Bimini Capital Management Announces First Quarter 2021 Results

Rhea-AI Summary

Bimini Capital Management (OTCQB:BMNM) reported net income of $1.3 million for Q1 2021, with $0.11 earnings per share and a book value per share of $3.08. Advisory service revenues rose 11% from Q4 2020 and 17% year over year. The company's Agency RMBS portfolio saw a 12% increase, despite generating negative returns due to rising interest rates. Bimini's shareholder equity improved by $50.9 million, buoyed by capital raises from Orchid Island. Management remains optimistic about future growth amid a recovering economy.

Positive

• Net income of $1.3 million for Q1 2021.
• Advisory service revenues increased by 17% year-over-year.
• Shareholder equity rose by $50.9 million.
• Book value per share at $3.08.

Negative

• Agency RMBS generated negative returns due to higher interest rates.
• Operating expenses increased by 6% compared to the previous quarter.

Bimini Capital Management, Inc. (OTCQB:BMNM), (“Bimini Capital,” “Bimini,” or the “Company”), today announced results of operations for the three-month period ended March 31, 2021.

First Quarter 2021 Highlights

• Net income of $1.3 million, or $0.11 per common share
• Book value per share of $3.08
• Company to discuss results on Friday, May 14, 2021, at 10:00 AM ET

Management Commentary

Commenting on the first quarter results, Robert E. Cauley, Chairman and Chief Executive Officer, said, “The first quarter of 2021 saw the emergence of a very robust recovery from the effects of the pandemic for both the economy and the quality of life for most Americans. The vaccines that emerged during the fourth quarter of 2020 proved very effective in dealing with both the COVID-19 virus and its many variants. The vaccine was very effectively distributed so inoculation levels exceeded expectations and allowed the economy to re-open quickly. As a result of victories in the two Georgia senate race run-off elections in early January, the democratic party had full control of both houses of Congress and the White House. Shortly thereafter President Biden’s $1.9 trillion stimulus package was passed – a size that was well above market expectations and led to additional stimulus packages being distributed throughout the economy. And finally, the Federal Reserve chairman acknowledged his approval of higher interest rates noting they represented a welcome development – evidence the market was anticipating a solid recovery and a return of inflation expectations above very depressed levels. These factors, in addition to consistently robust economic data, led markets, especially rates markets, to price in a very strong economic performance for the balance of 2021 and beyond. As interest rates and implied volatility increased, Agency RMBS generated negative returns for the quarter, both on an absolute basis and hedge adjusted basis.

“Orchid Island recorded a loss for the quarter due to these developments, but its shareholder’s equity still increased by approximately $50.9 million, the net effect of two capital raises, the operating loss and dividends paid. As Orchid’s equity base increased management fees payable to Bimini Advisors also increased. For the first quarter of 2021 advisory service revenues increased by approximately 11% over the fourth quarter of 2020 and by 17% over the first quarter of 2020. As the full effect of the increase in Orchid’s capital base was not fully realized until March, the run rate of management fees going into the second quarter should lead to even higher advisory service revenues in the second quarter. Dividend income was flat with the fourth quarter of 2020 but increased by 39% over the first quarter of 2020, the net effect of a 19% lower dividend rate and a 71% increase in the number of shares held.

“The Agency RMBS portfolio at Royal Palm Capital increased by 12% during the first quarter of 2020, the net effect of asset purchases of $12.4 million offset by $1.4 million in mark to market losses and $3.3 million of pay-downs during the quarter. Prepayment activity remained elevated during the quarter, and remains elevated as we move through the second quarter, in spite of higher interest rates available to borrowers. The reason is the securities owned by Royal Palm are predominantly higher coupon and more seasoned, and while rates are higher than levels seen in 2020, the loans underlying theses securities are still in the money and the economic incentive to refinance is still present. The offset to the higher speeds for the quarter was that higher coupon securities only suffered minor price declines versus lower coupons, owing to their lower duration, typical of premium Agency RMBS. As a result, for the first quarter of 2021, the mark to market gains on our shares of Orchid Island exceeded the mark to market losses on our Agency RMBS, even though the Agency RMBS portfolio is substantially larger. The market price of Orchid’s common stock is now materially less than its price as of March 31, 2021. Finally, operating expenses were up modestly by 6% for the first quarter versus the fourth quarter of 2020 and 3% versus the first quarter of 2020.

“Looking back over the last twelve months it is quite amazing how much our outlook has changed. March of 2020 was one of the worst 31 days we have ever experienced. As the effects of the pandemic took hold of our lives and the economy the outlook was very bleak. But in 12 months we have recovered, not fully, but to the point our outlook has reversed most of the effects of the pandemic. The shareholders equity of Bimini as of March 31, 2021 exceeds the level as of March 31, 2020. While the portfolio at Royal Palm is much smaller, net revenues for the first quarter of 2021 were larger than for the fourth quarter of 2019, the last full quarter before the pandemic hit the U.S. While the first quarter of 2021 was a turbulent one for levered MBS investors like Orchid Island and Royal Palm, the markets have stabilized and returns available are still attractive, if not quite as attractive as they were during the second quarter of 2020. We remain optimistic that we will continue to progress towards our goal of harvesting our net operating losses and growing our portfolio and our earnings.”

Details of First Quarter 2021 Results of Operations

The Company reported net income of $1.3 million for the three-month period ended March 31, 2021. As Orchid Island Capital, Inc. (“Orchid”) was able to grow its capital base during the first quarter of 2021, advisory service revenues increased 17% compared to the first quarter of 2020. We recorded interest and dividend income of $1.1 million and interest expense on long-term debt. of $0.3 million. We recorded a $2.1 million mark to market gain on our shares in Orchid common stock and a mark to market loss of $1.4 million on our MBS portfolio. The results for the quarter also included operating expenses of $1.8 million and an income tax provision of $0.5 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 March 31, 2021, Bimini’s statement of operations included a fair value adjustment of $2.1 million and dividends of $0.5 million from its investment in Orchid’s common stock. Also during the three months ended March 31, 2021, Bimini recorded $2.0 million in advisory services revenue for managing Orchid’s portfolio consisting of $1.6 million of management fees and $0.4 million in overhead reimbursement.

Book Value Per Share

The Company's Book Value Per Share at March 31, 2021 was $3.08. 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 March 31, 2021, the Company's stockholders’ equity was $35.8 million, with 11,608,555 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 - December 31, 2020			$	64,902,044			$	251,232			$	24,957			$	276,189			$	65,178,233
Securities purchased				12,367,589				-				-				-				12,367,589
Return of investment				n/a				(32,183	)			(2,038	)			(34,221	)			(34,221	)
Pay-downs				(3,263,507	)			n/a				n/a				n/a				(3,263,507	)
Premium lost due to pay-downs				(396,732	)			n/a				n/a				n/a				(396,732	)
Mark to market gains (losses)				(1,105,384	)			109,947				(93	)			109,854				(995,530	)
Market Value - March 31, 2021			$	72,504,010			$	328,996			$	22,826			$	351,822			$	72,855,832

The tables below present the allocation of capital between the respective portfolios at March 31, 2021 and December 31, 2020, and the return on invested capital for each sub-portfolio for the three-month period ended March 31, 2021. 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 (8.7)% and 41.6%, respectively, for the first quarter of 2021. The combined portfolio generated a return on invested capital of approximately (7.5)%.

Capital Allocation
						Structured Security Portfolio
		Pass-Through				Interest-Only				Inverse Interest
		Portfolio				Securities				Only Securities				Sub-total				Total
March 31, 2021
Market value		$	72,504,010			$	328,996			$	22,826			$	351,822			$	72,855,832
Cash equivalents and restricted cash(1)			10,010,247				-				-				-				10,010,247
Repurchase agreement obligations			(73,135,999	)			-				-				-				(73,135,999	)
Total(2)		$	9,378,258			$	328,996			$	22,826			$	351,822			$	9,730,080
% of Total			96.4	%			3.4	%			0.2	%			3.6	%			100.0	%
December 31, 2020
Market value		$	64,902,044			$	251,232			$	24,957			$	276,189			$	65,178,233
Cash equivalents and restricted cash(1)			10,910,342				-				-				-				10,910,342
Repurchase agreement obligations			(65,071,113	)			-				-				-				(65,071,113	)
Total(2)		$	10,741,273			$	251,232			$	24,957			$	276,189			$	11,017,462
% of Total			97.5	%			2.3	%			0.2	%			2.5	%			100.0	%

(1)	Amount excludes restricted cash of $655 and $1,015 at March 31, 2021 and December 31, 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 March 31, 2021
						Structured Security Portfolio
		Pass-Through				Interest-Only				Inverse Interest
		Portfolio				Securities				Only Securities				Sub-total				Total
Interest income (net of repo cost)		$	565,623			$	3,184			$	1,953			$	5,137			$	570,760
Realized and unrealized gains (losses)			(1,502,118	)			109,947				(93	)			109,854				(1,392,264	)
Total Return		$	(936,495	)		$	113,131			$	1,860			$	114,991			$	(821,504	)
Beginning capital allocation		$	10,741,273			$	251,232			$	24,957			$	276,189			$	11,017,462
Return on invested capital for the quarter(1)			(8.7	)%			45.0	%			7.5	%			41.6	%			(7.5	)%

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

Prepayments

For the first quarter of 2021, the Company received approximately $3.3 million in scheduled and unscheduled principal repayments and prepayments, which equated to a 3-month constant prepayment rate (“CPR”) of approximately 18.3% for the first quarter of 2021. 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
March 31, 2021					18.5			16.4			18.3
December 31, 2020					12.8			24.5			14.4
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

Portfolio

The following tables summarize the MBS portfolio as of March 31, 2021 and December 31, 2020:

($ in thousands)
													Weighted
							Percentage						Average
							of			Weighted			Maturity
				Fair			Entire			Average			in			Longest
Asset Category				Value			Portfolio			Coupon			Months			Maturity
March 31, 2021
Fixed Rate MBS			$	72,504			99.5%			3.66%			335			1-Jan-51
Interest-Only MBS				329			0.5%			3.51%			298			15-Jul-48
Inverse Interest-Only MBS				23			0.0%			5.87%			218			15-May-39
Total MBS Portfolio			$	72,856			100.0%			3.66%			335			1-Jan-51
December 31, 2020
Fixed Rate MBS			$	64,902			99.6%			3.89%			333			1-Aug-50
Interest-Only MBS				251			0.4%			3.56%			299			15-Jul-48
Inverse Interest-Only MBS				25			0.0%			5.84%			221			15-May-39
Total MBS Portfolio			$	65,178			100.0%			3.89%			333			1-Aug-50

($ in thousands)
				March 31, 2021								December 31, 2020
								Percentage of								Percentage of
Agency				Fair Value				Entire Portfolio				Fair Value				Entire Portfolio
Fannie Mae			$	48,564				66.7%			$	38,946				59.8%
Freddie Mac				24,292				33.3%				26,232				40.2%
Total Portfolio			$	72,856				100.0%			$	65,178				100.0%

				March 31, 2021				December 31, 2020
Weighted Average Pass Through Purchase Price			$	108.84			$	109.51
Weighted Average Structured Purchase Price			$	4.28			$	4.28
Weighted Average Pass Through Current Price			$	109.63			$	112.67
Weighted Average Structured Current Price			$	4.8			$	3.20
Effective Duration (1)				3.976				3.309

(1)

Effective duration is the approximate percentage change in price for a 100 basis point change in rates. An effective duration of 3.976 indicates that an interest rate increase of 1.0% would be expected to cause a 3.976% decrease in the value of the MBS in the Company’s investment portfolio at March 31, 2021. An effective duration of 3.309 indicates that an interest rate increase of 1.0% would be expected to cause a 3.309% decrease in the value of the MBS in the Company’s investment portfolio at December 31, 2020. 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 March 31, 2021, the Company had outstanding repurchase obligations of approximately $73.1 million with a net weighted average borrowing rate of 0.21%. These agreements were collateralized by MBS with a fair value, including accrued interest, of approximately $73.0 million and cash of approximately $4.0 million. At March 31, 2021, the Company’s liquidity was approximately $6.0 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 March 31, 2021.

($ 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.			$	44,954			61.4%			0.20%			$	2,522			85
ED&F Man Capital Markets, Inc.				11,781			16.1%			0.20%				570			15
South Street Securities, LLC				7,302			10.0%			0.30%				341			43
Citigroup Global Markets, Inc.				5,979			8.2%			0.23%

FAQ

What were Bimini Capital Management's Q1 2021 earnings per share?

Bimini Capital Management reported earnings per share of $0.11 for Q1 2021.

How much did Bimini Capital's advisory service revenues increase in Q1 2021?

Advisory service revenues increased by 17% compared to Q1 2020.

What is Bimini Capital Management's book value per share as of March 31, 2021?

The book value per share for Bimini Capital Management was $3.08 as of March 31, 2021.

What was the net income reported by Bimini Capital for the first quarter of 2021?

Bimini Capital reported a net income of $1.3 million for the first quarter of 2021.

How did the shareholder equity of Bimini Capital perform in Q1 2021?

Bimini Capital's shareholder equity increased by approximately $50.9 million during Q1 2021.