Q3 2023 Bimini Capital Management Inc Earnings Call
Participants
Robert Cauley; Chairman, CEO and Secretary; Bimini Capital Management, Inc
Presentation
Operator
Good morning, and welcome to the third quarter 2023 earnings conference call for Bimini Capital Management. This call is being recorded today, November 3, 2023. At the 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 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 report 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, thank you for joining us today.
The third quarter was a very challenging period for the markets and levered bond investors such as Bimini and Orchid Island Capital. Market conditions deteriorated even further in October meaningfully so. I did not plan to discuss these developments and be Joe, I'm sure our listeners are quite aware of what has happened already.
What it would like to do is to discuss all these events affected us, what they mean for us going forward, as well as our outlook for the MBS market over the near term.
For the third quarter of 2023, Orchid Island Capital reported a net loss of $80.1 million in the shareholders' equity decreased from $490.1 million to $466.8 million. The difficult conditions referenced above, led to working to report mark-to-market loss on the MBS assets of $280.9 million, excluding mark-to-market gains of $142.0 million on derivative hedging instruments. Or could raise additional equity capital of approximately $80.4 million during the third quarter of 2023 and deployed the proceeds and Agency MBS market and historically [wised spreads]
While those purchase orders were at attractive levels for market subsequently cheap and further and continue to do so as we enter the fourth quarter. We anticipate these attractive levels will ultimately bring buyers into the market. In agency MBS assets will perform very well.
However, exactly when this occurs is hard to predict and does not appear to be imminent. More likely than not. It will occur after the interest rate cycle turns. In short, we anticipate market conditions to remain challenging for the time being in and have undertaken steps to mitigate the impact of such conditions on our results.
Before discussing such steps, I would like to review our advisory service segment results for the third quarter of 2023.
The advisory services revenue for the quarter was approximately $3.6 million, a 9% increase over the comparable quarter of 2022, reflecting an increase in Orchid's equity compared to 2022. Or if it is also obligated to reimburse us for direct expenses paid on its behalf and to pay us Orchids pro rata share of our overhead as defined in the management agreement.
Such amounts were approximately $0.7 million of the $3.6 million of advisory services revenue recorded during the quarter. With respect to the MBS portfolio of Royal Palm, we added to the MBS portfolio innovation and market value from $63.8 million at June 30, 2023, to $84.9 million at September 30, 2023. This represents an approximate 33% increase in the portfolio.
Further, the weighted average coupon increased from 4.12% at June 30, 2023, to 4.78% at September 30, 2023. Portfolio interest and dividend income from our shares of Orchid Island increased 53% over the comparable quarter of 2022.
However, as I referenced above, interest expense on our repurchase obligations to continues to rise and increased significantly from $210,000 for the third quarter of 2022 to $831,000 for the third quarter of 2023, and interest and dividend in income for the quarter to $81,000 was down from 518,000 for the same quarter of 2022.
However, our funding costs appear to be leveling off, albeit at healthy levels, so we do not anticipate additional meaningful compression in our net interest figures. We do acknowledge that Orchids recent 25% dividend reduction will impact us figures for the fourth quarter, however. Further reduction contributed to a decline of price of our shares of Orchid since quarter end.
Countering the dividend cut at Orchid was the increase in the weighted average coupon of the portfolio and the 33% increase in the market value of the portfolio. For these reasons, we anticipate relative stability in our net interest spread, and these are the types of steps I mentioned that we have taken and they continue to take in the future to mitigate the current market conditions.
With respect to the balance of our results, mark-to-market gains, and losses on our MBS portfolio hedge positions in shares of market netted to a loss of $2.36 million for the quarter. Our expenses for the quarter were down 5% versus the second quarter of 2023 and increased by 1% versus the same quarter of 2022. Finally, we recorded a net loss for the quarter of $419,000 versus a loss of $3.2 million for the third quarter of 2022.
Going forward, the current challenging market conditions appear likely to continue and have been even more volatile so far in the fourth quarter. While the Federal Reserve lift their policy rate at the meeting is concluded on November 1, unchanged. The Fed Chairman made it quite clear that the Fed can and will increase their policy rate, again, if economic condition are worn.
Given such condition we might may not be able to continue to build our MBS portfolio in order to retain ample cash balances and maintain our leverage ratio. And just one final comment as the script was written before today's number nonfarm payroll numbers released this morning, coupled with the data release, so far this week does appear to change the market somewhat meaningfully. So and it's bought dieters.
October was we are reversing some of those losses. Don't have any numbers yet, but just wanted to acknowledge the fact that the market has changed somewhat since we wrote the script. And with that, operator, we can turn the call over to questions.
Operator
(Operator Instructions) And we have no questions at this time. I'll turn the call back to management.
Robert Cauley
Thank you, operator, and thank everybody for listening.
If anybody does come up with a question later or listens to the replay line has a question, please feel free to call the office numbers 7722311400. Otherwise, we look forward to speaking with you at the end of the next quarter. Thank you, everybody.
Operator
That will conclude today's meeting. Thank you all for joining. You may now disconnect.
