Bimini Capital Management Q3 2024 Earnings Call Transcript

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November 1, 2024

There are 2 speakers on the call.

Operator

Morning, and welcome to the Q3 2024 Earnings Conference Call for Bimini Capital Management. This call is being recorded today, November 1, 2024. 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 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. First, I'll give a brief synopsis of events during the quarter. The impacts of tight monetary policy orchestrated by the Federal Reserve appear to have finally had the desired impacts on inflation and the imbalances in the labor market. Inflation is closing in on the Fed's 2% target and hiring and wage growth are slowing while the unemployment rate has steadily risen. In contrast, growth in the economy and consumer spending have remained robust throughout.

Speaker 1

In late September, the Fed reduced the overnight funding rate by 50 basis points and the market anticipated it was the first of many such cuts. Unfortunately, the non farm payroll report for September 2024 released in early October as well as the latest readings on inflation and consumer spending imply the economy may not be weakening so much after all. If this proves to be the case, the magnitude and urgency of additional rate cuts by the Fed may not live up to market expectations mentioned above. Now turning to our results. Rocket Island Capital reported net income for the Q3 of 2024 of $17,300,000 and its shareholders' equity increased from $555,900,000 to 656,000,000 dollars As a result, Binnie's advisory service revenues of approximately $3,300,000 represented a 4% increase over the Q2.

Speaker 1

Orchid's capital base has increased substantially year to date, nearly 40%, although advisory service revenues are down 11% year to date. Orchid's capital base declined over the course of 2023 and the decline is yet to be totally reversed so far in 2024. The investment portfolio generated net interest income of $300,000 inclusive of dividends on our shares of Orchid Island, down very slightly from the prior quarter. For the year to date period, net interest income was 1,040,000 dollars versus $880,000 for the 1st 9 months of 2023. The RMBS portfolio at Royal Palm has grown by approximately 28% year to date and 37% since June 30, 2024.

Speaker 1

Our funding costs should decline if short term rates continue to be reduced by the Federal Reserve, potentially enhancing our net interest margin. Otherwise, our funding costs have varied slightly between 5.5% and 5.6% for the past 4 quarters. The return for the Agency RMBS Index for the quarter was 4.7% on an absolute basis and the excess return versus comparable duration swaps, a proxy for hedge returns, was 0.7%. Mark to market gains and losses on our RMBS portfolio, hedge position and shares of Orchid reported as other income on our statement of operations, netted to income of $400,000 for the quarter and $1,100,000 for the 9 month period ended September 30, 2024. The company, inclusive of both the Advisory Services segment and the Investment Portfolio segment, recorded net income before taxes for the quarter of $800,000 versus a net loss before taxes of $200,000 for the Q2 of 2024.

Speaker 1

For the 9 month period ended September 30, 2024, our net interest income net income before taxes was 1,250,000 dollars For the 3 9 month periods ended September 30, 2024, Bivi reported tax provisions of $500,000 $1,100,000 respectively. As the 4th quarter unfolds, the reversal in sentiment in interest rate levels that started in late September continues. The market appears to be rethinking the perceived strength of the economy and the outlook for further rate cuts by the Federal Reserve. With the presidential election on the horizon, the market seems to anticipate a possible Republican sweep with the implications being they would be pro growth with accompanying fiscal deficit expansion. As a result, interest rates are higher and mortgages have underperformed their hedges.

Speaker 1

There's also another FED FOMC meeting next week and the market expects another 25 basis point reduction in our overnight funding rate. We are considering using available excess funds to grow the portfolio when we sense the move has run its course. We will see how things look once the outcome of the election is determined and look forward to speaking with you again after year end. Thank you, operator, and we can turn the call over to questions.

Operator

I'm showing no questions at this time. I'd like to turn the call back to Mr. Cauley for closing remarks.

Speaker 1

Thank you, operator, and thank you for joining us today. To the extent you have questions that come up after the call, please feel free call. Or likewise, if you did listen to the call live, listened to a recording and you have questions, you can reach us at the office. The number is 772-231-1400. Otherwise, we look forward to speaking with you again at the end of the Q4.

Speaker 1

Have a good day.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Key Takeaways

  • Rocket Island Capital reported Q3 net income of $17.3M and shareholders’ equity rose from $555.9M to $656M, reflecting strong profitability and balance sheet growth.
  • Bimini’s Advisory Services revenue increased 4% sequentially to $3.3M, while Orchid’s capital base climbed nearly 40% YTD despite an 11% decline in advisory revenues.
  • The RMBS portfolio at Royal Palm expanded by ~28% YTD (37% since June 30) and could see improved net interest margins as Fed rate cuts lower funding costs from current 5.5–5.6%.
  • Mark-to-market gains on the RMBS portfolio, hedges and Orchid shares contributed $400K of other income in Q3 ($1.1M for 9M), helping drive a pre-tax profit rebound to $800K from a $200K loss in Q2.
  • Management warned that stronger-than-expected payroll and inflation data may delay further Fed rate cuts and noted potential election-driven fiscal expansion could keep interest rates elevated.
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Earnings Conference Call
Bimini Capital Management Q3 2024
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