Good morning and welcome to the Third Quarter 2014 Earnings Conference Call for Orchid Island Capital. This call is being recorded today October 28, 2014. 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 factors 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 for 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. Sir, you may begin.

Thanks, operator. We are nearing the end of 2014 and the script the bond market was expected to fall as at the bottom of the garbage can long ago thrown out with the junk mail. The Fed has followed their script tapering their treasury and [on BS] asset purchases in a very well-telegraphed moves and nice even increments. The economy has followed its script growing at a very respectable rate although in uneven steps since the fourth quarter of 2013. The housing market continues to improve albeit at a slower pace than in 2013. Payroll growth has averaged north of 200,000 jobs per month and has been accelerating recently. So what went wrong with the bond market? Yields on U.S. treasuries continue to rally briefly falling to 1.85% on October 15. Well for one, Europe has not cooperated teetering on the verge of recession. Geopolitical events are too numerous to list for they dominate the headlines all year. We have an Ebola scare that’s growing and unnerving the markets daily. So in spite of a very obedient Fed, and an economy that has generally lived up to expectations, interest rates are not higher than the year end 2013 as was widely expected. Instead they are close to the level seen in the spring of 2013. In spite of all these, the Fed Funds futures market continues to price in the initial Fed rate hike for late 2015. The agency RMBS market has had a good run all year as the current coupon 30-year Fannie Mae pass through RMBS tightened to comparable duration treasures and swaps all year until widening modestly with the rallying rates on October 15. Even with that widening, mortgages are still significantly tighter than they were at beginning of the year. Prepayment speeds have remained muted all…

(Operator Instructions). Our first question comes from the line of Steve DeLaney of JMP Securities. Your line is now open.

Thank you. Good morning, Bob and congratulations on the growth in the company this year and on the recent NYSE listing.

Thanks, Steve.

I wanted to just ask your mix as you and Hunter run the portfolio, I think you’re showing here that in terms of capital allocation which is I think a great way to talk about it rather than asset mix -- 61% pass-through, for 39 IO. Can you remind me what the range has been? If we look back over the last year, what has sort of been the range there in terms of the IO percentage and how large could you allow that IO allocation to go given whole pull requirements? If we were to see or expect a more aggressive Fed and slower prepays than you might wanted to overweight the IO a little bit more, what’s your flexibility I guess is what I’m really asking there?

Sure. We are actually at the near low end of the range in terms of our allocation to IOs. Obviously, we [went] publish since February of ’13 but we have been monitoring this portfolio actually for close to six years now. It’s actually been as high almost 70% IOs at one point. And the interesting point though is that because we don’t apply leverage to the IO securities and we do apply leverage to the pass-throughs, you have the latitude to take the IO capital allocation quite high just because for instance if you’ve had a $100 million of capital, we had say $65 million in IOs, that other $35 million of capital could be leveraged seven or eight times and you easily get over the 55% whole pull threshold. Hunter, do you want to add to that any?

Yes. Since the IOs are priced on a notional balance. The fair market value is quite a bit lower and that’s the key metric for the test. So if we have an IO that’s backed by a $100 million notional balance, it might have a $15 million value whereas a $100 million worth pass-throughs is going to be worth something north of $100 million in our premium portfolio.

Okay. And just a follow up, just looking within the structured product. It looks like the mix between IO and inverse IO was sort of 70% IO as of September 30 and obviously the unlevered return is better, I think I heard you say on your inverse IOs currently. But again if we were expecting more action, if you will, on the short end in the next 6 to 12 months, would you then shift more to find the IO product more attractive relative to the inverse IO?

Yeah, I would say so. Generally, the IOs have actually improved, I mean it wasn’t that long ago that they were almost all materially negative yielding assets. Now we can find some that are positive yield and as you say the inverse IOs because of our exposure to the Fed, unless you can get very, very short cash flows it’s hard to get away from that. So we have been trending more towards IOs versus inverse IOs.

Yeah, we do focus, Steve, on inverse IOs that are relatively short cash flows. We want to keep the dollar prices fairly low just in that sort of – you think in terms of a cash flow multiple, we like [fees] [ph] kind of low multiple inverse IOs off of collateral that is paying relatively fast so that if the market for whatever reason will wake up tomorrow and the expectation is that the Fed is behind the curve, we expect we would see some sort of a long-edge sell-off in a magnitude greater than what we would experience on the front-end. So in that scenario we would get a lot of cash flow extension by virtue of the fact that the prepay speeds on those pools underlying that inverse IO would extend pretty dramatically. So said another way we look for low duration inverse IOs.

Right, okay, guys, well appreciate the color, and good quarter. Thanks.

Thank you. And our next question comes from the line of David Walrod of Ladenburg. Your line is now open.

Hi, I just wanted – I had a couple of questions to a little -- elaborate a little bit. I know you had a little discussion with prepays in your prepaid remarks and you also discussed a little bit of a change to the assets you’re buying. Your prepays picked up, I know you say [indiscernible] – they did pick up a little bit. I guess can you discuss your outlook for prepays and also maybe give a little more color on the types of assets you’re buying now as opposed to what you’re buying previously?

I’ll take the first part and you take the second. We think there probably will be a very modest reaction in terms of speeds to the slight lowering rates this month, but I don’t expect it to last, it won’t persist. And after that we head into the seasonal slowdown. So our expectation is for speeds to remain quite muted. That is where we take our risk if you will. Our portfolio is exposed to a rally and a significant increase in speeds and we are comfortable taking that risk. As far as the mix of assets, I alluded to it briefly. We have shied away a little bit from the highest quality call protected securities and I will let Hunter talk a little bit about what we have been buying.

Sure. So one of the strategies we’d like to employ is we sort of bounce around the range that we have been in and we sort of broke out of it a little bit to the low side over the last month or so. But when we saw that taking place, one of the things we started to do was sort of sell some of the weaker story assets in the portfolio. So as you know we have a relatively high premium portfolio. We put that in place because we feel confident that prepayment speeds are not going to trend materially higher for a long period of time. And so when we have moments of time where we re-cast lows or get to recent lows, a lot of times we will take advantage of that period by selling some of the older more seasoned less effective stories and replacing them with -- not necessarily more expensive stories but new versions of the things that we like. So zero [indiscernible], low FICO, high LTV, we get those in say like September, October, November production. We think we have got a pretty shot of making it through whatever spike occurs in the next couple of months related to testing those lows in rates and then hopefully we are sort of on our way to - well into the seasonal slowdown in speeds after that initial pop or whatever you want to call it. But by and large it’s been, as I say, more or less the same types of collateral, just newer versions of it.

Okay. And then obviously you guys have been growing a lot, you grew out in the quarter. I just want to talk a little bit about your hedging strategy. It looks like you didn’t fully add to the Euro-dollar future portfolio, but you did add a swap. Can you kind of talk about your swap – I guess you had a swaption. Are swaptions you think a more effective way to hedge -- or and I guess at what level of hedging do you feel comfortable being at?

Well, we did increase the Eurodollars since quarter end slightly. I think I mentioned we’re about 76%. We actually added a little bit more to that in anticipation of potential growth, and swaptions are very effective tools, just because you have two elements to them, obviously you have the option elements. So you have exposure to all and then you can pick your point on the curve for the swap. Swaps have become a little more difficult to use because of the capital requirement. There is initial margin. Let Hunter add to that.

Yeah, the only thing I would add is that throughout the course of the year there has been some great opportunities to add products which are dependent upon volatility such as swaptions and we sort of bounce back and forth between the two different products, or between, the types of [indiscernible] have optionality and those that don’t based on sort of entry points I guess and what we need in terms of our convexity concerns. As I alluded to earlier, we think that swaptions are a great product for that inflation fear type of scenario that Bob outlined in his prepared remarks, because any type of spike higher on the long end of the curve would be very detrimental to companies like ours. And we think the only way that can happen is with the spike in volatility as well. Those sort of unintended benefit of those transactions was always in the rally that we witnessed in mid-October. We saw a nice spike in volatility which offset some of the mortgage widening that we also were witnessing during that period of time. So just kind of taking a step back though it’s, from a high level perspective, our portfolio has behaved in a very flat manner. So as rates have bounced around we have actually even witnessed periods of where our empirical duration has been a little bit negative. We think as we break out of a range in some kind of a panic sell off type of environment, that’s not likely to be the case. So that’s why we focus on some of the option trades.

Just one point I want to add to that, Dave, is that we talk about this inflation outbreak and what would happen. We don’t view that as a high probability event. It’s probably quite low, but it would have very material negative benefit to us and that’s why we guard against it. And then one final point. When we have the spike in rates down on October 15 after that dust started to settle we kind of took advantage of that and that’s when we did some of the hedge trade, just take advantage of the lower forward curve at that time.

Okay, great. And then just summarize it, 76% that’s kind of the ballpark of where you’d like to be on a hedge basis.

Yeah, with those products, because keep in mind we have negative duration in the structured mortgage book as well. Right? So we’re more fully hedged than 76%, when you take into account the negative duration in the IO and inverse IO portion of the portfolio.

Yeah. Also the IOs, your exposure there is more to the long end in terms of as a hedge, where the Eurodollars are more belly. So hedge the belly risk through Eurodollars, hedge the long end risk through a combination of swaptions and IO.

(Operator Instructions). Our next question comes from the line of Michael Diana of Maxim Group. Your line is now open.

Hi. I think I heard you say when your receivables and payables for securities all settled, your leverage is about 6.3 times. Is that where you’re comfortable with in this environment?

Yeah. We’ve been running – Mike, by the way, good to see you, - we are running between 6 and 6.5 for a quite a while now and that’s right in the middle of that range.

At this time, I am showing there are no further questions in the queue. I would like to turn the call back over to management for any closing remarks.

Thank you, operator. I appreciate everybody’s time today. To the extent anybody has any follow-on questions something that comes up after reading the Q or something, please do not hesitate to call. We will be in the office all week and we look forward to talking to you next time.

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