Bimini Capital Management Q3 2024 Earnings Call Transcript

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November 1, 2024

Key Takeaways

  • Q3 net income of $17.3 M and shareholders’ equity grew from $555.9 M to $656 M.
  • Advisory services revenue rose 4% sequentially to $3.3 M, while the RMBS portfolio expanded 28% year-to-date.
  • Net income before taxes shifted to an $800K profit in Q3 from a $200K loss in Q2, aided by $400K in mark-to-market gains.
  • Orchid’s advisory revenue is down 11% year-to-date and its capital base, despite a 40% YTD increase, remains below 2023 levels.
  • Robust economic data may curb further Fed rate cuts, potentially keeping funding costs elevated and pressuring net interest margins.
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Earnings Conference Call
Bimini Capital Management Q3 2024
00:00 / 00:00

Transcript Sections

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Operator

Good morning, and welcome to The Q3 2024 Earnings Conference Call for Bimini Capital Management. This call is being recorded today, November 1st, 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-K.

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 E. Cauley. Please go ahead, sir.

Robert E. Cauley
Robert E. Cauley
Chairman and CEO at Bimini Capital Management

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. 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 Nonfarm 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.

Robert E. Cauley
Robert E. Cauley
Chairman and CEO at Bimini Capital Management

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, Orchid Island Capital reported net income for the Q3 of 2024 of $17.3 million, and its shareholders' equity increased from $555.9 million to $656 million. As a result, Bimini's advisory service revenues of approximately $3.3 million represented a 4% increase over the Q2. 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 has yet to be fully reversed so far in 2024. The investment portfolio generated net interest income of $0.3 million, inclusive of dividends on our shares of Orchid Island, down very slightly from the prior quarter.

Robert E. Cauley
Robert E. Cauley
Chairman and CEO at Bimini Capital Management

For the year-to-date period, net interest income was $1.04 million versus $0.88 million for the first nine months of 2023. The RMBS portfolio at Royal Palm has grown by approximately 28% year to date and 37% since June 30th, 2024. 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 four 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%.

Robert E. Cauley
Robert E. Cauley
Chairman and CEO at Bimini Capital Management

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 $0.4 million for the quarter and $1.1 million for the nine-month period ended September 30th, 2024. The company, inclusive of both the advisory services segment and the investment portfolio segment, recorded net income before taxes for the quarter of $0.8 million versus a net loss before taxes of $0.2 million for the Q2 of 2024. For the nine-month period ended September 30th, 2024, net income before taxes was $1.25 million. For the three and nine-month periods ended September 30th, 2024, Bimini reported tax provisions of $0.5 million and $1.1 million, respectively. As the Q4 unfolds, the reversal in sentiment and interest rate levels that started in late September continues.

Robert E. Cauley
Robert E. Cauley
Chairman and CEO at Bimini Capital Management

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. There's also another Fed FOMC meeting next week, and the market expects another 25 basis point reduction in their 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

As a reminder, if you'd like to ask a question at this time, please press star 11 on your touch-tone telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. I'm showing no questions at this time. I'd like to turn the call back to Mr. Cauley for closing remarks.

Robert E. Cauley
Robert E. Cauley
Chairman and CEO at Bimini Capital Management

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 to call. Or likewise, if you didn't listen to the call live, listen 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. Have a good day.

Operator

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

Executives
    • Robert E. Cauley
      Robert E. Cauley
      Chairman and CEO
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