Bimini Capital Management, Inc.

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 the annual results, changes in assumptions or changes in other factors affecting forward-looking statements.

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

Thanks, please go ahead, sir.

Thank you, operator, and good morning. Once again, COVID-19, when the economies recovered from the pandemic, dominated the markets and developments at both Bimini and Orchid Island Capital during the second quarter of 2021.

The economy continued its strong recovery from the COVID-19 pandemic during the second quarter of 2021. New COVID-19 cases, hospitalizations and deaths from the virus decreased dramatically, allowing the economy to reopen and a substantial pent-up demand on the part of consumers to be unleashed.

Additional fiscal policy steps taken by the Biden administration added to the surge in economic activity.

Gross domestic product, or GDP, expanded at a 6.5% annualized rate during the second quarter of 2021. The Consumer Price Index, or CPI, accelerated by 5.4% on a year-over-year basis in July.

The loan disappointment for the -- over this quarter was job growth, although the last 2 reports covering June and July have shown a material acceleration. Notably, while the economy surged and inflation data continued to exceed market expectations, the rate market actually reversed course and interest rates declined throughout the second quarter.

As we entered the third quarter, the rapid emergence of the delta variant of COVID-19 during July represents a real risk to job growth and economic activity generally, both in the U.S. and globally.

Nonetheless, at the conclusion of the Federal Reserve's last 2 meetings in June and July, the Fed Chairman has indicated the Fed is moving towards the unwinding of monetary policy accommodation. Initially, they will taper their asset purchases.

And for Agency RMBS investors, such Orchid Island and Royal Palm, that are limited to investing in this asset class, this means we must prepare for the eventual reduction in the Fed's MBS purchases.

Orchid Island was positioned defensively as we entered the second quarter, and the decline in rates and underperformance of MBS assets versus hedge instruments led to subpar performance for the RMBS portfolio. Orchid recorded a GAAP loss of $0.17 per share or $16.9 million.

However, Orchid had another strong quarter of growing at shareholders' equity after raising net proceeds of approximately $124.7 million through its ATM program. The net effect of the new shares issued, the net loss and dividends paid, resulting in Orchid Island shareholders' equity increasing by $87.6 million or 19% during the second quarter.

Year-to-date, Orchid Island has increased its shareholders' equity by approximately $138.5 million or 33%. As a result, Bimini Advisor's advisory services revenues increased 8% over the first quarter.

And as the increased shareholders' equity at Orchid Island was not in place for the entire quarter, the run rate ending the third quarter is higher still.

Our dividend income on Orchid Island shares was flat in the first quarter -- versus the first quarter of 2021, but increased by 30% over the second quarter of 2020, driven by the 71% increase in the number of Orchid shares held that occurred during the second and third quarters of 2020. The decline in book value that occurred at Orchid Island during the first quarter led to an $0.82 decline in the price of Orchid shares or $2.1 million, offsetting the $2 million gain reported in the first quarter.

As most of you know, Bimini initiated another Dutch tender offer during the second quarter with the tender closing on Friday, July 2, 2021. Given the substantial discount to book value of the shares we're trading at, we concluded the tender represented an appropriate use of capital while providing our shareholders with an opportunity for liquidity.

The tender was executed at $1.85 per share, nearly a 40% discount to our book value per share of $3 as of June 30, 2021. The tender consumed approximately $1.5 million of available cash.

The Agency RMBS portfolio at Royal Palm decreased slightly by 5.3% during the second quarter of 2021. The net effect of structured security asset purchases of $0.8 million, offset by $0.5 million in March market losses and $4.1 million of paydowns and return on investment during the quarter.

We do not feel comfortable adding to the RMBS portfolio beyond the acquisition of the 1 IO security until we had time to accumulate additional cash. Recall when we last spoke, we mentioned we would be adding to our IO positions as we look to rebuild our hedge positions in anticipation of resuming growth in the pass-through portfolio.

Our cash position is rebuilding now that we are past the tender offer, so we will likely add additional structured securities before resuming growth in the pass-through portfolio. As mentioned, our advisory services revenue is sufficient to cover all expenses at Bimini and cash flows from the dividends and our Orchid shares and the net interest income on the RMBS portfolio are available to investing to growth of the portfolio.

Prepayment activity remained elevated during the quarter, although it has moderated some as we move into the third quarter, even with lower interest rates available to borrowers.

For the second quarter, the 3-month constant prepayment rate, or CPR, for the pass-through portfolio was 21.0% CPR and 31.3% CPR for the structured portfolio. The combined portfolio was 21.9% CPR versus 18.3% for the first quarter of 2021 and 15.3% for the second quarter of 2020.

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

This lack of any meaningful sign of slower speeds, or burnout, in our higher coupon securities led to modest spread widening. And as a result, we recorded a $0.1 million mark-to-market loss on the pass-through portfolio in spite of decline in interest rates during the quarter.

Finally, operating expenses declined modestly by 2% for the second quarter versus the first quarter of 2021 and increased by 2% versus the second quarter of 2020.

Looking ahead, the economy is clearly on the path to recovery, assuming the delta variant of the virus does not intercede. The Federal Reserve Open Market Committee appears focused on job growth and sees this as the likely key driver in achieving their "substantial further progress" in the recovery needed before adjusted monetary policy.

The first 2 nonfarm payroll reports released during the third quarter suggest this may be at hand. But as I said, this assumes the rapid emergence of the delta variant in July does not derail momentum.

If it does not, it appears the first step in the Fed monetary policy shift away from accommodation, tapering of their monthly asset purchases cannot be far off. If this does occur, we would expect interest rates to start to gradually rise and prepayment activity to abate, both of which would be welcome developments for both Orchid Islands and Bimini, given the positioning of the 2 portfolios.

Thank you, operator, and I will now open up the call for questions.

Thank you, operator, and thank you, everyone. Assuming that you were listening to the replay and you do have a question, please feel free to call us at the office, the number is (772) 231-1400.

Otherwise, we look forward to talking to you at the end of the third quarter. Thank you, and have a nice weekend.