Bimini Capital Management, Inc.

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'd like to turn the conference over to the company's Chairman and Chief Executive Officer, Mr. Robert Cauley.

Please go ahead, sir.

Thank you, operator, and good morning, everyone. Thank you for joining us today.

As I mentioned in the press release issued last night, it is very sobering when we reflect on how much has transpired between March of 2020 and March of 2021. The month that seemed like it would never end, finally did.

And there were many dark days in between, but we clearly seem to be emerging from the dark episode that none of us will ever forget. The turmoil in the financial markets last March was very brief in hindsight, but had a significant impact on Bimini, Orchid Island Capital and investors in all sectors, I'd like to mention the real economy and the millions that lost their jobs are impacted by COVID-19 directly.

Fortunately, the Federal Reserve reacted very quickly and forcefully and stabilized the treasury and agency MBS markets. The economy in all financial markets has since recovered, although not quite fully in the case of the economy.

For the financial markets, [indiscernible] position had a big impact on the outcome you experienced and the extent to which you recovered. The investment strategy of both Royal Palm and Orchid Island Capital has always been exclusively agency RMBS and this proved very beneficial in 2020.

We have no credit risk outside of the exposure we face with our repo funding counterparties, and our assets trade in extremely deep and liquid markets. These markets are also intimal to the smooth operation of both the financial markets and the real economy.

That is why the Federal Reserve reacted to the events of last March, the way they did and why we'd expect them to do this -- do so again in the event we have another such episode. It is for this reason that we invest solely in these markets, so we are able to protect our shareholders' investment to the extent we did in 2020.

We believe we had an effective strategy and that it was executed well.

While the effects of the market turmoil last March led us to reduce the Royal Palm portfolio drastically, resulting in a 52% reduction in interest income for the year. It also led to a significant reduction in our borrowing costs as the Federal reserve reduced short-term interest rates to near 0.

The net effect was a modest 9% reduction in net interest income on the portfolio, inclusive of the interest expense on our trust preferred debt. Because Orchid Island performed well over the course of the year and its stock traded at or above book value for much of the balance of the year, Orchid was able to raise additional capital and ended the year with a larger equity base that it began the year with.

Advisory service revenues were only down 2% for the year. Finally, because we increased our ORC common stock holdings from approximately 1.5 million shares to approximately 2.6 million shares, dividend income increased 20%.

So while the Royal Palm portfolio shrank by 70% during the year, Bimini had higher net revenues in 2020 versus 2019.

Secondly, as a result of a strong recovery in revenues and the equity-based at Orchid, we revised our deferred tax asset valuation allowance, reducing the allowance such that the deferred tax asset is approximately 2% higher than it was at the end of 2019.

Turning to the RMBS portfolio at Royal Palm Capital. During the fourth quarter, we sold approximately $5.1 million of low loan balance 30-year 5% securities, taking profits in the face of very elevated spec pool pay ups.

The securities were replaced early in Q1 2021, and the portfolio is currently larger than at year-end and the end of the third quarter. We anticipate further growth in the near term-based on our available cash balances, which have grown.

The portfolio remains concentrated in higher coupon 30-year securities, the positioning in higher coupons led to a very modest mark-to-market unrealized losses during the fourth quarter and has performed very well in 2021 quarter to date.

Prepayment speeds on the pass-through portfolio remained in the low double digits during the fourth quarter at 12.8 CPR versus 13.0 CPR in Q3. While the structured portfolio prepaid at 24.5 CPR.

This was down from 32.0 CPR in Q3, and the entire portfolio prepaid at 14.4 CPR for the fourth quarter versus 15.8 CPR in Q3 of 2020. As we near the end of the first quarter of 2021, the market remains favorable for our agency RMBS strategy.

Interest rates are rising, applying modest pressure on our book value, but this should also place modest downward pressure on prepayments. Since year-end, Orchid Island has executed 2 secondary capital raises increasing its equity base by nearly 25%.

We anticipate increased advisory service revenues for the first quarter of 2021.

In the end, Bimini remains focused on maximizing utilization of our NOLs and growing Royal Palms portfolio. While 2020 was a challenging year, it did not prevent us from making progress on our long-term goals.

Well, that's the end of my prepared remarks, operator, we can turn the call over to questions.

All righty, operator. Thank you, everybody, for listening in or if you listen to a replay.

To the extent you do have questions, please feel free to reach out and contact us. The number in the office is (772) 231-1400.

We're working remotely, but our office manager can connect you with us by cell. Thank you, everyone.

Talk to you next quarter. Bye.