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spk00: Good morning and welcome to the third quarter 2023 earnings conference call for Bimini Capital Management. This call is being recorded today, November 3rd, 2023. 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 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 Cawley. Please go ahead, sir.
spk01: Thank you, operator, and good morning. Thank you for joining us today. The third quarter was a very challenging period for the markets and levered bond investors such as Bimini and Orchid Island Capital. Market conditions deteriorated even further in October, meaningfully so. I did not plan to discuss these developments in detail, and I'm sure our listeners are quite aware of what has happened already. What I would like to do is discuss how these events affected us and what they mean for us going forward, as well as our outlook for the MBS market over the near term. For the third quarter of 2023, Orchid Island Capital reported a net loss of $80.1 million, and the shareholders' equity decreased from $490.1 million to $466.8 million. The difficult conditions referenced above led ORCID to report mark-to-market losses on its MBS assets of $208.9 million, exceeding mark-to-market gains of $142.0 million on derivative hedging instruments. ORCID raised additional equity capital of approximately $80.4 million during the third quarter of 2023, and deployed the proceeds into the agency MBS market at historically wide spreads. While those purchases were at attractive levels, the market subsequently cheapened further and continued to do so as we enter the fourth quarter. We anticipate these attractive levels will ultimately bring buyers into the market, and agency MBS assets will perform very well. However, exactly when this occurs is hard to predict and does not appear to be imminent. More likely than not, it will occur after an interest rate cycle turns. In short, we anticipate market conditions to remain challenging for the time being and have undertaken steps to mitigate the impact of such conditions on our results. Before discussing such steps, I would like to review our advisory service segment results for the third quarter of 2023. Given the advisory services revenue for the quarter was approximately $3.6 million, a 9% increase over the comparable quarter of 2022, reflecting an increase in ORCID's equity compared to 2022. ORCID is also obligated to reimburse us for direct expenses paid on its behalf and to pay us ORCID's pro rata share of our overhead as defined in the management agreement. Such amounts were approximately $0.7 million of the $3.6 million of advisory services revenue recorded during the quarter. With respect to the MBS portfolio at Royal Palm, we added to the MBS portfolio during the third quarter of 2023. increasing the market value from $63.8 million at June 30, 2023 to $84.9 million at September 30, 2023. This represents an approximate 33% increase in the portfolio. Further, the weighted average coupon increased from 4.12% at June 30, 2023 to 4.78% at September 30, 2023. Portfolio interest and dividend income from our shares of Orchid Island increased 53% over the comparable quarter of 2022. However, as referenced above, interest expense on our repurchase obligations continues to rise and increase significantly from $210,000 for the third quarter of 2022 to $831,000 for the third quarter of 2023. Then interest and dividend income for the quarter of $281,000 was down from $518,000 for the same quarter of 2022. However, our funding costs appear to be leveling off, albeit at high levels, so we do not anticipate additional meaningful compression in our net interest figures. We do acknowledge that ORCID's recent 25% dividend reduction will impact the figures for the fourth quarter, however. Further, the reduction contributed to a decline in the price of our shares of ORCID since quarter end. Countering the dividend cut at ORCID was the increase in the weighted average coupon of the portfolio and the 33% increase in the market value of the portfolio. For these reasons, we anticipate relative stability in our net interest spread, and these are the types of steps I mentioned that we have taken and may continue to take in the future to mitigate the current market conditions. With respect to the balance of our results, mark-to-market gains and losses on our MBS portfolio, hedge positions, and shares of ORCID, netted to a loss of $2.36 million for the quarter. Our expenses for the quarter were down 5% versus the second quarter of 2023 and increased by 1% versus the same quarter of 2022. Finally, we recorded a net loss for the quarter of $419,000 versus a loss of $3.2 million for the third quarter of 2022. Going forward, the current challenging market conditions are likely to continue and have been even more volatile so far in the fourth quarter. While the Federal Reserve left their policy rate at the meeting this concluded on November 1st unchanged, the Fed chairman made it quite clear that the Fed can and will increase their policy rate again if economic conditions warrant. Given such conditions, we may not even be able to continue to build our MBS portfolio in order to retain ample cash balances and maintain our leverage ratio. And just one final comment as this script was written before today's number. The non-farm payroll numbers released this morning coupled with the data released so far this week does appear to have changed the market somewhat, meaningfully so. And as dire as October was, we are reversing some of those losses. I don't have any numbers yet, but just wanted to acknowledge the fact that the market has changed somewhat since we wrote this script. And with that, operator, we can turn the call over to questions.
spk00: At this time, if you'd like to ask a question, simply press star followed by the number one on your telephone keypad. Again, that is star one for any questions. We'll pause for just a moment to compile the Q&A roster. And we have no questions at this time. I'll turn the call back to management.
spk01: Thank you, operator, and thank you, everybody, for listening. If anybody does come up with a question later or listens to the replay and has a question, please feel free to call us. The office number is 772-231-1400. Otherwise, we look forward to speaking with you at the end of the next quarter. Thank you, everybody.
spk00: That will conclude today's meeting. We thank you all for joining. You may now disconnect.
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