UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
☒
For the fiscal year ended
☐
For the transition period from __ to __
Commission File Number
Bimini Capital Management, Inc. |
(Exact name of registrant as specified in its charter) |
Maryland | 72-1571637 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
3305 Flamingo Drive,
(Address of principal executive offices) (Zip Code)
(772) 231-1400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NoneSecurities registered pursuant to Section 12(g) of the Act:
Title of Each Class |
Class A Common Stock, $0.001 par value |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
YesIndicate by
check markwhether theregistrant (1) hasfiled allreports requiredto befiled bySection 13 or15(d) ofthe SecuritiesExchange ActofIndicate by check
mark whether the registranthas submitted electronically everyInteractive Data File requiredto be submitted pursuantto Rule 405Indicate by check mark
whether the registrant is alarge accelerated filer,an accelerated filer, anon-accelerated filer, asmaller reporting company orLarge accelerated filer
If an emerging growth company,
indicate by check mark if the registrant haselected not to use the extended transition periodfor complying with anyIndicate by check
mark whether theregistrant has fileda report on andattestation to itsmanagement's assessment ofthe effectiveness ofits internalIf securities are registered pursuant to Section 12(b) of the Exchange Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrants’ executive officers during the relevant recovery period pursuant to Section 240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
YesState the aggregate market value of the voting stock held by non-affiliates of the Registrant as of June 30, 2021:
Title of each Class | Shares held by non-affiliates | Aggregate market value held by non-affiliates | ||||
Class A Common Stock, $0.001 par value | 5,712,181 | $5,712,181(a) | ||||
Class B Common Stock, $0.001 par value | 20,760 | $1,000 (b) | ||||
Class C Common Stock, $0.001 par value | 31,938 | $1,500 (b) |
(a) The aggregate market value was calculated by using the last sale price of the Class A Common Stock as of June 30, 2021.
(b)
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date:
Title of each Class | Latest Practicable Date | Shares Outstanding | ||||
Class A Common Stock, $0.001 par value | March 7, 2024 | 10,005,457 | ||||
Class B Common Stock, $0.001 par value | March 7, 2024 | 31,938 | ||||
Class C Common Stock, $0.001 par value | March 7, 2024 | 31,938 |
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the
Registrant’s definitiveProxy Statement foritsINDEX
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We make forward-looking statements in this Report that are subject to risks and
uncertainties. These forward-looking statements● | our business and investment strategy; |
● | our expected operating results; |
● | our ability to acquire investments on attractive terms; |
● | the effect of prepayment rates on the value of our assets; |
● | our ability to access the capital markets; |
● | our ability to obtain future financing arrangements; |
● | our ability to successfully hedge the interest rate risk and prepayment risk associated with our portfolio; |
● | our understanding of our competition and our ability to compete effectively; | |
● | our ability to quantify risk based on historical experience; | |
● | our ability to forecast our tax attributes, which are based upon various facts and assumptions, and our ability to protect and use our NOLs to offset future taxable income, including whether our shareholder rights plan will be effective in preventing an ownership change that would significantly limit our ability to utilize such NOLs; | |
● | expected capital expenditures; | |
● | the impact of technology on our operations and business; | |
● | our ability to maintain our exemption from the obligation to register under the Investment Company Act of 1940, as amended (the “Investment Company Act”); | |
● | market trends; | |
● | the effect of actual, anticipated or proposed actions of the U.S. government, including the U.S. Federal Reserve (the "Fed"), the Federal Housing Finance Agency (the "FHFA"), the Federal Housing Administration (the "FHA"), the Federal Open Market Committee (the "FOMC") and the U.S. Treasury, on interest rates, monetary policy, fiscal policy and the housing and credit markets; | |
● | the federal conservatorship of the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and related efforts, along with any changes in laws and regulations affecting the relationship between Fannie-Mae and Freddie Mac and the U.S. government; |
● | the impact of inflation on general economic conditions and monetary policy; |
● | the impact of possible future changes in tax laws or tax rates; and |
● | geo-political events, government responses to such events and the related impact on the economy both nationally and internationally. |
The forward-looking statements are based on our beliefs, assumptions
and expectations of our future performance, taking intoITEM1. BUSINESS
Overview
Bimini Capital Management, Inc., a Maryland corporation (“Bimini Capital”
and, collectively with its subsidiaries, the “Company,”The investment portfolio segment includes the investment activities conducted
at Bimini Capital’s wholly-owned subsidiary, RoyalThe Company, through Royal Palm’s wholly-owned subsidiary, Bimini Advisors Holdings, LLC (“Bimini Advisors”), serves as the
Management of Orchid
Orchid is externally managed and advised by our wholly-owned subsidiary, Bimini Advisors, and its MBS investment team
Bimini Advisors receives a monthly management fee in the amount of:
● | One-twelfth of 1.5% of the first $250 million of Orchid’s equity, as defined in the management agreement, |
● | One-twelfth of 1.25% of Orchid’s equity that is greater than $250 million and less than or equal to $500 million, and |
● | One-twelfth of 1.00% of Orchid’s equity that is greater than $500 million. |
Orchid is obligated to reimburse Bimini Advisors for any direct expenses incurred
on its behalf.In addition, Bimini AdvisorsThe Investment and Capital Allocation Strategy
Investment Strategy
With respect to our own portfolio, the business objective is to providegenerate attractive
We fund the pass-through Agency MBS and certain of the structured Agency MBS through
repurchase agreements. However, weOur investment strategy consists of the following components:
● | investing in pass-through Agency MBS, CMOs and certain structured Agency MBS on a leveraged basis to increase returns on the capital allocated to this portfolio; |
● | investing in certain structured Agency MBS, such as IOs and IIOs, generally on an unleveraged basis in order to (i) increase returns due to the structural leverage contained in such securities, (ii) enhance liquidity due to the fact that these securities will be unencumbered or, when encumbered, the cash from such borrowings may be retained and (iii) diversify portfolio interest rate risk due to the different interest rate sensitivity these securities have compared to pass-through Agency MBS; |
● | investing in Agency MBS in order to minimize credit risk; |
● | investing in Orchid common stock, and, potentially, other REIT common stock; |
● | investing in assets that will cause us to maintain our exclusion from regulation as an investment company under the Investment Company Act. |
Our management team makes investment decisions based on various factors, including, but not limited to, relative value, expected cash yield, supply and demand, costs of hedging, costs of financing, liquidity requirements, expected future interest rate volatility and the overall shape of the U.S. Treasury and interest rate swap yield curves. We do not attribute any particular quantitative significance to any of these factors, and the weight we give to these factors depends on market conditions and economic trends.
Over time, we will modify our investment strategy as market conditions change to seek to maximize the returns from our investment portfolio. We believe that this strategy will enable us to provide attractive long-term returns to our stockholders.
The target asset categories and principal assets in which we intend to invest
are as follows:Pass-through Agency MBS
We invest in pass-through securities, which are securities secured by residential real property
in which payments of both interest andThe payment of principal and interest on mortgage pass-through securities
issued by Ginnie Mae, but not the market value, isA key feature of most mortgage loans is the ability of the borrower to repay
principal earlier than scheduled. This is called aIn general, declining interest rates tend to increase prepayments, and
rising interest rates tend to slow prepayments. Like otherThe mortgage loans underlying pass-through certificates can generally be classified
into the following categories:● | Fixed-Rate Mortgages. Fixed-rate mortgages are those where the borrower pays an interest rate that is constant throughout the term of the loan. Traditionally, most fixed-rate mortgages have an original term of 30 years. However, shorter terms (also referred to as “final maturity dates”) are also common. Because the interest rate on the loan never changes, even when market interest rates change, there can be a divergence between the interest rate on the loan and current market interest rates over time. This in turn can make fixed-rate mortgages price-sensitive to market fluctuations in interest rates. In general, the longer the remaining term on the mortgage loan, the greater the price sensitivity to movements in interest rates and, therefore, the likelihood for greater price variability. |
● | ARMs. ARMs are mortgages for which the borrower pays an interest rate that varies over the term of the loan. The interest rate usually resets based on market interest rates, although the adjustment of such an interest rate may be subject to certain limitations. Traditionally, interest rate resets occur at regular intervals (for example, once per year). We refer to such ARMs as “traditional” ARMs. Because the interest rates on ARMs fluctuate based on market conditions, ARMs tend to have interest rates that do not deviate from current market rates by a large amount. This in turn can mean that ARMs have less price sensitivity to interest rates and, consequently, are less likely to experience significant price volatility. |
● | Hybrid Adjustable-Rate Mortgages. Hybrid ARMs have a fixed-rate for the first few years of the loan, often three, five, seven or ten years, and thereafter reset periodically like a traditional ARM. Effectively, such mortgages are hybrids, combining the features of a pure fixed-rate mortgage and a traditional ARM. Hybrid ARMs have price sensitivity to interest rates similar to that of a fixed-rate mortgage during the period when the interest rate is fixed and similar to that of an ARM when the interest rate is in its periodic reset stage. However, because many hybrid ARMs are structured with a relatively short initial time span during which the interest rate is fixed, even during that segment of its existence, the price sensitivity may be high. |
Collateralized Mortgage Obligation MBS
CMOs are a type of MBS the principal and interest of which are paid, in most
cases, on a monthly basis. CMOs may be collateralizedStructured Agency MBS
We also invest in structured Agency MBS, which include CMOs, IOs, IIOs and POs. The
payment of principal and interest,● | IOs. IOs represent the stream of interest payments on a pool of mortgages, either fixed-rate mortgages or hybrid ARMs. Holders of IOs have no claim to any principal payments. The value of IOs depends primarily on two factors, which are prepayments and interest rates. Prepayments on the underlying pool of mortgages reduce the stream of interest payments going forward, hence IOs are highly sensitive to prepayment rates. IOs are also sensitive to changes in interest rates. An increase in interest rates reduces the present value of future interest payments on a pool of mortgages. On the other hand, an increase in interest rates has a tendency to reduce prepayments, which increases the expected absolute amount of future interest payments. |
● | IIOs. IIOs represent the stream of interest payments on a pool of mortgages that underlie MBS, either fixed-rate mortgages or hybrid ARMs. Holders of IIOs have no claim to any principal payments. The value of IIOs depends primarily on three factors, which are prepayments, coupon interest rate (i.e. “SOFR”), and term interest rates. Prepayments on the underlying pool of mortgages reduce the stream of interest payments, making IIOs highly sensitive to prepayment rates. The coupon on IIOs is derived from both the coupon interest rate on the underlying pool of mortgages and 30-day SOFR. IIOs are typically created in conjunction with a floating rate CMO that has a principal balance and which is entitled to receive all of the principal payments on the underlying pool of mortgages. The coupon on the floating rate CMO is also based on 30-day SOFR. Typically, the coupon on the floating rate CMO and the IIO, when combined, equal the coupon on the pool of underlying mortgages. The coupon on the pool of underlying mortgages typically represents a cap or ceiling on the combined coupons of the floating rate CMO and the IIO. Accordingly, when the value of 30-day SOFR increases, the coupon of the floating rate CMO will increase and the coupon on the IIO will decrease. When the value of 30-day SOFR falls, the opposite is true. Accordingly, the value of IIOs are sensitive to the level of 30-day SOFR and expectations by market participants of future movements in the level of 30-day SOFR. IIOs are also sensitive to changes in interest rates. An increase in interest rates reduces the present value of future interest payments on a pool of mortgages. On the other hand, an increase in interest rates has a tendency to reduce prepayments, which increases the expected absolute amount of future interest payments. |
● | POs. POs represent the stream of principal payments on a pool of mortgages. Holders of POs have no claim to any interest payments, although the ultimate amount of principal to be received over time is known, equaling the principal balance of the underlying pool of mortgages. The timing of the receipt of the principal payments is not known. The value of POs depends primarily on two factors, which are prepayments and interest rates. Prepayments on the underlying pool of mortgages accelerate the stream of principal repayments, making POs highly sensitive to the rate at which the mortgages in the pool are prepaid. POs are also sensitive to changes in interest rates. An increase in interest rates reduces the present value of future principal payments on a pool of mortgages. Further, an increase in interest rates has a tendency to reduce prepayments, which decelerates, or pushes further out in time, the ultimate receipt of the principal payments. The opposite is true when interest rates decline. |
Mortgage REIT Common Stock
We also maintain an investment in the common stock of Orchid.
Because Orchid is a mortgage REIT that invests primarily in assetsCapital Allocation Strategy
The percentage of capital invested in each of our asset categories will
vary and will be managed in an effort to maintain the level ofWe allocate our capital to assist our interest rate risk management efforts. The unleveraged portfolio does not
require unencumberedDuring periods of rising interest rates, refinancing opportunities available to borrowers typically
decrease because borrowers are notFinancing Strategy
We borrow against our pass-through Agency MBS and certain of our structured Agency
MBS using short-term repurchase agreements.We may use other sources of leverage, such as secured or unsecured debt or issuances
of preferred stock. We do not have a policyWe allocate our capital between two sub-portfolios. The pass-through Agency MBS portfolio
will be leveraged generally through● | The relative durations of the respective portfolios — We generally seek to have a combined hedged duration at or near zero. If our pass-through securities have a longer duration, we will allocate more capital to the structured security portfolio or hedges to achieve a combined duration close to zero. |
● | The relative attractiveness of pass-through securities versus structured securities — To the extent we believe the expected returns of one type of security are higher than the other, we will allocate more capital to the more attractive securities, subject to the caveat that its combined duration remains at or near zero and subject to maintaining our qualification for exemption under the Investment Company Act. |
● | Liquidity — We seek to maintain adequate cash and unencumbered securities relative to our repurchase agreement borrowings well in excess of anticipated price or prepayment related margin calls from our lenders. To the extent we feel price or prepayment related margin calls will be higher/lower, we will typically allocate less/more capital to the pass-through Agency MBS portfolio. Our pass-through Agency MBS portfolio likely will be our only source of price or prepayment related margin calls because we generally will not apply leverage to our structured Agency MBS portfolio. From time to time we may pledge a portion of our structured securities and retain the cash derived so it can be used to enhance our liquidity. |
Risk Management
We invest in Agency MBS and Orchid common stock to mitigate credit risk. Additionally, our Agency MBS, as well as Orchid’s, are
Interest Rate Risk Management
We believe that the risk of adverse interest rate movements represents the most significant
risk to the value of our portfolio. This riskAgency MBS Backed by ARMs
Agency MBS Backed by Fixed-Rate Mortgages
Agency MBS Backed by Hybrid ARMs
Derivative Instruments.
A futures
contractis a legallybinding agreementto buy orsell a financialinstrumentin a designatedfuture monthat a priceagreed uponatInterest rate swaptions provide us the option to enter into an interest rate swap agreement
for a predetermined notional amount, statedAdditionally, our structured Agency MBS generally exhibit sensitivities to movements in interest rates different than our pass-through
We account for TBA securities as derivative instruments. Gains and losses associated
with TBA securities transactions are reported inPrepayment Risk Management
The risk of mortgage prepayments is another significant risk to our portfolio.
When prevailing interest rates fall below the coupon rate ofWhen prepayment rates increase, we may not be able to reinvest the money received
from prepayments at yields comparable to thoseA decrease in prepayment rates may also have an adverse effect on our portfolio. For example,
if we invest in POs, the purchase pricePrepayment risk also affects our hedging activities
Because our business may be adversely affected if prepayment rates are different than our projections,
we seek to invest in AgencyLiquidity Management Strategy
Because of our use of leverage, we manage liquidity to meet our lenders’ margin
calls by maintaining cash balances or unencumberedWe also attempt to minimize the number of margin calls we receive by:
● | deploying capital from our leveraged Agency MBS portfolio to our unleveraged Agency MBS portfolio; |
● | investing in Agency MBS backed by mortgages that we believe are less likely to be prepaid to decrease the risk of excessive margin calls when monthly prepayments are announced. Prepayments are declared, and the market value of the related security declines, before the receipt of the related cash flows. Prepayment declarations give rise to a temporary collateral deficiency and generally result in margin calls by lenders; |
● | investing in Orchid common stock, and, potentially, other REIT common stock; and |
● | reducing our overall amount of leverage. |
To the risk of excessive
Investment Company Act Exemption
We operate our business so that we are exempt from registration under the Investment Company
Act. We rely on the exemptionWe treat whole-pool pass-through Agency MBS as qualifying real estate assets based on
no-action letters issued by the staff of theEmployees and Human Capital Resources
As of December 31, 2021,2023, we had 89 full-time salaried employees,
Competition
Our net income depends on our ability to acquire Agency MBS for our portfolio at
favorable spreads over our borrowing costs. Our netAvailable Information
Our investor relations website is
SummaryofRiskFactors
Below is a summary of the principal factors that make an investment in our commonstock speculative or risky. This summary does
● | Changes in interest rates may negatively affect the value of our investments and increase the cost of our borrowings, which could result in reduced earnings or losses. |
● | An increase in interest rates may also cause a decrease in the volume of newly issued, or investor demand for, Agency MBS, which could materially adversely affect our ability to acquire assets that satisfy our investment objectives and our business, financial condition and results of operations. |
● | Interest rate mismatches between our Agency MBS and our borrowings may reduce our net interest margin during periods of changing interest rates, which could materially adversely affect our business, financial condition and results of operations. |
● | Further downgrades of the U.S. credit rating, automatic spending cuts, mounting budget deficits or another government shutdown could negatively impact our liquidity, financial condition and earnings. |
● | Although structured Agency MBS are generally subject to the same risks as our pass-through Agency MBS, certain types of risks may be enhanced depending on the type of structured Agency MBS in which we invest. |
● | New laws may be passed affecting the relationship between Fannie Mae and Freddie Mac, on the one hand, and the federal government, on the other, which could adversely affect the price of, or our ability to invest in and finance Agency MBS. |
● | Purchases and sales of Agency MBS by the Fed may adversely affect the price and return associated with Agency MBS |
● | Changes in the levels of prepayments on the mortgages underlying our Agency MBS might decrease net interest income or result in a net loss, which could materially adversely affect our business, financial condition and results of operations. |
● | Failure to procure adequate repurchase agreement financing, or to renew or replace existing repurchase agreement financing as it matures, could materially adversely affect our business, financial condition and results of operations. |
● | Adverse market developments could cause our lenders to require us to pledge additional assets as collateral. If our assets were insufficient to meet these collateral requirements, we might be compelled to liquidate particular assets at inopportune times and at unfavorable prices, which could materially adversely affect our business, financial condition and results of operations and our ability to pay distributions to our stockholders. |
● | Hedging against interest rate exposure may not completely insulate us from interest rate risk and could materially adversely affect our business, financial condition and results of operations. |
● | Our use of leverage could materially adversely affect our business, financial condition and results of operations. |
● | We rely on analytical models and other data to analyze potential asset acquisition and disposition opportunities and to manage our portfolio. Such models and other data may be incorrect, misleading or incomplete, which could cause us to purchase assets that do not meet our expectations or to make asset management decisions that are not in line with our strategy. |
● | Valuations of some of our assets may fluctuate over short periods of time and may differ from the values that would have been used if a ready market for these assets existed. |
● | If our lenders default on their obligations to resell the Agency MBS back to us at the end of the repo transaction term, or if the value of the Agency MBS has declined by the end of the repo transaction term or if we default on our obligations under the repo transaction, we will lose money on these transactions, which, in turn, may materially adversely affect our business, financial condition and results of operations. |
● | We have issued long-term debt to fund our operations which can increase the volatility of our earnings and stockholders’ equity. |
● | Clearing facilities or exchanges upon which some of our hedging instruments are traded may increase margin requirements on our hedging instruments in the event of adverse economic developments. |
● | We depend primarily on a limited number of individuals to operate our business, and the sudden loss of certain key individuals could adversely impact our business. |
● | We may change our investment strategy, investment guidelines and asset allocation without notice or stockholder consent, which may result in riskier investments. |
● | Loss of our exemption from regulation under the Investment Company Act would negatively affect the value of shares of our common stock. |
● | Failure to obtain and maintain an exemption from being regulated as a commodity pool operator could subject us to additional regulation and compliance requirements and may result in fines and other penalties which could materially adversely affect our business and financial condition. |
● | Our ownership limitations and certain other provisions of applicable law and our charter and bylaws may restrict business combination opportunities that would otherwise be favorable to our stockholders. |
● | The termination of our management agreement with Orchid would significantly reduce our revenues in the near term. |
● | We cannot predict the effect that government policies, laws and plans adopted in response to geopolitical events, a global pandemic, or global recessionary economic conditions will have on us. |
● | Our investment in Orchid Island Capital, Inc. or other mortgage REIT common stock may fluctuate in value which may materially adversely affect our business, financial condition and results of operations. |
Risk Factors
You should carefully consider the risks described below and all other information contained in this Report, including our annual
Risks Related to Our Business
Changes in interest rates may negatively affect the value of our investments and increasethe cost of our borrowings, which could
Under normal market conditions,
an investment in Agency MBS will decline in value if interest rates increase.In addition, netSignificant increases in both long-term and short-term interest rates pose a substantial
risk associated with our investment inDecreases in market interest rates may also adversely affect our results of operations and financial conditions. During periods of declining interest rates or prolonged low interest rates, the interest rates we earn on our new assets may be lower. In addition, prepayments on existing mortgages may increase causing yields on our MBS to be lower, to the extent they are carried at a premium.
An increase in interest rates may also cause a decrease in the volume ofnewly issued, or investor demand for, Agency MBS,
Rising interest rates generally reduce the demand for consumer credit, including
mortgage loans, due to the higher cost ofInterest rate mismatches between our Agency MBS and our borrowings mayreduce our net interest margin during periods of
Our portfolio includes Agency MBS backed by ARMs, hybrid Arms and fixed-rate mortgages,
and the mix of these securities in theWe finance our acquisitions of pass-through Agency MBS with short-term financing. During
periods of rising short-term interestFurther downgrades of the U.S. credit rating, automatic spending cuts, mounting budget deficits or another government shutdown could negatively impact our liquidity, financial condition and earnings.
U.S. debt ceiling and budget deficit concerns have increased the possibility of additional credit-rating downgrades and economic slowdowns, or a recession in the United States. Although U.S. lawmakers passed legislation to raise the federal debt ceiling on multiple occasions, ratings agencies have lowered or threatened to lower the long-term sovereign credit rating on the United States. The impact of this or any further downgrades to the U.S. government’s sovereign credit rating or its perceived creditworthiness could adversely affect the U.S. and global financial markets and economic conditions. In addition, disagreement over the federal budget has caused the U.S. federal government to shut down for periods of time. Continued adverse political and economic conditions could have a material adverse effect on our business, financial condition and results of operations.
We invest in structured Agency MBS, including IOs, IIOs and POs. Although structured AgencyMBS are generally subject to the
The structured Agency MBS in which we invest are securitizations (i) issued
byDifferences in the stated maturity of our fixed rate assets, or in the timing of interest rate adjustmentson our adjustable-rate
We rely primarily on short-term and/or variable rate borrowings to acquire fixed-rate securities with
long-term maturities. InThe relationship between short-term and longer-term interest rates is often
referred to as the "yield curve." Ordinarily, short-termPurchases and sales of Agency MBS by the Fed may adversely affect the supply, price and returnreturns associated with Agency MBS.
The Fed owned approximately $2.6$2.4 trillion of Agency MBS as of December 31,
Short-term interest rates are currently higher than long-term interest rates.This phenomenon, typically referred to as an inverted treasury or yield curve, occurred during 2022 and 2023, and may continue well into the future.Under such conditions the Company’s funding costs may equal or exceed yields available on the Company assets, adversely impacting our financial condition and results of operations and our ability to pay distributions to our stockholders.
As the Federal Reserve began to increase over-night funding rates during 2022 short-term interest rates began to rise faster than longer-term interest rates and eventually the treasury yield curve became inverted, whereby yields on short-terms rates exceeded yields on long-term interest rates. This condition continued through 2023 and continues into 2024, and may continue into the future. Consistent with this development, funding costs associated with the Company’s borrowings have increased relative to yields on the Company’s MBS securities. As a result, the Company’s net interest income has declined. The Company has employed various hedging strategies to off-set the phenomenon. However, such hedges may not be adequate to protect the Company’s net interest income in the future, adversely affecting our financial conditions, results of operations and the Company may have to reduce or even eliminate is monthly distributions of dividends.
Increased levels of prepayments on the mortgages underlying our AgencyMBS might decrease net interest income or result in a
In the case of residential mortgages, there are seldom any restrictions on borrowers’
ability to prepay their loans.PrepaymentWhen we acquire structured Agency MBS, we anticipate that the underlying
mortgages will prepay at a projected rate, generatingWhile we seek to minimize prepayment risk, we must balance prepayment risk
against other risks and the potential returns of eachA decrease in prepayment rates on the mortgages underlying our AgencyMBS might decrease net interest income or result in a
Certain of our structured Agency MBS may be adversely affected by a decrease in
prepayment rates. For example, because POsWhile we seek to minimize prepayment risk, we must balance prepayment risk
against other risks and the potential returns of eachInterest rate caps on the ARMs and hybrid ARMs backing our Agency MBS mayreduce our net interest margin during periods of
ARMs and hybrid ARMs are typically subject to periodic and lifetime interest rate
caps. Periodic interest rate caps limit the amountFailure to procure adequate repurchase agreement financing, or to renew or replace existing repurchase agreement
We intend to maintain master repurchase agreements with several counterparties. We cannot assure you that
any, or sufficient,Furthermore, because we intend to rely primarily on short-term borrowings to fund
our acquisition of Agency MBS, our ability toAdverse market developments could cause our lenders to require us to pledgeadditional assets as collateral. If our assets were
Adverse market developments, including a sharp or prolonged rise
in interest rates, a change in prepayment rates or increasingHedging against interest rate exposure may not completely insulate us frominterest rate risk and could materially adversely affect
We may enter into interest rate cap or swap agreements or pursue other hedging strategies,
including the purchase of puts, calls● | hedging can be expensive, particularly during periods of rising and volatile interest rates; |
● | available interest rate hedging may not correspond directly with the interest rate risk for which protection is sought; |
● | the duration of the hedge may not match the duration of the related liability; |
● | certain types of hedges may expose us to risk of loss beyond the fee paid to initiate the hedge; |
● | the credit quality of the counterparty on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; and |
● | the counterparty in the hedging transaction may default on its obligation to pay. |
There are no perfect hedging strategies, and interest rate hedging may fail to protect
us from loss. Alternatively, we may fail toBecause of the foregoing risks, our hedging activity could materially adversely affect
our business, financial condition and resultsOur use of certain hedging techniques may expose us to counterparty risks.
To the
extent that our hedging instruments are not traded on regulated exchanges,guaranteed by an exchange or itsFor example, if a swap exchange utilized in an interest rate swap agreement that
we enter into as part of our hedging strategyOur use of leverage could materially adversely affect our business, financial condition and results of operations.
We calculate our leverage ratio by dividing our total liabilities by total equity at the end of each period.
Under normal marketIt may be uneconomical to "roll" our TBA dollar roll transactions or we may beunable to meet margin calls on our TBA contracts,
We may utilize TBA dollar roll transactions as a means of investing in and financing Agency
MBS securities. TBA contracts enableUnder certain market conditions, TBA dollar roll transactions may result in negative
carry income whereby the Agency MBSVolatile market conditions for mortgages and mortgage-related assets as well as the broader financial marketscan result in a
Our results of operations are materially affected by conditions in the markets for mortgages
and mortgage-related assets,Significant adverse changes in financial market conditions can result in a
deleveraging of the global financial system and theIncreased volatility and deterioration in the markets for mortgages and mortgage-related
assets as well as the broader financialOur forward settling transactions, including TBA transactions, subject us tocertain risks, including price risks and counterparty
We purchase some of our Agency MBS through forward settling transactions, including
TBAs. In a forward settling transaction,We rely on analytical models and other data to analyze potential asset acquisition and disposition opportunitiesand to manage our
We rely on analytical models, and information and other data supplied by third parties.
These models and data may be used toOur reliance on models and data may induce us to purchase certain assets
at prices that are too high, to sell certain other assetsSome models, such as prepayment models, may be predictive in nature. The
use of predictive models has inherent risks. ForAll valuation models rely on correct market data
input. If incorrect market data is entered into even a well-founded valuation model,Valuations of some of our assets are inherently uncertain, may be based on estimates, may fluctuate over short periods of time
While in many cases our determination of the fair value of our assets is
based on valuations provided by third-party dealers andBecause the assets that we acquire might experience periods of illiquidity, we might be prevented from selling our Agency MBS at
Agency MBS generally experience periods of illiquidity. Such conditions are more likely to occur for structured Agency
MBSOur use of repurchase agreements may give our lenders greater rights inthe event that either we or any of our lenders file for
Our borrowings under repurchase agreements may qualify for special treatment
under the bankruptcy code, giving our lenders theIf a repurchase agreement counterparty defaults on their obligations to resell the AgencyMBS back to us at the end of the
When we engage in a repurchaserepo transaction, we initially sell securities to the
If we default on one of our obligations under a repurchaserepo transaction, the
We have issued long-term debt to fund our operations which can increase the volatility of ourearnings and stockholders’stockholders’ equity.
In October 2005, Bimini Capital completed a private offering of trust preferred securities
of Bimini Capital Trust II, of which $26.8The Company has also elected to account for its investments in MBS under the
fair value option and, therefore, will report MBS onClearing facilities or exchanges upon which some of our hedging instrumentsare traded may increase margin requirements on our
In response to events having or expected to have adverse economic consequences
or which create market uncertainty, clearingOur inability to access funding or the terms on which such funding is available could have a material adverse effect on our financial condition, particularly in times of significant market dislocations.
Our ability to fund our operations, meet financial obligations and finance asset acquisitions is dependent upon our ability to secure and maintain our repurchase agreements with our counterparties. Because repurchase agreements are short-term commitments of capital, lenders may respond to market conditions in ways that make it more difficult for us to renew or replace on a continuous basis our maturing short-term borrowings and have imposed and may continue to impose more onerous terms when rolling such financings. If we are not able to renew our existing repurchase agreements or arrange for new financing on terms acceptable to us, or if we are required to post more collateral or face larger haircuts, we may have to curtail our asset acquisition activities and/or dispose of assets.
Issues related to financing are exacerbated in times of significant dislocation in the financial markets, for example, such as those experienced related to the COVID-19 pandemic. It is possible our lenders will become unwilling or unable to provide us with financing, and we could be forced to sell our assets at an inopportune time when prices are depressed. In addition, if the regulatory capital requirements imposed on our lenders change, they may be required to significantly increase the cost of the financing that they provide to us. Our lenders also have revised and may continue to revise the terms of such financings, including haircuts and requiring additional collateral in the form of cash, based on, among other factors, the regulatory environment and their management of actual and perceived risk. Moreover, the amount of financing we receive under our repurchase agreements will be directly related to our lenders’ valuation of our assets that collateralize the outstanding borrowings. Typically, repurchase agreements grant the lender the absolute right to re-evaluate the fair market value of the assets that cover outstanding borrowings at any time. If a lender determines in its sole discretion that the value of the assets has decreased, the lender has the right to initiate a margin call. These valuations may be different than the values that we ascribe to these assets and may be influenced by recent asset sales at distressed levels by forced sellers. A margin call requires us to transfer additional assets to a lender without any advance of funds from the lender for such transfer or to repay a portion of the outstanding borrowings. Significant margin calls could have a material adverse effect on our results of operations, financial condition, business, liquidity and ability to make distributions to our stockholders, and could cause the value of our common stock to decline. Historically, we have experienced an increase in haircuts on financings we have rolled. As haircuts are increased, we are required to post additional collateral. We may also be forced to sell assets at significantly depressed prices to meet such margin calls and to maintain adequate liquidity. As a result of the COVID-19 pandemic, we experienced margin calls in 2020 well beyond historical norms. As of December 31, 2023, we had met all margin call requirements, but a sufficiently deep and/or rapid increase in margin calls or haircuts could have an adverse impact on our liquidity.
We may change our investment strategy, investment guidelines and asset allocation without notice or stockholder consent, which
Our Board of Directors has the authority to change our investment strategy
or asset allocation at any time without notice to orCompetition might prevent us from acquiring Agency MBS at favorable yields,which could materially adversely affect our business,
We operate in a highly competitive market for investment opportunities. Our net income
largely depends on our ability to acquireThe occurrence of cyber-incidents, or a deficiency in our cybersecurity or in thoseof any of our third-party service providers could
A cyber-incident is considered to be any adverse event that threatens the confidentiality, integrity, or availability of our information
We are highly dependent on communications and information systems operated by third parties,and systems failures could
Our business is highly dependent on communications and information systems that
allow us to monitor, value, buy, sell, financeComputer malware, ransomware, viruses, and computer hacking and
phishing attacks have become more prevalent in theWe depend primarily on twoa limited number of individuals to operate our business, and the sudden loss of one or bothcertain key individuals could adversely impact our business.
Our Company only has nine full-time employees, and therefore we depend on the efforts of such persons could materially
If we issue debt securities, our operations may be restricted and wewill be exposed to additional risk.
If we decide to issue debt securities in the future, it is likely that such securities
will be governed by an indenture or otherNew laws may be passed affecting the relationship between Fannie Mae and Freddie Mac,on the one hand, and the federal
The interest and principal payments we expect to receive on the Agency MBS
in which we invest are guaranteed by Fannie Mae,In September 2008, Fannie Mae and Freddie Mac were placed into the conservatorship
of the FHFA, their federal regulator,Shortly after Fannie Mae and Freddie Mac were placed in federal conservatorship,
the Secretary of the U.S. Treasury suggestedOn June 23, 2021, the Supreme Court ruled in Collins v. Mnuchin, a case presenting a question of the constitutionality
of the FHFAOur investment in Orchid Island Capital, Inc. or other mortgage REIT commonstock may fluctuate in value which materially
Investments in the securities of companies that own Agency MBS will be
subject to all of the risks associated with the directIn addition, the Company’s ability to dispose of the common stock investment because
selling investments in Orchid’s commonThe termination of our management agreement with Orchid couldwould significantlyreduce our revenues.
Orchid is externally managed and advised by Bimini Advisors. As Manager, Bimini Advisors is responsible for administering
In exchange for these services, Bimini Advisors receives a monthly management
fee.In addition, Orchid is obligated to reimburseWe may be subject to adverse legislative or regulatory changes that could reduce the marketprice of our common stock.
At any time, laws or regulations, or the administrative or judicial interpretations of those
laws or regulations, which impact our business andWe may incur losses as a result of unforeseen or catastrophic events, including the emergence ofa pandemic and acts of
The occurrence of unforeseen or catastrophic events, including the emergence
of a pandemic, such as coronavirus, or otherWe are subject to risks related to corporate social responsibility.
Our business faces public scrutiny related to environmental, social and governance
(“ESG”) activities. We risk damage to ourRisks Related to Our Organization and Structure
Loss of our exemption from regulation under the Investment Company Act wouldnegatively affect the value of shares of our
We have operated and intend to continue to operate our business so as to be exempt from
registration under the InvestmentIf we fail to qualify for this exemption and for any other exemption, we could be required
to restructure our activities in a mannerAlternatively, if we fail to qualify for this exemption and for any other exemption,
we may have to register under the InvestmentWe may be required at times to adopt less efficient methods of financing certain of our securities, and we
may be precluded fromFailure to obtain and maintain an exemption from being regulated as a commoditypool operator could subject us to additional
The Dodd-Frank Act established a comprehensive regulatory framework for derivative
contracts commonly referred to as “swaps.”We use hedging instruments in conjunction with our investment portfolio and related borrowings
to reduce or mitigate risksThe CFTC has substantial enforcement power with respect to violations of the laws
over which it has jurisdiction, including theirOur Rights Plan could inhibit a change in our control that would otherwisebe favorable to our stockholders.
In December 2015, our Board of Directors adopted a Rights Agreement (the “Rights
Plan”) in an effort to protect against a possibleCertain provisions of applicable law and our charter and bylaws may restrictbusiness combination opportunities that would
Our charter and bylaws and Maryland law contain provisions that may delay, defer or prevent a change in control or other
Our rights and the rights of our stockholders to take action against our directors and officersare limited, which could limit your
Our charter limits the liability of our directors and officers to us and our stockholders for money
damages, except for liability● | actual receipt of an improper benefit or profit in money, property or services; or |
● | a final judgment based upon a finding of active and deliberate dishonesty by the director or officer that was material to the cause of action adjudicated. |
We have entered into indemnification agreements with our directors and executive officers that obligate
us to indemnify them toCertain provisions of Maryland law could inhibit changes in control.
Certain provisions of the Maryland General Corporation Law ( the “MGCL”),
may have the effect of inhibiting a third party from● | “business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our outstanding voting stock or an affiliate or associate of ours who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner of 10% or more of the voting power of our then-outstanding stock) or an affiliate of an interested stockholder for five years after the most recent date on which the stockholder became an interested stockholder, and thereafter require two supermajority stockholder votes to approve any such combination; and |
● | “control share” provisions that provide that a holder of “control shares” of the Company (defined as voting shares of stock which, when aggregated with all other shares of stock owned by the acquiror or in respect of which the acquiror is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), entitle the acquiror to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares,” subject to certain exceptions) generally has no voting rights with respect to the control shares except to the extent approved by our stockholders by the affirmative vote of two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares. |
We have elected to opt-out of these provisions of the MGCL, in the case of the business
combination provisions, by resolution ofU.S. Federal Income Tax Risks
An investment in our common stock has various income tax risks.
This summary is limited to the U.S. federal income tax risks addressed below. Additional risks or issues may exist
that are notOur ability to use net operating loss (“NOL”(“NOL”) carryovers and net capitalloss (“NCL”(“NCL”) carryovers to reduce our taxable income may
We must have taxable income or net capital gains to benefit from our NOL and NCL, as
well as certain other tax attributes.In addition, our NOL and NCL carryovers may be limited by Sections 382
and 383 of the Code if we undergo an “ownershipBased on our knowledge of our stock ownership, we do not believe that
an ownership change has occurred since our losses werePreserving the ability to use our NOLs and NCLs may cause us to forgo otherwiseattractive opportunities.
Limitations imposed by Sections 382 and 383 of the Internal Revenue Code may
discourage us from, among other things,Changes in tax laws could adversely affect our future results.
We have recorded a net deferred tax asset in the consolidated balance sheet based on the differences
between the financialRisks Related to Conflicts of Interest in Our Relationship with Orchid
Royal Palm and Orchid may compete for opportunities to acquire assets, whichare allocated in accordance with the Investment
From time to time we may seek to purchase for Bimini CapitalRoyal Palm the same or similar
Because many of Bimini Capital’sRoyal Palm’s targeted assets are typically available only in specified
There are conflicts of interest in our relationships with Orchid, whichcould result in decisions that may be considered as being not
We are subject to conflicts of interest arising out of Bimini Advisors relationship as Manager
of Orchid. All of our executive officersBimini Capital may acquire or sell assets in which Orchid may have an interest.
Similarly, Orchid may acquire or sell assets inOur officers devote as much time to Bimini Capital and to Orchid as they deem appropriate.
However, these officers may haveMr. Cauley,
our Chief Executive Officer and Chairman of our Board of Directors, alsoserves as Chief Executive Officer andBimini continues to hold an investment in the common stock of Orchid. In evaluating
opportunities for ourselves and Orchid, thisOrchid may elect not to renew the management agreement without cause which mayadversely affect our business, financial
Orchid may elect not to renew the management agreement, even without cause.
The management agreement is automaticallyRisks Related to Our Common Stock
Investing in our common stock may involve a high degree of risk.
The investments we make in accordance with our investment objectives
may result in a high amount of risk when compared toThere is a limited market for our Class A Common Stock.
Our Class A Common Stock trades on the OTCQB under the symbol “BMNM”.
We may apply to list our Class A Common Stock● | the likelihood that an actual market for our common stock will develop, or be continued once developed; |
● | the liquidity of any such market; |
● | the ability of any holder to sell shares of our common stock; or |
● | the prices that may be obtained for our common stock. |
We have not made distributionsto our stockholders since 2011.
Our Board of Directors has not authorized the payment of any cash dividends to
our stockholders since 2011.Future offerings of debt securities, which would be senior to our common stock upon liquidation,or equity securities, which would
In the future, we may attempt to increase our capital resources by making additional
offerings of debt or equity securities, includingThe market value of our common stock may be volatile.
The market value of shares of our common stock may be highly volatile and subject
to wide price fluctuations. In addition, the● | actual or anticipated variations in our operating results; |
● | changes in our earnings estimates or publication of research reports about us or the real estate, REIT, or specialty finance industry; |
● | increases in market interest rates that affect the value of our MBS portfolios; |
● | changes in our book value; |
● | changes in market valuations of similar companies; |
● | adverse market reaction to any increased indebtedness we incur in the future; |
● | changes of key management personnel; |
● | actions by institutional stockholders; |
● | speculation in the press or investment community; and |
● | general market and economic conditions. |
We cannot make any assurances that the market price of our common stock will not fluctuate
or decline significantly in the future.Sales of our common stock may harm our share price.
There is very limited liquidity in the trading market for our common stock. Sales of
substantial amounts of shares of our commonITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
The Board plays an active role in overseeing management of our risks, and cybersecurity represents an important component of the Company’s overall approach to COVID-19
Risk Management and Strategy
The Company and our Board place a high priority on maintaining security over our financial information that can be accessed via the Internet and mitigating information security risks. The Company engages a third-party security firm to provide threat detection and reports, conduct annual testing of our systems, train our employees and generally advise on cybersecurity processes. At least annually, our information technology team make a formal presentation to our Audit Committee and the Board to keep them apprised of the level of cybersecurity that exists to protect our financial information, training of the Company’s officers and employees, and the latest threats that have negatively impactedemerged, including a presentation from the third-party security firm.
The Company’s cybersecurity program is focused on the following key areas:
● | Governance: As discussed in more detail under “Item 1C. Cybersecurity—Governance,” the Audit Committee and the Board oversee cybersecurity risk management by regularly interacting with the Company’s management team, our information technology team and a third-party security firm. |
● | Collaborative Approach: The Company has implemented a comprehensive, cross-functional approach to identifying, preventing and mitigating cybersecurity threats and incidents, while also implementing controls and procedures that provide for the prompt escalation of certain cybersecurity incidents so that decisions regarding the public disclosure and reporting of such incidents can be made by management in a timely manner. |
● | Technical Safeguards: The Company deploys technical safeguards that are designed to protect information systems from cybersecurity threats, including firewalls, intrusion prevention and detection systems, redundant data storage and retention methods, anti-malware functionality and access controls, which are evaluated and improved through vulnerability and exposure assessments and cybersecurity threat intelligence. With the help of our third-party security firm, the Company has implemented several layers of physical security, digital security and data backup. |
● | Incident Response and Recovery Planning: The Company has established a comprehensive incident response and recovery plan that addresses the response to a cybersecurity incident and plans to test and evaluate that plan on a regular basis. |
● | Third-Party Risk Management: The Company maintains a comprehensive, risk-based approach to identifying and overseeing cybersecurity risks presented by third parties, including counterparties, service providers or other external users of our systems, as well as the systems of third parties that could adversely impact the Company’s business in the event of a cybersecurity incident affecting those third-party systems. |
● | Education and Awareness: A third-party security firm provides training to our employees, helping our information technology team to maintain a state-of-the-art cybersecurity system and staying up to date on the latest threats and counter measures available. The third-party security firm places a high priority on employee threat education through automated internal phishing tests. Our information technology team attends continuing education seminars and receives timely alerts to any new viruses or cyber threats as they occur as a means to equip personnel with effective tools to address cybersecurity threats, and to communicate evolving information security policies, standards, processes and practices. |
Governance
The Company believes oversight of cybersecurity risk is the responsibility of the Audit Committee and the full Board. Accordingly, the Audit Committee and the Board oversee the Company’scybersecurity risk management process. The Board considers the Company’s cybersecurity posture and risk exposure with management taking into consideration the Company’s operations and the types of data retained on its systems as part of its and the Audit Committee’s periodic review of the Company’s risk management. The Company’s primary business involves investments in Agency MBS, which are securities backed primarily by single-family residential mortgage loans. The Company does not receive personal information on individual mortgage borrowers. The Board reviews the Company’s cybersecurity program and risk exposure with management on at least an annual basis and receives periodic reports from management, the information technology team, and the Company’s third-party security firm on these matters from time to time. The Board may also conduct additional cybersecurity reviews or receive additional updates or reports as it deems necessary. Messrs. Cauley and Haas work collaboratively to implement a program designed to protect our business.
Our executive offices and principal administrative offices are located at 3305 Flamingo Drive, Vero Beach, Florida, 32963, in an
In April 22, 2020 and November 2021, the Company received a demanddemands for payment from Citigroup, Inc.
We are not party to any other material pending legal proceedings as described in Item 103
of Regulation S-K.Not Applicable.
Market Information
Our Class A Common Stock is traded over-the-counter under the symbol “BMNM”.
As of MarchAs of March 11, 2022,7, 2024, we had 31,938 shares of Class B Common Stock outstanding, which were held by 2 holders of record
Dividend Distribution Policy
We have not made a distribution to stockholders since 2011. We are planning to retain any available funds and future earnings to
Preferred Stock
Our charter authorizes us to issue preferred stock that could have a
preference over our common stock with respect toSecurities Authorized For Issuance Under Equity Compensation
PlansNone.
Unregistered Sales of Equity Securities
None.
Issuer Purchases of Equity Securities
None.
ITEM 7. MANAGEMENT’SMANAGEMENT’S DISCUSSIONAND ANALYSIS OF FINANCIALCONDITIONAND RESULTS OFOPERATIONS.
The following discussion of our consolidated financial condition and results of operations should
be read in conjunction with the consolidated financialOverview
Bimini Capital Management, Inc. ("Bimini Capital" or the "Company") is a holding
company that was formed in September 2003.Royal Palm Capital, LLC (collectively with its wholly-owned subsidiaries
referred to as “Royal Palm”) maintains an investmentBimini Advisors Holdings, LLC and its wholly-owned subsidiary, Bimini Advisors, LLC (an investment advisor registered with the
Stock Repurchase
PlansOn September 16, 2021, the Board authorized a share repurchase plan pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934 (the “2021 Repurchase Plan”). Pursuant to the 2021 Repurchase Plan, we
could purchaseOn March 7, 2024, the Board authorized a share repurchase plan pursuant to Rule 10b-18
The authorization
Factors that Affect our Results of Operations and Financial Condition
A variety of industry and economic factors (in addition to those related to the COVID-19
● | interest rate trends; |
● | increases in our cost of funds resulting from increases in the Federal Funds rate that are controlled by the Federal Reserve (the "Fed") that occurred in 2022 and 2023; |
● | the difference between Agency MBS yields and our funding and hedging costs; |
● | competition for, and supply of, investments in Agency MBS; |
● | actions taken by the U.S. government, including the presidential administration, the U.S. Federal Reserve (the "Fed"), the Federal Open Market Committee (the "FOMC"), the Federal Housing Finance Agency (the "FHFA") and the U.S. Treasury; |
● | prepayment rates on mortgages underlying our Agency MBS, and credit trends insofar as they affect prepayment rates; |
● | geo-political events that affect the U.S. and international economies; and |
● | other market developments. |
In addition, a variety of factors relating to our business may also impact our results
of operations and financial condition. These● | our degree of leverage; |
● | our access to funding and borrowing capacity; |
● | our borrowing costs; |
● | our hedging activities; |
● | the market value of our investments; |
● | the requirements to qualify for a registration exemption under the Investment Company Act; |
● | our ability to use net operating loss carryforwards and other tax attributes to reduce our taxable income; |
● | the impact of possible future changes in tax laws or tax rates; |
● | our ability to manage the portfolio of Orchid and maintain our role as manager; and | |
● | the financial performance of Orchid and resulting changes in Orchid's shareholders equity, the carrying value of our investment, dividend income and our advisory services revenue. |
Results of Operations
Described below are the Company’s results of operations for the year ended December 31, 2023, as compared to the year ended December 31, 2022.
Net Loss Summary
Consolidated net loss for the year ended December 31, 2023 was $4.0 million, or $0.40 basic and diluted loss per share of Class A Common Stock, as compared to consolidated net loss of $19.8 million, or $1.90 basic and diluted loss per share of Class A Common Stock, for the year ended December 31, 2022.
The components of net loss for the years ended December 31, 2023 and 2022, along with the changes in those components are presented in the table below:
(in thousands) | ||||||||||||
2023 | 2022 | Change | ||||||||||
Advisory services revenue | $ | 13,595 | $ | 12,996 | $ | 599 | ||||||
Interest and dividend income | 4,336 | 3,155 | 1,181 | |||||||||
Interest expense | (5,419 | ) | (2,131 | ) | (3,288 | ) | ||||||
Net revenues | 12,512 | 14,020 | (1,508 | ) | ||||||||
Other expense | (1,867 | ) | (12,146 | ) | 10,279 | |||||||
Expenses | (10,498 | ) | (9,839 | ) | (659 | ) | ||||||
Net income (loss) before income tax provision | 147 | (7,965 | ) | 8,112 | ||||||||
Income tax provision | 4,131 | 11,858 | (7,727 | ) | ||||||||
Net loss | $ | (3,984 | ) | $ | (19,823 | ) | $ | 15,839 |
GAAP and Non-GAAP Reconciliation
Economic Interest Expense and Economic Net Interest Income
We use derivative instruments, primarily U.S. Treasury Note (“T-Note”) and SOFR futures contracts and TBA short positions to hedge a portion of the interest rate risk on repurchase agreements in a rising rate environment.
We have not designated our degreederivative financial instruments as hedge accounting relationships, but rather hold them for economic hedging purposes. Changes in fair value of leverage;
For the purpose of computing economic net interest income and ratios relating to fundingcost of funds measures, GAAP interest expense, as reflected in our consolidated statements of operations, is adjusted to reflect the realized and borrowing capacity;
For each period presented, we have not
We believe
that economicinterestexpense andeconomicnet interestincome providemeaningfulinformationto consider, inadditionOur presentation
of the economicvalue of ourhedging strategyhas importantlimitations.First, othermarket participantsmayThe tables
below presenta reconciliationof the adjustments discussed above to interestexpense shownfor eachperiod relativeto our derivativeGains (Losses) on Derivative Instruments - Recognized in Consolidated Statement of Operations (GAAP)
(in thousands) | ||||||||||||||||||||||||||||
Attributed to Current Period (Non-GAAP) | Attributed to Future Periods (Non-GAAP) | |||||||||||||||||||||||||||
Statement of | Repurchase | Long-Term | Repurchase | Long-Term | ||||||||||||||||||||||||
Three Months Ended | Operations | Agreements | Debt | Total | Agreements | Debt | Total | |||||||||||||||||||||
December 31, 2023 | $ | (1,881 | ) | $ | (21 | ) | $ | - | $ | (21 | ) | $ | (1,860 | ) | $ | - | $ | (1,860 | ) | |||||||||
September 30, 2023 | 1,169 | (11 | ) | - | (11 | ) | 1,180 | - | 1,180 | |||||||||||||||||||
June 30, 2023 | 516 | (18 | ) | - | (18 | ) | 534 | - | 534 | |||||||||||||||||||
March 31, 2023 | (274 | ) | (33 | ) | - | (33 | ) | (241 | ) | - | (241 | ) | ||||||||||||||||
December 31, 2022 | 7 | (185 | ) | (48 | ) | (233 | ) | 192 | 48 | 240 | ||||||||||||||||||
September 30, 2022 | 844 | (184 | ) | (48 | ) | (232 | ) | 1,028 | 48 | 1,076 | ||||||||||||||||||
June 30, 2022 | (50 | ) | (186 | ) | (48 | ) | (234 | ) | 136 | 48 | 184 | |||||||||||||||||
March 31, 2022 | - | (185 | ) | (48 | ) | (233 | ) | 185 | 48 | 233 | ||||||||||||||||||
Years Ended | ||||||||||||||||||||||||||||
December 31, 2023 | $ | (470 | ) | $ | (83 | ) | $ | - | $ | (83 | ) | $ | (387 | ) | $ | - | $ | (387 | ) | |||||||||
December 31, 2022 | 801 | (740 | ) | (192 | ) | (932 | ) | 1,541 | 192 | 1,733 |
Economic Net Portfolio Interest Income
(in thousands) | ||||||||||||||||||||||||
Interest Expense on Repurchase Agreements | Net Portfolio Interest Income | |||||||||||||||||||||||
Three Months Ended | Interest Income | GAAP Basis | Effect of Non-GAAP Hedges(1) | Economic Basis(2) | GAAP Basis | Economic Basis(3) | ||||||||||||||||||
December 31, 2023 | $ | 1,350 | $ | 1,178 | $ | 21 | $ | 1,199 | $ | 172 | $ | 151 | ||||||||||||
September 30, 2023 | 838 | 831 | 11 | 842 | 7 | (4 | ) | |||||||||||||||||
June 30, 2023 | 567 | 564 | 18 | 582 | 3 | (15 | ) | |||||||||||||||||
March 31, 2023 | 557 | 508 | 33 | 541 | 49 | 16 | ||||||||||||||||||
December 31, 2022 | 534 | 401 | 185 | 586 | 133 | (52 | ) | |||||||||||||||||
September 30, 2022 | 445 | 210 | 184 | 394 | 235 | 51 | ||||||||||||||||||
June 30, 2022 | 392 | 73 | 186 | 259 | 319 | 133 | ||||||||||||||||||
March 31, 2022 | 491 | 31 | 185 | 216 | 460 | 275 | ||||||||||||||||||
Years Ended | ||||||||||||||||||||||||
December 31, 2023 | $ | 3,312 | $ | 3,081 | $ | 83 | $ | 3,164 | $ | 231 | $ | 148 | ||||||||||||
December 31, 2022 | 1,862 | 715 | 740 | 1,455 | 1,147 | 407 |
(1) | Reflects the effect of derivative instrument hedges for only the period presented. |
(2) | Calculated by subtracting the effect of derivative instrument hedges attributed to the period presented from GAAP interest expense. |
(3) | Calculated by adding the effect of derivative instrument hedges attributed to the period presented to GAAP net portfolio interest income. |
Economic Net Interest Income
(in thousands | ||||||||||||||||||||||||||||
Net Portfolio | Interest Expense on Long-Term Debt | |||||||||||||||||||||||||||
Interest Income | Effect of | Net Interest Income | ||||||||||||||||||||||||||
GAAP | Economic | GAAP | Non-GAAP | Economic | GAAP | Economic | ||||||||||||||||||||||
Three Months Ended | Basis | Basis(1) | Basis | Hedges(2) | Basis(3) | Basis | Basis(4) | |||||||||||||||||||||
December 31, 2023 | $ | 172 | $ | 151 | $ | 616 | $ | - | $ | 616 | $ | (444 | ) | $ | (465 | ) | ||||||||||||
September 30, 2023 | 7 | (4 | ) | 611 | - | 611 | (604 | ) | (615 | ) | ||||||||||||||||||
June 30, 2023 | 3 | (15 | ) | 565 | - | 565 | (562 | ) | (580 | ) | ||||||||||||||||||
March 31, 2023 | 49 | 16 | 546 | - | 546 | (497 | ) | (530 | ) | |||||||||||||||||||
December 31, 2022 | 133 | (52 | ) | 477 | 48 | 525 | (344 | ) | (577 | ) | ||||||||||||||||||
September 30, 2022 | 235 | 51 | 379 | 48 | 427 | (144 | ) | (376 | ) | |||||||||||||||||||
June 30, 2022 | 319 | 133 | 304 | 48 | 352 | 15 | (219 | ) | ||||||||||||||||||||
March 31, 2022 | 460 | 275 | 256 | 48 | 304 | 204 | (29 | ) | ||||||||||||||||||||
Years Ended | ||||||||||||||||||||||||||||
December 31, 2023 | $ | 231 | $ | 148 | $ | 2,338 | $ | - | $ | 2,338 | $ | (2,107 | ) | $ | (2,190 | ) | ||||||||||||
December 31, 2022 | 1,147 | 407 | 1,416 | 192 | 1,608 | (269 | ) | (1,201 | ) |
(1) | Calculated by adding the effect of derivative instrument hedges attributed to the period presented to GAAP net portfolio interest income. |
(2) | Reflects the effect of derivative instrument hedges for only the period presented. |
(3) | Calculated by subtracting the effect of derivative instrument hedges attributed to the period presented from GAAP interest expense. |
(4) | Calculated by adding the effect of derivative instrument hedges attributed to the period presented to GAAP net interest income. |
Segment Information
We have two operating segments. The asset management segment includes the investment
advisory services provided by Bimini(in thousands) | |||||||||||||||||||||
Asset Management | Investment Portfolio | Corporate | Eliminations | Total | |||||||||||||||||
2023 | |||||||||||||||||||||
Advisory services, external customers | $ | 13,595 | $ | - | $ | - | $ | - | $ | 13,595 | |||||||||||
Advisory services, other operating segments(1) | 124 | - | - | (124 | ) | - | |||||||||||||||
Interest and dividend income | - | 4,334 | 2 | - | 4,336 | ||||||||||||||||
Interest expense | - | (3,081 | ) | (2,338 | ) | (2) | - | (5,419 | ) | ||||||||||||
Net revenues | 13,719 | 1,253 | (2,336 | ) | (124 | ) | 12,512 | ||||||||||||||
Other expense | - | (1,867 | ) | - | (3) | - | (1,867 | ) | |||||||||||||
Operating expenses(4) | (7,848 | ) | (2,649 | ) | (1 | ) | - | (10,498 | ) | ||||||||||||
Intercompany expenses(1) | - | (124 | ) | - | 124 | - | |||||||||||||||
Income (loss) before income taxes | $ | 5,871 | $ | (3,387 | ) | $ | (2,337 | ) | $ | - | $ | 147 | |||||||||
Year end assets | $ | 1,853 | $ | 117,012 | $ | 6,733 | $ | - | $ | 125,598 |
Asset Management | Investment Portfolio | Corporate | Eliminations | Total | |||||||||||||||||
2022 | |||||||||||||||||||||
Advisory services, external customers | $ | 12,996 | $ | - | $ | - | $ | - | $ | 12,996 | |||||||||||
Advisory services, other operating segments(1) | 115 | - | - | (115 | ) | - | |||||||||||||||
Interest and dividend income | - | 3,155 | - | - | 3,155 | ||||||||||||||||
Interest expense | - | (715 | ) | (1,416 | ) | (2) | - | (2,131 | ) | ||||||||||||
Net revenues | 13,111 | 2,440 | (1,416 | ) | (115 | ) | 14,020 | ||||||||||||||
Other (expense) income | - | (12,212 | ) | 66 | (3) | - | (12,146 | ) | |||||||||||||
Operating expenses(4) | (7,805 | ) | (2,034 | ) | - | - | (9,839 | ) | |||||||||||||
Intercompany expenses(1) | - | (115 | ) | - | 115 | - | |||||||||||||||
Income (loss) before income taxes | $ | 5,306 | $ | (11,921 | ) | $ | (1,350 | ) | $ | - | $ | (7,965 | ) | ||||||||
Year end assets | $ | 1,970 | $ | 77,483 | $ | 6,864 | $ | - | $ | 86,317 |
(1) | Includes advisory services revenue received by Bimini Advisors from Royal Palm. |
(2) | Includes interest on long-term debt. |
(3) | Includes income recognized on the forgiveness of the PPP loan and gains (losses) on Eurodollar futures contracts entered into as a hedge on junior subordinated notes. |
(4) | Corporate expenses are allocated based on each segment’s proportional share of total revenues. |
Asset
Advisory Services Revenue
Advisory services external customers
● | One-twelfth of 1.50% of the first $250 million of Orchid’s month-end equity, as defined in the management agreement, |
● | One-twelfth of 1.25% of Orchid’s month-end equity that is greater than $250 million and less than or equal to $500 million, and |
● | One-twelfth of 1.00% of Orchid’s month-end equity that is greater than $500 million. |
On April 1, 2022, pursuant to the third amendment to the management agreement
● | a daily fee equal to the outstanding principal balance of repurchase agreement funding in place as of the end of such day multiplied by 1.5 basis points for the amount of aggregate outstanding principal balance less than or equal to $5 billion, and multiplied by 1.0 basis point for any amount of aggregate outstanding principal balance in excess of $5 billion, and |
● | a fee for the clearing and operational services provided by personnel of the Manager equal to $10,000 per month. |
In addition, Orchid is obligated to reimburse us for any direct expenses
incurred on its behalf and to pay to us an amount equal toThe following table summarizes the advisory services revenue received from
Orchid for the years ended December 31,($ in thousands) | ||||||||||||||||||||||||
Advisory Services | ||||||||||||||||||||||||
Average | Average | Repurchase, | ||||||||||||||||||||||
Orchid | Orchid | Management | Overhead | Clearing and | ||||||||||||||||||||
Three Months Ended | MBS | Equity | Fee | Allocation | Administrative | Total | ||||||||||||||||||
December 31, 2023 | $ | 4,207,118 | $ | 851,532 | $ | 2,275 | $ | 617 | $ | 184 | $ | 3,076 | ||||||||||||
September 30, 2023 | 4,447,098 | 964,230 | 2,871 | 557 | 193 | 3,621 | ||||||||||||||||||
June 30, 2023 | 4,186,939 | 899,109 | 2,704 | 639 | 173 | 3,516 | ||||||||||||||||||
March 31, 2023 | 3,769,954 | 865,722 | 2,641 | 576 | 165 | 3,382 | ||||||||||||||||||
December 31, 2022 | 3,370,608 | 823,516 | 2,566 | 560 | 150 | 3,276 | ||||||||||||||||||
September 30, 2022 | 3,571,037 | 839,935 | 2,616 | 522 | 174 | 3,312 | ||||||||||||||||||
June 30, 2022 | 4,260,727 | 866,539 | 2,631 | 519 | 183 | 3,333 | ||||||||||||||||||
March 31, 2022 | 5,545,844 | 853,576 | 2,634 | 441 | - | 3,075 | ||||||||||||||||||
Years Ended | ||||||||||||||||||||||||
December 31, 2023 | $ | 4,152,777 | $ | 895,148 | $ | 10,491 | $ | 2,389 | $ | 715 | $ | 13,595 | ||||||||||||
December 31, 2022 | 4,187,054 | 845,892 | 10,447 | 2,042 | 507 | 12,996 |
Investment Portfolio Segment
Net Portfolio Interest Income
We definenet portfoliointerestincome asinterestincome onMBS lessinterestexpense onrepurchaseagreementfunding.During
Our economicinterestexpenseon repurchaseliabilitiesfor theyears endedDecember
31,The tables
below provideinformationon our portfolioaverage balances,interestincome, yieldon assets,average repurchase($ in thousands) | ||||||||||||||||||||||||||||||||
Average | Yield on | Average | Interest Expense | Average Cost of Funds | ||||||||||||||||||||||||||||
MBS | Interest | Average | Repurchase | GAAP | Economic | GAAP | Economic | |||||||||||||||||||||||||
Three Months Ended | Held(1) | Income(2) | MBS | Agreements(1) | Basis | Basis(2) | Basis | Basis(3) | ||||||||||||||||||||||||
December 31, 2023 | $ | 88,796 | $ | 1,350 | 6.08 | % | $ | 84,162 | $ | 1,178 | $ | 1,199 | 5.60 | % | 5.70 | % | ||||||||||||||||
September 30, 2023 | 74,316 | 838 | 4.51 | % | 71,056 | 831 | 842 | 4.68 | % | 4.74 | % | |||||||||||||||||||||
June 30, 2023 | 54,705 | 567 | 4.14 | % | 51,893 | 564 | 582 | 4.35 | % | 4.49 | % | |||||||||||||||||||||
March 31, 2023 | 45,767 | 557 | 4.87 | % | 43,455 | 508 | 541 | 4.68 | % | 4.98 | % | |||||||||||||||||||||
December 31, 2022 | 45,081 | 534 | 4.74 | % | 43,656 | 401 | 586 | 3.68 | % | 5.37 | % | |||||||||||||||||||||
September 30, 2022 | 41,402 | 445 | 4.30 | % | 40,210 | 210 | 394 | 2.09 | % | 3.92 | % | |||||||||||||||||||||
June 30, 2022 | 46,607 | 392 | 3.36 | % | 45,870 | 73 | 259 | 0.63 | % | 2.25 | % | |||||||||||||||||||||
March 31, 2022 | 57,741 | 491 | 3.40 | % | 56,846 | 31 | 216 | 0.22 | % | 1.52 | % | |||||||||||||||||||||
Years Ended | ||||||||||||||||||||||||||||||||
December 31, 2023 | $ | 65,896 | $ | 3,312 | 5.03 | % | $ | 62,642 | $ | 3,081 | $ | 3,164 | 4.92 | % | 5.05 | % | ||||||||||||||||
December 31, 2022 | 47,708 | 1,862 | 3.90 | % | 46,646 | 715 | 1,455 | 1.53 | % | 3.12 | % |
($ in thousands) | ||||||||||||||||
Net Portfolio | Net Portfolio | |||||||||||||||
Interest Income (Expense) | Interest Spread | |||||||||||||||
GAAP | Economic | GAAP | Economic | |||||||||||||
Three Months Ended | Basis | Basis(2) | Basis | Basis(4) | ||||||||||||
December 31, 2023 | $ | 172 | $ | 151 | 0.48 | % | 0.38 | % | ||||||||
September 30, 2023 | 7 | (4 | ) | (0.17 | )% | (0.23 | )% | |||||||||
June 30, 2023 | 3 | (15 | ) | (0.21 | )% | (0.35 | )% | |||||||||
March 31, 2023 | 49 | 16 | 0.19 | % | (0.11 | )% | ||||||||||
December 31, 2022 | 133 | (52 | ) | 1.06 | % | (0.63 | )% | |||||||||
September 30, 2022 | 235 | 51 | 2.21 | % | 0.38 | % | ||||||||||
June 30, 2022 | 319 | 133 | 2.73 | % | 1.11 | % | ||||||||||
March 31, 2022 | 460 | 275 | 3.18 | % | 1.88 | % | ||||||||||
Years Ended | ||||||||||||||||
December 31, 2023 | $ | 231 | $ | 148 | 0.11 | % | (0.02 | )% | ||||||||
December 31, 2022 | 1,147 | 407 | 2.37 | % | 0.78 | % |
(1) | Portfolio yields and costs of borrowings presented in the tables above and the tables on page 41 are calculated based on the average balances of the underlying investment portfolio/repurchase agreement balances and are annualized for the periods presented. |
(2) | Economic interest expense and economic net interest income presented in the tables above and the tables on page 41 include the effect of derivative instrument hedges for only the period presented. |
(3) | Represents interest cost of our borrowings and the effect of derivative instrument hedges attributed to the period related to hedging activities divided by average MBS held. |
(4) | Economic net interest spread is calculated by subtracting average economic cost of funds from yield on average MBS. |
Average Asset Yield
The table below presents the average portfolio size, income and yields of our respective sub-portfolios, consisting of structured MBS and pass-through MBS (“PT MBS”) for the years ended December 31, 2023 and 2022 and each quarter during 2023 and 2022.
($ in thousands) | ||||||||||||||||||||||||||||||||||||
Average MBS Held | Interest Income | Realized Yield on Average MBS | ||||||||||||||||||||||||||||||||||
PT | Structured | PT | Structured | PT | Structured | |||||||||||||||||||||||||||||||
Three Months Ended | MBS | MBS | Total | MBS | MBS | Total | MBS | MBS | Total | |||||||||||||||||||||||||||
December 31, 2023 | $ | 86,242 | $ | 2,554 | $ | 88,796 | $ | 1,294 | $ | 56 | $ | 1,350 | 6.00 | % | 8.67 | % | 6.08 | % | ||||||||||||||||||
September 30, 2023 | 71,731 | 2,585 | 74,316 | 781 | 57 | 838 | 4.35 | % | 8.91 | % | 4.51 | % | ||||||||||||||||||||||||
June 30, 2023 | 52,004 | 2,701 | 54,705 | 508 | 59 | 567 | 3.91 | % | 8.59 | % | 4.14 | % | ||||||||||||||||||||||||
March 31, 2023 | 42,912 | 2,855 | 45,767 | 500 | 57 | 557 | 4.66 | % | 8.09 | % | 4.87 | % | ||||||||||||||||||||||||
December 31, 2022 | 42,125 | 2,956 | 45,081 | 473 | 61 | 534 | 4.49 | % | 8.31 | % | 4.74 | % | ||||||||||||||||||||||||
September 30, 2022 | 38,384 | 3,018 | 41,402 | 383 | 62 | 445 | 3.99 | % | 8.17 | % | 4.30 | % | ||||||||||||||||||||||||
June 30, 2022 | 43,568 | 3,039 | 46,607 | 333 | 59 | 392 | 3.06 | % | 7.75 | % | 3.36 | % | ||||||||||||||||||||||||
March 31, 2022 | 54,836 | 2,905 | 57,741 | 472 | 19 | 491 | 3.45 | % | 2.61 | % | 3.40 | % | ||||||||||||||||||||||||
Years Ended | ||||||||||||||||||||||||||||||||||||
December 31, 2023 | $ | 63,222 | $ | 2,674 | $ | 65,896 | $ | 3,083 | $ | 229 | $ | 3,312 | 4.88 | % | 8.55 | % | 5.03 | % | ||||||||||||||||||
December 31, 2022 | 44,728 | 2,980 | 47,708 | 1,661 | 201 | 1,862 | 3.71 | % | 6.74 | % | 3.90 | % |
Cost of Funds
Since all of our repurchase agreements are short-term, changes in market rates directly affect our interest expense. Our average cost of funds calculated on a GAAP
The tables below present the tables above and the
($ in thousands) | ||||||||||||||||||||
Average | ||||||||||||||||||||
Balance of | Interest Expense | Average Cost of Funds | ||||||||||||||||||
Repurchase | GAAP | Economic | GAAP | Economic | ||||||||||||||||
Three Months Ended | Agreements | Basis | Basis | Basis | Basis | |||||||||||||||
December 31, 2023 | $ | 84,162 | $ | 1,178 | $ | 1,199 | 5.60 | % | 5.70 | % | ||||||||||
September 30, 2023 | 71,056 | 831 | 842 | 4.68 | % | 4.74 | % | |||||||||||||
June 30, 2023 | 51,893 | 564 | 582 | 4.35 | % | 4.49 | % | |||||||||||||
March 31, 2023 | 43,455 | 508 | 541 | 4.68 | % | 4.98 | % | |||||||||||||
December 31, 2022 | 43,656 | 401 | 586 | 3.68 | % | 5.37 | % | |||||||||||||
September 30, 2022 | 40,210 | 210 | 394 | 2.09 | % | 3.92 | % | |||||||||||||
June 30, 2022 | 45,870 | 73 | 259 | 0.63 | % | 2.25 | % | |||||||||||||
March 31, 2022 | 56,846 | 31 | 216 | 0.22 | % | 1.52 | % | |||||||||||||
Years Ended | ||||||||||||||||||||
December 31, 2023 | $ | 62,642 | $ | 3,081 | $ | 3,164 | 4.92 | % | 5.05 | % | ||||||||||
December 31, 2022 | 46,646 | 715 | 1,455 | 1.53 | % | 3.12 | % |
Average GAAP Cost of Funds | Average Economic Cost of Funds | |||||||||||||||||||||||
Relative to Average | Relative to Average | |||||||||||||||||||||||
Average SOFR | One-Month | Six-Month | One-Month | Six-Month | ||||||||||||||||||||
Three Months Ended | One-Month | Six-Month | SOFR | SOFR | SOFR | SOFR | ||||||||||||||||||
December 31, 2023 | 5.34 | % | 5.35 | % | 0.26 | % | 0.25 | % | 0.36 | % | 0.35 | % | ||||||||||||
September 30, 2023 | 5.32 | % | 5.17 | % | (0.64 | )% | (0.49 | )% | (0.58 | )% | (0.43 | )% | ||||||||||||
June 30, 2023 | 5.07 | % | 4.78 | % | (0.72 | )% | (0.43 | )% | (0.58 | )% | (0.29 | )% | ||||||||||||
March 31, 2023 | 4.63 | % | 4.09 | % | 0.05 | % | 0.59 | % | 0.35 | % | 0.89 | % | ||||||||||||
December 31, 2022 | 4.06 | % | 2.89 | % | (0.38 | )% | 0.79 | % | 1.31 | % | 2.48 | % | ||||||||||||
September 30, 2022 | 2.47 | % | 1.43 | % | (0.38 | )% | 0.66 | % | 1.45 | % | 2.49 | % | ||||||||||||
June 30, 2022 | 1.09 | % | 0.39 | % | (0.46 | )% | 0.24 | % | 1.16 | % | 1.86 | % | ||||||||||||
March 31, 2022 | 0.16 | % | 0.07 | % | 0.06 | % | 0.15 | % | 1.36 | % | 1.45 | % | ||||||||||||
Years Ended | ||||||||||||||||||||||||
December 31, 2023 | 5.09 | % | 4.85 | % | (0.17 | )% | 0.07 | % | (0.04 | )% | 0.20 | % | ||||||||||||
December 31, 2022 | 1.95 | % | 1.20 | % | (0.42 | )% | 0.33 | % | 1.17 | % | 1.92 | % |
Dividend Income from Orchid
Effective August 30, 2022, Orchid effected a 1-for-5 reverse stock split, converting every five shares of issued and outstanding Orchid common stock into one share of common stock. All share and per share amounts reported in thousands)
We owned 1,520,036569,071 shares of Orchid common stock as of both December 31, 2019. We acquired 1,075,321
Long-Term Debt
Junior SubordinatedDebt
Prior to June 30, 2023, the junior subordinated debt securities paid interest at a floating rate, adjusted quarterly and set at a spread of 3.50% over the prevailing three-month LIBOR rate on the determination date. Starting June 30, 2023, the underlying index converted from three-month LIBOR to CME Term SOFR plus a tenor spread adjustment of 0.26161%. The interest rate for subsequent accrual periods will be CME Term SOFR on the applicable reset date plus the tenor spread adjustment of 0.26161% plus the coupon spread of 3.50%. The CME Term SOFR index is in effect for all interest rate resets after July 3, 2023. The LIBOR and CME Term SOFR rate increases since January 2022 have negatively impacted our interest expense. Interestexpense onour juniorsubordinateddebt securitieswas approximately$1.02.3 million
Note Payable
On October 30, 2019,
the Company borrowed $680,000 from a bank. The note is payable in equalmonthly principal and interestGains or Losses and Other Income
The table
below presentsour gainsor lossesand otherincome forthe yearsended December31,(in thousands) | ||||||||||||
2023 | 2022 | Change | ||||||||||
Realized losses on sales of MBS | $ | (20 | ) | $ | (858 | ) | $ | 838 | ||||
Unrealized losses on MBS | (199 | ) | (5,916 | ) | 5,717 | |||||||
Total losses on MBS | (219 | ) | (6,774 | ) | 6,555 | |||||||
(Losses) gains on derivative instruments | (470 | ) | 801 | (1,271 | ) | |||||||
Unrealized losses on Orchid Island Capital, Inc. common stock | (1,178 | ) | (6,239 | ) | 5,061 |
We invest in thousands)
The fair value of our MBS portfolio and derivative instruments, and the gains (losses) reported on salesthose financial instruments, are driven in part by changes in yields and interest rates, the spreads that MBS trade relative to comparable duration U.S. Treasuries or swaps, as well as varying levels of demand for MBS,
15 Year | 30 Year | 90 Day | ||||||||
5 Year | 10 Year | Fixed-Rate | Fixed-Rate | Average | ||||||
Treasury Rate(1) | Treasury Rate(1) | Mortgage Rate(2) | Mortgage Rate(2) | SOFR(3) | ||||||
December 31, 2023 | 3.84% | 3.87% | 5.93% | 6.66% | 5.36% | |||||
September 30, 2023 | 4.61% | 4.57% | 6.72% | 7.31% | 5.27% | |||||
June 30, 2023 | 4.13% | 3.82% | 6.06% | 6.71% | 5.00% | |||||
March 31, 2023 | 3.61% | 3.49% | 5.56% | 6.32% | 4.51% | |||||
December 31, 2022 | 4.00% | 3.88% | 5.68% | 6.42% | 3.62% | |||||
September 30, 2022 | 4.04% | 3.80% | 5.96% | 6.70% | 2.13% | |||||
June 30, 2022 | 3.00% | 2.97% | 4.83% | 5.70% | 0.70% | |||||
March 31, 2022 | 2.42% | 2.33% | 3.83% | 4.67% | 0.09% |
(1) | Historical 5 Year and 10 Year Treasury Rates are obtained from quoted end of day prices on the Chicago Board Options Exchange. |
(2) | Historical 30 Year and 15 Year Fixed Rate Mortgage Rates are obtained from Freddie Mac’s Primary Mortgage Market Survey. |
(3) | Historical SOFR is obtained from the Federal Reserve Bank of New York. |
Operating Expenses
For the year
ended December31,(in thousands) | ||||||||||||
2023 | 2022 | Change | ||||||||||
Compensation and benefits | $ | 6,855 | $ | 6,530 | $ | 325 | ||||||
Direct advisory services costs | 1,511 | 1,333 | 178 | |||||||||
Legal fees | 67 | 101 | (34 | ) | ||||||||
Accounting, auditing and other professional fees | 476 | 404 | 72 | |||||||||
Directors’ fees and liability insurance | 837 | 804 | 33 | |||||||||
Administrative and other expenses | 752 | 667 | 85 | |||||||||
$ | 10,498 | $ | 9,839 | $ | 659 |
Income Taxes
In 2023, we recorded an income tax provision of $4.1 million, including a $2.7 million increase in thousands)
Financial
Condition:Mortgage-Backed Securities
As of December
31,The following
table presentsthe three-monthconstant prepaymentrate (“CPR”)experiencedon our structuredand PT MBSStructured | |||||||||
PT MBS | MBS | Total | |||||||
Three Months Ended | Portfolio (%) | Portfolio (%) | Portfolio (%) | ||||||
December 31, 2023 | 8.9 | 4.6 | 8.0 | ||||||
September 30, 2023 | 4.3 | 6.6 | 4.8 | ||||||
June 30, 2023 | 8.0 | 13.0 | 9.6 | ||||||
March 31, 2023 | 2.4 | 10.3 | 5.0 | ||||||
December 31, 2022 | 8.2 | 8.4 | 8.3 | ||||||
September 30, 2022 | 13.1 | 7.5 | 10.8 | ||||||
June 30, 2022 | 17.2 | 22.9 | 20.0 | ||||||
March 31, 2022 | 18.5 | 25.6 | 20.9 |
The following
tables summarizecertain characteristicsof our PTMBS and structuredMBS as of($ in thousands) | ||||||||||||||||||
Weighted | ||||||||||||||||||
Percentage | Average | |||||||||||||||||
of | Weighted | Maturity | ||||||||||||||||
Fair | Entire | Average | in | Longest | ||||||||||||||
Asset Category | Value | Portfolio | Coupon | Months | Maturity | |||||||||||||
December 31, 2023 | ||||||||||||||||||
Fixed Rate MBS | $ | 90,181 | 97.3 | % | 6.00 | % | 343 | 1-Nov-53 | ||||||||||
Structured MBS | 2,550 | 2.7 | % | 2.84 | % | 290 | 15-May-51 | |||||||||||
Total MBS Portfolio | $ | 92,731 | 100.0 | % | 5.44 | % | 341 | 1-Nov-53 | ||||||||||
December 31, 2022 | ||||||||||||||||||
Fixed Rate MBS | $ | 42,974 | 93.6 | % | 4.07 | % | 329 | 1-Aug-52 | ||||||||||
Structured MBS | 2,919 | 6.4 | % | 2.84 | % | 300 | 15-May-51 | |||||||||||
Total MBS Portfolio | $ | 45,893 | 100.0 | % | 3.67 | % | 327 | 1-Aug-52 |
($ in thousands) | ||||||||||||||||
December 31, 2023 | December 31, 2022 | |||||||||||||||
Percentage of | Percentage of | |||||||||||||||
Agency | Fair Value | Entire Portfolio | Fair Value | Entire Portfolio | ||||||||||||
Fannie Mae | $ | 38,204 | 41.2 | % | $ | 33,883 | 73.8 | % | ||||||||
Freddie Mac | 54,527 | 58.8 | % | 12,010 | 26.2 | % | ||||||||||
Total Portfolio | $ | 92,731 | 100.0 | % | $ | 45,893 | 100.0 | % |
December 31, 2023 | December 31, 2022 | |||||||
Weighted Average Pass-through Purchase Price | $ | 104.43 | $ | 105.30 | ||||
Weighted Average Structured Purchase Price | $ | 4.48 | $ | 4.48 | ||||
Weighted Average Pass-through Current Price | $ | 101.55 | $ | 95.58 | ||||
Weighted Average Structured Current Price | $ | 13.46 | $ | 13.37 | ||||
Effective Duration (1) | 2.508 | 4.323 |
(1) | Effective duration is the approximate percentage change in price for a 100 bp change in rates. An effective duration of 2.508 indicates that an interest rate increase of 1.0% would be expected to cause a 2.508% decrease in the value of the MBS in our investment portfolio at December 31, 2023. An effective duration of 4.323 indicates that an interest rate increase of 1.0% would be expected to cause a 4.323% decrease in the value of the MBS in our investment portfolio at December 31, 2022. These figures include the structured securities in the portfolio but do include the effect of our funding cost hedges. Effective duration quotes for individual investments are obtained from The Yield Book, Inc. |
The following table presents a summary of our portfolio assets acquired during the years ended December 31, 2023 and 2022.
($ in thousands) | ||||||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||||||
Total Cost | Average Price | Weighted Average Yield | Total Cost | Average Price | Weighted Average Yield | |||||||||||||||||||
PT MBS | $ | 70,657 | $ | 101.92 | 6.03 | % | $ | 23,192 | $ | 99.13 | 4.22 | % |
Our portfolio of PT MBS
The duration of
Prepayments on the loans underlying our MBS can alter the timing of the cash flows received by us. As a result, we gauge the interest rate sensitivity of its assets by measuring their effective duration. While modified duration measures the price sensitivity of a bond to movements in interest rates, effective duration captures both the movement in interest rates and the fact that cash flows to a mortgage related security are altered when interest rates move. Accordingly, when the contract interest rate on a mortgage loan is substantially above prevailing interest rates in the approximate percentage change in price
We face the
risk thatthe marketvalue of ourPT MBS assetswill increaseor decreaseat differentrates thanthat of ourstructuredThe following
sensitivityanalysisshows theestimatedimpact onthe fairvalue of ourinterestrate-sensitiveinvestmentsand hedge($ in thousands) | ||||||||||||||||||||||||||||
$ Change in Fair Value | % Change in Fair Value | |||||||||||||||||||||||||||
MBS Portfolio | Fair Value | -200BPS | -100BPS | +100BPS | -200BPS | -100BPS | +100BPS | |||||||||||||||||||||
Fixed Rate MBS | $ | 90,181 | $ | 3,779 | $ | 2,140 | $ | (2,692 | ) | 4.19 | % | 2.37 | % | (2.99 | )% | |||||||||||||
Interest-Only MBS | 2,546 | (204 | ) | (64 | ) | 30 | (8.01 | )% | (2.51 | )% | 1.18 | % | ||||||||||||||||
Inverse Interest-Only MBS | 4 | 3 | 2 | (2 | ) | 75.00 | % | 50.00 | % | (50.00 | )% | |||||||||||||||||
Total MBS Portfolio | $ | 92,731 | $ | 3,578 | $ | 2,078 | $ | (2,664 | ) | 3.86 | % | 2.24 | % | (2.87 | )% | |||||||||||||
Notional | $ Change in Fair Value | % Change in Fair Value | ||||||||||||||||||||||||||
Repurchase Agreement Hedges | Amount (1) | -200BPS | -100BPS | +100BPS | -200BPS | -100BPS | +100BPS | |||||||||||||||||||||
Futures Contracts | $ | 79,400 | (4,794 | ) | (2,337 | ) | 2,227 | (6.04 | )% | (2.94 | )% | 2.80 | % | |||||||||||||||
Totals | $ | (1,216 | ) | $ | (259 | ) | $ | (437 | ) |
In addition to changes in Fair Value
Repurchase Agreements
As of December
31,As of December
31,The table below presents information about our period-end and average repurchase
agreement obligations for each quarter in($ in thousands) | ||||||||||||||||||||
Difference Between Ending | ||||||||||||||||||||
Ending | Maximum | Average | Repurchase Agreements and | |||||||||||||||||
Balance of | Balance of | Balance of | Average | |||||||||||||||||
Repurchase | Repurchase | Repurchase | Repurchase Agreements | |||||||||||||||||
Three Months Ended | Agreements | Agreements | Agreements | Amount | Percent | |||||||||||||||
December 31, 2023 | $ | 86,907 | $ | 86,919 | $ | 84,162 | $ | 2,745 | 3.26 | % | ||||||||||
September 30, 2023 | 81,417 | 81,567 | 71,056 | 10,361 | 14.58 | % | ||||||||||||||
June 30, 2023 | 60,695 | 60,695 | 51,893 | 8,802 | 16.96 | % | ||||||||||||||
March 31, 2023 | 43,092 | 43,936 | 43,455 | (363 | ) | (0.84 | )% | |||||||||||||
December 31, 2022 | 43,818 | 44,780 | 43,656 | 162 | 0.37 | % | ||||||||||||||
September 30, 2022 | 43,494 | 46,977 | 40,210 | 3,284 | 8.17 | % | ||||||||||||||
June 30, 2022 | 36,926 | 53,289 | 45,870 | (8,944 | ) | (19.50 | )% | |||||||||||||
March 31, 2022 | 54,815 | 58,772 | 56,846 | (2,031 | ) | (3.57 | )% |
Liquidity and Capital Resources
Liquidity is
our abilityto turn non-cashassets intocash to fund our operations and to meet our obligations in both the short-term (one year or less) and long-term (greater than one year). Our material cash requirements include the purchase of additionalinvestments,repay principaland interestonInternalSources ofLiquidity
Our internal
sources ofliquidityinclude ourcash balances,unencumberedassets andour abilityto liquidateour encumberedsecurityWe have previously,
ExternalSources ofLiquidity
Our primary
externalsources ofliquidityare our abilityto (i) borrowunder masterrepurchaseagreementsand (ii)use the TBAsecurityUnder our
repurchaseagreementfunding arrangements,we are requiredto post marginat the initiationof the borrowing.The marginWe invest a
portion ofour capitalin structuredMBS.We generallydo not applyleverageto this portionof ourIn future
periods weexpect tocontinue tofinance ouractivitiesthrough repurchaseOutlook
Orchid IslandCapital Inc.
Orchid Island Capital reported net income for the extentfourth quarter 2023 of $27.1 million and its shareholders equity increased from $466.8 million to $469.9 million. The market conditions described below led to these results as Orchid
Economic Summary
The fourth quarter of 2021 and into the first
The market pivoted sharply in the fourth quarter of 2021, and even more so in early
Interest Rates
Starting at the end of the second quarter of 2023 interest rates began to move steadily higher, driven by the factors discussed above. In late October, rates across the curve appeared headed sustainably above 5% and the market
The market’s apparent anxiousness for the Fed to ease monetary policy became particularly acute when the data turned in the fourth quarter of 2021.
The Agency MBS Market
As with interest rates across the curve, Agency MBS spreads to comparable duration U.S. Treasuries or swaps continued widening into October as the outlook continued to deteriorate. By late October the spread of the current coupon 30-year Agency MBS to a comparable duration U.S. Treasury security reached its widest point for the current cycle. As the market reversed and risk appetite rapidly recovered the spread contracted quickly – declining by over 50 basis points by year-end. Since year end, the sector, as reflected by the spread of the current coupon Agency MBS, has reversed yet again, albeit modestly. The recovery in risk sentiment, coupled with the decline in interest rates, appears to have stimulated bank demand for the Agency MBS sector. The regional banking crisis of March of 2023, a result of the severe decline in valuations of Agency MBS acquired by banks prior to the Fed rate hiking cycle and subsequent increase in rates across the curve, may not be fully over. A funding program put in place in March of 2023 that allows such institutions to cheaply fund MBS positions at par and avoid having to sell them and realize significant losses, expires in March of 2024. However, the partial recovery in Agency MBS prices that occurred in November and December has erased some of their unrealized losses. The attractiveness of the asset class, coupled with softening loan demand, appears to have enticed banks to resume purchases.
Based on ICE Bank of America data for the fixed income indices, for the fourth quarter of 2023 Agency MBS generated a return of 7.4% and 1.7% versus comparable duration swaps, respectively. The 30-year fixed rate sector generated returns of 7.8% and 1.8% versus comparable duration swaps, respectively. With respect to individual sectors of the Agency MBS index, longer duration sectors and coupons outperformed owing to the significant rally of interest rates. Across the 30-year fixed rate coupon stack returns varied from 8.5% for 2.0% coupons to 3.0% for 7.0% coupons. Excess returns for the same coupons were 2.1% and 0.4%, respectively, and the distribution of returns followed the durations of the various coupons in a consistent fashion.
The Agency MBS sector outperformed investment grade corporates on an absolute basis but trailed sub-investment grade corporates, again on an absolute basis. Relative to comparable duration swaps for the fourth quarter, Agency MBS trailed investment grade corporates by 120 basis points but outperformed sub-investment grades corporates by 20 basis points. Note prior to the sharp reversal in the markets at the end of October total returns for all three sectors were negative year to date, and all three sectors – Agency MBS, investment grade and sub-investment grade corporates – generated positive absolute and excess returns for the year.
Recent Legislative and Regulatory Developments
In response to address disruptionsthe deterioration in the U.S.
On September 30, 2019, the FHFA announced that Fannie Mae and Freddie Macwere allowed
to increase their capital buffersThe scope and nature of the actions the U.S. government or the Fed will
ultimately undertake are unknown and will continue to evolve.Regulatory developments, movements in interest rates and prepayment rates affect us in
many ways, including the following:Effects on our Assets
A change in or elimination of the guarantee structure of Agency MBS may increase our
costs (if, for example, guarantee feesIf prepayment rates are relatively low
If prepayment levels increase, the value of any of our Agency MBS that are carried at a premium to par that are affected by such prepayments
may decline. This is because aHigher long-term rates can also affect the value of our Agency MBS.
As long-term rates rise, rates available to borrowers alsoThe Agency MBS market began to experience severe
dislocations in mid-March 2020 as a result of theBecause we base our investment decisions on risk management principles
rather than anticipated movements in interest rates, inEffects on our borrowing costs
We leverage our PT MBS portfolio and a portion of our structured Agency MBS with principal balances
through the use ofIn order to protect our net interest margin against increases in short-term interest rates, we
may enter into interest rate swaps,Summary
As the fourth quarter of 2023 began, the financial markets, especially the fixed income markets in the U.S. were under duress. The country andU.S. economy currently appearproved incredibly resilient in the face of continued rate increases by the Fed since March of 2022 of 500 basis points. Growth for the third quarter was a surprising 4.9%, as measured by GDP. The preliminary growth rate for the fourth quarter was 3.2%, still above what is deemed to be ona sustainable rate. Fiscal deficits in the verge of recovering from
A series of events in November and December triggered a violent reversal in the year – as they begin the process of “normalizing”
However, as we move into 2024 the inflation data has not maintained the trend in place described above. Further, the labor market data remains strong, and most measures of economic growth have not softened. In fact, gross domestic product for the fourth quarter of 2023 was 3.2% on an annualized basis. Comments by Fed officials have consistently pushed back on market pricing of the timing and extent of interest rate cuts for 2024. Financial conditions have also eased since early fourth quarter and the federal government is still running stimulative deficits with little to no evidence that policy will change in the near term. The risk that inflation could re-accelerate has been mentioned by many Fed officials. To date in 2024 the interest rate market has reversed yet again, and rates have retraced some of the decline seen in November and December. Accordingly, the outlook for the balance of 2024 is quite uncertain. The evolution of economic data over the balance of the year will guide monetary policy decisions by the Fed and in turn significantly influence the performance of the Agency MBS market. It is also likely to impact the performance of Orchid Island Capital and its ability to raise additional capital to deploy into the sector, and thus advisory service revenues and Bimini Advisors.
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with GAAP, which requires our management to make some complex and subjective decisions, estimates and assessments. Our most critical accounting policies involve decisions, estimates and assessments which can have a material flatteningimpact on reported assets, liabilities, revenues and expenses and these estimates can change each reporting period. Management has identified the following as its most critical accounting estimates:
Mortgage-Backed Securities
Our investments in MBS are accounted for at fair value. We acquire our MBS for the purpose of generating long-term returns, and not for the short-term investment of idle capital.
As discussed in Note 14 to the financial statements, our MBS are valued using Level 2 valuations, and such valuations currently are determined based on independent pricing sources and/or third party broker quotes, when available. Because the price estimates may vary, management must make certain judgments and assumptions about the appropriate price to use to calculate the fair values. Alternatively, the Company could opt to have the value of all of our positions in MBS determined by either an independent third-party or do so internally. In managing our portfolio, the Company employs the following four-step process at each valuation date to determine the fair value of our MBS.
● | First, the Company obtains fair values from subscription-based independent pricing services. |
● | Second, the Company requests non-binding quotes from one to four broker-dealers for certain MBS in order to validate the values obtained by the pricing service. The Company requests these quotes from broker-dealers that actively trade and make markets in the respective asset class for which the quote is requested. |
● | Third, the Company reviews the values obtained by the pricing source and the broker-dealers for consistency across similar assets. |
● | Finally, if the data from the pricing services and broker-dealers is not homogenous or if the data obtained is inconsistent with management’s market observations, the Company makes a judgment to determine which price appears the most consistent with observed prices from similar assets and selects that price. To the extent management believes that none of the prices are consistent with observed prices for similar assets, which is typically the case for only an immaterial portion of our portfolio each quarter, the Company may use a third price that is consistent with observed prices for identical or similar assets. In the case of assets that have quoted prices such as Agency MBS backed by fixed-rate mortgages, the Company generally uses the quoted or observed market price. For assets such as Agency MBS backed by ARMs or structured Agency MBS, the Company may determine the price based on the yield or spread that is identical to an observed transaction or a similar asset for which a dealer mark or subscription-based price has been obtained. |
Management believes its pricing methodology to be consistent with the definition of fair value described in Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements.
Income Recognition
All of our MBS are either PT MBS or structured MBS, including CMOs, IOs, IIOs or POs. Income on PT MBS, POs and CMOs that contain principal balances is based on the stated interest rate of the U.S.
Income Taxes
Income taxes are provided for using the asset and liability method. Deferred tax assets and liabilities represent the differences between the financial statement and income tax bases of assets and liabilities using enacted tax rates. The measurement of net deferred tax assets is likely to slow. If this occurs, it would slow premium amortizationadjusted by a valuation allowance if, based on the Company’s Agency
Capital Expenditures
At December 31, 2021,2023, we had no material commitments for capital expenditures.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a smaller reporting company as defined by Rule 12b-2 of the Exchange Act, we are not required to provide disclosure pursuant to this Item. However, we have elected to include much of the information in Item 7 above, beginning on page 46.
Index to Financial
StatementsPage | |
Stockholders and Board of Directors
Bimini Capital Management, Inc.
Vero Beach, Florida
Opinion on the Consolidated Financial
StatementsWe
haveauditedtheaccompanyingconsolidatedbalancesheetsofBiminiCapitalManagement,Inc.Basis for Opinion
These consolidated financial
statements are theresponsibility of theCompany’s management. Our responsibilityisWe conducted our audits
in accordancewith the standardsof the PCAOB.Those standardsrequire thatwe plan andOur audits
included performingproceduresto assessthe risksof materialmisstatementof theconsolidatedfinancialCritical Audit Matters
The
criticalRealizability of deferred tax assets
As described in Note 12 to the consolidated
financial statements, the Company has recordedWe identified assessing
the realizability ofdeferred tax assetsas a criticalaudit matter. Specifically, we identifiedThe primary procedures we performed
to address this critical audit matter included:• | Evaluating the positive evidence and negative evidence in assessing whether the deferred tax assets are more-likely-than-not to be utilized, including evaluating the trends of historical financial results with respect to the reasonableness of projected sources of taxable income in future periods, and market information. |
• | Assessing the reasonableness of the Company’s historical ability to meet the forecasts of future taxable income period over period by evaluating the completeness and accuracy of the source information used to derive the forecasts and by performing a retrospective review of the prior year’s estimate. |
• | Utilizing personnel with specialized knowledge and skill in income taxes to assist in the evaluation of the reasonableness of the Company’s analysis of the realizability of the deferred tax assets including the forecasts of the future taxable income and the underlying assumptions within those forecasts. |
Valuation of Investments in Mortgage-Backed Securities
As described
in NotesWe identified
the valuation of mortgage-backed securitiesThe primary procedures we performed
to address this critical audit matter included:● | Testing the design and implementation of controls relating to the valuation of mortgaged-backed securities, including controls over the Company’s process to select the price from multiple pricing sources to determine the fair value. |
● | Assessing the range of values used for each investment position, and evaluating the price selected for potential bias by comparing the selected price to the high, low and average of the range of pricing sources. |
● | Utilizing personnel with specialized knowledge and skill in valuation to develop an independent estimate of the fair value of each investment position by: (i) assessing the stated security coupon rate, maturity, yield, and prepayment speed, and comparing to the fair value used by the Company; (ii) comparing the Company’s fair value estimate of mortgage-backed securities to recent available market transactions, if available. |
/s/ BDO USA, LLP
Certified Public Accountants
We have served as the Company's auditor since 2008.
West Palm Beach, Florida
March 11, 20228, 2024
CONSOLIDATED BALANCE SHEETS | ||||||
December 31, 2023 and 2022 |
2023 | 2022 | |||||||
ASSETS: | ||||||||
Mortgage-backed securities, at fair value | ||||||||
Pledged to counterparties | $ | 92,575,292 | $ | 45,716,793 | ||||
Unpledged | 155,560 | 176,643 | ||||||
Total mortgage-backed securities | 92,730,852 | 45,893,436 | ||||||
Cash and cash equivalents | 3,716,386 | 6,010,799 | ||||||
Restricted cash | 753,900 | 763,000 | ||||||
Investment in Orchid Island Capital, Inc. common stock, at fair value | 4,797,269 | 5,975,248 | ||||||
Accrued interest receivable | 488,660 | 204,018 | ||||||
Property and equipment, net | 1,920,823 | 1,997,313 | ||||||
Deferred tax assets, net of allowances | 19,047,680 | 23,178,243 | ||||||
Due from affiliates | 1,013,406 | 1,130,713 | ||||||
Other assets | 1,129,038 | 1,164,181 | ||||||
Total Assets | $ | 125,598,014 | $ | 86,316,951 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
LIABILITIES: | ||||||||
Repurchase agreements | $ | 86,906,999 | $ | 43,817,999 | ||||
Long-term debt | 27,394,417 | 27,416,239 | ||||||
Accrued interest payable | 260,413 | 194,629 | ||||||
Other liabilities | 2,908,444 | 2,764,005 | ||||||
Total Liabilities | 117,470,273 | 74,192,872 | ||||||
Commitments and Contingencies (Note 11) | ||||||||
STOCKHOLDERS' EQUITY: | ||||||||
Preferred stock, $0.001 par value; 10,000,000 shares authorized; 100,000 shares designated Series A Junior Preferred Stock, 9,900,000 shares undesignated; no shares issued and outstanding | - | - | ||||||
Class A Common stock, $0.001 par value; 98,000,000 shares designated: 10,005,457 shares and 10,019,888 shares issued and outstanding, respectively | 10,005 | 10,020 | ||||||
Class B Common stock, $0.001 par value; 1,000,000 shares designated, 31,938 shares issued and outstanding | 32 | 32 | ||||||
Class C Common stock, $0.001 par value; 1,000,000 shares designated, 31,938 shares issued and outstanding | 32 | 32 | ||||||
Additional paid-in capital | 329,815,150 | 329,828,268 | ||||||
Accumulated deficit | (321,697,478 | ) | (317,714,273 | ) | ||||
Stockholders' Equity | 8,127,741 | 12,124,079 | ||||||
Total Liabilities and Equity | $ | 125,598,014 | $ | 86,316,951 |
See Notes to Consolidated Financial Statements |
CONSOLIDATED STATEMENTS OF OPERATIONS | |||||
For the Years Ended December 31, 2023 and 2022 |
2023 | 2022 | |||||||
Revenues: | ||||||||
Advisory services | $ | 13,594,907 | $ | 12,995,504 | ||||
Interest income | 3,311,515 | 1,862,480 | ||||||
Dividend income from Orchid Island Capital, Inc. common stock | 1,024,328 | 1,292,701 | ||||||
Total revenues | 17,930,750 | 16,150,685 | ||||||
Interest expense: | ||||||||
Repurchase agreements | (3,080,817 | ) | (715,386 | ) | ||||
Long-term debt | (2,338,138 | ) | (1,415,624 | ) | ||||
Net revenues | 12,511,795 | 14,019,675 | ||||||
Other income (expense): | ||||||||
Unrealized losses on mortgage-backed securities | (198,723 | ) | (5,915,904 | ) | ||||
Realized losses on mortgage-backed securities | (19,958 | ) | (858,001 | ) | ||||
Unrealized losses on Orchid Island Capital, Inc. common stock | (1,177,979 | ) | (6,239,189 | ) | ||||
(Losses) gains on derivative instruments | (470,379 | ) | 800,820 | |||||
Other income | 205 | 66,269 | ||||||
Other expense, net | (1,866,834 | ) | (12,146,005 | ) | ||||
Expenses: | ||||||||
Compensation and related benefits | 6,855,288 | 6,530,349 | ||||||
Direct advisory service costs | 1,511,363 | 1,333,410 | ||||||
Directors' fees and liability insurance | 837,333 | 804,186 | ||||||
Audit, legal and other professional fees | 543,002 | 504,602 | ||||||
Administrative and other expenses | 750,617 | 666,159 | ||||||
Total expenses | 10,497,603 | 9,838,706 | ||||||
Net income (loss) before income tax provision | 147,358 | (7,965,036 | ) | |||||
Income tax provision | 4,130,563 | 11,858,069 | ||||||
Net loss | $ | (3,983,205 | ) | $ | (19,823,105 | ) | ||
Basic and Diluted Net Loss Per Share of: | ||||||||
CLASS A COMMON STOCK | ||||||||
Basic and Diluted | $ | (0.40 | ) | $ | (1.90 | ) | ||
CLASS B COMMON STOCK | ||||||||
Basic and Diluted | $ | (0.40 | ) | $ | (1.90 | ) | ||
Weighted Average Shares Outstanding: | ||||||||
CLASS A COMMON STOCK | ||||||||
Basic and Diluted | 10,015,816 | 10,393,855 | ||||||
CLASS B COMMON STOCK | ||||||||
Basic and Diluted | 31,938 | 31,938 |
See Notes to Consolidated Financial Statements |
CONSOLIDATED STATEMENTS OF EQUITY | ||||||||||
Years Ended December 31, 2023 and 2022 |
Stockholders' Equity | ||||||||||||||||||||
Common Stock | Additional | Accumulated | ||||||||||||||||||
Shares | Par Value | Paid-in Capital | Deficit | Total | ||||||||||||||||
Balances, January 1, 2022 | 10,766,070 | $ | 10,766 | $ | 330,880,252 | $ | (297,891,168 | ) | $ | 32,999,850 | ||||||||||
Net loss | - | - | - | (19,823,105 | ) | (19,823,105 | ) | |||||||||||||
Class A common shares repurchased and retired | (682,306 | ) | (682 | ) | (1,051,984 | ) | - | (1,052,666 | ) | |||||||||||
Balances, December 31, 2022 | 10,083,764 | 10,084 | 329,828,268 | (317,714,273 | ) | 12,124,079 | ||||||||||||||
Net loss | - | - | - | (3,983,205 | ) | (3,983,205 | ) | |||||||||||||
Class A common shares repurchased and retired | (14,431 | ) | (15 | ) | (13,118 | ) | - | (13,133 | ) | |||||||||||
Balances, December 31, 2023 | 10,069,333 | $ | 10,069 | $ | 329,815,150 | $ | (321,697,478 | ) | $ | 8,127,741 |
See Notes to Consolidated Financial Statements |
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||
Years Ended December 31, 2023 and 2022 |
2023 | 2022 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (3,983,205 | ) | $ | (19,823,105 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Depreciation | 76,490 | 73,053 | ||||||
Deferred income tax provision | 4,130,563 | 11,858,069 | ||||||
Unrealized losses on mortgage-backed securities | 198,723 | 5,915,904 | ||||||
Realized losses on mortgage-backed securities | 19,958 | 858,001 | ||||||
Gains on retained interests in securitizations | - | (65,928 | ) | |||||
Unrealized losses on Orchid Island Capital, Inc. common stock | 1,177,979 | 6,239,189 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accrued interest receivable | (284,642 | ) | 25,924 | |||||
Due from affiliates | 117,307 | (68,558 | ) | |||||
Other assets | 35,143 | 273,200 | ||||||
Accrued interest payable | 65,784 | 139,019 | ||||||
Other liabilities | 144,439 | 51,799 | ||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | 1,698,539 | 5,476,567 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
From mortgage-backed securities investments: | ||||||||
Purchases | (70,656,530 | ) | (23,191,724 | ) | ||||
Sales | 18,175,322 | 23,096,853 | ||||||
Principal repayments | 5,425,111 | 8,230,674 | ||||||
Payments received on retained interests in securitizations | - | 65,928 | ||||||
Purchases of Orchid Island Capital, Inc. common stock | - | (535,330 | ) | |||||
Acquisition of property and equipment | - | (46,176 | ) | |||||
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES | (47,056,097 | ) | 7,620,225 | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from repurchase agreements | 622,341,000 | 391,823,690 | ||||||
Principal repayments on repurchase agreements | (579,252,000 | ) | (406,883,690 | ) | ||||
Principal repayments on long-term debt | (21,822 | ) | (22,737 | ) | ||||
Class A common shares repurchased and retired | (13,133 | ) | (1,052,666 | ) | ||||
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | 43,054,045 | (16,135,403 | ) | |||||
NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | (2,303,513 | ) | (3,038,611 | ) | ||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of the year | 6,773,799 | 9,812,410 | ||||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of the year | $ | 4,470,286 | $ | 6,773,799 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash paid during the year for: | ||||||||
Interest | $ | 5,353,171 | $ | 1,991,991 |
See Notes to Consolidated Financial Statements |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Business
DescriptionBimini Capital Management, Inc., a Maryland corporation (“Bimini Capital”
Royal Palm Capital, LLC maintains an investment portfolio, consisting primarily
of MBS investments and shares of Orchid commonBimini Advisors Holdings, LLC and its wholly-owned subsidiary, Bimini Advisors, LLC (an investment advisor registered with the Securities and Exchange Commission), are collectively referred to as "Bimini Advisors." Bimini Advisors manages a residential mortgage-backed securities (“MBS”) portfolio for Orchid Island Capital, Inc. ("Orchid") and receives fees for providing these services. Effective April 1, 2022, Bimini Advisors started providing certain repurchase agreement trading, clearing and administrative services to Orchid that were previously provided by a third party. Bimini Advisors also manages the MBS portfolio of Royal Palm Capital, LLC.
Consolidation
The accompanying consolidated financial statements include the accounts of Bimini
CapitalBasis of Presentation
The accompanying consolidated financial statements are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States (“GAAP”). In the opinion of management, all adjustments considered necessary for a fair presentation of the Company's consolidated financial position, results of operations and cash flows have been included and are of a normal and recurring nature.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could significantly differ from those estimates. Significant estimates affecting the accompanying consolidated financial statements include determining the fair values of MBS and derivatives, determining the amounts of asset valuation allowances, and the computation of the income tax provision or benefit and the deferred tax asset allowances recorded for each accounting period.
Segment Reporting
The Company’s operations are classified into two reportable segments: the asset management segment and the investment portfolio segment. These segments are evaluated by management in deciding how to allocate resources and in assessing performance. The accounting policies of the operating segments are the same as the Company’s accounting policies described in this note with the exception that inter-segment revenues and expenses are included in the presentation of segment results. For further information see Note 15.
Variable Interest Entities (VIEs)
A variable interest entity ("VIE") is consolidated by an enterprise if it is deemed
the primary beneficiary of the VIE.Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents include cash on deposit with financial institutions
and highly liquid investments with original maturities2023 | 2022 | |||||||
Cash and cash equivalents | $ | 3,716,386 | $ | 6,010,799 | ||||
Restricted cash | 753,900 | 763,000 | ||||||
Total cash, cash equivalents and restricted cash | $ | 4,470,286 | $ | 6,773,799 |
The Company maintains cash balances at several banks and excess margin with two exchange clearing members. At times, balances may exceed federally insured limits. The Company has not experienced any losses related to these balances. The Federal Deposit Insurance Corporation insures eligible accounts up to $250,000 per depositor at each financial institution. Restricted cash balances are uninsured, but are held in separate accounts that are segregated from the general funds of the counterparty. The Company limits uninsured balances to only large, well-known banks and exchange clearing members and believes that it is not exposed to significant credit risk on cash and cash equivalents
Advisory Services
Bimini Advisors manages and advised by Bimini Advisorsadvises Orchid pursuant to the terms
Mortgage-Backed Securities
The Company invests primarily in pass-through (“PT”) mortgage-backed certificates
The Company records MBS transactions on the trade date.
Security purchases that have not settled as of the balance sheet dateFair value is defined as the price that would be received to sell the asset or paid
to transfer the liability in an orderly transactionIncome on PT MBS is based on the stated interest rate of the security. Premiums or discounts present at the date of purchase
areOrchid Island Capital, Inc. Common Stock
The Company
accounts forits investmentin Orchidcommon sharesat fair value.The changein the fairvalue anddividendsreceivedRetained Interests in Securitizations
The Company holds retained interests in the subordinated tranches of securities
created in securitization transactions.Derivative Financial Instruments
The Company useshas historically used derivative instruments to manage interest rate risk,
The Company accounts for TBA securities as derivative instruments. Other types of derivative instruments may be used in the future. Gains
and losses associated withDuring the year ended December 31, 2023, the Company only held T-Note and SOFR futures contracts. The Company recorded (loss) income of approximately $(0.5) million and $0.8 million on these instruments during the years ended December 31, 2023 and 2022, respectively.
Derivative instruments are carried at fair value, and changes in fair value are recorded
in the consolidated statements ofHolding derivatives creates exposure to credit risk related to the potential
for failure by counterparties to honor their commitments.Financial Instruments
The fair value of financial instruments for which it is practicable to estimate that
Property and Equipment, net
Property and equipment, net, consists of computer equipment with a depreciable
life of 3 years, office furniture and equipment withRepurchase Agreements
The Company finances the acquisition of the majority of its PT MBS through
the use of repurchase agreements under masterEarnings Per Share
Basic EPS is calculated as income available to common stockholders divided
by the weighted average number of common sharesOutstanding shares of Class B Common Stock, participating and convertible
into Class A Common Stock, are entitled to receiveThe shares of Class C Common Stock are not included in the basic EPS computation
as these shares do not have participationIncome Taxes
Income taxes are provided for using the asset and liability method. Deferred tax
assets and liabilities represent the differencesThe Company’s U.S. federal income tax returns for years ended on or after December 31,2018 2020 remain open for examination.
The Company assesses the likelihood, based on their technical merit, that uncertain
tax positions will be sustained uponRecent Accounting Pronouncements
In March 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-042020-04 “Reference Rate Reform (Topic 848)848): Facilitation
In January 2021, the FASB issued ASU 2021-012021-01 “Reference Rate Reform (Topic 848)848).” ASU 2021-012021-01 expands the scope of ASC
In November 2023, the FASB issued ASU 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segments.” The amendments in ASU 2023-07 improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis. Amendments in ASU 2023-07 include: a requirement that a public entity provide all annual disclosures about a reportable segment’s profit or loss in its consolidatedinterim period disclosures, disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), disclosure of amounts for other segment items by reportable segment and a description of its composition, clarification that if the CODM uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit or loss, requires that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss, and requires that a public entity that has a single reportable segment provide all the disclosures required by ASU 2023-07 as well as all existing disclosures required in Topic 280. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023 and for interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of ASU 2023-07 on its future financial statements.
In December 2023, the FASB ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The FASB issued ASU 2023-09 to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The amendments in ASU 2023-09 are effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2023-09 on its future financial statements.
NOTE 2. ADVISORY SERVICES
Bimini Advisors serves as the manager and advisor for Orchid pursuant to the
terms of a management agreement.As Manager,● | One-twelfth of 1.50% of the first$250 million of the Orchid’s month-end equity, as defined in the management agreement, |
● | One-twelfth of 1.25% of the Orchid’s month-end equity that is greater than $250 million and less than or equal to $500 million, and |
● | One-twelfth of 1.00% of the Orchid’s month-end equity that is greater than $500 million. |
On April 1, 2022, pursuant to the third amendment to the management agreement
● | a daily fee equal to the outstanding principal balance of repurchase agreement funding in place as of the end of such day multiplied by 1.5 basis points for the amount of aggregate outstanding principal balance less than or equal to $5 billion, and multiplied by 1.0 basis point for any amount of aggregate outstanding principal balance in excess of $5 billion, and | |
● | a fee for the clearing and operational services provided by personnel of the Manager equal to $10,000 per month. |
Orchid is obligated to reimburse Bimini Advisors for any direct expenses incurred
on its behalf and to pay to Bimini Advisors anThe following table summarizes the advisory services revenue from
Orchid for the years ended December 31,(in thousands) | ||||||||
2023 | 2022 | |||||||
Management fee | $ | 10,491 | $ | 10,447 | ||||
Allocated overhead | 2,389 | 2,042 | ||||||
Repurchase, clearing and administrative fee | 715 | 507 | ||||||
Total | $ | 13,595 | $ | 12,996 |
At December 31, 2021 2023 and 2020,2022, the net amount due from Orchid was approximately $1.0 million and $1.1 million, respectively.
NOTE 3.MORTGAGE-BACKED SECURITIES
The following
table presentsthe Company’sMBS portfolioas of December31,(in thousands) | ||||||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||||||
Par Value | Cost(1) | Fair Value | Par Value | Cost(1) | Fair Value | |||||||||||||||||||
Fixed-rate MBS | $ | 88,807 | $ | 91,701 | $ | 90,181 | $ | 44,963 | $ | 46,603 | $ | 42,974 | ||||||||||||
Structured MBS(2) | n/a | 1,787 | 2,550 | n/a | 2,053 | 2,919 | ||||||||||||||||||
Total | $ | 88,807 | $ | 93,488 | $ | 92,731 | $ | 44,963 | $ | 48,656 | $ | 45,893 |
(1) | The cost information in the table above represents the aggregate current par value, multiplied by the purchase price of each security in the portfolio. |
(2) | The notional balance for the structured MBS portfolio was $18.9 million and $21.8 million as of December 31, 2023 and 2022, respectively. |
The following
table is asummary of(in thousands) | ||||||||
2023 | 2022 | |||||||
Proceeds from sales of MBS | $ | 18,175 | $ | 23,097 | ||||
Carrying value of MBS sold | 18,195 | 23,955 | ||||||
Net loss on sales of MBS | $ | (20 | ) | $ | (858 | ) | ||
Gross gain sales of MBS | $ | - | $ | - | ||||
Gross loss on sales of MBS | (20 | ) | (858 | ) | ||||
Net loss on sales of MBS | $ | (20 | ) | $ | (858 | ) |
NOTE 4.PROPERTY AND EQUIPMENT, NET
The composition
of property(in thousands) | ||||||||
2023 | 2022 | |||||||
Land | $ | 1,185 | $ | 1,185 | ||||
Buildings and improvements | 1,827 | 1,827 | ||||||
Computer equipment and software | 45 | 45 | ||||||
Office furniture and equipment | 220 | 220 | ||||||
Total cost | 3,277 | 3,277 | ||||||
Less accumulated depreciation and amortization | (1,356 | ) | (1,280 | ) | ||||
Property and equipment, net | $ | 1,921 | $ | 1,997 |
NOTE 5.OTHER ASSETS
The composition of other assets at December 31, 2021 2023 and 20202022 follows:
(in thousands) | ||||||||
2023 | 2022 | |||||||
Investment in Bimini Capital Trust II | $ | 804 | $ | 804 | ||||
Prepaid expenses | 252 | 261 | ||||||
Other | 73 | 99 | ||||||
Total other assets | $ | 1,129 | $ | 1,164 |
The composition of other liabilities at December 31, 2023 and 2022 follows:
(in thousands) | ||||||||
2023 | 2022 | |||||||
Accrued payroll | $ | 2,730 | $ | 2,600 | ||||
Accrued liabilities | 136 | 104 | ||||||
Accounts payable | 42 | 60 | ||||||
Total other liabilities | $ | 2,908 | $ | 2,764 |
NOTE 6. REPURCHASE AGREEMENTS
The Company
As of December
($ in thousands) | ||||||||||||||||||||
Overnight | Between | Between | Greater | |||||||||||||||||
(1 Day | 2 and | 31 and | Than | |||||||||||||||||
or Less) | 30 DAYS | 90 Days | 90 Days | Total | ||||||||||||||||
December 31, 2023 | ||||||||||||||||||||
Fair value of securities pledged, including accrued interest receivable | $ | - | $ | 68,477 | $ | 24,584 | $ | - | $ | 93,061 | ||||||||||
Repurchase agreement liabilities associated with these securities | $ | - | $ | 63,637 | $ | 23,270 | $ | - | $ | 86,907 | ||||||||||
Net weighted average borrowing rate | - | 5.56 | % | 5.57 | % | - | 5.56 | % | ||||||||||||
December 31, 2022 | ||||||||||||||||||||
Fair value of securities pledged, including accrued interest receivable | $ | - | $ | 42,553 | $ | 3,364 | $ | - | $ | 45,917 | ||||||||||
Repurchase agreement liabilities associated with these securities | $ | - | $ | 40,492 | $ | 3,326 | $ | - | $ | 43,818 | ||||||||||
Net weighted average borrowing rate | - | 4.50 | % | 4.29 | % | - | 4.48 | % |
In addition, cash pledged to counterparties as collateral for repurchase agreements was approximately $0.5 million as of securities pledged, including accrued
If, during
the termof a repurchaseagreement,a lenderfiles forbankruptcy, theCompany mightexperiencedifficulty recoveringits($ in thousands) | ||||||||||||
% of | Weighted | |||||||||||
Stockholders' | Average | |||||||||||
Amount | Equity | Maturity | ||||||||||
Repurchase Agreement Counterparty | at Risk | at Risk | (in Days) | |||||||||
December 31, 2023 | ||||||||||||
Mirae Asset Securities (USA) Inc. | $ | 1,564 | 19.2 | % | 18 | |||||||
Citigroup Global Markets, Inc. | 1,302 | 16.0 | % | 26 | ||||||||
Mitsubishi UFJ Securities, Inc. | 1,128 | 13.9 | % | 23 | ||||||||
South Street Securities, LLC | 922 | 11.3 | % | 52 | ||||||||
December 31, 2022 | ||||||||||||
Mirae Asset Securities (USA) Inc. | $ | 1,322 | 10.9 | % | 14 |
NOTE 7. PLEDGED ASSETS
Assets Pledged to Counterparties
The table below summarizes Bimini’s assets pledged securities
($ in thousands) | ||||||||||||||||||||||||
December 31, 2023 | December 31, 2022 | |||||||||||||||||||||||
Repurchase | Derivative | Repurchase | Derivative | |||||||||||||||||||||
Assets Pledged to Counterparties | Agreements | Agreements | Total | Agreements | Agreements | Total | ||||||||||||||||||
PT MBS - at fair value | $ | 90,180 | $ | - | $ | 90,180 | $ | 42,975 | $ | - | $ | 42,975 | ||||||||||||
Structured MBS - at fair value | 2,395 | - | 2,395 | 2,742 | - | 2,742 | ||||||||||||||||||
Accrued interest on pledged securities | 486 | - | 486 | 200 | - | 200 | ||||||||||||||||||
Cash | - | 754 | 754 | 454 | 309 | 763 | ||||||||||||||||||
Total | $ | 93,061 | $ | 754 | $ | 93,815 | $ | 46,371 | $ | 309 | $ | 46,680 |
Assets Pledged from Counterparties
The table below summarizes assets pledged to Bimini from counterparties under repurchase agreements as of December 31, 2023 and 2022. Cash received
as marginis recognizedin cash andcash equivalentswith a correspondingamount recognizedas an increasein($ in thousands) | ||||||||
Assets Pledged to Bimini | 2023 | 2022 | ||||||
Cash | $ | - | $ | 148 | ||||
Total | $ | - | $ | 148 |
NOTE 8. OFFSETTING ASSETS AND LIABILITIES
The Company’s
repurchaseagreementsare subjectto underlyingagreementswith masternetting orsimilar arrangements,which(in thousands) | ||||||||||||||||||||||||
Offsetting of Liabilities | ||||||||||||||||||||||||
Net Amount | Gross Amount | |||||||||||||||||||||||
Gross | of Liabilities | Not Offset in the | ||||||||||||||||||||||
Amount | Presented | Consolidated Balance Sheet | ||||||||||||||||||||||
Gross | Offset in the | in the | Financial | |||||||||||||||||||||
Amount of | Consolidated | Consolidated | Instruments | Cash | ||||||||||||||||||||
Recognized | Balance | Balance | Posted as | Posted as | Net | |||||||||||||||||||
Liabilities | Sheet | Sheet | Collateral | Collateral | Amount | |||||||||||||||||||
December 31, 2023 | ||||||||||||||||||||||||
Repurchase Agreements | $ | 86,907 | $ | - | $ | 86,907 | $ | (86,907 | ) | $ | - | $ | - | |||||||||||
$ | 86,907 | $ | - | $ | 86,907 | $ | (86,907 | ) | $ | - | $ | - | ||||||||||||
December 31, 2022 | ||||||||||||||||||||||||
Repurchase Agreements | $ | 43,818 | $ | - | $ | 43,818 | $ | (43,364 | ) | $ | (454 | ) | $ | - | ||||||||||
$ | 43,818 | $ | - | $ | 43,818 | $ | (43,364 | ) | $ | (454 | ) | $ | - |
The amounts
disclosedfor collateralreceived byor postedto the samecounterpartyare limitedto the amountsufficientto reducetheNOTE 9.LONG-TERM DEBT
Long-term
debt at December31,(in thousands) | ||||||||
2023 | 2022 | |||||||
Junior subordinated debt | $ | 26,804 | $ | 26,804 | ||||
Note payable | 590 | 612 | ||||||
Total | $ | 27,394 | $ | 27,416 |
Junior SubordinatedDebt
During 2005,Bimini Capital
sponsoredthe formationof a statutorytrust, knownas BiminiCapital TrustII (“BCTII”)of which 100% of the common equity is owned by Bimini Capital. It was formed for the purpose of issuing trust preferred capital securities to third-party investors and investing the proceeds from the sale of such capital securities solely in junior subordinated debt securities of Bimini Capital. The debt securities held by BCTII are the sole assets of BCTII.As of December 31, 2023 and 2022, the outstanding principal balance on the junior subordinated debt securities owed to BCTII was $26.8 million. Through June 30, 2023, the BCTII trust preferred securities and Bimini Capital's BCTII Junior Subordinated Notes had a rate of interest that floated at a spread of 3.50% over the prevailing three-month LIBOR rate. Starting June 30, 2023, the underlying index converted from three-month LIBOR to CME 3-month Term SOFR plus a tenor spread adjustment of 0.26161%. The interest rate for subsequent accrual periods will be CME Term SOFR on the applicable reset date plus the tenor spread adjustment of 0.26161% plus the coupon spread of 3.50%. The CME Term SOFR index is in effect for all interest rate resets after July 3, 2023. As of December 31, 2023, the interest rate was 9.15%. The BCTII trust preferred securities and Bimini Capital's BCTII Junior Subordinated Notes require quarterly interest distributions and are redeemable at Bimini Capital's option, in whole or in part and without penalty. Bimini Capital's BCTII Junior Subordinated Notes are subordinate and junior in right of payment to all present and future senior indebtedness.
The Company's included consolidated financial statements present Bimini Capital's BCTII Junior Subordinated Notes issued to BCTII as a liability and Bimini Capital's investment in the common equity securities of BCTII as an asset (included in other assets). For financial statement purposes, Bimini Capital records payments of interest on the Junior Subordinated Notes issued to BCTII as interest expense.
Secured Note Payable
On October30, 2019,the Company
borrowedThe table
below presentsthe futurescheduledprincipalpaymentson the Company’s long-term debt.(in thousands) | ||||
Year Ending December 31, | Amounts | |||
2024 | $ | 27 | ||
2025 | 26 | |||
2026 | 28 | |||
2027 | 29 | |||
2028 | 30 | |||
Thereafter | 27,254 | |||
Total | $ | 27,394 |
NOTE 10.CAPITAL STOCK
Authorized
SharesThe total
number ofshares ofcapital stockwhich theCompanyhas the authorityto issue is110,000,000 shares,classifiedasCommon Stock
Of the
ClassACommon Stock
Each outstanding
share ofClass A commonstock entitlesthe holderto one voteon all matterssubmittedto a voteof stockholders,Subject to
the preferentialrights ofany otherclass or seriesof stockand to theprovisionsof the Company'scharter, as amended,ClassBCommon Stock
Each outstanding
share ofClass B commonstock entitlesthe holderto one voteon all matterssubmittedto a voteof commonEach share
of ClassB commonstock shallautomaticallybe convertedinto oneshare ofClass A commonstock on thefirst dayof theClassCCommon Stock
No dividends
will be paidon the ClassC commonstock.Holdersof sharesof ClassC commonstock arenot entitledto voteon anyEach share
of ClassC commonstock shallautomaticallybe convertedinto oneshare ofClass A commonstock on thefirst dayof thePreferred Stock
General
There are
Classified and Designated Shares
Pursuant to the Company’s supplementary amendment of its charter, effective November 3,2005, and by resolutions adopted
onPreferred Stock
The Class A Redeemable Preferred Stock and Class B Redeemable Preferred
Stock rank equal to each other and shall have theThe previously outstanding shares of Class A Redeemable Preferred Stock were
converted into Class A common stock on AprilIn 2015 the Board approved Articles Supplementary to the Company’s charter reclassifying
and designatingIn 2015 the Board approved Articles Supplementary to the Company’s charter creating
a new series of Preferred Stock designatedRights Plan
On
The Rights
Exercisability.
The date that the Rights may first become exercisable is referred to as
the “Distribution Date.” Until the Distribution Date, theAfter the Distribution Date and following a determination by the Board that a person
is an Acquiring Person, each holder of a Right,Exchange
Expiration
Redemption.
Anti-Dilution Provisions.
Anti-TakeoverEffects.
Amendments.
There were
no issuancesof the Company'sClass A CommonStock, ClassB CommonStock orClass C CommonStock duringtheStock Repurchase
PlansOn March 26,
On March 7, 2024, the Board authorized a share repurchase plan pursuant to
The Inflation Reduction Act of 2022 signed into law during in August 2022 includes a provision for an excise tax equal to 1% of the fair market value of any stock repurchased by covered corporations during a taxable year, subject to certain limits and provisions, including a $1 million threshold before the tax becomes applicable. The excise tax is effective beginning in 2023. Since the total amount of stock repurchases during the year ended December 31, 2023 was under the $1 million threshold, no excise tax is due for the year ended December 31, 2023.
NOTE 11.COMMITMENTS AND CONTINGENCIES
From time to time, the Company may become involved in various claims and
legal actions arising in the ordinary course ofIn April 22, 2020
Management is not aware of any other significant reported or unreported contingencies
at December 31,NOTE 12.INCOME TAXES
In 2021,2023, the Company recorded an income tax benefitprovision of $
The income tax benefitprovision included in the consolidated statements of operations consists
(in thousands) | ||||||||
2023 | 2022 | |||||||
Current | $ | - | $ | - | ||||
Deferred | 4,131 | 11,858 | ||||||
Income tax provision, net | $ | 4,131 | $ | 11,858 |
The income tax provision differs from the amount computed by applying the federal income
tax statutory rate of 21 percent on(in thousands) | ||||||||
2023 | 2022 | |||||||
Federal tax provision (benefit) based on statutory rate applicable for each year | $ | 31 | $ | (1,673 | ) | |||
State income tax benefit | (22 | ) | (344 | ) | ||||
Non-deductible expenses | 1,443 | 1,249 | ||||||
Increase of deferred tax asset valuation allowance | 2,653 | 12,188 | ||||||
Other | 26 | 438 | ||||||
Income tax provision | $ | 4,131 | $ | 11,858 |
Deferred tax assets consisted of the following as of December 31, 20212023 and 2020:
(in thousands) | ||||||||
2023 | 2022 | |||||||
Deferred tax assets: | ||||||||
Net operating loss carryforwards | $ | 55,399 | $ | 56,278 | ||||
Orchid Island Capital, Inc. common stock | 4,626 | 4,530 | ||||||
MBS unrealized losses and gains | 586 | 1,118 | ||||||
Capital loss carryforwards | 2,146 | 2,395 | ||||||
Management agreement | 813 | 813 | ||||||
Other | 103 | 16 | ||||||
63,673 | 65,150 | |||||||
Valuation allowance | (44,625 | ) | (41,972 | ) | ||||
Net deferred tax assets | $ | 19,048 | $ | 23,178 |
As of
December 31,In connection
with Orchid’s2013 IPO,Bimini Advisorspaid for,and expensedfor GAAPpurposes, certainoffering coststotalingIn assessing the
realizability of deferred tax assets,management considers both positive and negative evidence whether itis more likely thannot that some portionorThe Company has not identified any unrecognized tax benefits that would result in liabilities its consolidated financial statements. The Company has not had any settlements in the current period with taxing
authorities and is not currently under audit. Additionally,noNOTE 13.EARNINGS PER SHARE
Shares of
Class B commonstock, participatingand convertibleintoShares of Class C common shares:
The table below reconciles the numerators and denominators of the basic and diluted EPS.
(in thousands, except per-share information) | ||||||||
2023 | 2022 | |||||||
Basic and diluted EPS per Class A common share: | ||||||||
Loss attributable to Class A common shares: | ||||||||
Basic and diluted | $ | (3,971 | ) | $ | (19,762 | ) | ||
Weighted average common shares: | ||||||||
Class A common shares outstanding at the balance sheet date | 10,005 | 10,020 | ||||||
Effect of weighting | 11 | 374 | ||||||
Weighted average shares-basic and diluted | 10,016 | 10,394 | ||||||
Loss per Class A common share: | ||||||||
Basic and diluted | $ | (0.40 | ) | $ | (1.90 | ) |
in thousands, except per-share information) | ||||||||
2023 | 2022 | |||||||
Basic and diluted EPS per Class B common share: | ||||||||
Loss attributable to Class B common shares: | ||||||||
Basic and diluted | $ | (12 | ) | $ | (61 | ) | ||
Weighted average common shares: | ||||||||
Class B common shares outstanding at the balance sheet date | 32 | 32 | ||||||
Effect of weighting | - | - | ||||||
Weighted average shares-basic and diluted | 32 | 32 | ||||||
Loss per Class B common share: | ||||||||
Basic and diluted | $ | (0.40 | ) | $ | (1.90 | ) |
NOTE 14. FAIR VALUE
Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price). A fair value measure should reflect the assumptions that market participants would use in pricing the asset or liability, including the assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset and the risk of non-performance. Required disclosures include stratification of balance sheet date
● | Level 1 valuations, where the valuation is based on quoted market prices for identical assets or liabilities traded in active markets (which include exchanges and over-the-counter markets with sufficient volume), |
● | Level 2 valuations, where the valuation is based on quoted market prices for similar instruments traded in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market, and | |
● | Level 3 valuations, where the valuation is generated from model-based techniques that use significant assumptions not observable in the market, but observable based on Company-specific data. These unobservable assumptions reflect the Company’s own estimates for assumptions that market participants would use in pricing the asset or liability. Valuation techniques typically include option pricing models, discounted cash flow models and similar techniques, but may also include the use of market prices of assets or liabilities that are not directly comparable to the subject asset or liability. |
The Company's MBS, Orchid common stock, retained interests and TBA securities were all recorded at fair value on a recurring basis as of December 31, 2023 and 2022. When determining fair value measurements, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset. When possible, the Company looks to active and observable markets to price identical assets. When identical assets are not traded in active markets, the Company looks to market observable data for similar assets.
The Company's MBS and TBA securities are valued using Level 2 valuations, and such valuations currently are determined by the Company based on independent pricing sources and/or third party broker quotes. Because the price estimates may vary, the Company must make certain judgments and assumptions about the appropriate price to use to calculate the fair value
The Company’s futures contracts are Level 1 valuations, as they are exchange-traded instruments and quoted market
pricesThe estimated fair value of cash and
The following table presents financial assets and liabilities measured at fair value
on a recurring(in thousands) | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Fair Value | Assets | Inputs | Inputs | |||||||||||||
Measurements | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
December 31, 2023 | ||||||||||||||||
Mortgage-backed securities | $ | 92,731 | $ | - | $ | 92,731 | $ | - | ||||||||
Orchid Island Capital, Inc. common stock | 4,797 | 4,797 | - | - | ||||||||||||
December 31, 2022 | ||||||||||||||||
Mortgage-backed securities | $ | 45,893 | $ | - | $ | 45,893 | $ | - | ||||||||
Orchid Island Capital, Inc. common stock | 5,975 | 5,975 | - | - |
During the years ended December 31, 2020
NOTE 15. SEGMENT INFORMATION
The Company’s operations are classified into two principal reportable segments; the asset
The asset management segment includes the investment advisory services provided by
Bimini Advisors to Orchid and RoyalThe investment portfolio segment includes the investment activities conducted
by Royal Palm.The investment portfolio segmentSegment information for the years ended December 31, 2021 2023 and 20202022 is as follows:
(in thousands) | |||||||||||||||||||||
Asset Management | Investment Portfolio | Corporate | Eliminations | Total | |||||||||||||||||
2023 | |||||||||||||||||||||
Advisory services, external customers | $ | 13,595 | $ | - | $ | - | $ | - | $ | 13,595 | |||||||||||
Advisory services, other operating segments(1) | 124 | - | - | (124 | ) | - | |||||||||||||||
Interest and dividend income | - | 4,334 | 2 | - | 4,336 | ||||||||||||||||
Interest expense | - | (3,081 | ) | (2,338 | ) | (2) | - | (5,419 | ) | ||||||||||||
Net revenues | 13,719 | 1,253 | (2,336 | ) | (124 | ) | 12,512 | ||||||||||||||
Other expense | - | (1,867 | ) | - | (3) | - | (1,867 | ) | |||||||||||||
Operating expenses(4) | (7,848 | ) | (2,649 | ) | (1 | ) | - | (10,498 | ) | ||||||||||||
Intercompany expenses(1) | - | (124 | ) | - | 124 | - | |||||||||||||||
Income (loss) before income taxes | $ | 5,871 | $ | (3,387 | ) | $ | (2,337 | ) | $ | - | $ | 147 | |||||||||
Year end assets | $ | 1,853 | $ | 117,012 | $ | 6,733 | $ | - | $ | 125,598 |
Asset Management | Investment Portfolio | Corporate | Eliminations | Total | |||||||||||||||||
2022 | |||||||||||||||||||||
Advisory services, external customers | $ | 12,996 | $ | - | $ | - | $ | - | $ | 12,996 | |||||||||||
Advisory services, other operating segments(1) | 115 | - | - | (115 | ) | - | |||||||||||||||
Interest and dividend income | - | 3,155 | - | - | 3,155 | ||||||||||||||||
Interest expense | - | (715 | ) | (1,416 | ) | (2) | - | (2,131 | ) | ||||||||||||
Net revenues | 13,111 | 2,440 | (1,416 | ) | (115 | ) | 14,020 | ||||||||||||||
Other (expense) income | - | (12,212 | ) | 66 | (3) | - | (12,146 | ) | |||||||||||||
Operating expenses(4) | (7,805 | ) | (2,034 | ) | - | - | (9,839 | ) | |||||||||||||
Intercompany expenses(1) | - | (115 | ) | - | 115 | - | |||||||||||||||
Income (loss) before income taxes | $ | 5,306 | $ | (11,921 | ) | $ | (1,350 | ) | $ | - | $ | (7,965 | ) | ||||||||
Year end assets | $ | 1,970 | $ | 77,483 | $ | 6,864 | $ | - | $ | 86,317 |
(1) | Includes advisory services revenue received by Bimini Advisors from Royal Palm. |
(2) | Includes interest on long-term debt. |
(3) | Includes income recognized on the forgiveness of the PPP loan and gains (losses) on Eurodollar futures contracts entered into as a hedge on junior subordinated notes. |
(4) | Corporate expenses are allocated based on each segment’s proportional share of total revenues. |
NOTE 16. RELATED PARTY TRANSACTIONS
Other Relationships with Orchid
At both December 31, 2021 2023 and 2020,2022, the Company owned
Robert Cauley, our Chief Executive Officer and Chairman of our Board of Directors, also serves as Chief Executive Officer and
We had no
disagreementswith ourIndependentRegisteredPublic AccountingFirm on anymatter ofaccountingprinciplesorEvaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report (the “evaluation date”),
the Company carried out an evaluation, under theChanges in Internal ControlsControl over Financial Reporting
There were no significant changes in the Company’s internal control over financial
reporting that occurred during the Company’sManagement’s Report of Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting.● | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and |
● | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements. |
Because of its inherent limitations, internal control over financial reporting may
not prevent or detect misstatements.As a result,The Company’s management assessed the effectiveness of the Company’s internal control over financial
reporting as ofBased on management’s assessment, the Company’s management believes that, as of December 31, 2021,2023, the
During the quarter ended December 31, 2023, no director or officer of the Company adopted, modified or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, each as defined in Item 408 of Regulation S-K.
ITEM 9C.DISCLOSUREREGARDINGFOREIGNJURISDICTIONSTHAT PREVENT INSPECTIONS.
Not applicable.
The information required by this Item 10 and not otherwise set forth below is
incorporated herein by reference to the Company'sThe information required by this Item 11 is incorporated herein by reference to the Proxy Statement.
ITEM 12.Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters.
The information required by this Item 12 is incorporated herein by reference
to the Proxy Statement and to Part II, Item 5 of thisThe information required by this Item 13 is incorporated herein by reference
to the Proxy Statement.The information required by this Item 14 is incorporated herein by reference
to the Proxy Statement.a. | Financial Statements. The consolidated financial statements of the Company, together with the report of Independent Registered Public Accounting Firm thereon, are set forth in Part II-Item 8 of this Form 10-K and are incorporated herein by reference. |
The following information is filed as part of this Form 10-K:
Page | |
b.
Financial Statement Schedules.Not applicable.
c.
Exhibits.Exhibit No
3.1 | |
3.2 | |
3.3 | |
3.4 | |
3.5 | |
3.6 | |
3.7 | |
3.8 |
4.1 | |
4.2 | |
10.1 | |
10.2 | |
10.3 | |
10.4 | |
10.5 | |
10.6 | |
10.7 | |
21.1 | |
31.1 | |
31.2 | |
32.1 | |
32.2 |
101.INS | Inline Instance Document**** |
101.SCH | Inline Taxonomy Extension Schema Document**** |
101.CAL | Inline Taxonomy Extension Calculation Linkbase Document**** |
101.DEF | Additional Inline Taxonomy Extension Definition Linkbase Document**** |
101.LAB | Inline Taxonomy Extension Label Linkbase Document**** |
101.PRE | Inline Taxonomy Extension Presentation Linkbase Document**** |
104 | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) |
* | Management compensatory plan or arrangement required to be filed by Item 601 of Regulation S-K. |
** | Filed herewith. |
*** | Furnished herewith |
**** | Submitted electronically herewith. |
The Company has elected not to provide summary information.
Signatures
Pursuant to the requirements
of Section 13 or 15(d)of the Securities ExchangeAct of 1934, as amended,the registrant has duly causedBIMINI CAPITAL MANAGEMENT, INC. | ||||
Date: March 8, 2024 | By: | /s/ Robert E. Cauley | ||
Robert E. Cauley Chairman and Chief Executive Officer |
Date: March 8, 2024 | By: | /s/ G. Hunter Haas, IV | ||
G. Hunter Haas, IV President, Chief Financial Officer, Chief Investment Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following
persons on behalf ofSignature | Capacity | |
/s/ Robert E. Cauley | ||
Robert E. Cauley | Director, Chairman of the Board and Chief Executive Officer | |
/s/ G. Hunter Haas, IV | ||
G. Hunter Haas, IV | Director, President, Chief Financial Officer, Chief Investment Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) | |
/s/ Robert J. Dwyer | ||
Robert J. Dwyer | Director | |
/s/ Frank E. Jaumot | ||
Frank E. Jaumot | Director |