Bimini Capital Management, Inc. (PNK:BMNM) Q3 2024 Earnings Call Transcript

Bimini Capital Management, Inc. (PNK:BMNM) Q3 2024 Earnings Call Transcript November 1, 2024

Operator: Good morning, and welcome to the Third Quarter 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-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.

Robert Cauley : 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 appeared to have finally have the desired impacts on inflation and the imbalances in the labor market. Inflation is closing in on 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 non-farm payroll reports 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. Orchid Island Capital reported net income for the third quarter 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 second quarter. Orchid’s capital bases 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.

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 30, 2024. Our funding costs should decline as 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 of 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 $0.4 million for the quarter and $1.1 million for the nine month period ended September 30, 2024.

Q&A Session

The company, inclusive of both the Advisory Services segment and the Investment Portfolio segment reported net income before taxes for the quarter of $0.8 million versus a net loss before taxes of $0.2 million for the second quarter of 2024. For the nine month period ended September 30, 2024, our net interest income — net income before taxes was $1.25 million. For the three and nine month periods ended September 30, 2024, a Bimini reported tax provisions of $0.5 million and $1.1 million, respectively. As the fourth 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. 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:

Robert Cauley : 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 fourth quarter. Have a good day.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.