Bimini Capital Management Announces Third Quarter 2020 Results

VERO BEACH, Fla.--(BUSINESS WIRE)--Bimini Capital Management, Inc. (OTCQB:BMNM), (“Bimini Capital,” “Bimini,” or the “Company”), today announced results of operations for the three month period ended September 30, 2020.

Third Quarter 2020 Highlights

• Net income of $1.3 million, or $0.11 per common share
• Book value per share of $1.93
• Company to discuss results on Friday, November 6, 2020, at 10:00 AM ET

Impact of the COVID-19 Pandemic

Beginning in mid-March 2020, the global pandemic associated with the novel coronavirus COVID-19 (“COVID-19”) and related economic conditions began to impact our financial position and results of operations. As a result of the economic, health and market turmoil brought about by COVID-19, the Agency MBS market experienced severe dislocations. This resulted in falling prices of our assets and increased margin calls from our repurchase agreement lenders. Further, as interest rates declined, we faced additional margin calls related to our hedge positions. In order to maintain our leverage ratio at prudent levels, maintain sufficient cash and liquidity, reduce risk and satisfy margin calls, we sold assets at levels significantly below their carrying values and closed several of our hedge positions. We timely satisfied all margin calls. The Agency MBS market largely stabilized after the Federal Reserve announced on March 23, 2020 that it would purchase Agency MBS and U.S. Treasuries in the amounts needed to support smooth market functioning. Largely as a result of actions taken by the Fed in late March, Agency RMBS valuations have substantially increased since March 31, 2020.

Management invoked the Company’s Disaster Recovery Plan in mid-March and its employees have been working remotely since that time. Prior planning resulted in the successful implementation of this plan and key operational team members maintain daily communication.

Details of Third Quarter 2020 Results of Operations

The Company reported net income of $1.3 million for the three month period ended September 30, 2020. The results for the quarter included advisory services revenue of $1.6 million, interest and dividend income of $1.1 million, interest expense of $0.3 million, net realized and unrealized gains of $1.1 million, operating expenses of $1.6 million and an income tax provision of $0.6 million.

Management of Orchid Island Capital, Inc.

Orchid is managed and advised by Bimini. As Manager, Bimini is responsible for administering Orchid’s business activities and day-to-day operations. Pursuant to the terms of the management agreement, Bimini Advisors provides Orchid with its management team, including its officers, along with appropriate support personnel.

Bimini also maintains a common stock investment in Orchid which is accounted for under the fair value option, with changes in fair value recorded in the statement of operations for the current period. For the three months ended September 30, 2020, Bimini’s statement of operations included a fair value adjustment of $0.8 million and dividends of $0.5 million from its investment in Orchid’s common stock. Also during the three months ended September 30, 2020, Bimini recorded $1.6 million in advisory services revenue for managing Orchid’s portfolio consisting of $1.2 million of management fees and $0.4 million in overhead reimbursement.

Capital Allocation and Return on Invested Capital

The Company allocates capital between two MBS sub-portfolios, the pass-through MBS portfolio (“PT MBS”) and the structured MBS portfolio, consisting of interest only (“IO”) and inverse interest-only (“IIO”) securities. The table below details the changes to the respective sub-portfolios during the quarter.

Portfolio Activity for the Quarter
			Structured Security Portfolio
	Pass-Through		Interest-Only		Inverse Interest
	Portfolio		Securities		Only Securities		Sub-total		Total
Market Value - June 30, 2020	$	52,345,097	$	441,282	$	31,138	$	472,420	$	52,817,517
Securities purchased		22,306,462		-		-		-		22,306,462
Return of investment		n/a		(55,059)		(2,320)		(57,379)		(57,379)
Pay-downs		(2,197,867)		n/a		n/a		n/a		(2,197,867)
Premium lost due to pay-downs		(235,822)		n/a		n/a		n/a		(235,822)
Mark to market gains (losses)		564,343		(52,462)		(263)		(52,725)		511,618
Market Value - September 30, 2020	$	72,782,213	$	333,761	$	28,555	$	362,316	$	73,144,529

The tables below present the allocation of capital between the respective portfolios at September 30, 2020 and June 30, 2020, and the return on invested capital for each sub-portfolio for the three month period ended September 30, 2020. Capital allocation is defined as the sum of the market value of securities held, less associated repurchase agreement borrowings, plus cash and cash equivalents and restricted cash associated with repurchase agreements. Capital allocated to non-portfolio assets is not included in the calculation.

The returns on invested capital in the PT MBS and structured MBS portfolios were approximately 13.6% and (7.8)%, respectively, for the third quarter of 2020. The combined portfolio generated a return on invested capital of approximately 12.2%.

Capital Allocation
				Structured Security Portfolio
		Pass-Through		Interest-Only		Inverse Interest
		Portfolio		Securities		Only Securities		Sub-total		Total
September 30, 2020
Market value		$	72,782,213	$	333,761	$	28,555	$	362,316	$	73,144,529
Cash equivalents and restricted cash^(1)			7,089,067		-		-		-		7,089,067
Repurchase agreement obligations			(70,685,172)		-		-		-		(70,685,172)
	Total^(2)	$	9,186,108	$	333,761	$	28,555	$	362,316	$	9,548,424
	% of Total		96.2%		3.5%		0.3%		3.8%		100.0%
June 30, 2020
Market value		$	52,345,097	$	441,282	$	31,138	$	472,420	$	52,817,517
Cash equivalents and restricted cash^(1)			5,673,314		-		-		-		5,673,314
Repurchase agreement obligations			(51,617,000)		-		-		-		(51,617,000)
	Total^(2)	$	6,401,411	$	441,282	$	31,138	$	472,420	$	6,873,831
	% of Total		93.1%		6.4%		0.5%		6.9%		100.0%

(1)	Amount excludes restricted cash of $1,075 and $1,680 at September 30, 2020 and June 30, 2020, respectively, related to trust preferred debt funding hedges.
(2)	Invested capital includes the value of the MBS portfolio and cash equivalents and restricted cash, reduced by repurchase agreement borrowings.

Returns for the Quarter Ended September 30, 2020
				Structured Security Portfolio
		Pass-Through		Interest-Only		Inverse Interest
		Portfolio		Securities		Only Securities		Sub-total		Total
Interest income (net of repo cost)		$	545,186	$	14,301	$	1,716	$	16,017	$	561,203
Realized and unrealized gains (losses)			328,521		(52,462)		(263)		(52,725)		275,796
	Total Return	$	873,707	$	(38,161)	$	1,453	$	(36,708)	$	836,999
Beginning capital allocation		$	6,401,411	$	441,282	$	31,138	$	472,420	$	6,873,831
Return on invested capital for the quarter^(1)			13.6%		(8.6)%		4.7%		(7.8)%		12.2%

(1)	Calculated by dividing the Total Return by the Beginning Capital Allocation, expressed as a percentage.

Prepayments

For the third quarter of 2020, the Company received approximately $2.3 million in scheduled and unscheduled principal repayments and prepayments, which equated to a 3-month constant prepayment rate (“CPR”) of approximately 15.8% for the third quarter of 2020. Prepayment rates on the two MBS sub-portfolios were as follows (in CPR):

	PT	Structured
	MBS Sub-	MBS Sub-	Total
Three Months Ended	Portfolio	Portfolio	Portfolio
September 30, 2020	13.0	32.0	15.8
June 30, 2020	12.4	25.0	15.3
March 31, 2020	11.6	18.1	13.7
December 31, 2019	15.6	15.6	15.6
September 30, 2019	9.5	16.2	10.5
June 30, 2019	9.9	14.6	10.5
March 31, 2019	5.7	13.4	6.8

Portfolio

The following tables summarize the MBS portfolio as of September 30, 2020 and December 31, 2019:

($ in thousands)
					Weighted
			Percentage		Average
			of	Weighted	Maturity
		Fair	Entire	Average	in	Longest
Asset Category		Value	Portfolio	Coupon	Months	Maturity
September 30, 2020
Fixed Rate MBS	$	72,782	99.5%	3.97%	337	15-Aug-50
Interest-Only MBS		334	0.5%	3.54%	289	15-Jul-48
Inverse Interest-Only MBS		29	0.0%	5.85%	224	15-May-39
Total MBS Portfolio	$	73,145	100.0%	3.97%	337	15-Aug-50
December 31, 2019
Fixed Rate MBS	$	216,231	99.3%	4.25%	316	1-Nov-49
Interest-Only MBS		1,024	0.5%	3.65%	281	15-Jul-48
Inverse Interest-Only MBS		586	0.2%	4.77%	254	25-Apr-41
Total MBS Portfolio	$	217,841	100.0%	4.25%	316	1-Nov-49

($ in thousands)
		September 30, 2020			December 31, 2019
			Percentage of			Percentage of
Agency		Fair Value	Entire Portfolio		Fair Value	Entire Portfolio
Fannie Mae	$	40,579	55.5%	$	203,321	93.3%
Freddie Mac		32,566	44.5%		14,499	6.7%
Ginnie Mae		-	0.0%		21	0.0%
Total Portfolio	$	73,145	100.0%	$	217,841	100.0%

		September 30, 2020		December 31, 2019
Weighted Average Pass Through Purchase Price	$	109.74	$	107.12
Weighted Average Structured Purchase Price	$	4.96	$	6.39
Weighted Average Pass Through Current Price	$	112.59	$	108.77
Weighted Average Structured Current Price	$	3.5	$	6.91
Effective Duration ^(1)		3.184		3.196

(1)

Effective duration is the approximate percentage change in price for a 100 basis point change in rates. An effective duration of 3.184 indicates that an interest rate increase of 1.0% would be expected to cause a 3.184% decrease in the value of the MBS in the Company’s investment portfolio at September 30, 2020. An effective duration of 3.196 indicates that an interest rate increase of 1.0% would be expected to cause a 3.196% decrease in the value of the MBS in the Company’s investment portfolio at December 31, 2019. These figures include the structured securities in the portfolio but not the effect of the Company’s hedges. Effective duration quotes for individual investments are obtained from The Yield Book, Inc.

Financing and Liquidity

As of September 30, 2020, the Company had outstanding repurchase obligations of approximately $70.7 million with a net weighted average borrowing rate of 0.26%. These agreements were collateralized by MBS with a fair value, including accrued interest, of approximately $73.3 million. At September 30, 2020, the Company’s liquidity was approximately $5.9 million, consisting of unpledged MBS and cash and cash equivalents.

We may pledge more of our structured MBS as part of a repurchase agreement funding, but retain cash in lieu of acquiring additional assets. In this way, we can, at a modest cost, retain higher levels of cash on hand and decrease the likelihood we will have to sell assets in a distressed market in order to raise cash. Below is a list of outstanding borrowings under repurchase obligations at September 30, 2020.

($ in thousands)
Repurchase Agreement Obligations
				Weighted			Weighted
		Total		Average			Average
		Outstanding	% of	Borrowing		Amount	Maturity
Counterparty		Balances	Total	Rate		at Risk^(1)	(in Days)
Mirae Asset Securities (USA) Inc.	$	49,027	69.4%	0.26%	$	2,562	64
South Street Securities, LLC		7,302	10.3%	0.30%		227	225
Citigroup Global Markets, Inc.		6,077	8.6%	0.25%		496	19
Mitsubishi UFJ Securities (USA), Inc.		4,936	7.0%	0.22%		384	41
JVB Financial Group, LLC		3,343	4.7%	0.30%		208	15
	$	70,685	100.0%	0.26%	$	3,877	73

(1)	Equal to the fair value of securities sold (including accrued interest receivable) and cash posted as collateral, if any, minus the sum of repurchase agreement liabilities, accrued interest payable and securities posted by the counterparty (if any).

Hedging

In connection with its interest rate risk management strategy, the Company economically hedges a portion of the cost of its repurchase agreement funding and also its junior subordinated notes by entering into derivative financial instrument contracts. The Company has not elected hedging treatment under U.S. generally accepted accounting principles (“GAAP”) in order to align the accounting treatment of its derivative instruments with the treatment of its portfolio assets under the fair value option election. As such, all gains or losses on these instruments are reflected in earnings for all periods presented. As of September 30, 2020, such instruments were comprised entirely of Eurodollar futures contracts.

The tables below present information related to outstanding Eurodollar futures contracts at September 30, 2020.

($ in thousands)
As of September 30, 2020
	Junior Subordinated Debt Funding Hedges
		Average	Weighted	Weighted
		Contract	Average	Average
		Notional	Entry	Effective		Open
Expiration Year		Amount	Rate	Rate		Equity^(1)
2021	$	1,000	1.02%	0.20%	$	(8)
Total / Weighted Average	$	1,000	1.02%	0.20%	$	(8)

(1)	Open equity represents the cumulative gains (losses) recorded on open futures positions from inception.

Book Value Per Share

The Company's Book Value Per Share at September 30, 2020 was $1.93. The Company computes Book Value Per Share by dividing total stockholders' equity by the total number of shares outstanding of the Company's Class A Common Stock. At September 30, 2020, the Company's stockholders’ equity was $22.4 million, with 11,608,555 Class A Common shares outstanding.

Stock Repurchase Plan

On March 26, 2018, the Board of Directors of Bimini Capital Management, Inc. (the “Company”) approved a Stock Repurchase Plan (“Repurchase Plan”). Pursuant to Repurchase Plan, the Company may purchase up to 500,000 shares of its Class A Common Stock from time to time, subject to certain limitations imposed by Rule 10b-18 of the Securities Exchange Act of 1934, as amended. Share repurchases may be executed through various means, including, without limitation, open market transactions. The Repurchase Plan does not obligate the Company to purchase any shares. The Repurchase Plan was originally set to expire on November 15, 2018, but it has been extended by the Board of Directors, and it is currently set to expire on November 15, 2021.

Since inception of the program through September 30, 2020, the Company repurchased a total of 70,404 shares at an aggregate cost of approximately $166,945, including commissions and fees, for a weighted average price of $2.37 per share.

Management Commentary

Commenting on the third quarter, Robert E. Cauley, Chairman and Chief Executive Officer, said, “After suffering through the most dramatic contraction of economic activity and financial market turmoil ever witnessed during the first quarter of 2020, the second quarter was one of substantial recovery and the third a continuation of that recovery, albeit at a much more modest pace. The financial markets are functioning as they did prior to the chaos that erupted this March, in large part because of the substantial intervention by the Fed and the government. Critically for us, the quantitative easing undertaken by the Fed in which they buy U.S. Treasuries and Agency MBS securities on a regular basis each week has continued and the Fed is likely to continue doing so until the economy has substantially recovered.

“While the recovery in the third quarter was not as robust as that which occurred during the second quarter, the Company continued to recover none-the-less, as did Orchid Island Capital. Orchid’s capital base continued to recover during the third quarter, resulting in a one percent increase in our advisory service revenues over the prior quarter. Orchid Island’s shareholders’ equity as of September 30, 2020 was 4.75% below the level as of December 31, 2019, but 22.3% above the level at March 31, 2020 and 8.9% above the level at June 30, 2020.

“Our MBS portfolio increased from $52.8 million as of June 30, 2020, to $73.1 million at September 30, 2020. This led to a 15.0% increase in interest income. In addition, we increased our share holdings of Orchid Island by 100,000 shares and Orchid raised its dividend during the quarter, resulting in a 27% increase in dividend income. Interest expense, both on our repurchase agreements and our trust preferred debt, decreased by 11%. As a result of all these improvements, net revenues increased 11% for the quarter.

“With respect to the outlook going forward, the economy has yet to fully recover from the steep contraction during the first quarter of 2020, despite massive intervention by both the Fed and the Trump administration. There remains significant uncertainty surrounding the timing of a full recovery in economic activity and a return to life as it existed before the virus emerged. However, the current market environment, despite elevated levels of prepayments stemming from the low absolute level of rates available to borrowers, continues to offer low to mid teen returns on levered Agency RMBS investments with reduced book value volatility. As the same generally applies to Orchid Island, the prospects for our advisory services revenues and dividend income are likewise favorable.”

Summarized Consolidated Financial Statements

The following is a summarized presentation of the unaudited consolidated balance sheets as of September 30, 2020, and December 31, 2019, and the unaudited consolidated statements of operations for the nine and three months ended September 30, 2020 and 2019. Amounts presented are subject to change.

BIMINI CAPITAL MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited - Amounts Subject To Change)
		September 30, 2020		December 31, 2019
ASSETS
Mortgage-backed securities	$	73,144,529	$	217,840,953
Cash equivalents and restricted cash		7,090,142		12,385,117
Orchid Island Capital, Inc. common stock, at fair value		13,002,739		8,892,211
Accrued interest receivable		234,431		750,875
Deferred tax assets, net		24,003,192		33,288,536
Other assets		4,688,344		6,331,256
Total Assets	$	122,163,377	$	279,488,948
LIABILITIES AND STOCKHOLDERS' EQUITY
Repurchase agreements	$	70,685,172	$	209,954,000
Long-term debt		27,618,048		27,481,121
Other liabilities		1,430,201		2,076,836
Total Liabilities		99,733,421		239,511,957
Stockholders' equity		22,429,956		39,976,991
Total Liabilities and Stockholders' Equity	$	122,163,377	$	279,488,948
Class A Common Shares outstanding		11,608,555		11,608,555
Book value per share	$	1.93	$	3.44

BIMINI CAPITAL MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - Amounts Subject to Change)
	Nine Months Ended September 30,				Three Months Ended September 30,
		2020		2019		2020		2019
Advisory services	$	4,969,143	$	5,052,251	$	1,629,463	$	1,791,135
Interest and dividend income		4,414,075		7,064,908		1,097,276		2,011,198
Interest expense		(1,923,671)		(4,850,365)		(304,296)		(1,391,324)
Net revenues		7,459,547		7,266,794		2,422,443		2,411,009
Other (expense) income		(10,703,929)		(1,154,292)		1,119,443		(1,038,796)
Expenses		5,006,794		4,825,373		1,615,748		1,606,384
Net (Loss) income before income tax provision		(8,251,176)		1,287,129		1,926,138		(234,171)
Income tax provision		9,295,859		942,364		608,351		537,945
Net (loss) income	$	(17,547,035)	$	344,765	$	1,317,787	$	(772,116)
Basic and Diluted Net Income (Loss) Per Share of:
CLASS A COMMON STOCK	$	(1.51)	$	0.03	$	0.11	$	(0.07)
CLASS B COMMON STOCK	$	(1.51)	$	0.03	$	0.11	$	(0.07)

	Three Months Ended September 30,
Key Balance Sheet Metrics	2020		2019
Average MBS^(1)	$	62,981,022	$	187,198,745
Average repurchase agreements^(1)		61,151,086		177,565,500
Average stockholders' equity^(1)		21,771,062		28,545,869
Key Performance Metrics
Average yield on MBS^(2)		3.84%		3.52%
Average cost of funds^(2)		0.28%		2.26%
Average economic cost of funds^(3)		7.24%		2.54%
Average interest rate spread^(4)		3.56%		1.26%
Average economic interest rate spread^(5)		(3.40)%		0.98%

(1)	Average MBS, repurchase agreements and stockholders’ equity balances are calculated using two data points, the beginning and ending balances.
(2)	Portfolio yields and costs of funds are calculated based on the average balances of the underlying investment portfolio/repurchase agreement balances and are annualized for the quarterly periods presented.
(3)	Represents interest cost of our borrowings and the effect of derivative agreements attributed to the period related to hedging activities, divided by average repurchase agreements.
(4)	Average interest rate spread is calculated by subtracting average cost of funds from average yield on MBS.
(5)	Average economic interest rate spread is calculated by subtracting average economic cost of funds from average yield on MBS

About Bimini Capital Management, Inc.

Bimini Capital Management, Inc. invests primarily in, but is not limited to investing in, residential mortgage-related securities issued by the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Government National Mortgage Association (Ginnie Mae). Its objective is to earn returns on the spread between the yield on its assets and its costs, including the interest expense on the funds it borrows. In addition, Bimini generates a significant portion of its revenue serving as the manager of the MBS portfolio of Orchid Island Capital, Inc.

Forward Looking Statements

Statements herein relating to matters that are not historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. The reader is cautioned that such forward-looking statements are based on information available at the time and on 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 Bimini Capital Management, Inc.'s filings with the Securities and Exchange Commission, including Bimini Capital Management, Inc.'s most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Bimini Capital Management, Inc. assumes no obligation to update forward-looking statements to reflect subsequent results, changes in assumptions or changes in other factors affecting forward-looking statements.

Earnings Conference Call Details

An earnings conference call and live audio webcast will be hosted Friday, November 6, 2020, at 10:00 AM ET. The conference call may be accessed by dialing toll free [phone]. International callers dial [phone]. The conference passcode is 7955623. A live audio webcast of the conference call can be accessed via the investor relations section of the Company’s website at www.biminicapital.com, and an audio archive of the webcast will be available for approximately one year.