Bimini Capital Management, Inc.

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 difference 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 Cauley.

Please go ahead, sir.

[Technical Difficulty]

Ladies and gentlemen, please stand by. Your conference will resume momentarily.

Once again, thank you for your patience and please continue to stand by.

Good morning. Sorry for the technical difficulty.

I will read my prepared remarks and then we will take any questions.

The outlook for the domestic economy changed over the course of the first quarter of 2019. As 2018 drew to a close, the markets were in a state of turmoil and the outlook for economic growth both in the domestic U.S.

economy and the global economy was very bleak. Over the course of the quarter, incoming domestic economic data generally improved, implying the weakness seen in late 2018 and very early 2019 was temporary.

The economic data in the EU and China also stabilized, although it has not recovered to the extent that it has in the U.S., especially with respect to the EU. Some of the external issues, Brexit and the trade dispute between China and the United States, among others, have not had the impact on global growth feared at the end of 2018.

In the case of Brexit, the decision has been postponed in order to give the U.K. time to reach an internal decision on the terms of their exit from the EU.

Prior to this week, the trade talks between the U.S. and China appeared to be nearing a successful conclusion.

The ultimate consequences of these 2 events remain to be seen however.

In any event, while the domestic and global economies may not be growing as well as they did in 2018, the situation is not as dire as it appeared a few short months ago. As for the Federal Reserve, or Fed, they are clearly in a wait-and-see or data-dependent mode.

In this respect, all of the world's major central banks are aligned in their policy stance, in each case, either accommodating economic growth or neutral, as in the case of the U.S.

This accommodative alignment of the world's central banks is what has allowed the outlook to improve over the course of the quarter as markets across the globe view their respective central banks and all central banks as having the markets back, so to speak. The consensus view seems to be that central banks will intervene as necessary whenever economic growth weakens or markets fall into turmoil.

These developments were beneficial for Bimini. Bimini generated after-tax net income of approximately $1.6 million or $0.13 per share of Class A common stock.

Of course, owing to our available tax net operating losses, Bimini does not have to actually pay federal or state income taxes so this income is retained and a portion of our deferred tax asset can be utilized.

With respect to the portfolio operations at Royal Palm Capital, the portfolio was essentially unchanged in size, and interest income was down 2%. Interest expense on our repurchase agreement borrowings increased by 6%, resulting in a 12% decrease in net interest income generated by the portfolio.

However, with interest rates lower over the course of the quarter and agency mortgage-backed securities performing well, mark-to-market gains on Royal Palm's Agency RMBS holdings exceeded mark-to-market losses on our hedge instruments by approximately $1 million. Combined with net interest income on the portfolio of approximately $0.9 million, Royal Palm generated a 10.4% return on invested capital.

Advisory services revenue were down 13% during the first quarter of 2019 compared to the fourth quarter of 2018 as the equity base of Orchid Island Capital, after taking into account stipulated adjustments, declined by approximately $19.8 million over the quarter. Dividends from shares in Orchid Island Capital, both at Bimini and Royal Palm Capital, were unchanged on the quarter at $0.4 million.

The Agency RMBS portfolio was essentially unchanged in size during the quarter with a market value of approximately $211.7 million at the end of the quarter versus $212.4 million at December 31, 2018. However, we anticipate the portfolio will grow over the course of the second quarter as we are able to deploy retained earnings.

The composition of the portfolio was not changed during the quarter.

As we move into the second quarter of 2019, the economic outlook has stabilized significantly versus the outlook at the end of 2018. The central banks appear aligned in their monetary policy, generally accommodative, and the risks to this outlook, while still present, are mitigated by anticipated interventions by central banks to stabilize conditions as needed.

While the Fed may not lower interest rates in 2019, the bar for additional rate increases appears quite high. Under such conditions, with rates generally stable, the Agency RMBS portfolio at Royal Palm should continue to generate attractive returns, and as mentioned, should grow over the course of the year.

Advisory services revenue will be driven by developments at Orchid Island Capital as always.

We are cautiously optimistic the challenging environment caused by the -- a prolonged rate hiking cycle by the Fed may be over, and conditions will be supportive for levered bond funds such as Royal Palm and Orchid Island capital going forward.

Operator, that concludes my prepared remarks. We can turn the call over to questions.

I'm -- I was just kind of curious. As we look at some of the stuff that's going on out there, if we -- it happens when easing cycle, how constructive do you think that would be for the portfolio and your strategy?

It should be very constructive for levered bond funds generally. You would assume the curve would steepen as well.

And really, the curve is fairly steep from 3s out the curve, just a fact that -- reflects the fact that the front end is anchored until they ease. So you would assume, if they did ease, that you would see Fed funds moving.

In all likelihood, I think the curve would probably -- and it's typically overreactive. They tend to price it a little more easingly and you ultimately see.

But that's just the nature of markets. But generally speaking, it would be beneficial.

You would assume that our net interest margin would expand, and you might even have, with the rally in rates, some book value improvement as well.

Got it. That makes sense.

And I -- and just in terms of how you're allocating capital going forward, any consideration of a tender at this point? It's got to be impossible to do an aftermarket repurchase program.

Yes. Well, I mean I -- the price of the stock at $1.80 per share is extremely attractive, and we have had a share buyback in place.

And I really can't say much more than that other than to reiterate the fact that we view the price of the stock at $1.80 as extremely attractive from a share repurchase point of view.

Yes. I mean you could take $1 million and just tender the -- whatever is remaining on the authorization.

I think that would be a pretty strong signal to shareholders that the -- how you guys are thinking about allocating the capital going forward. It's just again my two cents on the matter.

Yes. I agree.

I appreciate that as always.

Thank you, operator. And thank you, everyone, for taking the time to listen.

To the extent you come up with a question later or you have to listen to the call via replay and have a question, please feel free to call our number at the office. It's (772) 231-1400.

And again, we're always eager to have your questions. Thank you.

Otherwise, we'll speak to you next time. Thank you.