Thank you, [Didi?] .

Good morning, and welcome to the fourth quarter 2025 earnings conference call for Orchid Island Capital. This call is being recorded today, January 30th, 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 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, Melissa, and good morning. I hope everybody's had a chance to download our deck off of our website.

As usual, that's what we'll be using for our basis of the call today. Again, as usual, I'll just walk you through the deck.

I'm joined here today by Jerry Sintes, our Controller, and Hunter Haas, our Chief Financial Officer and Chief Investment Officer. Starting on the third page, I'll just kind of give you an outline.

Jerry will quickly go through our results and discuss our liquidity position. I'll then go through the market developments, which basically shaped the market that we operated in, and the impact that that had on both our results for the fourth quarter, and then also our outlook going forward into 2026.

Then Hunter will spend some time discussing the portfolio, hedge positions, and so forth, developments during the quarter, positioning in the portfolio as of today. Then we'll have a few concluding remarks.

We have some information in the appendices that we want to share with you. Then we will take your questions.

With that, I will turn it over to Jerry.

Thank you, Bob. If we go ahead to page 5, I'll begin with the financial highlights for the fourth quarter.

During the fourth quarter, we earned $103.4 million in net income, which equates to 62 cents per share compared to 53 cents in Q3. Our book value at the end of the quarter was $7.54 compared to $7.33 at the end of Q3.

Stockholders' equity at the end of Q4 was approximately $1.4 billion. We paid dividends during the quarter of 36 cents, which has been the same rate for a couple years now.

Total return for the quarter, which takes into account the change in book value and the dividend, was 7.8% for Q4 compared to 6.7% for Q3. Turning on to page 6, we'll look at some of the portfolio highlights.

During Q4, we had average MBS of $9.5 billion compared to $7.7 billion in Q3. At the end of the year, that the actual balance was $10.6 billion.

We grew a lot, approximately 27% during the quarter. Our leverage for Q4 was 7.4%, which is the same as Q3.

Liquidity during the quarter at the end of the quarter was 57.7% and 57.1% at the end of Q3. That's a little higher than our historic numbers, which are usually around 50%.

Reason for that is primarily because of lower haircuts, which are around around 4% at the end of the year. Prepayment speeds for the quarter were 15.7% compared to 10.1% in Q3.

On page 7 and 8 are our financial statements, which you can read in the deck or in our earnings release last night. Now I'll turn it back over to Bob.

Thanks, Jerry. I will start with the market developments on page 10, if I will, please.

The top left, just the Treasury curve here. This curve is actually a very good place to start, because it basically encapsulates what went on during the quarter.

Recognizing that these three lines just represent snapshots, if you will, of the cash curve as of 9/30, 12/31, and 1/23, or 1 week ago. In fact, rates were more or less steady throughout the quarter as rates traded in a very tight range.

Realized interest rate volatility obviously was therefore low, and implied vol in the swaption market was declining throughout the quarter, and really has declined for quite some time. What's behind this?

Typically, economic data, for one, as it comes out, tends to drive interest rate movements. Prior to the quarter, the data was basically considered to be suspect because of well-discussed issues at the various entities that collect the data.

Then we had the government shutdown on 10/1. Basically, you went from having suspect data to no data at all.

Then when the government reopened, you had very much delayed data that was still considered suspect. Basically, there was not much to drive interest rates other than geopolitical events and/or political events, which did, but not meaningfully so.

If you look to the right, you can see the swap curve is fairly similar, but it did move more, and that's all swap spreads. I'll discuss in a few moments why that is, but we basically had swap spreads moving up as in less negative, and that's why you see movement in the curve from the red line up to the blue and the green line.

If you look at the spread between the 3-month Treasury and the 10-year bill, really hasn't changed much for over a year, but there's been movements elsewhere in the curve. Moving on to slide 11, this is very germane to what's going on, the spread of the current coupon mortgage to the 10-year Treasury.

As you can see, this is a very long look-back period. This goes all the way back to 2010.

The thing that sticks out very obviously is how much we've tightened of late, and especially since year-end. The most recent data point there is last Friday.

You can see it's at about 80 basis points. If you look back to the period, say, between the taper tantrum in '13 up until the outbreak of the COVID pandemic, mortgages trade in a very tight range, centered at approximately 75 basis points, say, and we're basically there.

Obviously, the most recent development, which becomes evident on the bottom left when you just look at these prices, this is, again, the same chart we always use, it's a selection of 30-year fixed-rate mortgages, 3%, 4%, 5%, and 6%, and these are normalized prices. This basically shows you the price movement relative to the starting point at the beginning of the quarter.

As you can see, especially with respect to lower coupons, they had a very good quarter. Then if you kind of try to focus in on what happened around January 8th, when the administration announced that the GSEs would be buying up to $200 billion of mortgages, performance was affected.

In the case of lower coupons, they moved materially higher. In the case of higher coupon 6s, they gave up performance.

The reasons, remember, these are TBAs, not pools. The reason that the higher coupons suffered is simply because the anticipation is that the administration's goal is to lower mortgage rates, increase affordability of housing, which would drive prepayments faster.

Current market pricing, as reflected in the roll market for any of the higher coupons, 5, 5.5s, and 6 and above, are for very, very fast speeds, and lower coupons did very, very well. Looking to the right, you can see in the roll market, especially the 4 roll and the 3.5 have been really much on fire, very strong.

This reflects a relative value trading because these coupons are below par, not going to be subject to prepayments, and if the market rallies, these will be obviously the targets for purchases. They've done extremely well.

The technical they are strong. That being said, going forward into 2026, to the extent that plays out, those coupons are produced because rates are lower, then the supply will overwhelm the demand and that probably relative performance will go away.

That very much remains to be seen. Moving on to slide 12, I talked a moment ago about swaption volatility, and you can see that this trend is very, very clear and strong.

Past year-end, even today, vol continues to decline. The peak that you see there on the top left, that's Liberation Day, early April of 2025.

We all know what happened that day. Vol has done nothing but come off and continues to do so.

If you kind of look at it in an historical context, going on the bottom of the page, we go back to 10-plus years now, we're pretty much back to the levels that we were at back during the days of the Fed rate suppression regime, when the Fed was using QE to keep rates artificially low, and in doing so, obviously, they suppressed volatility, and it was indeed suppressed very low for many years, and we're basically back to those levels. What happens from this point on remains to be seen, but we are in a very low environment.

We know that mortgages are very much susceptible to implied volatility because it affects option values, especially in prepayment models and the like, and with option values very low, then mortgages can do well, and in fact, they have. Turning to the next slide on slide 13, we see a sample of swap spreads.

The blue line is a 2-year swap, and the purple line is a 10-year. As you can see, going back through the quarter and really since the second half of the year, these have been moving higher or less negative.

Why is that? The Fed announced at the October meeting that they were going to end QT.

The market anticipated that. Swap spreads started to move.

Then they announced in December at their meeting Reserve Management Program, in which they are going to be buying up to $40 billion of bills. The logic behind that is a recognition on the part of the Fed that as the economy grows, that their balance sheet should grow in proportionate fashion.

As a result, they will be growing, they're taking out bills, which also helps bring the Fed's Treasury holdings in line with the outstanding universe of Treasuries, because historically they had none on bills. It also has implications for the funding market, because bills are an investment option for money market lenders, and to the extent that the Fed is buying them, that allows more funding available for repo, such as ourselves, repo borrowers.

Our hedge position, and Hunter will discuss this in greater detail later, but as you can see, we look at our hedge positions from the perspective of DV01, that's just our sensitivity of our hedge instruments to movements in rates, and you can see it's very heavily concentrated in swaps. This is the reason why, what we just discussed.

We expect that this may continue for some time. Moving on to slide 14, these are the same charts we've had for a while.

As you can see, something has changed, but not much. On the top left, the red line is the mortgage rate, but it's still at 6.38%, and the refi index, while it's higher, it's not high.

It's still quite low. If you look on the right-hand chart, you get an idea why.

While mortgages have tightened substantially, and we mentioned that the current coupon mortgage spread to the 10-year Treasury was 80 or 90 basis points, the 10-year is about 4.25%, and these spreads, in available mortgage rates to borrowers, are still north of 6%. The spread for the borrower, not for mortgage-backed security, but for the borrower, is still relatively wide.

It has not tightened as much as mortgage-backed securities have. As a result, mortgage rates available to borrower are still close to 200 off the 10-year, and therefore, refinancing activity, while it's picked up some, it's still not particularly high.

Chart 15, just basically the same picture I like to show. The red line just shows you the supply of money, M2, and the blue line is just the economy, GDP in nominal terms.

As the chart implies, the economy is still awash in liquidity. The takeaway from this, I believe, is that it's hard to say that financial conditions are overly tight.

If you look at the economy, the GDP data, retail sales, they're not really weakened precipitously, and this might help explain why that might be. With that, that's the end of my discussion of the macro backdrop.

I will turn it over to Hunter to discuss the portfolio.

Thanks, Bob. Turning to slide 17, just a few highlights for the quarter.

During the quarter, we purchased $3.2 billion of agency specified pools. The breakdown of the purchases is $892 million in Fannie 5s, $1.5 billion Fannie 5.5s, $600 million Fannie 6s, and $283 million Fannie 6.5s.

All these pools had some form of call protection, primarily lower loan balances, loans that were originated in refi-challenged states like New York or Florida, and loans backed by borrowers with low credit scores, high LTVs, or high DTIs, or the like, some sort of credit impairment that would keep them from being able to refinance as as readily as as borrowers that didn't have those constraints. On a model yield, our acquisitions were in basically the low 5% range, and we did sell some assets that were that were yielding mid-4s at the time we sold them.

The model yield on I'm sorry. The repositioning enhanced our carry profile while mitigating our exposure to higher rates and spread widening, as the higher coupon mortgages have much less spread duration sensitivity than the than the lower coupons that were sold.

Slide 18 In slide 18, this is a new chart we just put in to kind of recapture what happened throughout the course of the year. Over 20 Over the course of 2025, we experienced substantial growth, doubling both our equity base and MBS portfolio.

Important to note that this growth occurred at a time when MBS spreads were at historic wides, allowing us to build a portfolio with strong long-term return potential. The line on the slide shows a time series of Morgan Stanley Index that tracks 0-volatility spread over the Treasury curve for a hypothetical 30-year MBS priced at par.

The green-shaded the green-shaded area highlights the timing of our asset purchases during 2025 and into early 2026. Over 75% of the $7.4 billion in acquisitions that were made during the last year and a month or so occurred at a time when the index when this index was was well over 100 basis points.

On average, the spread level of all of our purchases was 108 basis points. That's good.

That's the weighted average of the Morgan Stanley Index at the time we made the acquisitions, I should say. Turning to slide 19, as you can see, we talked about this in the past, our portfolio evolution.

As mortgage spreads tightened throughout the year, we increased our allocation to production and premium coupons, primarily 5s through 6.5s. This strategic shift reflects the fact that lower coupon MBS, which carry greater spread sensitivity, i.e., duration, significantly outperformed higher coupon assets during over the course of the last year.

Initially, we executed this sort of strategic portfolio shift through acquisitions, deploying new capital into higher coupons. Then in mid-December, we took more active portfolio management approach by actually selling lower-yielding 3s, 3.5s, and 4s, reallocating that into higher-carry, lower-duration, and spread-duration pools in the 5% to 6.5% range, as I previously discussed.

Turning to slide 20, just make a few quick notes about our funding costs. Our funding costs saw meaningful improvement over the quarter, driven primarily by Federal Reserve policy actions.

We benefited from two rate cuts and the Fed's announcement that it would begin purchasing $40 billion in Treasuries per month, plus an additional roughly $15 billion tied to MBS paydowns through its Reserve Management purchase program. Orchid's average repo rate declined from 4.33% at the beginning of the quarter to 3.98% by quarter-end.

After the December 10th FOMC meeting, SOFR initially settled into the upper 3.60s before spiking to 3.87% into year-end. During that time, repo spreads to SOFR also widened, kind of pushing from the mid-teens into the low to mid-20 basis point range.

We had a little bit of funding pressure going into year-end. Since year-end, the funding environment has improved markedly.

SOFR has settled in the 3.63% to 3.65% range, and Orchid's repo spreads have have trended to the to the 14 basis point area, call it. We're kind of on track to turn over the repo book in sort of the 3.8% range going into the next few months, as we don't really expect any Fed cuts before the next governor is sworn in.

Turning to slide 21, just want to do an overview of the hedges. Our hedge notional remained relatively stable over the quarter.

At we at the end of the quarter, we were 69% of outstanding repo, just slightly lower than the 70% it was in at the end of the third quarter. The unhedged notional portion of the portfolio stands to benefit from a from a material decline in short-term rates and tighter repo funding spreads as monetary policy continues to ease.

As rolls weaken and mortgage spreads tighten, we also adjust our hedges positions by increasing our TBA shorts, primarily in 5s through 6.5s. As mortgages tightened, we put on a little bit of basis hedge.

It's not material, but, just sort of legging in as as as we saw mortgages had tightened for several months in a row. We added pay-fixed swaps on the very front end of the curve, further improving our downside rate protection.

Slide 22, a little more detail, this slide helps visualize the hedge adjustments I just discussed. At the end of the third quarter, we had virtually no outright TBA hedges.

The the short positions you see here reflected a 15/30s coupon swap we had in place, which we'd maintained for several months. Now shown here, we are outright short 5.5s and 6.5s, and we put on a small short in 5s in early January.

On the Treasury hedge side, we continue to reduce our exposure there. It's reflected in the top left table.

Then as we were as we acquired new specified pools, we hedged them almost entirely with interest rate swaps. We were focused more on the very front end of the curve.

As rates come down, the duration of the portfolio is shortened, and we put these hedges on at a time when there were still several rate cuts baked into 2026, which is unwound a little bit since. Net of the unwinds that we did during the quarter, we added $950 million 2-year pay-fixed swaps, $800 million 3-years, $90 million 5-years, and $75 million in 7-years.

These strategies aimed at locking in, as I said, the market-predicted rate cuts while fine-tuning the hedge book to account for the shorter net duration of the portfolio. Slide 23, just going to kind of quickly go over some of the risk metrics in the portfolio.

We like to to follow these measures. You'll notice the portfolio duration remains low at 2.08.

That's a direct result of our higher coupon skew, which carries less duration exposure than the lower coupon alternatives. The shorter duration profile is a key part of our risk management strategy.

It performed better in a sell-off or a spread-widening event, which we think could occur. It offers us more defensive positioning than the 3s, 3.5s, and 4s which were sold in December.

On the other hand, this profile is would benefit less from further tightening, which we actually have seen in January, which is consistent with our modestly lagging performance versus what some of the other what some of the peer group has reported since Trump's announcement in January that they wanted the GSEs to purchase $200 billion more MBS in their retained portfolios. Also, just want to note the OAS shown here.

SOFR OAS for 5s to 6.5s remains quite attractive in the 50 to 60 basis point range, reflecting our strong call protection in our portfolio. For comparison, when we published Q2 earnings call deck, the same OAS levels were at least 20 basis points wider.

This tightening reflects improved technicals and more constructive tone in agency MBS markets, but also speak to still how well-timed our 2025 purchases were. Slide 24, discuss the interest rate risk profile.

You can see we continue to maintain a very flat interest rate profile. You'll notice the portfolio has some negative convexity.

This is reflected in the fact that both the +50 and -50 interest rate shocks show small mark-to-market losses. It's a natural result of hedging a convex agency MBS asset with the more linear instruments like swaps and futures.

December 31st, our DV01 stood at $122,000 long. As of now, more recently, it's increased slightly to $178,000.

The duration gap also moved modestly throughout the fourth quarter. It was -0.07 years at 9/30, +0.12 years at 12/31, and currently sits at approximately +0.17 years.

Turning to slide 25, prepayment speeds were a major focus during the fourth quarter, especially given the relative underperformance of up-and-coupon TBAs. However, as we've emphasized in the past, Orchid's is exclusively invested in specified pools with call protection, and this and this positioning insulated us from the more dramatic impacts seen in the TBA markets.

That's been That said, speeds did trend a little bit higher in the quarter, particularly for 6s and higher coupons, which reduced carry slightly and trimmed yields in those positions. Looking forward, we expect prepayment speeds to moderate modestly, which would improve carry.

We continue to closely monitor in light of the potential Fed actions and and influence of GSE-related policy headlines that could put a little bit of upward pressure on speeds, but I think that most of that is probably baked in at this point. To wrap it up, 2025 was a was a great year for us.

We took advantage of a dislocated market while staying very disciplined with respect to risk and liquidity. We raised capital when spreads were wide, put it to work in production coupons and and call-protected pools that should deliver great carry with low interest rate sensitivity.

We continue to manage our leverage tightly with a year with the end of the year with a very flat duration profile and our hedging where we see the most risk, which is continued to be sort of into a a re-ignition of inflation type of bear steepening rate shock scenario. That's where we think that companies like ours get pinched the hardest.

With that, I'll turn it back over to Bob for his concluding remarks.

All right, thanks, Hunter. Thank you very much.

Just a couple of things I want to go over. Just kind of spend a few moments just talking about our outlook.

Hunter did a very good job discussing how we're positioned in our hedge outlook and so forth. It seems, even though mortgages have tightened quite a bit, based on what you see in the market and the sentiment in the market, it seems that they could continue, especially if you look at alternative assets available to multi-sector fixed income investors.

Investment-grade corporate spreads are at or near the tightest levels we've seen since the late '90s. High-yield spreads are tight as well.

There's at least a prospect of the GSEs becoming more active. I think it's debatable how much $200 billion per year represents in terms of an increase, because what we see their current run rate is not far from that.

In any event, to the extent they stay there or become more active, you could see mortgages tighten further from here. Then with respect to just the rate outlook, generally speaking, and what would be on the horizon that would make you think we're going to see a meaningful change, there isn't anything really there now.

Although, as those are famous last words. To the extent we kind of stick around here and mortgages continue to grind tighter, the portfolio should do well.

Everybody in our space is benefited from the benign rate environment in the fourth quarter and really 2025 generally. We could see a continuation of that.

Until we get the next black swan event or shock, it should remain a decent environment. Certainly, compared to a year ago, mortgages aren't as attractive, but that being said, I don't think it's unrealistic to think we could see some further tightening.

One thing I do want to point out, though, which is I think very important, I want to turn your attention to slide 7. We discussed this, Jerry went over this briefly, but what I want to point out, if you look on slide 7 in our balance sheet, you can see that the company basically doubled over the course of the year size-wise.

Whether it's shareholders' equity or our total assets, they basically increased by a little over 100%. If you look at the income statement for the year on slide 8, you see that our expenses were up much less than 100%.

Now, you could argue that that's somewhat misleading because the growth occurred over the year, and what's more relevant is kind of your run rate at the end of the year, which should be consistent with the current size. That's a valid point.

If you look at the income statement on the prior page, page 7, for the fourth quarter, you compare the fourth quarter of '25 to the fourth quarter of '24, that should capture the lion's share of that growth. Indeed, our expenses did go up, but certainly far, far less than double.

Now I want to turn your attention to a slide in the appendix, which is, if I can get there, slide 33. In slide 33, this is kind of our expense ratio.

Basically, this is all of our G&A expenses, inclusive of our management fee, in relation to our shareholders' equity. As you can see, back pre-COVID, we were running in the high 2s, close to 3%.

Then we had the COVID outbreak, and then of course this prolonged Fed tightening cycle, which forced some deleveraging and our expense ratio got up over 5%. Now our current run rate as of the end of 2025 is 1.7%.

I'm not going to name names, but we all know that there are two other agency REITs out there that are substantially larger than us, and their expense ratios are not meaningfully below that. When you get our 10-K next month, you will see, for instance, that our management fee did go up, in fact, over the course of the year, but the rest of our G&A expenses only increased very marginally.

We have been controlling expenses and allowing the company to grow, obviously. This is the byproduct, this is the benefit of that, is bringing expense ratio down, so that just makes the company more profitable on a go-forward basis, all else equal.

Then the final thing I want to bring your attention is, given that it's year-end, on slide 42. This information has been lifted right off of our website.

On the top of the page, you see the dividends for 2024 and 2025. As you can see, for every month, the dividend was 12 cents.

The next column, tax total ordinary dividends, that's basically taxable income-derived dividends. Then the non-dividend distribution in the second to the last column, that is just a return of capital.

That basically tells you that in the case of 2024, that 95.2% of our dividends were derived from taxable income. In the case of 2025, 95.0% were derived from taxable income.

The dividend was 12 cents per month for the year, and basically we were distributing all of our taxable income. Had the dividend been, say, for instance, 11 cents instead of 12, we would have slightly under-distributed our taxable income and either had to make a special dividend at the end of the year or opted to potentially pay tax on the undistributed earnings.

Just want to bring this to your attention, show you that the dividend policy does reflect current taxable income both for the 2025 and 2024, and that our dividend in relation to the taxable income is very slightly over-distributed, less than 5% last year and 5% this year. With that, I will turn the call over to questions.

Operator?

Hey, good morning, gentlemen. Hope everybody is doing well.

Hi.

How are you, Mikhail?

Doing well, thank you. Little cold here, but it's all right.

Couple questions. I guess we could start, and forgive me if I missed this, I dialed in maybe 3 or 4 minutes after 10:00.

Any update on current book value?

We do not give that. We have accrued and reflected the dividend in our current book.

Our book is up just ever so slightly, reflective of the dividend. Absent the dividend accrual, we'd be up, I think, 1.6%.

Okay.

We're basically off just slightly, inclusive of the accrual of the dividend.

Inclusive of the dividend, okay. I was wondering if we could get your thoughts on prepays going forward.

Obviously, the CPR went up quarter-over-quarter given the portfolio construction, but also prepays with respect to your prepay-protected portfolio, and what kind of premiums you guys are paying on those prepay-protected pools, the spec?

I'll say a few words, and then I'll turn it over to Hunter. I would say that the securities in the portfolio we target at par to slight premiums, as you can see on the charts, 5 and 5.5s, 6, and to a lesser extent, 6.5s, but it's mostly 5.5s and 6s.

Those are modest prepays. We're not paying up for the highest forms of protection.

The premiums have been mindful to keep the premiums kind of from being too high. I'll turn it over to Hunter, and then I might say a few words about the prepay outlook beyond the next few months.

Over the last couple of years, I'd say the bulk of our acquisitions have been in just sort of the first premium coupon or the first discount coupon. We were at times able to even add 7s using that strategy.

From a historic cost perspective, we've always been very tight, not getting too far out into premium land. We focused really more on kind of the mid-tier call protection.

We think that the old low loan balance, $85k, $110ks, those are really expensive stories. New York's have gotten pretty expensive.

We've been really focused a lot more on sort of leaning into this so-called K-shaped recovery by focusing on more credit-sensitive borrowers. We think that they have a hard time refinancing, buying things like high LTV, first-time homebuyer type of pools.

We've focused on geos like state of Florida is great. There's a tax that's tuned in for refinancing, but also home price appreciation is really sort of helping out with the portfolio there.

We've seen very good performance, especially after the Trump announcement about the GSEs. The knee-jerk reaction was that the higher coupon MBS TBAs didn't perform very well at all.

Once things kind of stabilized, we've really seen good appreciation in all of those specified pool stories underlying those coupons. As I alluded to in my prepared remarks, we've taken advantage of the fact that rolls have weakened in order to shed a little bit of basis exposure, because those rolls are so cheap now, it actually makes a little bit of sense to be short the TBA and long the specified pool.

That's kind of how we're thinking about things.

Yep. Just to add one number to that, if you on slide 34, and you can do this, obvious chart with numbers, you don't have to do it right now, but the weighted average current price at year-end was basically 102.5.

That would be all-in price. By comparison, the price at the end of September was a little over 101, call it 101 and 2 ticks.

We shifted the portfolio up in coupon. The weighted average coupon at the end of the third quarter was 5.50%.

It's now 5.64%, slightly higher. Of course, the market has moved, the price is at 100 basically 102 and 18 is the price.

It's a premium, but we've tried to avoid real high premiums. It's just not that kind of market.

Going back to post-COVID, we were buying New York 3s with dollar prices of $1.10 and change, right? We just don't have the kind of premium in the marketplace now owing to the relatively high nature of interest rates.

It will compress earnings to the extent that we see an acceleration in speeds. We think the combination of the call protection we have in the portfolio and the fact that we just don't have huge premiums on is not going to really move the needle too much.

Yeah. I would just add that if you look at the roll market, 5.5s, 6s, and 6.5s, the speeds implied in those rolls for the next few months are extremely high, 50, 55, 60 CPR.

That's fine for the next few months, but if you kind of step back and look at the balance of the year, I think a number of market participants, ourselves included, don't really think we're going to see a lot more Fed cuts. I think the economy is quite strong, inflation is good.

Let's think about that. The current Fed funds rate is 3.64%, and the 2-year yields 3.54%.

If you don't think the Fed's going to cut rates much over the next 2 years, do you really think the 2-year should be yielding lower than Fed funds? Second question you might ask is, given that, do you think that, for instance, 2s/10s is going to invert?

I don't think so. The current 10-year is at 4 and 1/4.

If the 2-year moves higher, unless that curve flattens, the 10-year should also move higher. Now the 10-year is going from 4 and 1/4 to whatever, 4.50%.

The current mortgage rate available to borrowers is 6% or low 6s, right? If rates are going to go higher over the next year, that rate's not going down unless mortgage rates to borrowers tighten substantially.

I don't know how likely that is. If you have the available borrowing rate at 6%, 6.5%, pushing up to 7%, a 6% mortgage-backed security implies basically a 7% gross WAC.

That's not that in the money, especially if mortgage rates push to 6.50% and higher. Are they going to sustain 50 and 60 CPR?

I don't know. I think there's kind of a inconsistency in market pricing between the mortgage dollar roll market and the say, for instance, market pricing of Fed cuts.

They don't seem to jive. Anyway, that's my $0.02.

Thank you. That's very helpful.

If I can squeeze in one more, I appreciate the good work done on getting expenses down. How much more available capacity you guys have for driving that down further going forward, do you think?

I probably get you the numbers, maybe we'll try to work on that for next quarter, but almost all of the increase in our expenses was management fee. Unfortunately, we don't have detailed line item expenses here, but from memory, reading through drafts, non-management fee expenses were only up in the few hundred thousand dollars.

It's gotten to the point that pretty much it's the management fee. Our marginal management fee is 100 basis points, right?

Our management fee is 250 the first layer is up to $250 million, and it's 150 basis points. Then from $250 to $500 is 100 and a quarter.

Everything over $500 million is 100. Now every dollar of capital we raise, the marginal management fee is 100 basis points.

The non-management fee expenses are going up very modestly in low percentage points. If we double from here, I'd have to run the numbers, but that trend would continue.

I don't know how much lower it goes, but it should be asymptotic towards 1%, right? If the capital were $500 billion, we'd have be ourselves something.

Management fee would be basically 100 basis points plus whatever your audit fee and your legal fees and whatever. That's kind of where it could go.

That makes sense. Thank you, guys.

Appreciate it.

Yep. Thanks.

Thank you, operator. I hope we didn't scare everybody off the call with the length of that answer.

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