Bimini Capital Management Q3 2023 Earnings Call Transcript

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November 3, 2023

There are 2 speakers on the call.

Operator

Good morning, and welcome to the Third Quarter 2023 Earnings Conference Call for Bimini Capital Management. This call is being recorded today, November 3, 2023. 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 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 ks.

Operator

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.

Speaker 1

Thank you, operator, and good morning. Thank you for joining us today. The Q3 was a very challenging period for the markets and levered bond investors such as Bimini and Orchid Island Capital. Market conditions deteriorated even further in October, meaningfully so. I did not plan to discuss these developments in detail, And I'm sure our listeners are quite aware of what has happened already.

Speaker 1

What I would like to do is discuss how these events affected us And what they mean for us going forward as well as our outlook for the MBS market over the near term. For the Q3 of 2023, Orchid Island Capital reported a net loss of $80,100,000 and the shareholders' equity decreased from 490,100,000 to $466,800,000 The difficult conditions referenced above led Orkin to report mark to market losses on its MBS assets Of $208,900,000 exceeding mark to market gains of $142,000,000 on derivative hedging instruments. Orchid raised additional equity capital of approximately $80,400,000 during the Q3 of 2023 and deployed the proceeds into the Agency MBS market Historically, widespreads. While those purchases were at attractive levels, the market subsequently cheapened further And continue to do so as we enter the Q4. We anticipate these attractive levels will ultimately bring buyers into the market And HGMBS assets will perform very well.

Speaker 1

However, exactly when this occurs is hard to predict It does not appear to be imminent. More likely than not, it will occur after an interest rate cycle turns. In short, We anticipate market conditions to remain challenging for the time being and have undertaken steps to mitigate the impact of such conditions on our results. Before discussing such steps, I would like to review our advisory service segment results for the Q3 of 2023. Gimi Advisory Services revenue for the quarter was approximately $3,600,000 a 9% increase over the comparable quarter of 2022, reflecting an increase in Orchid's equity compared to 2022.

Speaker 1

Orchid is also obligated to reimburse us for direct expenses paid on its behalf And to pay us Orchid's pro rata share of our overhead as defined in the management agreement. Such amounts were approximately $700,000 Of the $3,600,000 of advisory services revenue recorded during the quarter. With respect to the MBS portfolio at Royal Palm, We added to the MBS portfolio during the Q3 of 2023, increasing the market value from $63,800,000 At June 30, 2023 to $84,900,000 at September 30, 2023. This represents an approximate 33% increase in the Further, the weighted average coupon increased from 4.12% at June 30, 2023 To 4.78 percent at September 30, 2023. Portfolio interest and dividend income from our shares of Orchid Ireland Increased 53% over the comparable quarter of 2022.

Speaker 1

However, as referenced above, interest expense on our repurchase obligations continues to rise and increase significantly from 210,000 for the Q3 of 2022 to $831,000 for the Q3 of 2023. Net interest and dividend income for the quarter Of $281,000 was down from $518,000 for the same quarter of 2022. However, Our funding costs appear to be leveling off, albeit at high levels. So we do not anticipate additional meaningful compression in our net interest figures. We do acknowledge that Orchid's recent 25 percent dividend reduction will impact the figures for the Q4, however.

Speaker 1

Further, Reduction contributed to a decline in the price of our shares of Orchid since quarter end. Countering the dividend cut at Orchid was the increase in the weighted average coupon of the portfolio And the 33% increase in the market value of the portfolio. For these reasons, we anticipate relative stability in our net interest spread And these are the types of steps I mentioned that we have taken and may continue to take in the future to mitigate the current market conditions. With respect to the balance of our results, Mark to market gains and losses on our MBS portfolio, hedge positions and shares of Orchid netted to a loss of $2,360,000 for the quarter. Our expenses for the quarter were down 5% versus the Q2 of 2023 and increased by 1% versus the same quarter of 2020 2.

Speaker 1

Finally, we recorded a net loss for the quarter of $419,000 versus a loss of $3,200,000 for the Q3 of 20 22. Going forward, the current challenging market conditions appear likely to continue and have been even more volatile so far in the 4th quarter. While the Federal Reserve left their policy rate at the meeting that's concluded on November 1 unchanged, the Fed Chairman made it quite clear that the Fed can and will increase Your policy rate again if economic conditions warrant. Given such conditions, we may not be able to continue to build our MBS portfolio And just one final comment as this script was written before today's number, The non farm payroll numbers released this morning, coupled with the data released so far this week, does appear to have changed the market Somewhat meaningfully so, and as dire as October was, we are reversing some of those losses. I don't have any numbers yet, but just wanted to acknowledge the fact that the market has changed somewhat since we wrote the script.

Speaker 1

And with that, operator, we can turn the call over to questions.

Operator

And we have no questions at this time. I'll turn the call back to management.

Speaker 1

Thank you, operator, and thank you everybody for listening. If anybody does come up with a question later or listens to the replay and has a question, Please feel free to call us. The office number is 772-231-1400. Otherwise, we look forward to speaking with you at the end of the next quarter. Thank you, everybody.

Operator

That will conclude today's meeting. We thank you all for joining. You may now disconnect.

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Earnings Conference Call
Bimini Capital Management Q3 2023
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