Bimini Capital Management, Inc.

Robert Cauley – Chairman and Chief Executive Officer Hunter Haas – President, CIO, Chief Financial Officer, and Treasurer

Thank you, operator, and good morning everyone. As you recall from our prior discussions effective with tax year 2015, Bimini is no longer a REIT for federal income tax purposes.

Early last year, we announced that we would take steps to take advantage of net operating losses available at both Bimini and our former mortgage company, previously known as MortCo TRS, LLC, and now Royal Palm Capital LLC or Royal Palm. This involved moving the MBS portfolio from Bimini to Royal Palm, among other things.

We initiated the process in late 2015 and completed the process during the third quarter of 2016. Going forward, the results of the MBS portfolio will continue to be presented in our financial statements as if the portfolio resided at Bimini, but this is simply because Royal Palm as a wholly-owned subsidiary is consolidated.

Bimini's strategy for harvesting the tax net operating losses will involve two overlapping efforts. First, we will manage the portfolio in operations of working out in capital and collect management fees and overhead sharing payments through our subsidiary Bimini Advisors.

As Bimini Advisors is consolidated by Bimini for federal income tax purposes, we expect these operations will generate taxable income that can be used to absorb Bimini's net operating losses of approximately 19.1 million as of December 31, 2016. We refer to these operations as our advisory services.

Secondly, we will manage the portfolio at Royal Palm in an effort to generate taxable income to absorb the approximately 257 million of net operating losses as of December 31, 2016 at Royal Palm. We also have retained interest or residuals at Royal Palm, and these generate a modest cash flow stream over time.

As a result of these tax net operating losses, all revenues in excess of our cost from the advisory services, the MBS portfolio at Royal Palm, dividends received on our Orchid shares, and the residuals are available to be deployed into the MBS portfolio at Royal Palm until these NOLs either expire or are consumed. This in turn allows us to grow the portfolio and potentially increase net revenues in the future.

From time to time, adverse market moves may result in margin calls that reduce cash balances otherwise available to be deployed into the portfolio. Of course, our funding hedges typically result in margin calls as well when the market interest rates move.

During the fourth quarter of 2016, the net of margin call activity related to our portfolio in funding hedges was negative. And we were unable to achieve material growth in the MBS portfolio.

Going forward, absent such outside market moves as we experienced in the fourth quarter of 2016, we expect to continue to be able to grow the MBS portfolio. During the fourth quarter of 2016, Orchid Island Capital grew its capital base.

As a result, management fees to Bimini Advisors, the external manager of Orchid, increased from approximately 1.1 million in the third quarter of 2016 to approximately 1.2 million in the fourth quarter of 2016. Inclusive of overhead sharing payments, advisory service revenues increased from approximately 1.39 million in the third quarter of 2016 to approximately 1.56 million in the fourth quarter of 2016.

Such revenues are a function of the size of the capital base of Orchid as adjusted, and the prorated allocation of certain Bimini overhead expenses, in both cases in accordance with the terms of the management agreement between the parties. We also own shares of Orchid Island Capital at both Bimini and Royal Palm.

We own these shares as proxy for the exposure to the MBS portfolio, although we do not consider the dividend received on our Orchid shares as a component of the total return of our MBS operations. For the fourth quarter of 2016, the dividends on Orchid shares were 0.6 million, and we reported approximately 0.6 million on mark-to-market gains on Orchid shares as well.

In the future, we may increase or decrease our Orchid position based on the relative attractiveness of Orchid shares versus MBS Investment opportunities. The retained interest of residuals from the securitizations of our former mortgage company conducted in 2004 to 2006, generating cash flows of $0.7 million for the fourth quarter of 2016.

Turning now to the portfolio operations at Royal Palm; the portfolio shrinked modestly from a 133.6 million at September 30, 2016, to a 130.3 million in December 31, 2016, even though the capital allocated to the portfolio increased from 30.5 million in September 30, 2016, to 30.9 million at December 31, 2016. We purchased approximately 3 million of structured securities during the fourth quarter of 2016.

We did not purchase any pass-through securities. These purchases were offset by 2.5 million of pay downs, 0.3 million of return to investment related to our structured securities, and net 3.5 million mark-to-market losses on our pass-throughs and structured portfolio.

As a result, approximately 4.2 million mark-to-market losses on the pass-through portfolio and a 3 million of structured security repurchases, the capital allocation of the portfolio shifted from 80.4% pass-throughs and 19.6% structured at December 30, 2016, to 56.7% pass-throughs to 43.3% structured at December 31, 2016. The shift was driven by a desire to bring the capital allocation to alignment with our desired split versus new market development.

During the third quarter, we had completed the shift of the portfolio from Bimini to Royal Palm, and much of this was done by a sales pass-through securities from the Bimini portfolio and deployment of proceeds into the pass-through securities in the Royal Palm portfolio. Since the movement of capital from Bimini to Royal Palm was concentrated in pass-through securities, the changes in the fourth quarter were needed to bring our capital allocation into line.

Going forward, we anticipate the capital allocation between the two sub-portfolios will generally remain within 10% of a 50-50 allocation. The portfolio generated a negative 14.4% return on invested capital for the period, not annualized.

The MBS pass-through portfolio generated return on invested capital of negative 24.8% as interest rates rose substantially during the quarter and pass-through securities generally underperformed our hedges. The structured securities portfolio generated a return of 28.7%, also because of the increase in rates, but also because of lower prepayment expectations.

The net negative return reflects the relative capital allocation at the beginning of the period. As we have transitioned the portfolio from Bimini to Royal Palm, we sold several order positions and added new securities.

Most of these securities also have various forms of call protection. Not surprisingly, prepayments on the pass-through portfolio declined during the quarter.

Prepayment speeds on our pass-through securities decreased from 9.4 CPR from the third quarter of 2016, to 5.5 CPR for the fourth quarter of 2016. However, the structured securities portfolio increased from 19.7 CPR during the third quarter to 27.3 CPR in the fourth quarter of 2016.

This experience was somewhat surprising, although the mortgaging of our prepayment fees remain certainly high throughout the fourth quarter and into early 2017. Combined, the portfolios decreased from 30.6 CPR in the third quarter of '16 to 11.1 CPR in the fourth quarter.

Since we last spoke at the end of the third quarter of 2016, the markets and economic outlook have shifted by 180 degrees. The outlook for the economy, interest rates and the Federal Reserve or the Fed, all have changed during the fourth quarter of 2016 as Donald Trump unexpectedly won the Presidential elections.

Republican Party retained both Houses of Congress, which also surprised the markets. The markets reacted strongly to these developments, and interest rates moved significantly higher, in what is commonly referred to as a Risk on Trade, treasury securities declined in price while other assets that carry more risks, equities, commodities, risk year warranty, etcetera, all increased.

The market expects expansionary fiscal policy such as tax cuts or reform, infrastructure spending, less regulation, and very prudent administration going forward. As a result, the market expects to follow a more aggressive policy in removing accommodation from the economy as many of the expected policy proposals should be both expansionary and inflationary.

The incoming economic data in the latter part of the fourth quarter into the first quarter of 2017 has contributed to the positive return to the risk asset markets. Certain measures of inflation, namely the headline and core CPI data released from the Bureau Labor of Statistics is up over 2% on a year-over-year basis, and appears to be accelerating.

While not the Fed's preferred measure of inflation, personal consumption expenditures, which is the Fed's preferred measure is also accelerating, although it's yet to cross the 2% threshold so important to the Fed. With this backdrop, it was not surprising that Fed's Chairwoman, and essentially all of Fed speakers have been very upbeat on their assessment of the economy lately.

In fact, they have made it quite clear to their public announcements they intend to increase the target for Fed's fund at their meeting next week. The Fed fund's futures market is currently pricing at a 100% chance this will occur.

As we are near the end of the first quarter of 2017, the market is still waiting to see what the Trump Administration will actually deliver for the economy and markets. As development unfolds over the course of the year and beyond, the markets will continue to react accordingly.

At this point, there is no way of predicting this outcome. In the meantime, the combination of higher rates and slower prepayment speed should be supportive of the earnings power of the company's portfolio.

Our portfolio positioning remains concentrated in higher coupon fixed rate securities with various forms of call protection. Exposure to increasing rates is mitigated by interest-only and inverse interest-only securities coupled with funding hedges, namely short positions in Euro/Dollar futures.

Going forward, the exposure to higher forms of call protection is likely to be maintained as well our use of interest-only and inverse interest-only securities. We will continue to rely on Euro/Dollar futures for funding hedges at least until we have the latitude to use other instruments.

Operator, that concludes my prepared remarks. We can open up the call for questions now.

Hello, folks. This is David Atlas [ph].

I asked a question, I think a couple years ago, and maybe I want to have a follow-up on that. The question is how is it going managing a larger portfolio and -- on the Orchid side, and do you have any feel for yet in terms of what kind of scale will be manageable, and I'm not really asking how quickly you can get there, but more or like -- a question on comfort as you cross to the half billion and to the billion dollar mark, do you have any feel for the limits of scale, what can be managed, you know, reasonably?

Well, we are certainly not there, and by the way, thank you for your question, David. We're at little over $3 billion on the Orchid portfolio.

We, back in the day before Bimini shrank materially result of the financial crisis managed portfolio is certainly larger than that. And in both cases with staffing levels at where we are, we have added to our staff over the last year-and-a-half or two slightly, but we think that the scales is not that big of a challenge, typically you'd just buy larger pieces of bonds, you know, instead of buying a $5 million or $10 million piece, you buy a $20 million or $30 million piece.

We outsource a lot of the back office operations that are somewhat time-consuming. We have a contract with a company here in Florida.

They do those operations for a number of real estate investment trusts and hedge funds. They have ample scale to handle our growth.

So the portfolio really can grow quite a bit. I think what we've seen in the space amongst our peers is when their growth gets -- or when they get too large, it's really not so much the availability of professional staff or resources, a lot of time it's the capacity of the lenders to provide adequate funding, or annually capital is an example, where the portfolios approach to a $100 billion, almost force them to diversify in other asset classes.

I'm not that strong speaking for them on their behalf of course, but suddenly when they got that large, they are exposed to the various repo counterparties probably, again, I don't know for sure, but probably became somewhat of an issue today, we are forced to expand in other asset classes. We are a long way from that.

Hunter, do you want anything to that?

No, I would just say, we are also a long way from the point where we start to have sort of being a taker of assets. So, very large mortgage portfolios have to -- are sort of forced to take the assets that are available at the time.

We can still be up to another several hundred million in equity capital, still be in a position where we can be highly specialized, if you will, like we have then -- and we think that will continue you to feed the bottom line for us. But with respect to the scale, I think we can easily double in size in terms of the portfolio and not have a meaningful impact on our ability to manage the way we'd like to manage the portfolios.

Thank you very much. You understood, and I asked the question incorrect, I meant on your equity side; that's what I was referring to, but my question has been answered.

Thank you very much.

Sure.

Thank you, Operator. Thank you everybody for your time.

To the extent, you didn't get a chance to ask a question or you listen to the replay, and if something comes across your mind and you want to ask a question, please feel free to call us at our office. The number is 772-231-1400.

I'll be very happy to answer your questions. Otherwise, we look forward to talking to you at the end of the first quarter.

Thank you.