Bimini Capital Management Announces Third Quarter 2022 Results

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

• Net loss of $3.2 million, or $0.31 per common share
• Book value per share of $2.38
• Company to discuss results on Monday, November 14, 2022, at 10:00 AM ET

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.

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)%.

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):

Portfolio

The following tables summarize the MBS portfolio as of September 30, 2022 and December 31, 2021:

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.

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.

Summarized Consolidated Financial Statements

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:

https://www.netroadshow.com/events/login?show=9af9aee6&confId=43613

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.

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