Bimini Capital Management, Inc.

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

Please go ahead, sir. Thank you.

Thank you, operator. Good morning, and thank you for joining us to discuss Bimini's third quarter 2021 results.

I'm going to give you a brief overview of the economic backdrop we faced during the quarter and then discuss our results.

The effects of the COVID-19 continued to dominate economic activity during the third quarter of 2021, particularly the Delta variant that first emerged in earnest during July. Daily new infections from the Delta variant rose rapidly during the summer and appeared to peak in early September.

The net effect of spreading virus and reluctance on the part of many to go back to work and/or get vaccinated subdued job growth during the third quarter of 2021. However, we may now be at a crossroads as the effects of the Delta variant appears to be waning and the number of people with either vaccination and/or prior infections of the virus grows.

Pandemic-related relief measures such as supplemental unemployment insurance payments and foreclosure moratoriums have lapsed. Hopefully, the combination of these factors will lead to surging job growth and act to quickly lessen the severe supply shortages of goods and labor.

This in turn should slow the stubbornly high inflation from which the economy has suffered.

If these events come to pass, the economy appears to be positioned to perform very well. The Fed views this outcome as likely and will commence a tapering of their asset purchases in November as they slowly remove the considerable accommodation they have provided to the market since the onset of the pandemic.

Conversely, if these events do not unfold and the supply shortages of goods and labors remain, the economy will likely continue to suffer from elevated levels of inflation. Under this scenario, the path of economic growth is less certain, and the path of monetary policy could prove to be quite challenging for the Fed.

Interest rates across the U.S. Treasury curve and the U.S.

dollar swap curve were little changed during the third quarter of 2021. The only notable development within the rates complex was the slight flattening of both curves between the 5- and 30-year points as the market anticipated the eventual tapering of asset purchases beginning in the fourth quarter of 2021 and increases to the Fed funds rate in either the second half of 2022 or early 2023.

Both Orchid Island Capital and Royal Palm were positioned defensively as we entered the third quarter, but the rates market did not meaningfully impact the results of either portfolio. Orchid recorded net income of $26 million or $0.20 per share for the quarter that included $0.02 of realized and unrealized mark-to-market losses.

However, Orchid had another strong quarter growing its shareholders' equity after raising net proceeds of approximately $177.2 million through its at-the-market program during the third quarter of 2021.

For the third quarter, the net effect of the new shares issued, net income and dividends paid resulted in Orchid's shareholders' equity increasing by $176.8 million or 32% during the third quarter.

As a result, Bimini's advisory services revenue increased 17% over the second quarter. And as the increased capital base at Orchid was not in place for the entire quarter, the run rate entering the fourth quarter is still higher.

In fact, through the first 3 quarters of 2021, Orchid has increased its shareholders' equity by approximately $315.3 million or 76%.

Further, Orchid raised an additional $38.4 million subsequent to September 30, 2021. The capital raised subsequent to September 30, 2021, exhausted the remaining capacity under the ATM program in place at the time, and Orchid announced a new ATM program on October 29, 2021, of $250 million.

Obviously, this will further increase our advisory services revenue.

Finally, with respect to Orchid, dividend income on the shares of Orchid common stock was flat with the second quarter of 2021 and increased slightly by 3% over the third quarter of 2020.

The Agency RMBS portfolio at Royal Palm Capital decreased by 7% during the third quarter of 2021, the net effect of structured security asset purchases of $2.1 million, offset by $6.5 million of net sales of pass-throughs. We also recorded paydowns on the pass-through portfolio of $4.2 million, return of investment of $0.2 million on the structured portfolio and $0.3 of mark-to-market losses on the combined portfolio.

Prepayment activity finally moderated somewhat during the quarter, as the pass-through portfolio prepaid at 15.5 CPR versus 21.0 CPR during the second quarter. Inclusive of our structured securities, the combined portfolio prepaid at 18.3 CPR for the third quarter versus 21.9 CPR during the second quarter.

The securities owned by Royal Palm are predominantly higher coupon and more seasoned. And while rates on the loans underlying these securities are still in the money and the economic incentive to refinance is still present, we are finally seeing slower speeds or burnout.

The first 2 prepayment reports issued during the fourth quarter in October for September of 2021 activity and last week for October activity reflect the continuation of the slowing trend, albeit a modest decline.

We did see some widening spreads as specified pool pay-ups softened late in the quarter. As a result, for the third quarter of 2021, we recorded the mark-to-market loss mentioned above of $0.4 million on our RMBS pass-through holdings.

And in spite of a 6% increase in book value that occurred on our Orchid shares during the third quarter, the price of our Orchid shares declined by $0.30 or $0.8 million.

Finally, our operating expenses declined modestly again, this time by 4% for the third quarter versus the second quarter of 2021, following the 2% decline during the second quarter. Operating expenses increased 2% versus the third quarter of 2020.

As most of you know, Bimini initiated another Dutch tender offer during the second quarter, with the tender closing on July 2, 2021. Given the substantial discount to book value the shares were trading at, we concluded the tender represented an approximate use of capital -- 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 $1.6 million of available cash, inclusive of fees and expenses.

I would like to point out that this was Bimini's second tender offer. We did a $2.2 million tender offer in 2019 and repurchased 1.1 million shares.

We have also implemented 2 share repurchase programs during the past 3 years. The first program commenced in March of 2018 and was terminated recently after repurchasing approximately 72,000 shares.

The second was implemented in late September. The new plan authorized the purchase of -- repurchase of up to $2.5 million worth of shares and was executed in such a manner that our agent has broader discretion to repurchase shares without influence or discretion from management.

So far, Bimini has repurchased approximately 68,000 shares in only 5 weeks. The shares repurchased to date have all been at substantial discounts to GAAP book value.

It is our intention to continue to consider share repurchases as a viable use of our capital when the economics are compelling and represent a superior use of capital to investments in our RMBS portfolio. The analysis in such cases takes into consideration the fact investments in our portfolio generate cash returns that can be reinvested into the portfolio as well given our ability to retain earnings because of the NOLs, enhancing the returns from this alternative over time.

That concludes my prepared remarks. Operator, we can now open up the call to questions.

Thank you, operator, and thank you, everyone. To the extent that you have a question that comes to mind subsequent to the call, or if you didn't get a chance to listen to the call live, only listen to the replay, we would be glad to field your calls.

You can call us in the office, the number is (772) 231-1400. Otherwise, we look forward to talking to you at the end of the next quarter.

Thank you.