Bimini Capital Management, Inc.

Now, I'd like to hand over to the conference -- to the company's Chairman and Chief Executive Officer, Mr. Robert Cauley.

Robert, Please go ahead.

Thank you, operator, and good morning. The first quarter of 2021 saw the emergence of a very robust recovery from the effects of the pandemic for both the economy and the quality of life for most Americans.

The vaccines that emerged during the fourth quarter of 2020 proved very effective in dealing with both COVID-19 -- the COVID-19 virus and its many variants. Vaccine was very effectively distributed, so inoculation levels exceeded expectations and allow the economy to reopen quickly.

As a result of victories in the 2 Georgia senate race run-off elections in early January, the Democratic Party had full control of both houses of Congress and the White House. Shortly thereafter, President Biden's $1.9 trillion stimulus package was passed, a size that was well above market expectations and led to additional stimulus funds being distributed throughout the economy.

And finally, the Federal Reserve Chairman acknowledged his approval of higher interest rates, noting they represented a welcome development, evidence the market was anticipating a solid recovery and a return of inflation expectations above very depressed levels. These factors, in addition to consistently robust economic data, led markets, especially the rates markets, to price in a very strong economic performance for the balance of 2021 and beyond.

As interest rates rose and implied volatility increased, Agency RMBS generated negative returns for the quarter, both on an absolute basis and hedge adjusted basis.

Orchid Island recorded a loss for the quarter due to these developments, but its shareholder's equity still increased by approximately $50.9 million, the net effect of 2 capital raises, the operating loss and dividends paid. As Orchid's equity base increased, management fees payable to Bimini Advisers also increased.

For the first quarter of 2021, advisory service revenues increased by approximately 11% over the fourth quarter of 2020, and by 17% over the fourth quarter -- first quarter of 2020. As the full effect of these increases in Orchid's capital base was not fully realized until March, the run rate of management fees going into the second quarter should lead to even higher advisory service revenues in the second quarter.

Dividend income was flat with the fourth quarter of 2020, but increased by 39% over the first quarter of 2020, the net effect of a 19% lower dividend rate and a 71% increase in number of shares held. The Agency RMBS portfolio at Royal Palm Capital increased by 12% during the first quarter of 2021, the net effect of the asset purchases of $12.4 million, offset by $1.4 million in mark-to-market losses and $3.3 million of paydowns during the quarter.

Prepayment activity remained elevated during the quarter, and remains elevated as we move through the second quarter in spite of higher interest rates available to borrowers.

The 3 month constant prepayment rate or CPR for the pass-through portfolio was 18.5 and 16.4 CPR for the structured portfolio. The combined portfolio was 18.3 CPR versus 14.4 for the fourth quarter of 2020 and 13.7 CPR for the first quarter of 2020.

The reason is the securities owned by Royal Palm are predominantly higher coupon and more seasoned, and while rates are higher than levels seen during 2020, the loans underlying theses securities are still in the money and the economic incentive to refinance is still present.

Accordingly, as the rates increased during the first quarter, the percentage of the Agency RMBS universe within the refinance window defined as greater than 50 basis points of refinance incentive shrank from approximately 80% at year end 2020 to the low 40% area at the end of the quarter. As a result, mortgage brokers are now focused more keenly on higher coupon mortgages with some seasoning.

Until now, we have benefited from the fact, these loans did not represent the low-hanging fruit they do now as the loan documents were now expressed and therefore take a little longer to process.

The capital allocation of the portfolio remains heavily skewed towards pass-throughs although this will change somewhat this quarter as we add to our interest-only securities. The negative duration of these assets act as a hedge to our pass-throughs positions with less need to maintain cash balances to meet margin calls when rates move.

We have yet to determine the target allocation of capital to the structured portfolio, although the 20% to 25% range seems likely. We will add to the structured portfolio before we make any additions to the pass-through portfolio.

To offset -- the offset to the higher speeds for the quarter I just discussed was the fact that higher coupon securities only suffered minor price declines versus lower coupons, owing to their lower duration, which is typical of premium Agency RMBS. As a result, the mark-to-market gains on our share of Orchid Island exceeded the mark-to-market losses on our Agency RMBS, even though the Agency RMBS portfolio is substantially larger.

And quarter-to-date, the shares of ORC have declined by approximately 11% as of last night. Finally, operating expenses were up modestly by 6% for the quarter versus the fourth quarter of 2020 and 3% versus the first quarter of 2020.

Looking back over the last 12 months, it is quite amazing how much our outlook has changed. March of 2020 was one of the worst 31 days we have ever experienced.

All the effects of the pandemic took hold of our lives and the economy and the outlook was very bleak. Within 12 months, we have recovered, not fully, but to the point, our outlook has reversed most of the effects of the pandemic.

The shareholders' equity of Bimini as of March 31, 2021, exceeds the level of March 31, 2020. While the portfolio at Royal Palm is much smaller, net revenues for the first quarter of 2021 were larger than for the fourth quarter of 2019, the last full quarter before the pandemic hit the U.S.

While the first quarter of 2021 was turbulent one for levered MBS investors like Orchid and Royal Palm, the markets have stabilized and returns available are still attractive, if not quite as attractive as they were during the second quarter of 2020. We remain optimistic that we will continue to progress towards our goal of harvesting our net operating losses and growing our portfolio and our earnings over time.

Thank you, operator, and that's it for my prepared remarks. We can open up the call to questions.

Thank you, operator, and thank you, everyone, for joining us. To the extent, you do have questions after the call or if you listen to the replay and you have a question, please feel free to call us at the office.

The number is 772 -231-1400. Look forward to hearing from you.

Otherwise, I will talk to you next quarter. Have a great weekend everyone.