In the Fourth Quarter 2023 Earnings Conference Call, Bimini Capital Management discussed significant changes in the interest rate environment and their impact on the company's financial performance. Bimini's subsidiary, Orchid Island (NYSE:ORC) Capital, reported a net income of $27.1 million for the quarter, while Bimini itself recorded a net loss after taxes of $4.5 million due to a valuation allowance adjustment on its deferred tax asset.
The company experienced a decrease in Advisory Services revenue by 6% compared to the same quarter in the previous year, and an overall net revenue decline in 2023. However, total revenues increased by 11% year over year. Interest expenses rose materially due to repurchase agreement funding and trust preferred debt. Despite the mixed results, the company remains cautiously optimistic about the potential for revenue growth and improved market conditions in 2024.
Key Takeaways
- Orchid Island Capital, a subsidiary of Bimini Capital Management, reported a Q4 net income of $27.1 million.
- Bimini Capital Management experienced a net loss after taxes of $4.5 million in Q4.
- Advisory Services revenue for Bimini decreased by 6% in Q4 compared to the same quarter in the previous year.
- Total revenues for Bimini increased by 11% year over year, despite a net revenue decline in 2023.
- Interest expenses related to repurchase agreements and debt rose significantly.
- Market conditions have improved in early 2024, with less volatility compared to 2023.
Company Outlook
- Bimini anticipates potential revenue growth as market conditions stabilize.
- The company expects to grow its RMBS portfolio slowly over time.
- Bimini's Advisory Service revenue is dependent on Orchid's ability to grow its capital base.
Bearish Highlights
- Bimini recorded a net loss after taxes of $4.5 million in Q4 due to an increased valuation allowance on its deferred tax asset.
- Interest expenses have increased significantly, impacting net revenue.
Bullish Highlights
- Total revenues for Bimini increased by 11% year over year.
- Orchid Island Capital reported strong net income and slight growth in shareholders' equity.
- Market conditions in the last two months of Q4 resulted in mark-to-market gains on MBS assets.
Misses
- Advisory Services revenue for Q4 decreased by 6% from the comparable quarter of the previous year.
- Net interest and dividend income for Q4 was slightly down from the same quarter of the last year.
Q&A Highlights
- The company is open to questions post-call and can be reached at 772-231-1400.
- Bimini looks forward to discussing further in the next quarterly call.
During the call, Robert Cauley, Chairman and CEO of Bimini Capital Management, provided insights into the company's performance amidst a changing interest rate cycle. The initial signs of progressively higher interest rates shifted in November as inflation data began to fall, prompting the Federal Reserve to signal a potential lowering of rates. This led to a dramatic decline in interest rates and a rally in risk assets. As the company enters 2024, the market expects fewer rate cuts than previously anticipated, potentially benefiting Bimini's RMBS portfolio operations and Advisory Services revenue if market conditions remain favorable.
InvestingPro Insights
In light of the recent earnings report and market dynamics, Bimini Capital Management (BMNM) is navigating a complex financial landscape. The InvestingPro data and tips shed further light on the company's current situation and prospects.
InvestingPro Data highlights that Bimini Capital Management has a market capitalization of $7.5 million and has experienced a staggering revenue growth of 468.13% in the last twelve months as of Q4 2023. However, it's important to note that quarterly revenue growth took a dip, contracting by 32.21% in Q4 2023. The company's gross profit margin stands at a slim 1.38%, which underscores the challenges Bimini faces in terms of profitability.
Two InvestingPro Tips relevant to the article are:
1. Bimini's stock tends to exhibit high price volatility, which could be a factor for investors to consider given the recent market conditions and the company's performance.
2. The company has not been profitable over the last twelve months, aligning with the net loss reported in the earnings call.
For those looking to delve deeper into Bimini's financial health and stock performance, there are additional InvestingPro Tips available. These can provide more nuanced insights into the company's operations and could be particularly useful for investors considering Bimini's potential for revenue growth and improved market conditions in 2024.
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Full transcript - Bimini Capital Mgmt (BMNM) Q4 2023:
Operator: Good morning, and welcome to the Fourth Quarter 2023 Earnings Conference Call for Bimini Capital Management. This call is being recorded today, March 8, 2024. At this time, the company would like to remind the listeners that statements made during today's conference call relating to matters that are not historical facts are forward-looking statements subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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 differences are described in the company's filings with the Securities and Exchange Commission, including the company's most recent annual reports 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.
Robert Cauley: Thank you, operator, and good morning. The fourth quarter of 2023 appeared to be the turning point in the current interest rate cycle and may still prove to be so. As the fourth quarter began in October, every sign pointed to progressively higher interest rates and Federal Reserve monetary policy remaining higher for longer. Not only did the incoming economic data consistently exceed expectations, especially readings on the labor market and inflation, but projected federal government deficits and related borrowing needs increased materially, fueling fears of even higher rates as the market was forced to cope with an increased supply of treasuries going forward. This changed dramatically as we moved into November. The primary reason was the inflation data. While inflation readings were still above economist forecast, they were nonetheless still falling and the three and six month annualized rates for both headline and core inflation dropped below 3% and appeared headed toward 2% the Fed's target. Fed Governor Waller stated that if the inflation data trend continued, the Fed would likely lower rates soon. Finally, at the December FOMC meeting, the Chairman at its post-meeting News Conference strongly hinted that Fed was done raising rates and the focus of the discussions had turned to removing restrictive monetary policy. The market reaction to these developments was dramatic. Interest rates declined by over 100 basis points in the case of maturities of five years or more and market pricing reflected approximately six 25 basis point cuts by the Fed by the end of 2024. Risk assets rallied strongly. As we enter 2024, the market has once again reversed and the data, along with the Fed, has led the market to expect three cuts at most in 2024, although, I wrote the script before today's non-farm payroll number now we're up to four. And in any way, the pricing of these cuts is midyear to the second half of the year. Orchid Island Capital reported fourth quarter 2023 net income of $27.1 million and its shareholders equity increased slightly from $466.8 million at September 30, 2023 to $469.9 million at December 31, 2023. The market conditions in the last two months of the fourth quarter described above led Orchid to report mark-to-market gains on its MBS assets of $205.6 million exceeding mark-to-market losses of $149 million on derivative hedge instruments. Bimini's Advisory Services revenue for the quarter was approximately $3.1 million, a 6% decrease from the comparable quarter of 2023. Orchid is also obligated to reimburse us for direct expenses paid on its behalf and to pay us Orchid’s pro rata share of overhead as defined in the management agreement. With respect to the MBS portfolio at Royal Palm, we added to the MBS portfolio during the fourth quarter of 2023, increasing the market value from $84.9 million at September 30, 2023 to $92.7 million at December 31, 2023. In response to evolving market conditions during the quarter described above, we repositioned the pass-through portfolio by selling lower quality spec pools with 4% coupons and redeploying the proceeds into similar quality spec pools with 7% coupons, albeit in larger size, thus leading to the increase in the portfolio for the quarter. While the portfolio has increased during the quarter, and the combination of portfolio interest and dividend income from our shares of Orchid increased by 96% over the comparable quarter of 2022, interest expense on our repurchase obligations continue to rise and increased significantly from $402,000 for the fourth quarter of '22 to $1.178 million for the fourth quarter of '23. As a result, net interest and dividend income of the quarter of $376,000 was down slightly from $390,000 for the same quarter of last year. Mark-to-market gains and losses on our MBS portfolio, hedge instruments and shares of Orchid netted to a net gain of $600,000, and we recorded a net loss report taxes for the quarter of $400,000 versus net income of $1.45 million for the fourth quarter of 2022. We updated our projected utilization of our deferred tax asset and increased the valuation allowance, resulting in a tax provision of $4.1 million and a net loss for the fourth quarter of '23 of $4.5 million. For the year, Bimini reported net income before taxes of $150,000 versus a loss of $7.97 million for 2022. Due to the revisions to the deferred tax asset allowance I mentioned, Bimini reported after-tax net loss of $3.58 million for '23 versus an after-tax loss of $19.82 million for 2022. The improvements in our pre-tax and post-tax results was primarily driven by other income items such as unrealized gains and losses on our RMBS assets and shares of Orchid Island and unrealized gains and losses on our derivative hedge instruments. Such items netted a loss of $1.87 million for 2023 versus $12.15 million for 2022. In both years, the Federal Reserve was actively raising overnight funding rates and interest rates generally were increasing accompanied by elevated levels of volatility. As described above, the improvements in our results occurred predominantly during the fourth quarter of 2023. Net revenues declined in 2023 to $12.51 million from $14.02 million in 2022. Total revenues actually increased by 11% from $16.15 million in 2022 to $17.93 million in 2023, but interest expense related to our repurchase agreement funding and trust preferred debt increased materially from $2.13 million in 2022 to $5.42 million in 2023. Expenses for the year increased 7%, driven by a 5% increase in compensation and related benefits and a 13% increase in direct advisory services cost predominantly systems-related costs. Market conditions so far in the first quarter of 2024 are generally less volatile than what we experienced through most of 2023 and 2022 for that matter. However, incoming economic data remains solid and public comments from various Fed officials consistently point to the need for continued diligence on the inflation front, and we suspect we will not see interest rate cuts from the Fed in the near term. Even absent such an outcome, a continuation of current market conditions is desirable as it allows us to accumulate cash only to our NOLs and continue to grow our RMBS portfolio slowly over time. If the Federal Reserve is done raising funding rates, we do not anticipate further deterioration in our net interest spread on our RMBS portfolio at Royal Palm. Advisory Service revenue will be driven by Orchid's activities specifically to the extent Orchid is willing and able to grow its capital base. Until these conditions persist, we should be able to grow our revenues as the portfolio grows. The risk to this outcome would be further upward movements in funding rates and/or increasing long-term rates resulting in pressure on our asset prices. Alternatively, if funding rates do decrease, our MBS portfolio operations would benefit from increased net interest income margins as with Orchids potentially enhancing the chance they would be able to grow their capital base/portfolio and, in turn, our Advisory Services revenues. Operator, that's it for the prepared remarks. We can now open up the call to questions.
Operator:
Robert Cauley: Thank you, operator, and thank you, everybody for joining us. To the extent you do have questions or you listen to a replay and 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 next quarter. Thank you.
Operator: This concludes today's conference call. Thank you for your participation and you may now disconnect.
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