Bimini Capital Mgmt Inc A

Hello everyone and welcome to the fourth quarter 2021 earnings conference call for Bruny Capital Management. We will begin shortly. If you would like to register a question ready for the Q&A, please press star followed by one on your telephone keypad. Thank you for your patience. Thank you. Thank you. Hello everyone and welcome to the fourth quarter 2021 earnings conference call for Bimini Capital Management. This call is being recorded today, March 11th, 2022. 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 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 management's good faith, belief with respect to future events and are subject to risk 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. You will have the opportunity to ask a question at the end of the presentation. If you'd like to register a question, please press star followed by one on your telephone keypads. I would now like to turn the conference over to the company's chairman and chief executive officer, Mr. Robert Corley. Please go ahead, sir.

Thank you, operator, and good morning. Good morning, and thank you for joining us to discuss Bimini's fourth quarter 2021 results. I'm going to give you a very brief overview of the economic backdrop we faced during the fourth quarter and then discuss our results. COVID-19 continued to impact the United States and the rest of the world during the fourth quarter of 2021 and into the first quarter of 2022. Despite the most recent wave of the pandemic, the Omicron variant, economic data has been very strong, causing the markets and the Fed to meaningfully revise expectations for the path of monetary policy in 2022 and beyond. The Fed focuses on two areas of economic performance, inflation and the labor market. tied to the adult mandates of stable prices and maximum employment. With respect to inflation, the year over year consumer price index reading increased from the 4% increase reported in September of 2021 to 5.43% in December of 2021. Core personal consumption expenditures, the Fed's preferred inflation measure, increased from 3.7% year over year to 4.85% between September and December of 2021. This led the Fed to formally declare that their assessment of inflation as transitory was no longer the case. The economic data reported in late 2021 has strengthened further in early 2022. In particular, measures of inflation have accelerated from the trend of late 2021 and are very broad-based, as prices for essentially every category of goods and services are increasing. The employment data has also been very strong, exhibiting little effect from the Omicron variant. The Fed has signaled they are about to start an accelerated removal of the extreme monetary accommodation necessitated by the pandemic. In January of 2022, the FOMC announced they would end their net asset purchases in March and that they were likely to start decreasing the reinvestment of their U.S. Treasury and MBS assets as they matured or repaid starting shortly after their first rate hike. The first rate hike is expected next week. Current pricing in the futures market assumes the Fed will increase the Fed's fund rate at least six times by January of 2023 and by approximately 75 basis points more in 2023. Of course, monetary policy may be affected by developments in the Ukraine, especially with respect to inflation, commodity inflation predominantly, and growth, and in the EU in particular. Over the course of the fourth quarter, Interest rates increased, but the increases were not uniform, as shorter maturity rates, typically more sensitive to anticipated increase in short-term rates administered by the Fed, increased more than longer-term rates. As inflation accelerated in the fourth quarter of 2021, and even more so in early 2022, this trend intensified, and currently the spread between certain intermediate maturities, such as the five-year and seven-year maturities, traded yields only marginally below longer-term rates, such as the 10-year U.S. Treasury. This flattening of the rates curve is typical, as the economy strengthens and the market anticipates increases in short-term rates by the Fed. As economic and or inflation data strengthen and the market anticipates progressively more increases in short-term rates, the curve could actually invert, whereby the intermediate rates mentioned above actually yield more than longer-term rates. So that's the economic and rate backdrop both for the fourth quarter and early 2022 as well. Now I will discuss our results for the fourth quarter of 2021 and the outlook for 2022. Orchid Island had another strong quarter of capital raising as its average equity capital increased from 672.4 million during the third quarter to 806.4 million for the fourth quarter of 2021. As a result, advisory service revenue increased 19% for the quarter. However, given the economic and rate outlook described above, the market is not likely to be conducive to additional capital raising for the time being. Further, with rates higher and the curve flatter, both ORCID's book value and net interest margin may be under pressure. This, in turn, could adversely affect both Bimini's advisory service revenue and dividend income over the course of the year. For the RMBS portfolio, the rate and economic backdrop described above led us to take a cautious approach. With interest rates increasing and the curve flattening, we opted to build our cash position and or repurchase shares as opposed to adding leverage to the balance sheet. As a result, the RMBS portfolio shrank slightly by 6% and net interest income declined by 5%. We will continue to take a very cautious approach to leverage in the RMBS portfolio, as well as ORCID shares, as we do not expect to add in the near term. We anticipate these market conditions could persist for several quarters, and we will attempt to limit the risk of potential book value erosion. Currently, our revenue comfortably covers our expenses, and we are cash flow positive, so our focus will be on attempting to protect our equity base. Prepayment speeds in the past year RMBS portfolio have moderated during the fourth quarter, as our CPR for the portfolio decreased from 15.5 CPR for the third quarter to 13.7 CPR for Q4. Our structured portfolio accelerated back above 30 CPR in the fourth quarter, and the overall portfolio CPR was back above 21 CPR again, as it was for Q2 of 2021. We expect a moderation in speeds in 2022 as the rate environment has changed materially, as described above. Finally, dividend income from our ORCID shares was unchanged from the third quarter of 2021 but will be down in Q1 of 2022 as ORCID lowered its monthly dividend in January from 6.5 cents to 5.5 cents per share. As mentioned above, the outlook for ORCID's dividend is not favorable given the flatness of the curve. With respect to share repurchases, activity BIMIDI has now repurchased approximately 262,000 shares under the Rule 10b-5-1 plan we adopted late in the third quarter of 2021. The plan authorizes the purchase of up to 2.5 million worth of stock, and it has worked more efficiently than our prior plan. The prior plan was more restrictive in certain respects, and repurchases were relatively limited. The current plan provides our agent with greater flexibility, and that has accounted for the increased share repurchase activity. Given the discount the stock is currently trading to relative to our bulk value, we view share repurchases as an attractive use of cash, especially in light of the current market conditions described above. That concludes my prepared remarks, operator, and we can now open up the call to questions.

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