melissa. Melissa, and good morning. I hope everybody's had a chance to download our deck as usual we will be focused on the deck for the call just to begin on slide three we just have our table of contents so the first thing first order of business will be our controller Jerry Sintas will go over our financial results then I'll go over the market developments that occurred during the quarter these are what shaped our decision-making and our results and then we'll go through the portfolio characteristics, hedge positions, and then also our kind of positioning going forward in our outlook on the market. So with that, I will turn it over to Jerry.

Thank you, Bob. If we turn to page five, we'll start with the financial highlights for the quarter. During Q2, we earned $0.44 per share. That compares to a loss of $0.11 during Q1. Book value at the end of the quarter was $7.22 compared to $7.08 at the start. the quarter. Total return during the quarter was 6.2% compared to negative 1.3% in the previous quarter. And our dividends during Q2 was $0.30, which we reduced from $0.36 during Q1. On page six, we'll go with some portfolio highlights. Our average portfolio was $11.4 billion during Q2, up slightly from approximately $11 billion at the end of Q1. Economic leverage ratio at the end of Q2 was 7.3 to 1 compared to 7.9 to 1 at the end of Q1. During Q2, we experienced prepayment speeds of 10.9% compared to 14.7% in Q1, and our liquidity is down slightly to 53.7% compared to 54.5% at the end of Q1. And with that, I'll turn it back over to Bob to discuss market developments. Thanks, Jerry.

I'll start on slide nine. A picture's worth a thousand words. If you look at the top left side of the page, you can see the movements in the curve from year end, which is the red line. The green line is June 30th, and then the blue line is last Friday. As we all know, the market has moved quite a bit since then. So if you were to put in a line for today, it would be above the blue line. Basically, what has changed, a couple of things. The first was we had a change at the head of the Fed. As you recall, when Chairman Powell left his last meeting, there were three dissents at his meeting in favor or against retaining the easing bias, so kind of a hawkish development. and then we had the transition in May to Kevin Warsh and he is very, very strongly against inflation. In fact, he stated that the fact that inflation has been running above the Fed's target for five years is unacceptable and he intends to do everything he can to bring it into line. When that type of development occurs, obviously it's going to push the front end higher because the market's going to price in Fed hikes, which is the case, but also from the perspective of the long end of the curve to the extent the Fed is more hawkish fighting inflation tends to do well. In fact, on the day of that press conference, the long bond actually was slightly up in price. So both of those forces tend to flatten the curve and in case that's exactly what we've seen. So the curve has flattened and it may continue to flatten depending on how events related to the war unfold and how those events affect the domestic economy. If you look at the swap curve, obviously the only difference between the swap curve and the one on the left, which would be the nominal curve, are swap spreads. Over the last month, swap spreads have been moving more negative, which actually increases the spread between the two curves, but the convention is to refer to that as tightening. So swap spreads have tightened, pushing the swap curve down, and it's actually flattened even more. If you look back on a long horizon, it's actually relatively unchanged, kind of in the middle of the range, but the development of late has really pushed the swap curve down even more. Moving on to slide 10, some more mortgage generic slides. If you look at the top of the page, this is kind of a long-term look back all the way to 2010. This is just the current coupon spread of the 10-year Treasury. As you can see, in early 2023 or mid-2023, actually May of 2023, we kind of hit at the time an all-time high spread. And over the next three years, we've been on a tightening trend. It seems like we have leveled off. It's possible this spread is over, spread tightening is over, remains to be seen, but it's been quite a long run here that's been very favorable for mortgages. Looking on the bottom left, you can see just the normalized price changes of various TBA coupons. As you can see, at the end of the quarter, with the exception of the highest coupon, 6, they were all negative. These are price returns only. The absolute returns for those TBAs were actually positive. The lowest return was about 0.2%, and higher belly coupons were a little over 1%. Looking on the right-hand side of the page, these are dollar rolls. Two things you can see, none of them are particularly attractive other than the six roll at the moment. But what we've observed over the last several months is when these rolls get hot, it tends to be driven by short-term technical factors. They don't tend to persist. And even in the case of the six, you can see that's what's going on. There can be any number of factors driving that. It could be CMO desk demand for the front month production to use to create CMOs, or it just could be somebody trying to squeeze a certain coupon. But otherwise, the dollar road market is not terribly attractive and certainly nothing like it was during the days of QE. Moving on to some of the other variables that affect us, obviously volatility is very important for mortgage investors. And you can see that, you know, we've been in a long-term trend where vol was declining going back to Liberation Day in 2025. Obviously, the war caused a significant spike, and you can see that kind of around February. This is not updated through today as since last Friday. But it's notable that the closing level of the move index yesterday was 80. and that really only kind of gets you to the high end of the range that we've been in since March. Still remains to be seen where we go from here. Obviously, there's a lot of uncertainty surrounding developments in the Middle East with the war. Moving on, I mentioned earlier on slide 12, this is just swap spreads. They had moved in a positive direction, in other words, less negative, and as I mentioned of late, that has turned around and done the other way. yesterday swap spreads were in anywhere from a tense to a little over one basis point in other words more negative so that affects the performance of swaps as hedges that's why we mention that on this call and as I said it's it's more recent development we're not really sure where we go from here and there's just a lot of uncertainty out there slide 13 just gives you the backdrop for the refi or prepayment mark level as you can see on the top left on the bottom line there that's just the refi index we've been very stable at a very low level refinancing activity as you would expect is extremely subdued the red line is the mortgage rate we don't have a firm read on that today but late yesterday that was somewhere in the neighborhood of six point seven five percent that might even be a little generous it could be higher with respect to primary secondary spreads they're two things relatively low but also very volatile as a proxy if you look at six point seven five is the current mortgage rate the two year ten year treasuries around 470 so you're a little over 200 off the tenure that is not tight by historical standards finally slide 14 this is really not anything other than interesting to me just shows you the nominal growth in GDP over the course of this goes back 17 years and the money supply this is starting to get a little more attention it just shows you that when you have inflation running high that inflation that GDP in nominal terms in other words not real which is what we're accustomed to seeing is accelerated GDP growth in real terms is you know fairly stable in the two to one and a half to say two and a half percent but in nominal terms it is accelerating and that coincises with growth in the money supply now let's talk more about the portfolio I think the most important point to make for us is that not a lot changed we were not active in raising new capital we did do so we increased our share count by about one and a half percent then all in all was not a very big quarter for growth we did do some trading we'll talk about that more in a few minutes we did shift the kind of profile of the portfolio slightly down in coupon the largest concentration of our holdings which by the way around now all 30 years are in five and a half percent coupon basically the portfolio is concentrated in the three coupons nearest the par so fives five and a half and sixes and the reason we did that we moved slightly down in coupon basically didn't take advantage of the fact that specified poll performance has not been that great of late especially with the refinancing activity so low so we went down in coupon lower absolute dollar price lower absolute payups with some upside in the event of a rally. Coinciding with the move slightly down in coupon, the hedge book had to adjust slightly as well. We added to our swap positions and tried to move the swap book to coincide and line up better with the portfolio. With respect to the impact on dividend going forward, absent fluctuations in the leverage ratio, it's actually been maintained more or less where it was part of these changes as I mentioned our average coupon again it's mostly it is all exclusively a 30-year portfolio average coupon was down about six basis points we had a slight decline in our economic and interest income one basis point decline in the yield of the portfolio from 575 to 574 and a five basis point increase in our economic funding costs resulted in the six basis point decline in our net interest spread moving on to slide 17 is more appropriate in prior quarters when we were adding significantly to our capital base at a time when mortgages were attractive didn't do so much at all this quarter so it's really in a so to speak for the court with respect to slide 18 As I said, if you look at the profile, we did move the profile to the left slightly, and it was really just driven by the performance of spec pulls, which have been fairly weak. Dollar rolls, as I mentioned, there have been sporadic coupons that have gotten special, traded well, but the relative attractiveness of spec pulls has just not been all that great in this environment. I do have to apologize. There's a slight error. on the bottom left it shows a four and a half exposure that is actually not there is no 15 year exposure at the end of June that's all in third year so basically that's it as I said this is not a quarter we did a lot just fine tuning the positioning of the portfolio moving on to slide 19 our funding cost this has been a very welcome development over the last several months and that funding spread to compress quite a bit we've observed periods were SOFR trade through fed funds and our funding and the repo market has basically run high single digits to low double digit spreads what's been driving this favorable funding market kind of a an offset between two opposite forces on the one hand you have the feds reserve management purchase program whereby they purchase bills in the market, so they take away investments to cash providers and drive them into the repo market. We've also seen very high levels of money market AUM, so in other words, cash available. It does appear just really this week that we are starting to see some movement away from this, very, very attractive levels. Bill issuance by the Treasury is actually increasing. money market AUM declined slightly so we have seen funding levels just slightly higher but there's no reason for us to think that there's anything ominous on the horizon it's just kind of a drift slightly higher from what have been very attractive funding levels and as you can see on this chart or this graph our funding our economic funding levels continue to converge with the absolute level of SOFR and what we pay in repo. Obviously, with the Fed on the horizon, probably likely we're going to see a few hikes. Obviously, the exact timing of those is unknown. But that being said, the last easing cycle was three 25 basis points moves. Those were kind of characterized as taking out insurance, if you will, and the potential for a slowing economy. And maybe they take those back remains to be seen we have a new Fed chair and we have a lot to learn in terms of how he tends to operate in his management of the Fed so we will just stand by wait for that moving on to slide 20 as I mentioned in our heads position we did increase we basically added some five five year and ten year swap positions as a result our repo funding the percent of our repo funding that is covered by our hedges increased from 72% at the end of Q1 to 91% at the end of Q2. Our swap notional balance increased from about $7.9 billion to $10.1, which meant that our swaps covered 70% of our repo versus 65. Weighted average pay fixed rate is $361. That's up slightly. It just reflects the fact it's kind of market-to-market as we put on new swaps in the current higher rate environment that are at slightly higher levels. Short TBA positions increased. We use those kind of in conjunction with futures opportunistically. So, for instance, if TBAs have a poor run and perform very poorly over a two- or three-year, even two-month period, sometimes we'll take those off and put on futures and vice versa. but they're kind of used not as the predominant hedge vehicle but used some of these part of the portfolio but kind of interchangeably we also added a swaption position this year or this quarter which is detailed on the slide below on slide 21 on the bottom right this is something we often do or we do along in a short position the idea with the is to kind of offset the cost of premium pay to kind of minimize that as I mentioned if you look in the top right our swap book grew we added a 500 million dollar five-year swap and a 300 million ten-year swap so that's how major change with respect to the hedge book moving through the rest of the slides 22 is nothing that I need to dwell on those are just kind of FYI for our viewers on slide 23 the sensitivity to portfolio to shocks as you can see it's very flat probably the flattest it's been in memory but again we're kind of in entering into a new environment here so they may be needs to adjust that over the course of the balance of Q3 kind of just going on to I'm gonna skip slide 24 you can see our speeds as we mentioned Jerry mentioned the onset of the call with rates higher speeds did slow over the course of the quarter, and I suspect they will continue to slow as mortgage rates drift even higher, offsetting would otherwise be a seasonal factor that would tend to drive speeds higher, so I don't expect we're going to... So kind of to wrap it up on slide 25, you know, where we stand, you know, when I prepared this deck, it was before the last few days, and things have changed. With respect to the war, there's quite a bit of uncertainty with respect to the war, how that's going to impact rates, the economy, and what the Fed's going to do to respond to that. We're kind of just watching with everybody else, but we are likely to have to start making some slight changes to the portfolio just to account for the fact that our portfolio is extending. Our leverage ratio, as we mentioned, was 7.3 at the end of Q2. as of last night it's up to about seven point seven three so leverage has extended as book value has moved and mortgages of extend so we will be seeking to address that but I don't have any definitive to say one thing I do want to say though is that if you look at our existing portfolio versus the dividend I tend to look at the dividend in terms of the dividend divided by book value so in other words what is the book value yield of the portfolio and the way I calculate book value is just to take the beginning and ending values for the quarter take the average so if I take our average book value for Q2 and use that as the denominator the numerators the dividend get a yield of about 16.8 percent and then if I look at what we were earning on a portfolio using gap measures we're right around the same level right around sixteen point seven so the portfolio continues to yield something very much in line with a dividend and to the extent we are able to raise capital I suspect that mortgages may continue to cheapen here I do see there's a lot of measures you can use to gauge the movement performance versus hedges or OAS whichever your preferred measure is, there's no question that mortgage isn't cheapening over the course of this week. And so the market's becoming more attractive. So that is, if we do have the opportunity to raise capital, it's probably not a bad time to deploy it. I do want to give you an update on book value because I know you're going to ask. And so I want to follow kind of the convention of our peers. I'm going to give you two book value numbers. One is as of last Friday, just to coincide with those who reported earlier in the week. And then I'll give you a book value number as of last night. And then I'm going to give you those numbers both with and without the dividend. So as of last Friday, our book value was down 2.1%. As of last night, it was down 4.3%. Those do include the dividend accrual. If you back out the dividend accrual, the numbers are as of last Friday, down 0.7%. last night down 2.9. So that's basically it. I'd stay for the prepared remarks. Operator, we can open up the call to questions.

Thank you. At this time, we'll conduct the question and answer session. As a reminder to ask a question, you'll need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. And our first question comes from the line of Doug Harder of BTIG. Your line is now open.

Thanks, and good morning. I hope you could talk a little bit about slide 19 and how you think that economic cost of funds should trend in the coming quarters if the forward curve plays out and we get and we get rate hikes you know just try to think about that and then just any differences on kind of how that shows up and gap versus you know kind of how you think about you know the dividend sure so just looking at the chart there so you would expect the red line and the average one

on SOFR lines to pivot and start heading higher our hedge coverage is at a very high percent it's about as I mentioned 91 percent so absent changes in the size of the portfolio I would expect our economic cost of funds to remain fairly stable so it should be akin to what we saw in 23 so we would have a, you know, pretty sizable protection from the increased funding levels. To the extent that we, of course, try to grow the portfolio, we'd be putting in place more hedges market to market mode. So it would be kind of moving higher with respect to the average pay fixed rate. But if we don't and we stay at this level, there will be pressure because we're at 91% coverage. That's not 100. So there would be some leakage into our funding costs. The impact on the dividend is going to depend on what happens to the yield on the assets to the extent that they drift higher or not. But all else equal, the fact that we only cover 91% of the funding with hedges implies there's some room there for leakage in terms of compressing the dividend.

But again, to put numbers to it it really depends on what happens on the asset side uh great i appreciate that answer um and you you talked about kind of the current portfolio uh you know kind of the return covering you know feeling comfortable relative to to the dividend um how do you think about incremental returns you know where do you see them today relative to that you know that required return you talked about for the dividend?

Yeah, there's something to move higher. I would suspect that the move we're in the midst of is not over simply because I think the forces that are driving this move are far from having played out. Important development yesterday was where the 10-year treasury closed. We had a support level or support range somewhere in the 460s. we broke through that level. So now we've established, we're in the midst of establishing a new range in rates. Vol was higher yesterday, taking somewhat of a reprieve today. But I think the primary driver is the war. I don't see any end in sight of the war. In fact, I suspect that it's probably going to get worse. I think that's going to keep market uncertainty at a high level. There's another development yesterday. Nick Timmeros put out an article he's kind of been viewed as the mouthpiece of the fed and in his article he basically said two things one he doesn't have any idea what the fed's going to do and he also implied that there are members of the fomc don't know what the fed's going to do uh that you know as we all know markets don't like uncertainty so you couple that with the developments with respect to the war vol probably going higher i suspect we're in the midst of a move to a higher level of rates and cheapening of mortgages so um you know i suspect given all this and our stock's trading well below book so i don't expect that we're going to be able to raise capital uh when and if we are it's probably going to be down the road and at that point i wouldn't be surprised if mortgages are quite a bit more attractive than they are now so it's really hard to answer your question precisely just because I think we're breaking into a period of higher fall and certainly higher levels of uncertainty. So I really can't, you know, handicap exactly where it is we'll be able to put money to work and what, you know, ROEs will be at the time higher. Other than that, I can't say much more.

All right. Appreciate it. Thank you.

We'll have our next question.

Our next question comes from the line of Jason Weaver of Jones trading your line is not open uh good morning um hey bob uh thanks for all the comments are you there i was just saying thanks for the commentary as always um just one from me and you know as you look at the market today obviously we're somewhat defensive but you know what where would you see the most attractive areas within the coupon stack or various specified cohorts for incremental deployment and and what do you think the roes look like presently well presently they're moving higher so I would have said somewhere in the 16 to 17 percent range I think they could be moving higher in terms of what's the most attractive coupons there's

to the extent we continue to move higher in rates the extension potential of the highest coupons is going to drive them quite a bit cheaper so they could become the most attractive with your lower coupons have done well in this environment but they're not something we would typically own just because of carry that's associated with them the coupons were in yesterday the five percent coupon suffered the worst and that may be kind of a telltale sign of what to expect it's the cuspiest coupon with conjunction with five and a half by depending on the measure you looked at seven to eight ticks wider yesterday they could continue to cheapen and so they could become the most attractive coupon uh those with higher coupons also i think those you know the call it five uh six and a half would be my guess two weeks whatever it is from now whenever the dust hopefully settles um and uh i think as i said the roes are probably moving higher i wouldn't be surprised you know another percent or so So, but it's really hard to say, given that we're in the midst of this move.

Thank you. I appreciate that color.

Thank you. One moment for our next question. Our next question comes from the line of Jason Stewart of Compass Point. Your line is now open.

Hey, good morning. Thank you. Just a quick follow-up on Doug's question about hedging and passive rates and the dividend. You know, if we do see the curve flatten, you know, can you talk us through how you think about the 70% hedge on the funding cost versus the total portfolio at 90 and how you think that that flows through to your projected impact on the dividend?

Yeah, I mean, the curve's going to flatten. I think it's going to continue to flatten. And the fact that only 70% of the book is in swaps, I think is what you're saying, and that's kind of locked in. and the rest of the book is less explicit. But what's really going to drive the dividend is not just going to be what happens to our funding and our funding levels versus our hedge protection. Obviously, there's some leakage there, but it's also going to be what happens on the asset side. And I think we're going to see the spreads compress a lot less than, spread levels are going to compress less than the curve. I think we're going to see mortgages cheapen some more, and I don't think the spread between current yields that are going to be available in the market in the near term versus funding are going to compress that much. And one drives the other, because there's a lot of the investor base in mortgage spaces levered money, and clearing levels as the Fed is entering a hiking phase are going to have to reflect that. So I think that it remains to be seen, but I don't expect a massive compression in spread levels such that you would have dramatic decreases in the dividend. You may have some, but I don't think you're going to have exorbitant ones.

Okay. And then as I sort of think through that, you know, being down in coupon, you give a little less carry for some duration protection. You know, when you get to the end of it, you're going to be able to reposition into, you know, higher ROEs, but during that interim period, if you give up a little bit of ROE, are you willing to hold the dividend level for a quarter or however long it takes before, you know, the economics flow back through to the bottom line?

I don't know if they'd be willing to do that. That's a pretty dramatic move. One thing we found that, you know, as you know, in the past, we've had larger exposures to those coupons, And generally, that's the area of the stack that money managers traffic in. They run money against the index. Those are large components of the index. And you tend to see that your performance is impacted a lot by flows into their funds and out of. And so it doesn't always track what's going on in the rest of the stack, and it can be kind of challenging to manage through. So I don't know that we would make wholesale changes to the portfolio just to kind of wait out whatever it happens to be a month or two or three or whatever period. I think we would try to hold tight. I do think we'll make some changes in the portfolio on the margin, but I don't think it would be in that direction, certainly not in size.

Okay. Thanks for the caller, Bob. Appreciate it.

Thank you one moment for our next question. Our next question comes from the line of Mikhail Goberman of Citizen J&P.

Your line is now open. hey good morning bob um most of my questions have already been touched on but um if i could maybe ask about uh expenses a little bit um the two percent expense ratio that i see in your slide deck is that um is there any more opportunity you guys think for more positive operating leverage or is that a level that you guys are kind of comfortable with at the moment and also um kind of parallel to that wanted to see what drove this sort of year-over-year increase in expenses from about five million to six six and three-quarters thanks well I'd you ask that let's go to slide 33 if you would give you a chance

to get there that is our expense ratio and as you can see it did bump up so two things happened there one if you look at where it kind of was back in 2022 quite high and we had a long downtrend we got well under 2% management and staff were rewarded with bonuses this year as a kind of a reward for driving the expense ratio down so two things to say about that one the awards are all 100% in shares stock no cash and two it's not the kind of award I would expect to see repeated in the near future the future at all I don't expect to see that kind of dramatic improvement so you did see a bump up there in our expense ratio but it really reflects compensation costs related to the share awards that were made earlier this year and I would expect to see this line continue to trend down obviously the more that we can grow the lower it gets because our management fee is asymptotic to one percent so all capital raised from this point forward the management fee is 100 basis points if you're familiar with our management fee structure it's one and a half percent up to 250 million one and a quarter percent up to 500 and then everything after that is 100 basis points so we're well above that level and if you look at the the show on the slide above that the growth in our expenses has trailed out of the capital by a meaningful amount. As I said, we had this kind of one-off award this year. Otherwise, our incentive comp structure is tied entirely to our relative performance, and most of the awards tend to be modest. This was an exception. But again, I think it's more of a one-off thing. I wish it weren't, but it probably is. And so, as I said, I would expect to see this line start to track back down and our expense ratio to start turning back towards, say, 1.7 or so, which is where it was a couple of quarters.

Thank you for the call. We appreciate it.

Yep.

I'm showing no further questions at this time. I'll now turn it back to Robert Colley for closing remarks.

Thanks, Operator. Thanks, everyone. Appreciate you taking the time to join us today to the extent that you have any additional call or questions or you can get a chance to listen to the call live and you have a question, feel free to reach out to us at the office. The number is 772-231-1400. Otherwise, we look forward to talking to you at the end of the third quarter.

Thank you for your participation in today's conference. To just conclude the program, you may now disconnect.