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spk00: Welcome to the Bimini Capital second quarter earnings conference call. This call will be starting in approximately two minutes. Thank you for your patience. Thank you. Thank you. Oh, my God. We'll be right back. Good morning and welcome to the second quarter 2021 earnings conference call for Bimini Capital Management. This call is being recorded on today, August 13th, 2021. At this time, the company would like to remind the listeners that the statements made during today's conference call relating to matters that are not historical facts are forward-looking statements subject to the safe harbour 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 manager's good faith, beliefs 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 the annual results, changes in assumptions or changes in other factors affected forward-looking statements. I would now like to hand the conference over to the company's chairman and chief executive officer, Mr. Robert Cawley. Please go ahead, sir.
spk01: Thank you, operator, and good morning. Once again, COVID-19 and the economy's recovery from the pandemic dominated the markets and developments at both Bimini and Orchard Island Capital during the second quarter of 2021. The economy continued its strong recovery from the COVID-19 pandemic during the second quarter of 2021. New COVID-19 cases, hospitalizations, and deaths from the virus decreased dramatically, allowing the economy to reopen and the substantial pent-up demand on the part of consumers to be unleashed. Additional fiscal policy steps taken by the Biden administration added to the surge in economic activity. Gross domestic product, or GDP, expanded at a 6.5% annualized rate during the second quarter of 2021. The consumer price index of CPI accelerated by 5.4% on a year-over-year basis in July. The lone disappointment for the over-the-counter was job growth, although the last two reports covering June and July have shown a material acceleration. Notably, while the economy surged and inflation data continued to exceed market expectations, the rate market actually reversed course and interest rates declined throughout the second quarter. As we enter the third quarter, the rapid emergence of the Delta variant of COVID-19 during July represents a real risk to job growth and economic activity generally, both in the U.S. and globally. Nonetheless, at the conclusion of the Federal Reserve's last two meetings in June and July, the Fed chairman has indicated the Fed is moving towards the unwinding of monetary policy accommodation. Initially, they will taper their asset purchases, And for agency RMBS investors, such as Orchid Island and Royal Palm, that are limited to investing in this asset class, this means we must prepare for the eventual reduction in the Fed's MBS purchases. Orchid Island was positioned defensively as we entered the second quarter, and the decline in rates and underperformance of MBS assets versus hedge instruments led to subpar performance for the RMBS portfolio. Orchid recorded a gap loss of $0.17 per share, or $16.9 million. However, Orchid had another strong quarter growing its shareholders' equity after raising net proceeds of approximately $124.7 million through its ATM program. The net effect of the new shares issued, the net loss, and dividends paid, resulting in Orchid Island shareholders' equity increasing by $87.6 million, or 19% during the second quarter. Year-to-date, Orkut Island has increased its shareholders' equity by approximately $138.5 million, or 33%. As a result, community advisors' advisory services revenues increased 8% over the first quarter, and as the increased shareholders' equity in Orkut Island was not in place for the entire quarter, the run rate ending the third quarter is higher still. A dividend income on Orchid Island shares was flat in the first quarter versus the first quarter of 2021, but increased by 30% over the second quarter of 2020, driven by the 71% increase in the number of Orchid shares held that occurred during the second and third quarters of 2020. The declining book value that occurred at Orchid Island during the first quarter led to an $0.82 decline in the price of Orchid shares, or $2.1 million, offsetting the $2 million gain recorded in the first quarter. As most of you know, BIMIDI initiated another Dutch tender offer during the second quarter, with the tender closing on Friday, July 2, 2021. Given the substantial discount to book value the shares were trading at, we concluded the tender represented an appropriate use of capital while providing our shareholders with an opportunity for liquidity. The tender was executed at $1.85 per share, nearly a 40% discount to our book value per share, of $3 as of June 30, 2021. The tender consumed approximately $1.5 million of available cash. The agency RMBS portfolio at Royal Palm decreased slightly by 5.3% during the second quarter of 2021. The net effect of structured security asset purchases of $0.8 million, offset by $0.5 million in mark-to-market losses and $4.1 million of paydowns in return on investment during the quarter. We do not feel comfortable adding to the RMBF's portfolio beyond the acquisition of the one IO security until we had time to accumulate additional cash. Recall when we last spoke, we mentioned we would be adding to our IO positions as we look to rebuild our hedge positions in anticipation of resuming growth in the past year portfolio. Our cash position is rebuilding now that we are past the tender offer, so we will likely add additional structured securities before resuming growth in the past year portfolios. As mentioned, Our advisory services revenue is sufficient to cover all expenses at Bimini, and cash flows from the dividends and our ORCID shares and net interest income on the RMBS portfolio are available to investing to growth the portfolio. Prepayment activity remained elevated during the quarter, although it has moderated some as we move into the third quarter, even with lower interest rates available to borrowers. For the second quarter, the three-month constant prepayment rate, or CPR, for the pass-through portfolio was 21.0 CPR and 31.3 CPR for the structured portfolio. The combined portfolio was 21.9 CPR versus 18.3 for the first quarter of 2021 and 15.3 for the second quarter of 2020. The reason speeds have remained elevated is the securities owned by Royal Palm are predominantly higher coupon and more seasoned. And while rates are still higher than levels seen in 2020, the loans underlying these securities are still in the money, and the economic incentive to refinance is still present. This lack of any meaningful sign of slower speeds or burnout in our higher coupon securities led to modest spread widening, and as a result, we recorded a $0.1 million market-to-market loss on the past year portfolio, in spite of declined interest rates during the quarter. Finally, operating expenses declined modestly by 2% for the second quarter versus the first quarter of 2021, and increased by 2% versus the second quarter of 2020. Looking ahead, the economy is clearly on the path to recovery, assuming the Delta variant of the virus does not intercede. The Federal Reserve Open Market Committee appears focused on job growth and sees this as the likely key driver in achieving their quote-unquote substantial further progress in the recovery needed before adjusting monetary policy. The first two non-fond payroll reports released during the third quarter suggest this may be at hand, but as I said, this assumes the rapid emergence of the Delta variant in July should not derail momentum. If it does not, It appears the first step in the Fed's monetary policy shift away from accommodation, tapering up their monthly asset purchases, cannot be far off. If this does occur, we would expect interest rates to start to gradually rise and prepayment activity to abate, both of which would be welcome developments for both Orchid Island and Bimini, given the positioning of the two portfolios. Thank you, Operator, and I will now open up the call to questions.
spk00: If you wish to ask a question, you can do so by pressing star followed by one on your telephone keypads now. Just as a reminder, if you wish to ask a question, you can do so by pressing star followed by one on your telephone keypad. It appears we have no questions, so I'll hand back to Robert Cooley and Hunter.
spk01: Thank you, operator, and thank you, everyone. Assuming that you are listening to the replay and you do have a question, please feel free to call us at the office. The number is 772-231-1400. Otherwise, we look forward to talking to you at the end of the third quarter. Thank you, and have a nice weekend.
spk00: This concludes today's call. You may now disconnect your lines.
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