Bimini Capital Management - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 reported net loss of $1.5M and diluted EPS of -$0.15, driven by a $2.1M tax provision from a higher deferred tax valuation allowance despite $0.56M pre-tax income.
• Advisory services revenue rose slightly quarter-over-quarter to $3.4M on Orchid Island Capital’s equity base growth; average interest rate spread improved to 0.69% as cost of funds fell to 4.87%.
• Book value per share declined to $0.68 from $0.83 in Q3 2024 and $0.81 in Q4 2023; MBS portfolio fair value increased to $122.35M with returns on invested capital of ~5.6% for the quarter.
• Management flagged rising macro uncertainty but noted quarter-to-date market conditions were favorable for Orchid and Royal Palm portfolios; a further increase in advisory revenues is expected in Q1 2025 as Orchid’s shareholder base expands.

What Went Well and What Went Wrong

What Went Well

• Advisory revenues increased to $3.4M (vs. $3.3M in Q3) as Orchid’s shareholders’ equity rose to $668.5M; management said “should lead to another increase in advisory service revenue for the first quarter of 2025”.
• Net interest spread strengthened: average interest rate spread improved to 0.69% (from 0.19% in Q3), with average cost of funds down to 4.87%.
• Investment portfolio produced positive net interest income ($0.3M) and hedge gains ($3.0M), supporting a ~5.6% ROIC for the combined MBS portfolio in Q4.

What Went Wrong

• Book value per share fell to $0.68 (from $0.83 in Q3), reflecting net losses and valuation allowance impacts on deferred tax assets.
• Other income included unrealized MBS losses of $2.7M and a $0.3M mark-to-market loss on Orchid shares, partially offset by $3.0M of unrealized derivative gains.
• Effective duration increased to 3.622 from 2.508 year-over-year, heightening rate sensitivity; management underscored an uncertain macro backdrop as 2025 progressed.

Transcript

Operator (participant)

Good morning and welcome to the fourth quarter 2024 earnings conference call for Bimini Capital Management. This call is being recorded today, March 7th, 2025. 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 call over to the company's Chairman and Chief Executive Officer, Mr. Robert Cauley. Please go ahead, sir.

Robert Cauley (Chairman and CEO)

Thank you, operator, and good morning. The outlook for the market continues to pivot. As the third quarter came to an end, inflation was falling towards the Fed's 2% target, the labor market was cooling as hiring levels moderated, and the unemployment rate was slowly creeping higher, and the Fed had finally lowered the Fed funds rate by 50 basis points. At the time, the market expected the Fed to lower the rate by over 200 basis points over the next 18 months. As we know now, beginning early in the fourth quarter, the incoming data turned. However, even as the economic outlook shifted, the Fed did lower the Fed funds rate two more times during the fourth quarter of 2024 by 25 basis points in each case.

With the Fed funds rate lowered by 100 basis points over the course of the quarter, the persistently strong economic outlook led to a disinversion of the yield curve. However, market expectations for additional reductions in the Fed funds rate continued to decline over the course of the fourth quarter and into 2025. Now, as we move further into 2025 and the Trump administration begins to implement its policy objectives, namely tariffs, a crackdown on immigration, an effort to end the war in Ukraine, among others, the outlook has once again shifted. Current market expectations are much less optimistic. Growth appears to be slowing. Inflation, not so much. Consumer confidence measures have plummeted, and interest rates have declined as rate volatility has increased. Now, expectations for additional Fed easing are rising as opposed to the end of the second or the end of 2024.

Now, I will turn to our results for the quarter and the outlook going forward. Orchid Island Capital reported fourth quarter 2024 net income of $5.6 million, and its shareholders' equity increased slightly over the third quarter from $656 million to $668.5 million. As a result, Bimini's advisory service revenue also increased slightly to $3.4 million compared to $3.3 million for the third quarter. Further, as late in late February, Orchid reported yet another increase in its shareholders' equity base, which should lead to another increase in advisory service revenue for the first quarter of 2025. As you know, owing to our net operating losses, we have the ability to retain earnings and deploy them into our investment portfolio. The investment portfolio at Royal Palm generated net interest income of $0.3 million. Dividends on our Orchid stock were $0.2 million.

In addition, mark-to-market gains and losses on our MBS portfolio, hedge positions, and shares of Orchid netted to income of $0.1 million. The MBS portfolio increased by $4 million during the fourth quarter of 2025 and increased by $29.5 million for the year. Bimini has positive cash flows from operations for the fourth quarter and the full year ended December 31, 2024, which has allowed us to grow the MBS portfolio throughout the year. As the portfolio has grown over the last two years, our gross interest income has grown from $0.6 million for the first quarter of 2023 to $1.7 million for the fourth quarter of 2024. Over the same period, our repurchase agreement-related interest expense increased from $0.5 million for the first quarter of 2023 to $1.4 million for the fourth quarter.

As a result, our net interest income from the portfolio has increased, benefiting from reductions in short-term rates initiated by the Federal Reserve. Obviously, to the extent we remain cash flow positive, this trend can continue. The company, inclusive of both the advisory services segment and the investment portfolio segment, recorded net income before taxes for the fourth quarter of $500,000 versus a net loss before taxes of $800,000 for the third quarter. We updated our projected utilization of our deferred tax assets and increased the valuation allowance, resulting in a net tax provision of $2.1 million and a net loss for the fourth quarter of 2024 of $1.5 million. Looking forward, the economic outlook continues to change frequently, and we are living through a very fluid period.

The ultimate impact of interest rate on interest rate levels, Federal Reserve monetary policy, or the MBS market remains to be seen. However, quarter-to-date market conditions have generally been favorable for both the Orchid and Royal Palm investment portfolios. We look forward to discussing our results at the end of the quarter. Operator, that concludes my prepared remarks. We can open up the call to questions.

Operator (participant)

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

Robert Cauley (Chairman and CEO)

Thank you, operator. Thank you, everybody, for listening in. To the extent you did not get a chance to ask a question because you missed the call and listened to the replay, or you just had another question that came up, please feel free to reach out to us at the office. The number is 772-231-1400. Otherwise, we look forward to talking to you at the end of the first quarter. Thank you.

Operator (participant)

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