Bimini Capital Management Q1 2024 Earnings Call Transcript

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May 3, 2024

There are 3 speakers on the call.

Operator

Good morning, and welcome to the First Quarter 2024 Earnings Conference Call for Bimini Capital Management. This call is being recorded today, May 3, 2024. At this time, the company would like to remind the listeners that statements made during today's conference call relating to the matters that are not historical facts are forward looking statements subject to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Listeners are cautioned that such forward looking statements are based on the information currently available on the management's good faith, believe 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. And 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. The current economic and interest rate cycle that began with the onset of the COVID-nineteen pandemic in 2020 was supposed to end in early 2024 as the Fed pivoted and started to remove their tight monetary policy. At the meeting Wednesday, the Federal Reserve or Fed signaled we will have to wait a little longer. The economy and inflation are simply too strong for this to occur, at least not yet. While market participants still expect some easing of monetary policy over the course of 2024, the starting point continues to get pushed out further and further into the future and the magnitude of visas continues to decrease.

Speaker 1

Incoming economic data so far in 2024 is consistent with firming inflation and a solid economy and the labor market shows no signs of weakness. Stimulative fiscal policy out of Washington is working against restrictive monetary policy from the Fed And while inflation has decreased significantly from the peak seen in 2022, it still remains far above the Fed's target level of 2%. So the odds of monetary policy and funding rates remaining higher for longer look very high. Despite the ongoing strength of the economy and interest rates retracing much of the decline seen over the last 2 months of 2023, Agency MBS securities performed fairly well during the Q1 of 2024. When the Q1 of 2024 ended, the 30 year fixed rate agency MBS was trading at a spread to comparable duration treasuries near the low end of the prevailing range since mid-twenty 22, shortly after the Fed began their policy firming.

Speaker 1

This was approximately the same level spread level as the beginning of the quarter. As with the economy, inflation and interest rates, the outlook for the performance of Agency MBS is unclear and there is the possibility that Cetra could underperform in the near term if the current trends discussed above continued. Thus far during the Q2 of 2024, mortgages have underperformed hedges slightly, although they still remain far from levels seen last fall when interest rates were at their highest level since the 2008 financial crisis. Orchid Island Capital reported net income for the Q1 of 2024 of 19,700,000 dollars and shareholders' equity increased from $469,900,000 to 481,600,000 dollars Advisory service revenues were approximately $2,900,000 for the quarter, down approximately 5% from the Q4 of 2023. Orchid is obligated to reimburse us for direct expenses paid on its behalf and to pay us Orchid's pro rata share of overhead as defined in the management agreement.

Speaker 1

Overhead reimbursement payments of $600,000 are included in the $2,900,000 revenue figure. As a stockholder of Orchid, we also continue to share in its distributions, if any, paid by Orchid to its stockholders. We received $200,000 of dividends during the Q1 of 2020 4, the same as the Q4 of 2023. Our operating results are also impacted by changes in the market value of our holdings of Orchid common shares, although these market value changes do not impact our cash flows from Orchid. We recorded an unrealized gain on our Orchid shares of $300,000 during the Q1.

Speaker 1

The investment portfolio generated interest revenue of $1,400,000 and we incurred interest expense on our repurchase agreement borrowings of $1,200,000 resulting in net interest income of $200,000 The realized yield on the portfolio increased slightly from 6.08% for the Q4 of 2023 to 6.15% for the Q1 of 2024. Similarly, our average borrowing rate on a repurchase agreement funding increased marginally from 5.60% for the Q4 of 2023 to 5.63% for the Q1 of 2024. Our hedge positions generated unrealized mark to market gains of 1,200,000 dollars versus unrealized losses on our MBS assets of $500,000 We do not add to the MBS portfolio during the Q1, although we expect to do so during the current quarter. Looking forward, the economic incoming economic data does not appear to justify the Fed taking any steps to loosen monetary policy in the near term. We agree with current market pricing reflected in overnight funding levels on a forward basis that imply at most one cut in the Fed's overnight rate this year.

Speaker 1

This implies a relatively stable interest rate environment and this does not be a bad outcome for Bimini if it comes to pass. While our net interest spread on our MBS portfolio is narrow, our hedge positions have performed well and absent a material widening of MBS spreads should continue to do so. This type of environment is also favorable for Orchid Island and its MBS portfolio likely to lead to a stable dividend, again, absent a material widening of MBS spreads. The deterioration in the economic outlook that leads the Fed to lower overnight rates would likely be beneficial to both Bimini and Orchid as it would likely lead to an expansion of our net interest margins. The risk to both is a scenario that causes longer maturity rates to increase more than short term rates as the curve disinverts, a bear steepening of the curve.

Speaker 1

This scenario would likely be accompanied by elevated levels of volatility and lead MBS spreads to widen. The aftermath of such an episode, however, would be much more benign with expanded net interest spreads and slow prepayment rates on MBS generally. Operator, that concludes my prepared remarks, and we'll take any questions.

Operator

Thank you. We will now begin the question and answer session. There are no questions. I will now turn the conference back over to Hunter Haas, Chief Financial Officer and Chief Investment Officer

Speaker 1

all or for those of

Speaker 2

you listening to the replay or the webcast, feel free to call us at the office, 772-231-1400. Speak to you next quarter.

Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

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Earnings Conference Call
Bimini Capital Management Q1 2024
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