Bimini Capital Management Announces Fourth Quarter 2013 Results

VERO BEACH, Fla., March 6, 2014 (GLOBE NEWSWIRE) -- Bimini Capital Management, Inc. (OTCBB:BMNM), a real estate investment trust ("REIT"), today announced results of operations for the three-month period ended December 31, 2013. Discussions related to the "Company" refer to the consolidated entity, including Bimini Capital, our wholly-owned subsidiaries, and our consolidated VIE, Orchid Island Capital, Inc. ("Orchid"). References to "Bimini Capital," the "parent", and the "registrant" refer to Bimini Capital Management, Inc. as a separate entity.

Fourth Quarter 2013 Highlights

• Net loss of $1.6 million attributed to Bimini Capital, or $0.14 per common share
• Book value per share of $0.15
• MBS portfolio remains 100% invested in agency MBS
• Company to discuss results on Tuesday, March 11, 2014, at 10:00 AM ET

Orchid Island Capital

On February 20, 2013, Orchid completed its initial public offering ("IPO"), selling 2,360,000 shares of its common stock for proceeds of $35.4 million. Subsequent to Orchid's IPO and as of December 31, 2013, management has concluded, pursuant to generally accepted accounting principles, that Orchid is a variable interest entity ("VIE") because Orchid's equity holders lack the ability through voting rights to make decisions about the activities that have a significant effect on the success of Orchid. Management has also concluded that Bimini Capital is the primary beneficiary of Orchid because, under the management agreement between Bimini Advisors, LLC ("Bimini Advisors"), a wholly-owned subsidiary of Bimini, and Orchid, Bimini Capital has the power to direct the activities of Orchid that most significantly impact its economic performance. As a result, subsequent to Orchid's IPO and through December 31, 2013, the Company continued to consolidate Orchid in its Consolidated Financial Statements even though, as of December 31, 2013, Bimini owned 29.38% of the outstanding common stock of Orchid.

The noncontrolling interests reported in the Company's 2013 Consolidated Financial Statements represent the portion of equity ownership in Orchid held by stockholders other than Bimini Capital. Noncontrolling interests is presented in the equity section of the 2013 balance sheet, separate from equity attributed to Bimini Capital. Net loss of Orchid is allocated between the noncontrolling interests and to Bimini Capital in proportion to their relative ownership interests in Orchid.

The consolidation of Orchid's assets and liabilities with those of Bimini Capital and its wholly-owned subsidiaries gives the appearance of a much larger organization. However, the assets recognized as a result of consolidating Orchid do not represent additional assets that could be used to satisfy claims against Bimini Capital's assets, nor do they represent amounts that are available to be distributed to Bimini Capital's stockholders. Conversely, liabilities recognized as a result of consolidating Orchid do not represent additional claims on Bimini Capital's assets; rather, they represent claims against the assets of Orchid. In addition to the presentation of the Company's consolidated portfolio activities, we have also provided additional discussion related to the portfolio activities of Bimini Capital on its own. We believe that this "parent-only" information along with the consolidated presentation provides useful information to the shareholders of Bimini Capital.

Details of Fourth Quarter 2013 Results of Operations

Selected unaudited consolidated and parent-only results for the three month period ended December 31, 2013 are presented in the table below.

Capital Allocation and Return on Invested Capital

The Company allocates capital to 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 tables below detail the changes to the respective sub-portfolios during the quarter for both the consolidated Company and the parent-only.

The tables below present the allocation of capital between the respective portfolios at December 31, 2013 and September 30, 2013, and the return on invested capital for each sub-portfolio for the three-month period ended December 31, 2013.   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.

On a consolidated basis, the return on invested capital in the PT MBS and structured MBS portfolios was approximately (4.1)% and 11.2%, respectively, for the fourth quarter of 2013. The combined portfolio generated a return on invested capital of approximately 3.3%.

For parent-only, the return on invested capital in the PT MBS and structured MBS portfolios was approximately (4.0)% and (5.2)%, respectively, for the fourth quarter of 2013. The combined portfolio generated a return on invested capital of approximately (4.4)%.

Prepayments

For the quarter, the Company received approximately $8.5 million in scheduled and unscheduled principal repayments and prepayments, which equated to a constant prepayment rate ("CPR") of approximately 11.0% for the fourth quarter of 2013. The parent received approximately $1.0 million in scheduled and unscheduled principal repayments and prepayments, which equated to a CPR of approximately 14.3% for the fourth quarter of 2013. Prepayment rates on the two MBS sub-portfolios were as follows (in CPR):

Portfolio (Consolidated)

The following tables summarize the consolidated MBS portfolio as of December 31, 2013 and 2012:

Portfolio (Parent-Only)

The following tables summarize the parent-only MBS portfolio as of December 31, 2013 and December 31, 2012:

Financing, Leverage and Liquidity

As of December 31, 2013, the Company had outstanding repurchase obligations of approximately $353.4 million with a net weighted average borrowing rate of 0.39%. These agreements were collateralized by MBS with a fair value, including accrued interest, of approximately $373.4 million. The Company's leverage ratio at December 31, 2013 was 11.4 to 1. At December 31, 2013, the Company's liquidity was approximately $29.2 million, consisting of unpledged MBS and cash and cash equivalents.

As of December 31, 2013, the Parent had outstanding repurchase obligations of approximately $34.8 million with a net weighted average borrowing rate of 0.39%. These agreements were collateralized by MBS with a fair value, including accrued interest, of approximately $36.4 million. At December 31, 2013, the Parent's liquidity was approximately $5.5 million, consisting of unpledged MBS and cash and cash equivalents. 

To enhance our liquidity further, 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 listing of outstanding borrowings under repurchase obligations at December 31, 2013.

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 GAAP, and as such all gains or losses on these instruments are reflected in earnings for all periods presented. The tables below present information related to outstanding Eurodollar futures positions at December 31, 2013.

Dividends

During the three months ended December 31, 2013, Bimini Capital made no dividend distributions. All distributions are made at the discretion of Bimini Capital's Board of Directors and will depend on its results of operations, financial condition, maintenance of REIT status, availability of net operating losses and other factors that may be deemed relevant. In August 2011, Bimini Capital announced that it would suspend its quarterly dividend and no distributions have been made since. Bimini Capital continues to evaluate its dividend payment policy.  However, as more fully described below, due to net operating losses incurred in prior periods, it is unlikely to declare and pay dividends to stockholders until such net operating losses have been consumed.

REIT Taxable Income and Net Operating Losses

REIT taxable income (loss) is a term that describes Bimini Capital's operating results calculated in accordance with rules and regulations promulgated pursuant to the Internal Revenue Code. Bimini Capital's REIT taxable income (loss) is computed differently from net income or loss as computed in accordance with generally accepted accounting principles (GAAP) as reported in its consolidated financial statements. Depending on the number and size of the various items or transactions being accounted for differently, the differences between REIT taxable income or loss and GAAP net income or loss can be substantial and each item can affect several reporting periods. Generally, these items are timing or temporary differences between years; for example, an item that may be a deduction for GAAP net income/loss in the current year may not be a deduction for REIT taxable income/loss until a later year.

In order to maintain its qualification as a REIT, Bimini Capital is generally required (among other things) to annually distribute dividends to its stockholders in an amount at least equal to 90% of its REIT taxable income. Additionally, as a REIT, Bimini Capital may be subject to a federal excise tax if it distributes less than 85% of its REIT taxable income by the end of the calendar year. Accordingly, Bimini Capital's dividends are generally based on REIT taxable income, as determined for federal income tax purposes, as opposed to its net income computed in accordance with GAAP. Dividends are paid if, when, and as declared by the Board of Directors.

As described above, a REIT may be subject to a federal excise tax if it distributes less than 85% of its REIT taxable income by the end of a calendar year. In calculating the amount of excise tax payable in a given year, if any, Bimini Capital reduces REIT taxable income by distributions made to stockholders in the form of dividends and/or net operating losses ("NOL's") carried-over from prior years, to the extent any are available. Since income subject to excise tax is REIT taxable income less qualifying dividends and the application of NOL's, if a REIT has sufficient NOL's it could apply such NOL's against its taxable income and avoid excise taxes without paying qualifying dividends to stockholders. Accordingly, if in future periods Bimini Capital has taxable income, it can avoid the obligation to pay excise taxes by applying the estimated $17.9 million of NOL's available as of December 31, 2013 against such taxable income until the NOL's are exhausted in lieu of making distributions to stockholders. Further, Bimini Capital could avoid the obligation to pay excise taxes through a combination of qualifying dividends and the application of NOL's. In any case, future distributions to stockholders are expected to be less than REIT taxable income until the existing NOL's are consumed.

Book Value Per Share

The Company's Book Value Per Share at December 31, 2013 was $0.15. 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 December 31, 2013, the Company's consolidated equity was $33.4 million inclusive of noncontrolling interests of $31.6 million, with 11,509,756 Class A Common shares outstanding.

Management Commentary

Commenting on the fourth quarter, Robert E. Cauley, Chairman and Chief Executive Officer, said, "What we expected to occur late in the second quarter or during the third quarter finally occurred late in the fourth quarter. The Federal Reserve began its long awaited tapering program. The initial move was announced after the December meeting and the Fed decided to reduce monthly purchases of both US Treasury securities and Agency MBS by $5 billion per month beginning in January 2014. The Federal Reserve announced another $5 billion per month reduction in its purchases of both US Treasury securities and Agency MBS. The market was not terribly surprised by the announcement in December, although many market participants may have expected the first move to come in the first quarter of 2014 rather than December. The Agency MBS market rallied as the current coupon, 30 year mortgage tightened by approximately 10 basis points into year-end. The Treasury market on the other hand sold off and the high yield for the 10 year US Treasury note was reached on December 31, 2013. Trading desks were thinly staffed during the week of Christmas and market liquidity was very low after the taper announcement. This no doubt exacerbated the move in the Treasury market. As the economic data steadily improved over the fourth quarter and rates rose, prepayment activity naturally slowed. The mortgage bankers refinance index fell below 2500 in July and below 1500 in late December 2013. With the seasonal trough typically occurring in late Q4 and Q1, prepayment speeds should remain muted until the March speeds are released in early April. As a result, premium amortization on our pass through MBS has been muted. 

"As you know, Bimini had invested $15 million of our capital into Orchid prior to its IPO in February 2013. The Orchid portfolio is managed in the same manner and with the same focus as the Bimini portfolio. For the quarter, Orchid generated net income of approximately $1.4 million, of which approximately $1.0 million is attributable to non-controlling interests. Bimini, through Bimini Advisors, also earned approximately $174 thousand of management fees from Orchid. However, under GAAP these fees are eliminated in consolidation. Orchid's book value was down $0.01 per share from $13.41 to $13.40 for the quarter. The decline in book value reflects the payment of dividends of $0.45 per share during the quarter. Since Bimini is required to consolidate the operations of Orchid and the portfolio of Orchid is considerably larger than the Bimini portfolio, the results of operations at Orchid have a material impact on our consolidated results. For additional details on the results of operations of Orchid please visit the Investor Relations section of the Orchid Island Capital website at www.orchidislandcapital.com.

"With respect to the portfolio of Bimini, with rates increasing over the course of the quarter the mark to market adjustments for the pass-through portfolio were a negative $0.4 million. Our structured securities, owing to their still high prepayment rates, generated negative interest income, as they have since fall 2012. The mark to market gains from the inverse interest-only securities were not enough to offset the negative mark to market from the interest-only securities or the negative interest income. There were no purchases or sales of any structured securities and as a result, the structured portfolio generated a negative return for the quarter of (5.2%). Likewise, the pass-through portfolio generated a negative return for the quarter of (4.0%). There were no purchases or sales of pass-through securities for the quarter. The two portfolios combined generated a negative return on invested capital of (4.4%) for the quarter – not annualized. As there were no purchases or sales in either portfolio, the change in the capital allocation among the two portfolios was the result of run-off. The allocation to the pass-through portfolio increased from 69.2% at September 30, 2013, to 74.5% at December 31, 2013. With respect to the balance of our results, the retained interests of our former mortgage company were marked down by approximately $66,000 for the quarter."

Summarized Financial Statements

The following is a summarized presentation of the unaudited consolidated balance sheets as of December 31, 2013, and  2012, and the unaudited consolidated statements of operations for the calendar quarters and years ended December 31, 2013 and 2012. Amounts presented are subject to change.

Summarized Parent-Only Financial Statements

The following is a summarized presentation of the unaudited parent-only balance sheets as of December 31, 2013 and 2012, and the unaudited quarterly results of operations for the calendar quarters and years ended December 31, 2013 and 2012. In the parent-only financial statements, the investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries since the original date of the Parent's investments. The Parent's share of net income of its unconsolidated subsidiaries is included in the income using the equity method. Parent-only financial statements are not considered a valid substitute for consolidated financial statements under U.S. GAAP and therefore should be read in conjunction with the Company's Consolidated Financial Statements. Amounts presented are subject to change.

About Bimini Capital Management, Inc.

Bimini Capital Management, Inc. is a REIT that invests primarily in, but is not limited to, 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.

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 Tuesday, March 11, 2014, at 10:00 AM ET. The conference call may be accessed by dialing toll free (877) 312-5414. International callers dial (408) 940-3877. The conference passcode is 9510769. 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.