VERO BEACH, Fla.--(BUSINESS WIRE)--Nov 10, 2022--
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, 2022.
Third Quarter 2022 Highlights
Management Commentary
Commenting on the third quarter results, Robert E. Cauley, Chairman and Chief Executive Officer, said, “In a continuation of the extremely volatile market conditions that have existed since the onset of the COVID-19 pandemic, during the third quarter of 2022 the financial markets were extremely turbulent. During the third quarter, the response by the Federal Reserve (the “Fed”) to inflation grew more hawkish. Through early August of 2022 the markets perceived that, while inflation was not transitory, the Fed would be able to dampen demand by raising rates and cause inflation to decrease back towards the Fed’s long-term target of 2%. Further, the market anticipated this would happen by early in 2023 and that the Fed would pivot and start to loosen monetary policy shortly thereafter. The Fed, through their public comments stressed that this was not going to be the case. Supporting the Feds case, incoming economic data over the period was persistently strong, indicating that rate increases to date had yet to slow demand. The Fed raised the Fed Funds target range by 75 basis points in June, July, September, and early November. At the conclusion of the November meeting the Fed made it clear that they are not done raising rates and that rates are likely to remain high for some time.
“The result of these developments was significant and widespread. Germane to levered MBS investors like Royal Palm and Orchid Island Capital ("Orchid"), were increases in market interest rates and a widening in the spreads that Agency MBS securities trade relative to comparable duration U.S. Treasuries or swaps. The yield on the 10-year U.S. Treasury rose from approximately 2.58% on August 1, 2022 to 3.83% on September 30, 2022, and just under 4.25% on October 24, 2022. Short maturity rates rose even more and, based on Fed funds futures, the market expects the Fed will ultimately raise the Fed Funds rate to over 5% by the second quarter of 2023.
“Agency MBS spreads relative to benchmark interest rates increased to levels observed in March of 2020 by the end of the third quarter of 2022 and have exceeded those levels so far in the fourth quarter of 2022. Returns for the Agency MBS market for the third quarter of 2022 were (5.4)% and these returns were 1.7% lower than comparable duration LIBOR swaps. The relative performance across the Agency MBS universe is skewed in favor of higher coupon, 30-year securities that are currently in production by originators. Lower coupon securities, especially those held in large amounts by the Fed, and which may eventually be sold by the Fed, have performed the worst. Further aggressive hiking by the Fed may prevent the sector from performing well in the near term but, if the economy does contract and enter a recession, the sector could do well on a relative performance basis owing to the lack of credit exposure of Agency MBS. This is consistent with the sector’s history of performance in a counter-cyclical manner – doing well when the economy is soft and relatively poorly when the economy is strong.
“For the quarter, Orchid reported a loss of $84.5 million and its shareholders equity declined from $506.4 million to $400.4 million. The market conditions described above drove the loss as agency MBS underperformed comparable duration U.S. Treasuries and Orchid’s hedge positions. As a result, Orchid recorded net realized and unrealized losses of approximately $93.5 million related to its Agency RMBS portfolio and related hedges. The decline in shareholders equity may lead to reduced management fees at Bimini Advisors in the near-term since the management fees are a function of Orchid’s equity. Orchid also reduced its monthly dividend during the third quarter so monthly dividend revenues on the Company’s approximately 519 thousand shares declined from approximately $350.4 thousand to approximately $282.9 thousand. Orchid, like Bimini, will focus on weathering the current market conditions and looks forward to capitalizing on the attractive returns that historically have become available as markets settle.
“As we discussed at the end of the second quarter, our intention was to grow our cash position until we saw clear evidence the market had stabilized before redeploying our cash to resume growing the portfolio. The Agency MBS did in fact stabilize during July and early August of 2022, and we took initial steps to rebuild the portfolio by purchasing approximately $10.2 million of pass-through MBS. As a result of paydowns of approximately $1.8 million and mark to market declines of approximately $2.6 million, the pass-through portfolio only increased by approximately $5.8 million. The structured portfolio was essentially unchanged during the quarter. Given the developments that occurred over the balance of the quarter and into the fourth quarter, we are again willing to let our cash position resume building and will only seek to resume growing the portfolio once we see clear evidence the current rate cycle is nearing its conclusion.”
Details of Third Quarter 2022 Results of Operations
The Company reported net loss of $3.2 million for the three-month period ended September 30, 2022. Advisory service revenue for the quarter was $3.3 million. We recorded interest and dividend income of $0.7 million and interest expense on repurchase agreements of $0.2 million and long-term debt of $0.4 million. We recorded a $3.1 million mark to market loss on our shares of Orchid common stock and unrealized losses of $2.6 million on our MBS portfolio. The results for the quarter also included operating expenses of $2.1 million and an income tax benefit of $0.3 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, 2022, Bimini’s statement of operations included a fair value adjustment of $(3.1) million and dividends of $0.3 million from its investment in Orchid’s common stock. Also during the three months ended September 30, 2022, Bimini recorded $3.3 million in advisory services revenue for managing Orchid’s portfolio consisting of $2.6 million of management fees, $0.5 million in overhead reimbursement and $0.2 million in repurchase, clearing and administrative fees.
Book Value Per Share
The Company's Book Value Per Share at September 30, 2022 was $2.38. 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, 2022, the Company's stockholders’ equity was $24.3 million, with 10,246,809 Class A Common shares outstanding.
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, 2022
$
35,492,144
$
3,033,792
$
9,114
$
3,042,906
$
38,535,050
Securities purchased
10,187,515
-
-
-
10,187,515
Return of investment
n/a
(98,654
)
(416
)
(99,070
)
(99,070
)
Pay-downs
(1,781,672
)
n/a
n/a
n/a
(1,781,672
)
Premium lost due to pay-downs
(6,927
)
n/a
n/a
n/a
(6,927
)
Mark to market gains (losses)
(2,615,173
)
52,304
(2,500
)
49,804
(2,565,369
)
Market Value - September 30, 2022
$
41,275,887
$
2,987,442
$
6,198
$
2,993,640
$
44,269,527
The tables below present the allocation of capital between the respective portfolios at September 30, 2022 and June 30, 2022, and the return on invested capital for each sub-portfolio for the three-month period ended September 30, 2022. 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 (31.5)% and 3.7%, respectively, for the third quarter of 2022. The combined portfolio generated a return on invested capital of approximately (18.3)%.
Capital Allocation
Structured Security Portfolio
Pass-Through
Interest-Only
Inverse Interest
Portfolio
Securities
Only Securities
Sub-total
Total
September 30, 2022
Market value
$
41,275,887
$
2,987,442
$
6,198
$
2,993,640
$
44,269,527
Cash equivalents and restricted cash
7,399,097
-
-
-
7,399,097
Repurchase agreement obligations
(43,493,999
)
-
-
-
(43,493,999
)
Total (1)
$
5,180,985
$
2,987,442
$
6,198
$
2,993,640
$
8,174,625
% of Total
63.4
%
36.5
%
0.1
%
36.6
%
100.0
%
June 30, 2022
Market value
$
35,492,144
$
3,033,792
$
9,114
$
3,042,906
$
38,535,050
Cash equivalents and restricted cash
6,529,567
-
-
-
6,529,567
Repurchase agreement obligations
(36,925,999
)
-
-
-
(36,925,999
)
Total (1)
$
5,095,712
$
3,033,792
$
9,114
$
3,042,906
$
8,138,618
% of Total
62.6
%
37.3
%
0.1
%
37.4
%
100.0
%
(1)
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, 2022
Structured Security Portfolio
Pass-Through
Interest-Only
Inverse Interest
Portfolio
Securities
Only Securities
Sub-total
Total
Interest income (net of repo cost)
$
173,242
$
60,306
$
1,332
$
61,638
$
234,880
Realized and unrealized (losses) gains
(2,622,100
)
52,304
(2,500
)
49,804
(2,572,296
)
Hedge gains
844,188
n/a
n/a
n/a
844,188
Total Return
$
(1,604,670
)
$
112,610
$
(1,168
)
$
111,442
$
(1,493,228
)
Beginning capital allocation
$
5,095,712
$
3,033,792
$
9,114
$
3,042,906
$
8,138,618
Return on invested capital for the quarter (1)
(31.5
)%
3.7
%
(12.8
)%
3.7
%
(18.3
)%
(1)
Calculated by dividing the Total Return by the Beginning Capital Allocation, expressed as a percentage.
Prepayments
For the third quarter of 2022, the Company received approximately $1.9 million in scheduled and unscheduled principal repayments and prepayments, which equated to a 3-month constant prepayment rate (“CPR”) of approximately 10.8% for the third quarter of 2022. Prepayment rates on the two MBS sub-portfolios were as follows (in CPR):
PT
Structured
MBS Sub-
MBS Sub-
Total
Three Months Ended
Portfolio
Portfolio
Portfolio
September 30, 2022
13.1
7.5
10.8
June 30, 2022
17.2
22.9
20.0
March 31, 2022
18.5
25.6
20.9
December 31, 2021
13.7
35.2
21.1
September 30, 2021
15.5
26.9
18.3
June 30, 2021
21.0
31.3
21.9
March 31, 2021
18.5
16.4
18.3
Portfolio
The following tables summarize the MBS portfolio as of September 30, 2022 and December 31, 2021:
($ in thousands)
Weighted
Percentage
Average
of
Weighted
Maturity
Fair
Entire
Average
in
Longest
Asset Category
Value
Portfolio
Coupon
Months
Maturity
September 30, 2022
Fixed Rate MBS
$
41,276
93.2%
4.02%
329
1-Jul-52
Structured MBS
2,994
6.8%
2.84%
301
15-May-51
Total MBS Portfolio
$
44,270
100.0%
3.62%
327
1-Jul-52
December 31, 2021
Fixed Rate MBS
$
58,029
95.4%
3.69%
330
1-Sep-51
Structured MBS
2,774
4.6%
2.88%
306
15-May-51
Total MBS Portfolio
$
60,803
100.0%
3.41%
329
1-Sep-51
($ in thousands)
September 30, 2022
December 31, 2021
Percentage of
Percentage of
Agency
Fair Value
Entire Portfolio
Fair Value
Entire Portfolio
Fannie Mae
$
31,774
71.8%
$
39,703
65.3%
Freddie Mac
12,496
28.2%
21,100
34.7%
Total Portfolio
$
44,270
100.0%
$
60,803
100.0%
September 30, 2022
December 31, 2021
Weighted Average Pass Through Purchase Price
$
105.51
$
109.33
Weighted Average Structured Purchase Price
$
4.48
$
4.81
Weighted Average Pass Through Current Price
$
94.00
$
109.30
Weighted Average Structured Current Price
$
13.36
$
9.87
Effective Duration (1)
4.484
2.103
(1)
Effective duration is the approximate percentage change in price for a 100 basis point change in rates. An effective duration of 4.484 indicates that an interest rate increase of 1.0% would be expected to cause a 4.484% decrease in the value of the MBS in the Company’s investment portfolio at September 30, 2022. An effective duration of 2.103 indicates that an interest rate increase of 1.0% would be expected to cause a 2.103% decrease in the value of the MBS in the Company’s investment portfolio at December 31, 2021. 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, 2022, the Company had outstanding repurchase obligations of approximately $43.5 million with a net weighted average borrowing rate of 2.98%. These agreements were collateralized by MBS with a fair value, including accrued interest, of approximately $44.3 million and cash of approximately $1.2 million. At September 30, 2022, the Company’s liquidity was approximately $6.1 million, consisting of unpledged MBS and cash and cash equivalents.
We may pledge more of our structured MBS as part of a repurchase agreement funding, but retain cash in lieu of acquiring additional assets. In this way, we can, at a modest cost, retain higher levels of cash on hand and decrease the likelihood we will have to sell assets in a distressed market in order to raise cash. Below is a list of outstanding borrowings under repurchase obligations at September 30, 2022.
($ 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.
$
25,345
58.4%
2.93%
$
1,107
16
Citigroup Global Markets, Inc.
9,501
21.8%
2.94%
392
14
South Street Securities, LLC
4,062
9.3%
3.12%
85
19
Mitsubishi UFJ Securities (USA), Inc.
2,500
5.7%
3.32%
350
23
ED&F Man Capital Markets, Inc.
2,086
4.8%
3.08%
35
19
$
43,494
100.0%
2.98%
$
1,969
16
(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).
Summarized Consolidated Financial Statements
The following is a summarized presentation of the unaudited consolidated balance sheets as of September 30, 2022, and December 31, 2021, and the unaudited consolidated statements of operations for the nine and three months ended September 30, 2022 and 2021. Amounts presented are subject to change.
BIMINI CAPITAL MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited - Amounts Subject To Change)
September 30, 2022
December 31, 2021
ASSETS
Mortgage-backed securities
$
44,269,527
$
60,803,144
Cash equivalents and restricted cash
7,399,097
9,812,410
Orchid Island Capital, Inc. common stock, at fair value
4,256,384
11,679,107
Accrued interest receivable
200,104
229,942
Deferred tax assets, net
36,607,388
35,036,312
Other assets
4,137,042
4,523,726
Total Assets
$
96,869,542
$
122,084,641
LIABILITIES AND STOCKHOLDERS' EQUITY
Repurchase agreements
$
43,493,999
$
58,877,999
Long-term debt
27,422,050
27,438,976
Other liabilities
1,605,638
2,767,816
Total Liabilities
72,521,687
89,084,791
Stockholders' equity
24,347,855
32,999,850
Total Liabilities and Stockholders' Equity
$
96,869,542
$
122,084,641
Class A Common Shares outstanding
10,246,809
10,702,194
Book value per share
$
2.38
$
3.08
BIMINI CAPITAL MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - Amounts Subject to Change)
Nine Months Ended September 30,
Three Months Ended September 30,
2022
2021
2022
2021
Advisory services
$
9,719,703
$
6,757,799
$
3,311,962
$
2,546,578
Interest and dividend income
2,363,811
3,244,552
727,701
1,043,295
Interest expense
(1,252,400
)
(842,503
)
(588,680
)
(272,194
)
Net revenues
10,831,114
9,159,848
3,450,983
3,317,679
Other expense
(14,025,878
)
(2,854,649
)
(4,802,482
)
(1,032,766
)
Expenses
6,215,658
5,133,566
2,077,307
1,652,562
Net (loss) income before income tax (benefit) provision
(9,410,422
)
1,171,633
(3,428,806
)
632,351
Income tax (benefit) provision
(1,571,076
)
336,389
(255,618
)
167,751
Net (loss) income
$
(7,839,346
)
$
835,244
$
(3,173,188
)
$
464,600
Basic and Diluted Net (Loss) Income Per Share of:
CLASS A COMMON STOCK
$
(0.75
)
$
0.07
$
(0.31
)
$
0.04
CLASS B COMMON STOCK
$
(0.75
)
$
0.07
$
(0.31
)
$
0.04
Three Months Ended September 30,
Key Balance Sheet Metrics
2022
2021
Average MBS (1)
$
41,402,288
$
66,691,953
Average repurchase agreements (1)
40,209,999
67,252,999
Average stockholders' equity (1)
26,115,625
34,305,539
Key Performance Metrics
Average yield on MBS (2)
4.30%
3.22%
Average cost of funds (2)
2.09%
0.14%
Average economic cost of funds (3)
3.92%
4.36%
Average interest rate spread (4)
2.21%
3.08%
Average economic interest rate spread (5)
0.38%
(1.14)%
Summarized Consolidated Financial Statements
(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, and providing certain repurchase agreement trading , clearing and administrative services to, 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 Monday. November 14, 2022, at 10:00 AM ET. Participants can receive dial-in information via email by following the link:
A live audio webcast of the conference call can be accessed via the investor relations section of the Company's website at https://ir.biminicapital.com or at https://events.q4inc.com/attendee/567537104, and an audio archive of the webcast will be available for approximately one year.
View source version on businesswire.com:https://www.businesswire.com/news/home/20221110005858/en/
CONTACT: Bimini Capital Management, Inc.
Robert E. Cauley, 772-231-1400
Chairman and Chief Executive Officer
https://ir.biminicapital.com
KEYWORD: FLORIDA UNITED STATES NORTH AMERICA
INDUSTRY KEYWORD: PROFESSIONAL SERVICES RESIDENTIAL BUILDING & REAL ESTATE FINANCE CONSTRUCTION & PROPERTY REIT BANKING
SOURCE: Bimini Capital Management, Inc.
Copyright Business Wire 2022.
PUB: 11/10/2022 04:05 PM/DISC: 11/10/2022 04:07 PM
http://www.businesswire.com/news/home/20221110005858/en