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UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
 
FORM
10-Q
 
☑
 
QUARTERLY
 
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 
THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended
March 31,June 30, 2021
 
 
☐
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from __________
 
to ___________
 
Commission File Number
:
 
001-32171
 
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
,
Vero Beach
,
Florida
32963
 
(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: None.
Indicate by check
 
mark whether the
 
registrant (1) has filed
 
all reports required
 
to be filed
 
by Section 13 or
 
15(d) of the
 
Securities Exchange Act
 
of
1934 during the preceding 12 months (or for such shorter
 
period that the registrant was required to file such reports),
 
and (2) has been subject to such
filing requirements for the past 90 days.
 
Yes
ý
 
No
☐
 
Indicate by check mark whether
 
the registrant has submitted electronically
 
every Interactive Data File required
 
to be submitted pursuant to
 
Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
 
(or for such shorter period that the registrant was required
 
to submit such
files).
 
Yes
ý
 
No
☐
 
Indicate by check mark whether the registrant is a
 
large accelerated filer, an accelerated filer,
 
a non-accelerated filer, a smaller reporting
 
company, or
an emerging growth company. See the definitions of "large accelerated filer,"
 
"accelerated filer", "smaller reporting company", and "emerging growth
company" in Rule 12b-2 of the Exchange Act. Check one:
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☐
 
(Do not check if a smaller reporting company)
Smaller reporting company
☒
 
 
Emerging growth company
☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
 
any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
 
Yes
☐
 
No
ý
 
 
 
 
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
May 14,August 13, 2021
11,608,55510,795,676
Class B Common Stock, $0.001 par value
May 14,August 13, 2021
31,938
Class C Common Stock, $0.001 par value
May 14,August 13, 2021
31,938
 
 
 
BIMINI CAPITAL MANAGEMENT, INC.
 
TABLE OF CONTENTS
 
 
Page
PART I. FINANCIAL
 
INFORMATION
ITEM 1. Financial
 
Statements
1
Condensed
 
Consolidated
 
Balance Sheets
 
(unaudited)
1
Condensed
 
Consolidated
 
Statements
 
of Operations
 
(unaudited)
2
Condensed
 
Consolidated
 
Statement
 
of Stockholders’
 
Equity (unaudited)
3
Condensed
 
Consolidated
 
Statements
 
of Cash Flows
 
(unaudited)
4
Notes to Condensed
 
Consolidated
 
Financial Statements
(unaudited)
5
ITEM 2. Management’s
 
Discussion
 
and Analysis
 
of Financial
 
Condition
 
and Results
 
of Operations
21
ITEM 3. Quantitative
 
and Qualitative
 
Disclosures
 
About Market
 
Risk
4344
ITEM 4. Controls
 
and Procedures
4355
PART II. OTHER INFORMATION
ITEM 1. Legal
 
Proceedings
4446
ITEM 1A. Risk
 
Risk Factors
4446
ITEM 2. Unregistered
 
Sales of Equity
 
Securities
 
and Use of
 
Proceeds
4446
ITEM 3. Defaults
 
Upon Senior
 
Securities
4446
ITEM 4. Mine
 
Safety Disclosures
4446
ITEM 5. Other
 
Information
4446
ITEM 6. Exhibits
4446
SIGNATURES
4648
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- 1 -
 
PART I. FINANCIAL
 
INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
BIMINI CAPITAL MANAGEMENT,
 
INC.
CONDENSED CONSOLIDATED BALANCE
 
SHEETS
(Unaudited)
March 31,June 30, 2021
December 31, 2020
ASSETS:
Mortgage-backed securities, at fair value
Pledged to counterparties
$
72,833,00668,973,238
$
65,153,274
Unpledged
22,82620,392
24,957
Total mortgage
 
-backed securities
72,855,83268,993,630
65,178,231
Cash and cash equivalents
5,973,2477,275,488
7,558,342
Restricted cash
4,037,6555,892,425
3,353,015
Orchid Island Capital, Inc. common stock, at fair value
15,598,09613,469,903
13,547,764
Accrued interest receivable
212,051216,050
202,192
Property and equipment, net
2,076,1272,058,815
2,093,440
Deferred tax assets
34,204,36434,499,829
34,668,467
Due from affiliates
711,657794,251
632,471
Other assets
1,564,0051,471,857
1,466,647
Total Assets
$
137,233,034134,672,248
$
128,700,569
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Repurchase agreements
$
73,135,99971,345,999
$
65,071,113
Long-term debt
27,607,36127,449,886
27,612,781
Accrued interest payable
91,84177,569
107,417
Other liabilities
619,554940,301
1,421,409
Total Liabilities
101,454,75599,813,755
94,212,720
 
COMMITMENTS AND CONTINGENCIES (Note 10)
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 as of March 31,June 30, 2021 and December
 
31, 2020
0
0
Class A Common stock, $
0.001
 
par value;
98,000,000
 
shares designated:
11,608,555
shares issued and outstanding as of March 31,June 30, 2021 and December 31,
2020
11,609
11,609
Class B Common stock, $
0.001
 
par value;
1,000,000
 
shares designated,
31,938
 
shares
issued and outstanding as of March 31,June 30, 2021 and December 31, 2020
32
32
Class C Common stock, $
0.001
 
par value;
1,000,000
 
shares designated,
31,938
 
shares
issued and outstanding as of March 31,June 30, 2021 and December 31, 2020
32
32
Additional paid-in capital
332,642,758
332,642,758
Accumulated deficit
(296,876,152)(297,795,938)
(298,166,582)
Stockholders’ Equity
35,778,27934,858,493
34,487,849
Total Liabilities
 
and Stockholders' Equity
$
137,233,034134,672,248
$
128,700,569
See Notes to Condensed Consolidated Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- 2 -
 
BIMINI CAPITAL MANAGEMENT,
 
INC.
CONDENSED CONSOLIDATED STATEMENTS
 
OF OPERATIONS
(Unaudited)
For the threeSix and Three Months Ended March 31,June 30, 2021 and
2020
Six Months Ended June 30,
Three Months Ended March 31,June 30,
2021
2020
2021
2020
Revenues:
Advisory services
$
2,025,4094,211,221
$
1,724,5973,339,680
$
2,185,812
$
1,615,083
Interest income
610,6181,189,068
2,039,9942,563,281
578,450
523,287
Dividend income from Orchid Island Capital, Inc. common stock
506,0951,012,189
364,809753,518
506,094
388,709
Total revenues
3,142,1226,412,478
4,129,4006,656,479
3,270,356
2,527,079
Interest expense
Repurchase agreements
(39,858)(71,197)
(927,816)(987,417)
(31,339)
(59,601)
Long-term debt
(249,548)(499,112)
(349,501)(631,958)
(249,564)
(282,457)
Net revenues
2,852,7165,842,169
2,852,0835,037,104
2,989,453
2,185,021
Other income (expense):
Unrealized losses(losses) gains on mortgage-backed securities
(1,392,261)(1,897,862)
(574,281)27,855
(505,601)
602,136
Realized losses on mortgage-backed securities
0
(5,804,656)
0
0
Unrealized (losses) gains (losses) on Orchid Island Capital, Inc. common stock
2,050,332(77,861)
(4,408,105)(754,792)
Gains (losses)(2,128,193)
3,653,312
Losses on derivative instruments
243(133)
(5,290,731)(5,292,421)
(376)
(1,690)
Other income
86153,973
324642
153,887
318
Total other (expense)
income (expense)
658,400(1,821,883)
(16,077,449)(11,823,372)
(2,480,283)
4,254,076
Expenses:
Compensation and related benefits
1,123,5302,190,220
1,100,0442,146,667
1,066,690
1,046,623
Directors' fees and liability insurance
188,020377,634
164,581345,693
189,614
181,112
Audit, legal and other professional fees
137,168271,903
159,293346,641
134,735
187,348
Administrative and other expenses
307,865641,247
282,039552,045
333,382
270,005
Total expenses
1,756,5833,481,004
1,705,9573,391,046
1,724,421
1,685,088
Net income (loss) before income tax provision (benefit)
1,754,533539,282
(14,931,323)(10,177,314)
(1,215,251)
4,754,009
Income tax provision (benefit)
464,103168,638
7,401,6248,687,508
(295,465)
1,285,884
Net income (loss)
$
1,290,430370,644
$
(22,332,947)(18,864,822)
$
(919,786)
$
3,468,125
Basic and Diluted Net income (loss) Per Share of:
CLASS A COMMON STOCK
Basic and Diluted
$
0.110.03
$
(1.92)(1.62)
$
(0.08)
$
0.30
CLASS B COMMON STOCK
Basic and Diluted
$
0.110.03
$
(1.92)(1.62)
$
(0.08)
$
0.30
Weighted Average Shares Outstanding:
CLASS A COMMON STOCK
Basic and Diluted
11,608,555
11,608,555
11,608,555
11,608,555
CLASS B COMMON STOCK
Basic and Diluted
31,938
31,938
31,938
31,938
See Notes to Condensed Consolidated Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- 3 -
 
BIMINI CAPITAL MANAGEMENT,
 
INC.
CONDENSED CONSOLIDATED STATEMENTS
 
OF STOCKHOLDERS' EQUITY
(Unaudited)
For the threeSix and Three Months Ended March 31,June 30, 2021 and
2020
Stockholders' Equity
Common Stock
Additional
Accumulated
Shares
Par Value
Paid-in Capital
Deficit
Total
Balances, January 1, 2020
11,672,431
$
11,673
$
332,642,758
$
(292,677,440)
$
39,976,991
Net loss
-
0
0
(22,332,947)
(22,332,947)
Balances, March 31, 2020
11,672,431
$
11,673
$
332,642,758
$
(315,010,387)
$
17,644,044
Net income
-
0
0
3,468,125
3,468,125
Balances, June 30, 2020
11,672,431
$
11,673
$
332,642,758
$
(311,542,262)
$
21,112,169
Balances, January 1, 2021
11,672,431
$
11,673
$
332,642,758
$
(298,166,582)
$
34,487,849
Net income
-
0
0
1,290,430
1,290,430
Balances, March 31, 2021
11,672,431
$
11,673
$
332,642,758
$
(296,876,152)
$
35,778,279
Net loss
-
0
0
(919,786)
(919,786)
Balances, June 30, 2021
11,672,431
$
11,673
$
332,642,758
$
(297,795,938)
$
34,858,493
See Notes to Condensed Consolidated Financial Statements
��
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- 4 -
 
BIMINI CAPITAL MANAGEMENT,
 
INC.
CONDENSED CONSOLIDATED STATEMENTS
 
OF CASH FLOWS
(Unaudited)
For the ThreeSix Months Ended March 31,June 30, 2021 and 2020
2021
2020
CASH FLOWS FROM OPERATING
 
ACTIVITIES:
Net income (loss)
$
1,290,430370,644
$
(22,332,947)(18,864,822)
Adjustments to reconcile net income (loss) to net cash provided by
 
(used in) operating activities:
Depreciation
17,31334,625
17,59834,911
Deferred income tax provision
464,103168,638
7,400,8528,686,736
Losses on mortgage-backed securities, net
1,392,2611,897,862
6,378,9375,776,801
PPP loan forgiveness
(153,724)
0
Unrealized (gains) losses on Orchid Island Capital, Inc. common stock
(2,050,332)77,861
4,408,105754,792
Realized and unrealized losses on forward settling TBA securities
0
1,441,406
Changes in operating assets and liabilities:
Accrued interest receivable
(9,859)(13,858)
527,542556,646
Due from affiliates
(79,186)(161,780)
101,80052,970
Other assets
(97,358)(5,210)
(126,771)(20,960)
Accrued interest payable
(15,576)(28,289)
(535,734)(575,438)
Other liabilities
(801,855)(481,108)
(849,083)(489,128)
NET CASH PROVIDED BY (USED IN) OPERATING
 
ACTIVITIES
109,9411,705,661
(3,568,295)(2,646,086)
CASH FLOWS FROM INVESTING ACTIVITIES:
From mortgage-backed securities investments:
Purchases
(12,367,589)(13,139,464)
(20,823,373)
Sales
0
171,155,249
Principal repayments
3,297,7277,426,203
6,687,7408,914,759
Net settlement of forward settling TBA contracts
0
(1,500,000)
Purchases of Orchid Island Capital, Inc. common stock
0
(3,615,712)
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES
(9,069,862)(5,713,261)
155,519,616154,130,923
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from repurchase agreements
74,799,000117,034,000
361,393,397430,566,397
Principal repayments on repurchase agreements
(66,734,114)(110,759,114)
(518,990,000)(588,903,397)
Proceeds from long-term debt
0
152,165
Principal repayments on long-term debt
(5,420)(10,730)
(5,077)(10,125)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
8,059,4666,264,156
(157,601,680)(158,194,960)
NET DECREASEINCREASE (DECREASE) IN CASH, CASH EQUIVALENTS
 
AND RESTRICTED CASH
(900,455)2,256,556
(5,650,359)(6,710,123)
CASH, CASH EQUIVALENTS AND
 
RESTRICTED CASH, beginning of the period
10,911,357
12,385,117
CASH, CASH EQUIVALENTS AND
 
RESTRICTED CASH, end of the period
$
10,010,90213,167,913
$
6,734,7585,674,994
SUPPLEMENTAL DISCLOSURES OF CASH
 
FLOW INFORMATION:
Cash paid (received) during the period for:
Interest expense
$
304,982600,157
$
1,813,0512,194,813
Income taxes
$
0
$
13,465
See Notes to Condensed Consolidated Financial Statements
 
- 5 -
 
BIMINI CAPITAL
 
MANAGEMENT, INC.
NOTES TO CONDENSED
 
CONSOLIDATED FINANCIAL
 
STATEMENTS
(Unaudited)
March 31,
June 30, 2021
 
NOTE 1.
 
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
 
Business
 
Description
 
Bimini Capital Management, Inc., a Maryland corporation (“Bimini Capital” or the “Company”)
 
formed in September 2003, is a
holding company.
 
The Company operates in two business segments through its principal wholly-owned
 
operating subsidiary, Royal
Palm Capital LLC, which includes its wholly-owned subsidiary, Bimini Advisors Holdings, LLC.
 
Bimini 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.
 
Inc. ("Orchid") and receives fees for providing these services.
Bimini Advisors also manages the MBS portfolio of Royal Palm Capital, LLC.
 
Royal Palm Capital, LLC maintains an investment portfolio, consisting primarily of MBS investments
 
and shares of Orchid common
stock, for its own benefit. Royal
Palm Capital, LLC and its wholly-owned subsidiaries
are collectively referred to as "Royal
Palm."
 
COVID-19
 
Impact
 
Beginning
 
in mid-MarchMarch 2020,
 
2020, the global
 
global pandemic
associated
 
with the novel
 
coronavirus
 
(“COVID-19”)
 
and related
 
economic conditions
conditions
began to impact
 
our financial
 
position and
 
results of
 
operations.
 
As a result
 
of the economic,
 
health and
 
market turmoil
 
brought about
by
about by COVID-19,
 
the MBS market
 
experienced
 
severe dislocations.
 
This resulted
 
in falling
 
prices of our
 
our assets and
 
and increased
 
margin
calls from
 
from
our repurchase
 
agreement
 
lenders, resulting
 
in material
 
adverse effects
 
on our results
 
of operations
 
and to our
 
financial
condition.
 
The MBS market
 
largely stabilized
 
after the
 
Federal Reserve
 
announced
 
on March 23,
 
2020 that
 
it would purchase
 
MBS and U.S.
Treasuries in
 
the amounts
 
needed to
 
support smooth
 
market functioning.
 
As of March
 
31, 2020,
 
and at all
 
times since
 
then, we
 
have timely
satisfied all
 
margin calls.
 
The MBS
 
market continues
 
to react to
 
the pandemic
 
and the various
 
measures put
 
in place to
 
stabilize
the
market. To the extent
 
the financial
 
or mortgage
 
markets do
 
not respond
 
favorably to
 
any of these
 
actions, or
 
such actions
 
do not function
as intended,
 
our business,
 
results of
 
operations
 
and financial
 
condition
 
may continue
 
to be materially
 
adversely affected.
 
Although
the
Company cannot
 
estimate the
 
length or
 
gravity of
 
the impact
 
of the COVID-19
 
pandemic at
 
this time, ifit
 
the pandemicmay have a
 
continues,material adverse
 
it mayeffect
continue to
have materially
adverse effects
on the Company’s
 
results of
 
future operations,
 
financial position,
 
and liquidity
 
during 2021.
 
Consolidation
 
 
The accompanying consolidated financial statements include the accounts of Bimini
 
Capital, Bimini Advisors and Royal Palm.
 
All
inter-company accounts and transactions have been eliminated from the consolidated
 
financial statements.
 
Variable Interest Entities (“VIEs”)
 
A variable interest entity ("VIE") is consolidated by an enterprise if it is deemed the
 
primary beneficiary of the VIE. Bimini Capital
has a common share investment in a trust used in connection with the issuance of Bimini
 
Capital's junior subordinated notes. See Note
8 for a description of the accounting used for this VIE.
 
The Company obtains interests in VIEs through its investments in mortgage-backed
securities.
The interests in these VIEs are
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- 6 -
 
The Company obtains interests in VIEs through its investments in mortgage-backed
securities.
The interests in these VIEs are
passive in nature and are not expected to result in the Company obtaining a controlling
 
financial interest in these VIEs in the future.
 
As
a result, the Company does not consolidate these VIEs and accounts for the interest
 
in these VIEs as mortgage-backed securities.
 
See Note 3 for additional information regarding the Company’s investments in mortgage-backed securities.
 
The maximum exposure to
loss for these VIEs is the carrying value of the mortgage-backed securities.
 
Basis of
 
Presentation
 
 
The accompanying unaudited condensed consolidated financial statements have
 
been prepared in accordance with accounting
principles generally accepted in the United States (“GAAP”) for interim financial information
 
information and with the instructions to Form 10-Q and
Article 8 of Regulation S-X.
 
Accordingly, they may not include all of the information and footnotes required by GAAP for complete
financial statements.
 
In the opinion of management, all adjustments (consisting of normal recurring
 
accruals) considered necessary for
a fair presentation have been included.
 
Operating results for the six and three-month period ended March 31,June 30, 2021
 
are not necessarily
indicative of the results that may be expected
for the year ending December 31, 2021.
 
The consolidated balance sheet at December 31, 2020 has been derived from the
 
audited financial statements at that date but
does not include all of the information and footnotes required by GAAP for complete
 
consolidated financial statements.
 
For further
information, refer to the financial statements and footnotes thereto included in the
 
Company’s Annual Report on Form 10-K for the year
ended December 31, 2020.
 
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 differ from
those estimates.
 
Significant estimates affecting the accompanying consolidated financial statements include
 
determining the fair
values of MBS, investment in Orchid common shares 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 principal 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 with the
exception that inter-segment revenues and expenses are included in the presentation
 
of segment results.
 
For further information see
Note 14.
 
Cash and Cash Equivalents and Restricted Cash
 
Cash and cash
 
equivalents
 
include cash
 
on deposit
 
with financial
 
institutions
 
and highly
 
liquid investments
 
with original
 
maturities
 
of
three months
 
or less at
 
the time
 
of purchase.
 
Restricted
 
cash includes
 
cash pledged
 
as collateral
 
for repurchase
 
agreements
 
and
derivative
 
instruments.
 
The following
 
table presents
 
the Company’s
 
cash, cash
 
equivalents
 
and restricted
 
cash as of
 
March 31,June 30,
 
2021 and
December 31,
 
2020.
 
March 31,June 30, 2021
December 31, 2020
Cash and cash equivalents
$
5,973,2477,275,488
$
7,558,342
Restricted cash
4,037,6555,892,425
3,353,015
Total cash, cash equivalents
 
and restricted cash
$
10,010,90213,167,913
$
10,911,357
- 7 -
 
The Company
 
maintains cash
 
balances at
 
several banks
 
and excess
 
margin with
 
an exchange
 
clearing member.
 
At times,
 
balances
- 7 -
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
 
or restricted
 
cash balances.
 
Advisory Services
 
Orchid is externally
 
managed and
 
advised by
 
Bimini Advisors
 
pursuant to
 
the terms
 
of a management
 
agreement.
 
Under the terms
 
of
the management
 
agreement,
 
Orchid is
 
obligated to
 
pay Bimini
 
Advisors a
 
monthly management
 
fee and a
 
pro rata portion
 
of certain
overhead costs
 
and to reimburse
 
the Company
 
for any direct
 
expenses incurred
 
on its behalf.
 
Revenues from
 
management
 
fees are
recognized
 
over the period
 
of time in
 
which the
 
service is
 
performed.
 
Mortgage-Backed
 
Securities
 
The Company invests primarily in mortgage pass-through (“PT”) mortgage-backed
 
certificates issued by Freddie Mac, Fannie Mae
or Ginnie Mae (“MBS”), collateralized mortgage obligations (“CMOs”), interest-only
 
(“IO”) securities and inverse interest-only (“IIO”)
securities representing interest in or obligations backed by pools of mortgage-backed
 
loans. We refer to MBS and CMOs as PT MBS.
We refer to IO and IIO securities as structured MBS. The Company has elected to account for
 
its investment in MBS under the fair
value option.
 
Electing the fair value option requires the Company to record changes in
 
fair value in the consolidated statement of
operations, which, in management’s view, more appropriately reflects the results of our operations for a particular reporting period and
is consistent with the underlying economics and how the portfolio is managed.
 
The Company records MBS transactions on the trade date.
 
Security purchases that have not settled as of the balance sheet date
are included in the MBS balance with an offsetting liability recorded, whereas securities sold
 
that have not settled as of the balance
sheet date are removed from the MBS balance with an offsetting receivable recorded.
 
Fair value is defined as the price that would be received to sell the asset or paid to transfer
 
the liability in an orderly transaction
between market participants at the measurement date.
 
The fair value measurement assumes that the transaction to sell
 
the asset or
transfer the liability either occurs in the principal market for the asset or liability, or in the absence of a principal market, occurs in
 
the
most advantageous market for the asset or liability. Estimated fair values for MBS are based on independent pricing sources and/or
third-party broker quotes, when available.
 
 
Income on PT MBS is based on the stated interest rate of the security. Premiums or discounts present at the date of purchase
 
are
not amortized.
 
Premium lost and discount accretion resulting from monthly principal repayments
 
are reflected in unrealized gains and
losses on MBS in the consolidated statements of operations.
 
For IO securities,
 
the income
 
is accrued
 
based on the
 
carrying value
 
and
the effective
 
yield. The
 
difference
 
between income
 
accrued and
 
the interest
 
received on
 
the security
 
is characterized
 
as a return
 
of
investment
 
and serves
 
to reduce
 
the asset’s
 
carrying value.
 
At each reporting date, the effective yield is adjusted prospectively for future
reporting periods based on the new estimate of prepayments and the contractual
 
terms of the security.
 
For IIO securities, effective
yield and income recognition calculations also take into account the index
 
value applicable to the security.
 
Changes in fair value of
MBS during each reporting period are recorded in earnings and reported as unrealized
 
gains or losses on mortgage-backed securities
in the accompanying consolidated statements of operations.
 
The amount reported as unrealized gains or losses on mortgage-backed
securities thus captures the net effect of changes in the fair market value of securities caused by market
 
developments and any
premium or discount lost as a result of principal repayments during the period.
 
Orchid Island Capital, Inc. Common Stock
 
- 8 -
The Company
 
accounts for
 
its investment
 
in Orchid common
 
shares at
 
fair value.
 
The change
 
in the fair
 
value and dividends
 
received
- 8 -
on this investment
 
are reflected
 
in the consolidated
 
statements
 
of operations.
 
We estimate
 
the fair value
 
of our investment
 
in Orchid
 
on a
market approach
 
using “Level
 
1” inputs based
 
based on the quoted
 
quoted market price
 
price of Orchid’s common
 
commonstock on a
national stock
 
on a national
stock exchange.
 
Retained
 
Interests
 
in Securitizations
 
The Company
 
holds retained
 
interests in
 
the subordinated
 
tranches of
 
securities
 
created in
 
securitization
 
transactions.
 
These retained
interests currently
 
have a recorded
 
fair value
 
of zero, as
 
the prospect
 
of future
 
cash flows
 
being received
 
is uncertain.
 
Any cash
 
received
from the retained
 
interests is
 
reflected
 
in the consolidated
 
statements
 
of operations.
 
Derivative
 
Financial Instruments
 
The Company
 
uses derivative
 
instruments
 
to manage
 
interest rate
 
risk, facilitate
 
asset/liability
 
strategies
 
and manage
 
other
exposures,
 
and it may
 
continue to
 
do so in the
 
future. The
 
principal instruments
 
that the Company
 
has used to
 
date are Treasury
 
Note (“T-
Note”) and
 
Eurodollar
 
futures contracts,
 
and “to-be-announced”
 
(“TBA”) securities
 
transactions,
 
but it may
 
enter into
 
other derivative
instruments
 
in the future.
 
The Company
 
accounts for
 
TBA securities
 
as derivative
 
instruments.
 
Gains and losses
 
associated
 
with TBA
 
securities
 
transactions
are reported
 
in gain (loss)
 
on derivative
 
instruments
 
in the accompanying
 
consolidated
 
statements
 
of operations.
 
 
Derivative
 
instruments
 
are carried
 
at fair value,
 
and changes
 
in fair value
 
are recorded
 
in the consolidated
 
operations
 
for each period.
 
The Company’s
 
derivative
 
financial
 
instruments
 
are not designated
 
as hedge accounting
 
relationships,
 
but rather
 
are used as
 
economic
hedges of
 
its portfolio
 
assets and
 
liabilities.
 
Holding derivatives
 
creates exposure
 
to credit
 
risk related
 
to the potential
 
for failure
 
by counterparties
 
to honor their
 
commitments.
 
In
the event
 
of default
 
by a counterparty,
 
the Company
 
may have difficulty
 
recovering
 
its collateral
 
and may not
 
receive payments
 
provided
for under
 
the terms
 
of the agreement.
 
The Company’s
 
derivative
 
agreements
 
require it
 
to post or
 
receive collateral
 
to mitigate
 
such risk.
 
In
addition, the
 
Company uses
 
only registered
 
central clearing
 
exchanges
 
and well-established
 
commercial
 
banks as counterparties,
monitors positions
 
with individual
 
counterparties
 
and adjusts
 
posted collateral
 
as required.
 
Financial
 
Instruments
 
The fair value of financial instruments for which it is practicable to estimate that
 
value is disclosed, either in the body of the
consolidated financial statements or in the accompanying notes. MBS, Orchid
 
common stock and derivative assets and liabilities are
accounted for at fair value in the consolidated balance sheets. The methods
 
and assumptions used to estimate fair value for these
instruments are presented in Note 13 of the consolidated financial statements.
 
The estimated fair value of cash and cash equivalents, restricted cash, accrued interest
 
receivable, other assets, repurchase
agreements, accrued interest payable and other liabilities generally approximates
 
their carrying value as of March 31,June 30, 2021 and
December 31, 2020, due to the short-term nature of these financial instruments.
 
 
It is impractical to estimate the fair value of the Company’s junior subordinated notes.
 
Currently, there is a limited market for these
types of instruments and the Company is unable to ascertain what interest rates would
 
be available to the Company for similar financial
instruments. Further information regarding these instruments is presented in Note
 
8 to the consolidated financial statements.
 
Property
 
and Equipment,
 
net
 
- 9 -
Property and equipment, net, consists of computer equipment with a depreciable
 
life of 3 years, office furniture and equipment with
depreciable lives of 8 to 20 years, land which has no depreciable life, and buildings and
 
improvements with depreciable lives of 30
- 9 -
years.
 
Property and equipment is recorded at acquisition cost and depreciated
 
using the straight-line method over the estimated useful
lives of the assets. Depreciation is included in administrative and other expenses
 
in the consolidated statement of operations.
 
Repurchase
 
Agreements
 
The Company
 
finances the
 
acquisition
 
of the majority
 
of its PT
 
MBS through
 
the use of
 
repurchase
 
agreements
 
under master
repurchase
 
agreements.
 
Repurchase
 
agreements
 
are accounted
 
for as collateralized
 
financing
 
transactions,
 
which are
 
carried at
 
their
contractual
 
amounts, including
 
accrued interest,
 
as specified
 
in the respective
 
agreements.
 
Earnings
 
Per Share
 
Basic EPS is calculated as income available to common stockholders divided
 
by the weighted average number of common shares
outstanding during the period. Diluted EPS is calculated using the treasury stock or two-class
 
method, as applicable for common stock
equivalents. However, the common stock equivalents are not included in computing diluted EPS if the result is anti-dilutive.
 
Outstanding shares of Class B Common Stock, participating and convertible into Class
 
A Common Stock, are entitled to receive
dividends in an amount equal to the dividends declared, if any, on each share of Class A Common Stock. Accordingly, shares of the
Class B Common Stock are included in the computation of basic EPS using the
 
two-class method and, consequently, are presented
separately from Class A Common Stock.
 
The shares of Class C Common Stock are not included in the basic EPS computation
 
as these shares do not have participation
rights. The outstanding shares of Class B and Class C Common Stock are not
 
included in the computation of diluted EPS for the Class
A Common Stock as the conditions for conversion into shares of Class A Common
 
Stock were not met.
 
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 adjusted by a valuation allowance if, based on the Company’s evaluation, it
 
is more likely than not that they will
not be realized.
 
The Company’s U.S. federal income tax returns for years ended on or after December 31, 2017 remain
 
open for examination.
Although management believes its calculations for tax returns are correct and the positions
 
taken thereon are reasonable, the final
outcome of tax audits could be materially different from the tax returns filed by the Company, and those differences could result in
significant costs or benefits to the Company. For tax filing purposes, Bimini Capital and its includable subsidiaries, and Royal Palm
 
and
its includable subsidiaries, file as separate tax paying entities.
 
The Company assesses the likelihood, based on their technical merit, that uncertain
 
tax positions will be sustained upon
examination based on the facts, circumstances and information available at the
 
end of each period.
 
The measurement of uncertain tax
positions is adjusted when new information is available, or when an event occurs
 
that requires a change. The Company recognizes tax
positions in the consolidated financial statements only when it is more likely than
 
not that the position will be sustained upon
examination by the relevant taxing authority based on the technical merits of the position.
 
A position that meets this standard is
measured at the largest amount of benefit that will more likely than not be realized upon
 
settlement. The difference between the benefit
recognized and the tax benefit claimed on a tax return is referred to as an unrecognized
 
tax benefit and is recorded as a liability in the
consolidated balance sheets. The Company records income tax-related interest and penalties,
 
if applicable, within the income tax
provision.
Recent Accounting
Pronouncements
 
- 10 -
 
Recent Accounting
Pronouncements
On January 1, 2020, we adopted Accounting Standards Update (“ASU”) 2016-13, Financial
Instruments – Credit Losses (Topic
326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires credit
losses on most financial assets to be
measured at amortized cost and certain other instruments to be measured using an expected
credit loss model (referred to as the
current expected credit loss model). The Company’s adoption of this ASU did not have a material impact
on its consolidated financial
statements as its financial assets were already measured at fair value through earnings.
 
In March 2020, the FASB issued ASU 2020-04 “Reference Rate Reform (Topic 848):
Facilitation of the Effects of Reference Rate
Reform on Financial Reporting
.”
 
ASU 2020-04 provides optional expedients and exceptions to GAAP requirements for
 
modifications
on debt instruments, leases, derivatives, and other contracts, related to the expected market
 
transition from the London Interbank
Offered Rate (“LIBOR,”),
 
and certain other floating rate benchmark indices, or collectively, IBORs, to alternative reference rates. ASU
2020-04 generally considers contract modifications related to reference rate reform to
 
be an
event that does not require contract
remeasurement at the modification date nor a reassessment of a previous accounting
 
determination. The guidance in ASU 2020-04 is
optional and may be elected over time, through December 31, 2022, as reference
 
rate reform activities occur. The Company does not
believe the adoption of this ASU will have a material impact on its consolidated financial
 
statements.
 
 
In January 2021, the FASB issued ASU 2021-01 “Reference Rate Reform (Topic 848). ASU 2021-01 expands the scope of ASC
848 to include all affected derivatives and give market participants the ability to apply certain
 
aspects of the contract modification and
hedge accounting expedients to derivative contracts affected by the discounting transition. In
 
addition, ASU 2021-01 adds
implementation guidance to permit a company to apply certain optional expedients
 
to modifications of interest rate indexes used for
margining, discounting or contract price alignment of certain derivatives as a result
 
of reference rate reform initiatives and extends
optional expedients to account for a derivative contract modified as a continuation of
 
the existing contract and to continue hedge
accounting when certain critical terms of a hedging relationship change to modifications
 
made as part of the discounting transition. The
guidance in ASU 2021-01 is effective immediately and available generally through December
 
31, 2022, as reference rate reform
activities occur. The Company does not believe the adoption of this ASU will have a material impact on its consolidated
 
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,
Bimini Advisors is responsible for administering Orchid's business activities and
 
day-to-day operations. Pursuant to the terms of the
management agreement, Bimini Advisors provides Orchid with its management
 
team, including its officers, along with appropriate
support personnel. Bimini Advisors is at all times subject to the supervision and
 
oversight of Orchid's board of directors and has only
such functions and authority as delegated to it. Bimini Advisors receives a monthly
 
management fee in the amount of:
 
●
 
One-twelfth of 1.5% 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.
 
Orchid is obligated to reimburse Bimini Advisors for any direct expenses incurred on its
 
on its behalf and to pay to Bimini Advisors an
amount equal to Orchid's pro rata portion of certain overhead costs set forth in
 
the management agreement. The management
agreement has been renewed through February 20, 2022
and provides for automatic
one-year extension options thereafter. Should
Orchid terminate the management agreement without cause, it will be obligated
 
to pay Bimini Advisors a termination fee equal to three
times the average annual management fee, as defined in the management agreement,
 
before or on the last day of the automatic
renewal term.
 
The following table summarizes the advisory services revenue from Orchid
for the six and three months ended June 30, 2021 and
2020.
(in thousands)
Six Months Ended June 30,
Three Months Ended June 30,
2021
2020
2021
2020
Management fee
$
3,412
$
2,645
$
1,791
$
1,268
Allocated overhead
799
695
395
347
Total
$
4,211
$
3,340
$
2,186
$
1,615
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- 11 -
 
The following table summarizes the advisory services revenue from Orchid
for the three months ended March 31, 2021 and 2020.
(in thousands)
Three Months Ended March 31,
2021
2020
Management fee
$
1,621
$
1,377
Allocated overhead
404
348
Total
$
2,025
$
1,725
 
At March 31,June 30, 2021 and December 31, 2020, the net amount due from Orchid was approximately $
0.70.8
 
million and $
0.6
million, respectively.
 
NOTE 3.
 
MORTGAGE-BACKED SECURITIES
 
 
The following
 
table presents
 
the Company’s
 
MBS portfolio
 
as of MarchJune
 
31,30, 2021 and
 
December 31,
 
2020:
 
 
(in thousands)
March 31,June 30, 2021
December 31, 2020
Fixed-rate MBS
$
72,50467,910
$
64,902
Interest-Only MBS
3291,064
251
Inverse Interest-Only MBS
2320
25
Total
$
72,85668,994
$
65,178
 
NOTE 4.
 
REPURCHASE AGREEMENTS
 
The Company
 
pledges certain
 
of its MBS
 
as collateral
 
under repurchase
 
agreements
 
with financial
 
institutions.
 
Interest rates
 
are
generally fixed
 
based on prevailing
 
rates corresponding
 
to the terms
 
of the borrowings,
 
and interest
 
is generally
 
paid at the
 
termination
 
of a
borrowing.
 
If the fair
 
value of the
 
pledged securities
 
declines,
 
lenders will
 
typically require
 
the Company
 
to post additional
 
collateral
 
or pay
down borrowings
 
to re-establish
 
agreed upon
 
collateral
 
requirements,
 
referred to
 
as "margin
 
calls." Similarly,
 
if the fair
 
value of the
 
pledged
securities
 
increases,
 
lenders may
 
release collateral
 
back to the
 
Company. As of MarchJune
 
31,30, 2021,
 
the Company
 
had met all
 
margin call
requirements.
 
As of MarchJune
 
31,30, 2021 and
 
December 31,
 
2020,
 
the Company’s
 
repurchase
 
agreements
 
had remaining
 
maturities
 
as summarized
below:
 
($ in thousands)
OVERNIGHT
BETWEEN 2
BETWEEN 31
GREATER
 
(1 DAY OR
AND
AND
THAN
LESS)
30 DAYS
90 DAYS
90 DAYS
TOTAL
March 31,June 30, 2021
Fair value of securities pledged, including accrued
interest receivable
$
0
$
28,91049,981
$
13,05419,208
$
31,0810
$
73,04569,189
Repurchase agreement liabilities associated with
these securities
$
0
$
28,48851,764
$
13,28119,582
$
31,3670
$
73,13671,346
Net weighted average borrowing rate
-
 
0.21%0.16%
0.27%0.14%
0.20%-
0.21%
0.16%
December 31, 2020
Fair value of securities pledged, including accrued
interest receivable
$
0
$
49,096
$
8,853
$
7,405
$
65,354
Repurchase agreement liabilities associated with
these securities
$
0
$
49,120
$
8,649
$
7,302
$
65,071
Net weighted average borrowing rate
-
 
0.25%
0.23%
0.30%
0.25%
- 12 -
 
In addition,
 
cash pledged
 
to counterparties
 
for repurchase
 
agreements
 
was approximately
 
$
4.05.9
 
million and
 
$
3.4
 
million as
 
of MarchJune 30,
31, 2021 and December
 
December 31, 2020,
 
2020, respectively.
 
If, during
 
the term of
 
a repurchase
 
agreement,
 
a lender files
 
for bankruptcy,
 
the Company
 
might experience
 
difficulty recovering
 
its
pledged assets,
 
which could
 
result in
 
an unsecured
 
claim against
 
the lender
 
for the difference
 
between the
 
amount loaned
 
to the Company
plus interest
 
due to the
 
counterparty
 
and the fair
 
value of the
 
collateral
 
pledged to
 
such lender,
 
including the accrued interest receivable,
and cash posted by the Company as collateral, if any.
 
At MarchJune 30,
2021 and December
 
31, 2021 and2020,
 
December 31,the Company
 
2020, the
Company had
an aggregate
- 12 -
amount at
 
risk (the difference
 
between the
 
amount loaned
 
to the Company,
 
including interest
 
payable, and
 
the fair value
 
of securities
 
and
cash pledged
 
(if any),
 
including
 
accrued interest
 
on such securities)
 
with all counterparties
 
of approximately
 
$
3.93.7
 
million and
 
$
3.6
 
million,
respectively.
 
As of MarchJune
 
31,30, 2021
 
and December
 
31, 2020,
 
the Company
 
did not have
 
an amount
 
at risk with
 
any individual
 
counterparty
greater than
 
10% of the
 
Company’s equity.
 
NOTE 5. DERIVATIVE
 
FINANCIAL INSTRUMENTS
 
Eurodollar
 
and T-Note futures
 
are cash settled
 
futures contracts
 
on an interest
 
rate, with
 
gains and losses
 
credited or
charged to the
 
Company’s cash
 
accounts on a
 
daily basis.
 
A minimum balance,
 
or “margin”,
 
is required
 
to be maintained
 
in the
account on a
 
daily basis.
 
The tables below
 
present information
 
related to the
 
Company’s Eurodollar
 
and T-note futures
positions at
 
March 31,June 30, 2021
 
and December
 
31, 2020.
 
 
($ in thousands)
As of March 31,June 30, 2021
Junior Subordinated Debt Funding Hedges
Average
Weighted
Weighted
Contract
Average
Average
Notional
Entry
Effective
Open
Expiration Year
Amount
Rate
Rate
Equity
(1)
2021
$
1,000
1.01%1.00%
0.21%0.17%
$
(6)
Total /
Weighted Average
$
1,000
1.01%
0.21%
$
(6)(4)
 
($ in thousands)
As of December 31, 2020
Junior Subordinated Debt Funding Hedges
Average
Weighted
Weighted
Contract
Average
Average
Notional
Entry
Effective
Open
Expiration Year
Amount
Rate
Rate
Equity
(1)
2021
$
1,000
1.02%
0.18%
$
(8)
Total /
Weighted Average
$
1,000
1.02%
0.18%
$
(8)
 
(1)
 
Open equity represents the cumulative gains (losses) recorded on open
 
futures positions from inception.
 
 
(Losses) Gains on Derivative Instruments
 
 
The table below presents the effect of the Company’s derivative financial instruments on the consolidated statements of
operations for the six and three months ended March 31,June 30, 2021 and 2020
.
 
(in thousands)
Six Months Ended June 30,
Three Months Ended March 31,June 30,
2021
2020
2021
2020
Eurodollar futures contracts (short positions)
Repurchase agreement funding hedges
$
0
$
(2,329)(2,328)
$
0
$
0
Junior subordinated debt funding hedges
0
(517)
0
(2)
T-Note futures contracts (short positions)
Repurchase agreement funding hedges
0
(1,006)
0
0
Net TBA securities
0
(1,441)
0
0
Losses on derivative instruments
$
0
$
(5,292)
$
0
$
(2)
Credit Risk-Related Contingent Features
The use of derivatives creates exposure to credit risk relating to potential losses that could be recognized in the event
that the counterparties to these instruments fail to perform their obligations under the contracts. The Company attempts to
minimize this risk in several ways.
For instruments which are not centrally cleared on a registered exchange, the Company
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- 13 -
 
Junior subordinated debt funding hedges
0
(515)
T-Note futures contracts (short positions)
Repurchase agreement funding hedges
0
(1,006)
Net TBA securities
0
(1,441)
Losses on derivative instruments
$
0
$
(5,291)
Credit Risk-Related Contingent Features
The use of derivatives creates exposure to credit risk relating to potential losses that could be recognized in the event
that the counterparties to these instruments fail to perform their obligations under the contracts. The Company attempts to
minimize this risk in several ways.
For instruments which are not centrally cleared on a registered exchange, the Company
limits its counterparties to major financial institutions with acceptable credit ratings, and by monitoring positions with
individual counterparties. In addition, the Company may be required to pledge assets as collateral for its derivatives, whose
amounts vary over time based on the market value, notional amount and remaining term of the derivative contract. In the
event of a default by a counterparty, the Company may not receive payments provided for under the terms of its derivative
agreements, and may have difficulty recovering its assets pledged as collateral for its derivatives. The cash and cash
equivalents pledged as collateral for the Company’s derivative instruments are included in restricted cash on the
consolidated balance sheets. It is the Company's policy not to offset assets and liabilities associated with open derivative
contracts. However, the Chicago Mercantile Exchange (“CME”) rules characterize variation margin transfers as settlement
payments, as opposed to adjustments to collateral. As a result, derivative assets and liabilities associated with centrally
cleared derivatives for which the CME serves as the central clearing party are presented as if these derivatives had been
settled as of the reporting date.
 
NOTE 6. PLEDGED ASSETS
 
Assets Pledged
 
to Counterparties
 
The table
 
below summarizes
 
Bimini’s assets
 
pledged as
 
collateral
 
under its repurchase
 
agreements
 
and derivative
 
agreements
 
as of
March 31,June 30, 2021
 
2021 and December
 
31, 2020.
 
($ in thousands)
March 31,June 30, 2021
December 31, 2020
Repurchase
Derivative
Repurchase
Derivative
Assets Pledged to Counterparties
Agreements
Agreements
Total
Agreements
Agreements
Total
PT MBS - at fair value
$
72,50467,910
$
0
$
72,50467,910
$
64,902
$
0
$
64,902
Structured MBS - at fair value
3291,064
0
3291,064
251
0
251
Accrued interest on pledged securities
212215
0
212215
201
0
201
Restricted cash
4,0375,892
10
4,0385,892
3,352
1
3,353
Total
$
77,08275,081
$
10
$
77,08375,081
$
68,706
$
1
$
68,707
 
Assets Pledged
 
from Counterparties
 
The table
 
below summarizes
 
cash pledged
 
to Bimini from
 
counterparties
 
under repurchase
 
agreements
 
and derivative
 
agreements
 
as
of March 31,June 30,
 
2021 and December
 
31, 2020.
 
Cash received
 
as margin is
 
recognized
 
in cash and
 
cash equivalents
 
with a corresponding
amount recognized
 
as an increase
 
in repurchase
 
agreements
 
or other liabilities
 
in the consolidated
 
balance sheets.
 
($ in thousands)
Assets Pledged to Bimini
March 31,June 30, 2021
December 31, 2020
Repurchase agreements
$
0187
$
80
Total
$
0187
$
80
 
- 14 -
NOTE 7. OFFSETTING ASSETS AND LIABILITIES
 
The Company’s
 
derivatives
 
and repurchase
 
agreements
 
are subject
 
to underlying
 
agreements
 
with master
 
netting or
 
similar
arrangements,
 
which provide
 
for the right
 
of offset in
 
the event
 
of default
 
or in the
 
event of bankruptcy
 
of either
 
party to the
 
transactions.
 
The Company
 
reports its
 
assets and
 
liabilities
 
subject to
 
these arrangements
 
on a gross
 
basis.
 
The following
 
tables present
 
information
regarding
 
those assets
 
and liabilities
 
subject to
 
such arrangements
 
as if the Company
 
had presented
 
them on a
 
net basis as
 
of March 31,June 30,
2021 and December
 
31, 2020.
 
(in thousands)
Offsetting of Liabilities
Gross Amount Not Offset in the
- 14 -
Net Amount
Consolidated Balance Sheet
Gross Amount
of Liabilities
Financial
Gross Amount
Offset in the
Presented in the
Instruments
Cash
of Recognized
Consolidated
Consolidated
Posted as
Posted as
Net
Liabilities
Balance Sheet
Balance Sheet
Collateral
Collateral
Amount
March 31,June 30, 2021
Repurchase Agreements
$
73,13671,346
$
0
$
73,13671,346
$
(69,099)(65,454)
$
(4,037)(5,892)
$
0
$
73,13671,346
$
0
$
73,13671,346
$
(69,099)(65,454)
$
(4,037)(5,892)
$
0
December 31, 2020
Repurchase Agreements
$
65,071
$
0
$
65,071
$
(61,719)
$
(3,352)
$
0
$
65,071
$
0
$
65,071
$
(61,719)
$
(3,352)
$
0
 
The amounts
 
disclosed for
 
collateral
 
received by
 
or posted
 
to the same
 
counterparty
 
are limited
 
to the amount
 
sufficient to
 
reduce the
asset or liability
 
presented
 
in the consolidated
 
balance sheet
 
to zero.
 
The fair value
 
of the actual
 
collateral
 
received by
 
or posted
 
to the
same counterparty
 
typically
 
exceeds the
 
amounts presented.
 
See Note
 
6 for a discussion
 
of collateral
 
posted for, or
 
received against,
repurchase
 
obligations
 
and derivative
 
instruments.
 
NOTE 8.
 
LONG-TERM DEBT
 
Long-term
 
debt at MarchJune
 
31,30, 2021 and
 
December 31,
 
2020 is summarized
 
as follows:
 
(in thousands)
March 31,June 30, 2021
December 31, 2020
Junior subordinated debt
$
26,804
$
26,804
Note payable
651646
657
Paycheck Protection Plan ("PPP") loan
(1)
1520
152
Total
$
27,60727,450
$
27,613
 
(1)
The Small Business Administration has notified the Company that, effective
April 22, 2021, all principal and accrued interest under the PPP loan
has been forgiven.
Junior Subordinated Debt
 
During 2005,
 
Bimini Capital
 
sponsored the
 
formation
 
of a statutory
 
trust, known
 
as Bimini Capital
 
Trust II (“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 MarchJune
 
31,30, 2021 and
 
December 31,
 
31, 2020,
 
the outstanding
 
principal balance
 
on the junior
 
subordinated
 
debt securities
 
owed to
BCTII was
 
$
26.8
million.
 
The BCTII
 
trust preferred
 
securities
 
and Bimini
 
Capital's BCTII
 
Junior Subordinated
 
Notes have
 
a rate of interest
- 15 -
that floats
 
at a spread
 
of 3.50%
3.50
% over the
 
the prevailing
 
three-month
 
LIBOR rate.
 
As of MarchJune
 
31,30, 2021, the
 
the interest rate
 
rate was 3.68%
3.62
%.
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.
 
 
BCTII is a
 
VIE because
 
the holders
 
of the equity
 
investment
 
at risk do
 
not have substantive
 
decision-making
 
ability over
 
BCTII’s
activities.
 
Since Bimini
 
Capital's
 
investment
 
in BCTII’s
 
common equity
 
securities
 
was financed
 
directly by
 
BCTII as
 
a result of
 
its loan of
 
the
proceeds to
 
Bimini Capital,
 
that investment
 
is not considered
 
to be an equity
 
investment
 
at risk. Since
 
Bimini Capital's
 
common share
investment
 
in BCTII
 
is not a variable
 
interest,
 
Bimini Capital
 
is not the
 
primary beneficiary
 
of BCTII.
 
Therefore,
 
Bimini Capital
 
has not
consolidated
 
the financial
 
statements
 
of BCTII
 
into its consolidated
 
financial statements,
 
and this investment
 
is accounted
 
for on the
 
equity
method.
 
The accompanying
 
consolidated
 
financial statements
 
present Bimini
 
Capital's BCTII
 
Junior Subordinated
 
Notes issued
 
to BCTII
 
as a
- 15 -
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
 
Bimini Capital records
 
records payments of
 
of interest
 
on the Junior
 
Subordinated
 
Notes issued
 
to BCTII
 
as interest
 
expense.
 
Note Payable
 
On October
 
30, 2019,
 
the Company
 
borrowed
 
$
680,000 from
 
from a bank. The
 
The note is payable
 
payable in
equal monthly
 
principal and
 
interest
installments
 
of approximately
 
$
4,500 through
 
through October 30,
 
30, 2039. Interest
 
Interest accrues at
 
at 4.89% through
 
October 30,
 
2024. Thereafter,
 
interest
accrues based
 
on the weekly
 
average yield
 
to the United
 
States Treasury
 
securities
 
adjusted to
 
a constant
 
maturity of
 
5 years, plus
 
3.25%plus
3.25
%.
The note is
 
secured by
 
a mortgage
 
on the Company’s
 
office building.
 
Paycheck Protection
 
Plan Loan
 
On April 13,
 
2020, the
 
Company received
 
approximately
 
$
152,000
 
through the
 
Paycheck Protection
 
Program (“PPP”)
 
of the CARES
Act in the
 
form of a
 
low interest
 
loan.
 
PPP loans
 
carry a fixed
 
rate of
1.00
% and a term
 
of two years,
 
if not forgiven,
 
in whole or
 
in part. The
Payments areSmall Business
 
deferred forAdministration
notified the
Company that,
effective as
of April 22,
2021, all principal
and accrued
interest under
 
the first tenPPP
loan has been
 
months after
the completion
of the loan
forgiveness
covered period.
PPP loans
may be forgiven,
in
whole or in
part, if the
proceeds are
used for payroll
and other
permitted
purposes in
accordance
with the requirements
of the PPP
and if
certain other
requirements
are met.
The Small
Business Administration
has notified
the Company
that, effective
as of April
22, 2021,
all
principal and
accrued interest
under the
PPP loan
has been forgiven.
 
 
The table
 
below presents
 
the future
 
scheduled principal
 
payments on
 
the Company’s
 
long-term
 
debt. The
table gives
effect to
forgiveness
of all principal
and interest
under the
PPP loan.
 
 
(in thousands)
Last ninesix months of 2021
$
1611
2022
23
2023
24
2024
25
2025
26
After 2025
27,341
Total
$
27,45527,450
 
NOTE 9.
 
COMMON STOCK
 
There were
 
no issuances
 
of Bimini Capital's
 
Class A Common
 
Stock, Class
 
B Common Stock
 
or Class C
 
Common Stock
 
during the
threesix months
 
ended MarchJune
 
31,30, 2021 and
 
and 2020.
 
- 16 -
Stock Repurchase
 
Plan
 
On March 26,
 
2018, the
 
Board of Directors
 
of Bimini Capital
 
Management,
 
Inc. (the
 
“Company”)
 
approved a
 
Stock Repurchase
 
Plan
(“Repurchase
 
Plan”).
 
Pursuant to
 
Repurchase
 
Plan, the
 
Company may
 
purchase up
 
to
500,000
 
shares of
 
its Class A
 
Common Stock
 
from
time to time,
 
subject to
 
certain limitations
 
imposed by
 
Rule 10b-18
 
of the Securities
 
Exchange Act
 
of 1934.
 
Share repurchases
 
may be
executed through
 
various means,
 
including,
 
without limitation,
 
open market
 
transactions.
 
The Repurchase
 
Plan does
 
not obligate
 
the
Company to
 
purchase any
 
shares.
The Repurchase
 
Plan was originally
 
set to expire
 
on November
 
15, 2018, but
 
it has been
extended by the
 
Board of Directors
 
and it is currently
 
set to expire
 
on
November 15, 2021
.
 
From the inception
 
of the Repurchase
 
Plan through
 
March 31,June 30, 2021,
 
2021, the Company
 
Company repurchased
 
a total of
70,404
 
shares at
 
an
aggregate
 
cost of approximately
 
$
166,945
, including
 
commissions
 
and fees,
 
for a weighted
 
average price
 
of $
2.37
 
per share.
 
There were
no shares
 
repurchased
 
during the
 
threesix months
 
ended MarchJune
 
31,30, 2021.
Tender Offer
In July 2021,
the Company
completed
a “modified
Dutch auction”
tender offer
and paid an
aggregate
of $1.5 million,
excluding
fees
- 16 -
and related
expenses, to
repurchase
812,879 shares
of Bimini
Capital’s Class
A common stock
at a price
of $1.85 per
share.
The financial
statement
impact of the
completion
of this tender
offer will
be reported
in our September
30, 2021 Form
10-Q filing.
 
 
NOTE 10.
 
COMMITMENTS AND CONTINGENCIES
 
From time to time, the Company may become involved in various claims and legal
 
actions arising in the ordinary course of
business.
 
 
On
April 22, 2020
, the Company received a demand for payment from Citigroup, Inc. in the amount
 
of $
33.1
 
million related to the
indemnification provisions of various mortgage loan purchase agreements (“MLPA’s”) entered into between Citigroup Global Markets
Realty Corp and Royal Palm Capital, LLC (f/k/a Opteum Financial Services,
 
LLC) prior to the date Royal Palm’s mortgage origination
operations ceased in 2007.
 
The demand is based on Royal Palm’s alleged breaches of certain representations and warranties
 
in the
related MLPA’s.
 
The Company believes the demands are without merit and intends to defend
 
against the demand vigorously.
 
No
provision or accrual has been recorded as of March 31,June 30, 2021 related to the Citigroup
demand.
 
Management is not aware of any other significant reported or unreported contingencies
 
at March 31,June 30, 2021.
 
NOTE 11.
 
INCOME TAXES
 
 
The total income tax provision recorded for the threesix months ended March 31,June 30, 2021 and 2020
 
and 2020 was $
0.50.2
 
million and $
7.48.7
 
million,
respectively, on consolidated pre-tax book income (loss) of $
1.80.5
 
million and $(
14.910.2
) million in the six and three months ended March 31, 2021June 30,
2021 and 2020, respectively.
The total income tax (benefit) provision recorded for the three months ended June 30,
2021 and 2020
was $(
0.3
) million and $
1.3
million, respectively, on consolidated pre-tax book (loss) income of $(
1.2
) million and $
4.8
million in the
three months ended June 30, 2021 and 2020, respectively.
 
 
The Company’s tax provision is based on a projected effective rate based on annualized amounts applied
 
to actual income to date
and includes the expected realization of a portion of the tax benefits of federal and
 
state net operating losses carryforwards (“NOLs”).
In assessing the realizability of deferred tax assets, management considers whether
 
it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of capital loss
 
and NOL carryforwards is dependent upon the
generation of future capital gains and taxable income in periods prior to their expiration.
 
The Company currently provides a valuation
allowance against a portion of the NOLs since the Company believes that it is more likely
 
than not that some of the benefits will not be
realized in the future. The Company will continue to assess the need for a valuation
 
allowance at each reporting date.
 
As a result of adverse economic impacts of COVID-19 on its business, the Company performed
 
an assessment of the need for
additional valuation allowances against existing deferred tax assets as of March 31,
 
2020. Following the more-likely-than-not standard
that benefits will not be realized in the future, the Company determined an additional
 
valuation allowance of approximately $
11.2
 
million
was necessary for the net operating loss carryforwards and capital loss carryforwards
 
during the three months ended March 31, 2020.
With the rapidly evolving and changing landscape caused by the pandemic, including the
potential for new government restrictions on
the economy in reaction to the Delta Variant, the Company will continue to closely monitor the impacts of COVID-19 on the Company’s
ability to realize its deferred tax assets, and it may re-evaluate valuation allowances
in the future as new information becomes
available.
 
NOTE 12.
 
EARNINGS PER SHARE
 
- 17 -
Shares of
 
Class B common
 
stock,
 
participating
 
and convertible
 
into Class
 
A common stock,
 
are entitled
 
to receive
 
dividends
 
in an
amount equal
 
to the dividends
 
declared on
 
each share
 
of Class A
 
common stock
 
if, and when,
 
authorized
 
and declared
 
by the Board
 
of
Directors.
 
The Class
 
B common stock
 
is included
 
in the computation
 
of basic EPS
 
using the two-class
 
method, and
 
consequently
 
is
presented
 
separately
 
from Class
 
A common stock.
 
Shares of
 
Class B common
 
stock are not
 
included in
 
the computation
 
of diluted
 
Class A
- 17 -
EPS as the
 
conditions
 
for conversion
 
to Class A
 
common stock
 
were not
 
met at MarchJune
 
31,30, 2021 and
 
2020.
 
Shares of
 
Class C common
 
stock are not
 
included in
 
the basic
 
EPS computation
 
as these shares
 
do not have
 
participation
 
rights.
Shares of
 
Class C common
 
stock are not
 
included in
 
the computation
 
of diluted
 
Class A EPS
 
as the conditions
 
for conversion
 
to Class A
common stock
 
were not
 
met at MarchJune
 
31,30, 2021 and
 
2020.
 
The table
 
below reconciles
 
the numerator
 
and denominator
 
of EPS for
 
the six and
three months
 
ended MarchJune
 
31,30, 2021 and
 
2020.
 
(in thousands, except per-share information)
Six Months Ended June 30,
Three Months Ended June 30,
2021
2020
2021
2020
Basic and diluted EPS per Class A common share:
Income (loss) attributable to Class A common shares:
Basic and diluted
$
1,286370
$
(22,272)(18,813)
$
(917)
$
3,458
Weighted average common shares:
Class A common shares outstanding at the balance sheet date
11,609
11,609
11,609
11,609
Weighted average shares-basic and diluted
11,609
11,609
11,609
11,609
Income (loss) per Class A common share:
Basic and diluted
$
0.110.03
$
(1.92)(1.62)
$
(0.08)
$
0.30
 
(in thousands, except per-share information)
Six Months Ended June 30,
Three Months Ended June 30,
2021
2020
2021
2020
Basic and diluted EPS per Class B common share:
Income (loss) attributable to Class B common shares:
Basic and diluted
$
41
$
(61)(52)
$
(3)
$
10
Weighted average common shares:
Class B common shares outstanding at the balance sheet date
32
32
Effect of weighting
32
-
-32
Weighted average shares-basic and diluted
32
32
32
32
Income (loss) per Class B common share:
Basic and diluted
$
0.110.03
$
(1.92)(1.62)
$
(0.08)
$
0.30
 
NOTE 13.
 
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 amounts
 
measured
 
at fair value
 
based on inputs
 
the Company
 
uses to derive
 
fair value
measurements.
 
These stratifications
 
are:
 
●
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- 18 -
 
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.
MBS, Orchid
 
common stock,
 
retained
 
interests and
 
TBA securities
 
were all recorded
 
at fair value
 
on a recurring
 
basis during
 
the threesix
and three
months ended
 
March 31,June 30, 2021
 
2021 and 2020.
 
2020. When
determining
 
fair value
 
measurements,
 
the Company
 
considers the
 
principal
or most
most advantageous
 
market in which
 
it would transact
 
and considers
 
assumptions
 
that market
 
participants
 
would use
 
when pricing
 
the asset.
asset. When possible,
 
possible, the Company
 
Company looks
to active and
 
and observable
 
markets to
 
price identical
 
assets.
 
When identical
 
assets are
 
not traded
in
in active markets,
 
the Company
 
looks to market
 
observable
 
data for
 
similar assets.
 
Fair value
 
measurements
 
for the retained
 
interests are
generated
 
by a model
 
that requires
 
management
 
to make a
 
significant
 
number of
 
assumptions,
 
and this model
 
resulted in
 
a value of
 
zero
at both MarchJune
 
31,30, 2021 and
 
December 31,
 
2020.
 
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, when
 
available.
 
Because the
 
price estimates
 
may vary,
the Company
 
must make certain
 
judgments and
 
assumptions
 
about the
 
appropriate
 
price to use
 
to calculate
 
the fair values.
 
The Company
and the independent
 
pricing sources
 
use various
 
valuation techniques
 
to determine
 
the price
 
of the Company’s
 
securities.
 
These
techniques
 
include observing
 
the most
 
recent market
 
for like or
 
identical assets
 
(including
 
security coupon,
 
maturity, yield,
 
and prepayment
speeds),
 
spread pricing
 
techniques
 
to determine
 
market credit
 
spreads (option
 
adjusted spread,
 
zero volatility
 
spread, spread
 
to the U.S.
Treasury curve
 
or spread
 
to a benchmark
 
such as a TBA
 
security),
 
and model driven
 
approaches
 
(the discounted
 
cash flow
 
method, Black
Scholes and
 
SABR models
 
which rely
 
upon observable
 
market rates
 
such as the
 
term structure
 
of interest
 
rates and
volatility).
 
The
appropriate
 
spread pricing
 
method used
 
is based on
 
market convention.
 
The pricing
 
source determines
 
the spread
 
of recently
 
observed
trade activity
 
or observable
 
markets for
 
assets similar
 
to those being
 
priced. The
 
spread is then
 
adjusted based
 
on variances
 
in certain
characteristics
 
between the
 
market observation
 
and the asset
 
being priced.
 
Those characteristics
 
include: type
 
of asset, the
 
expected life
of the asset,
 
the stability
 
and predictability
 
of the expected
 
future cash
 
flows of the
 
asset, whether
 
the coupon
 
of the asset
 
is fixed or
adjustable,
 
the guarantor
 
of the security
 
if applicable,
 
the coupon,
 
the maturity, the
 
issuer, size of
 
the underlying
 
loans, year
 
in which
 
the
underlying
 
loans were
 
originated,
 
loan to value
 
ratio, state
 
in which the
 
underlying
 
loans reside,
 
credit score
 
of the underlying
 
borrowers
and other
 
variables if
 
appropriate.
 
The fair value
 
of the security
 
is determined
 
by using the
 
adjusted spread.
 
The Company’s
 
futures contracts
 
are Level
 
Level 1 valuations,
 
as they are
 
are exchange-traded
 
instruments
 
and quoted
 
market prices
 
are
readily available.
 
Futures contracts
 
are settled
 
daily. The Company’s
 
interest rate
 
swaps and
 
interest rate
 
swaptions
 
are Level 2
valuations.
 
The fair value
 
of interest
 
rate swaps
 
is determined
 
using a discounted
 
cash flow
 
approach
 
using forward
 
market interest
 
rates
and discount
 
rates, which
 
are observable
 
inputs. The
 
fair value
 
of interest
 
rate swaptions
 
is determined
 
using an option
 
pricing model.
 
The following
 
table presents
 
financial assets
 
and liabilities
 
measured
 
at fair value
 
on a recurring
 
basis as of
 
March 31,June 30, 2021
 
2021 and
December 31,
 
2020:
 
(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)
March 31,June 30, 2021
Mortgage-backed securities
$
72,85668,994
$
0
$
72,85668,994
$
0
Orchid Island Capital, Inc. common stock
15,59813,470
15,59813,470
0
0
December 31, 2020
Mortgage-backed securities
$
65,178
$
0
$
65,178
$
0
Orchid Island Capital, Inc. common stock
13,548
13,548
0
0
 
During the
 
threesix months
 
ended MarchJune
 
31,30, 2021 and
 
2020, there
 
were no transfers
 
of financial
 
assets or liabilities
 
between levels
 
1, 2 or 3.
NOTE 14.
SEGMENT INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- 19 -
 
or 3.
NOTE 14.
SEGMENT INFORMATION
The Company’s operations are classified into two principal reportable segments: the asset
 
management segment and the
investment portfolio segment.
 
The asset management segment includes the investment advisory services provided by
 
Bimini Advisors to Orchid and Royal
Palm. As discussed in Note 2, the revenues of the asset management segment consist of
 
management fees and overhead
reimbursements received
pursuant to a management agreement with Orchid.
 
Total revenues received under this management
agreement for the threesix months ended March 31,June 30, 2021 and 2020, were approximately
$
2.04.2
 
million and $
1.73.4
 
million, respectively,
accounting for approximately
6466
% and
4250
% of consolidated revenues, respectively.
 
The investment portfolio segment includes the investment activities conducted by
 
Royal Palm.
 
The investment portfolio segment
receives revenue in the form of interest and dividend income on its investments.
 
Segment information for the threesix months ended March 31,June 30, 2021 and 2020 is as
follows:
 
 
(in thousands)
Asset
Investment
Management
Portfolio
Corporate
Eliminations
Total
2021
Advisory services, external customers
$
2,0254,211
$
0
$
0
$
0
$
2,0254,211
Advisory services, other operating segments
(1)
3672
0
0
(36)(72)
0
Interest and dividend income
0
1,1172,201
0
0
1,1172,201
Interest expense
0
(40)(71)
(250)(499)
(2)
0
(290)(570)
Net revenues
2,0614,283
1,0772,130
(250)(499)
(36)(72)
2,8525,842
Other income
0
658(1,976)
1154
(3)
0
659(1,822)
Operating expenses
(4)
(1,103)(2,230)
(653)(1,251)
0
0
(1,756)(3,481)
Intercompany expenses
(1)
0
(36)(72)
0
3672
0
Income (loss) before income taxes
$
9582,053
$
1,046(1,169)
$
(249)(345)
$
0
$
1,755539
Asset
Investment
Management
Portfolio
Corporate
Eliminations
Total
2020
Advisory services, external customers
$
1,7253,340
$
0
$
0
$
0
$
1,7253,340
Advisory services, other operating segments
(1)
5984
0
0
(59)(84)
0
Interest and dividend income
0
2,4053,317
0
0
2,4053,317
Interest expense
0
(928)(988)
(350)(632)
(2)
0
(1,278)(1,620)
Net revenues
1,7843,424
1,4772,329
(350)(632)
(59)(84)
2,8525,037
Other expenses
0
(15,563)(11,307)
(514)(516)
(3)
0
(16,077)(11,823)
Operating expenses
(4)
(709)(1,690)
(997)(1,701)
0
0
(1,706)(3,391)
Intercompany expenses
(1)
0
(59)(84)
0
5984
0
Income (loss) before income taxes
$
1,0751,734
$
(15,142)(10,763)
$
(864)(1,148)
$
0
$
(14,931)(10,177)
Segment information for the three months ended June 30, 2021 and 2020 is as follows:
(in thousands)
Asset
Investment
Management
Portfolio
Corporate
Eliminations
Total
2021
Advisory services, external customers
$
2,186
$
0
$
0
$
0
$
2,186
Advisory services, other operating segments
(1)
37
0
0
(37)
0
Interest and dividend income
0
1,084
0
0
1,084
Interest expense
0
(31)
(250)
(2)
0
(281)
Net revenues
2,223
1,053
(250)
(37)
2,989
- 20 -
Other
0
(2,634)
154
(3)
0
(2,480)
Operating expenses
(4)
(1,125)
(599)
0
0
(1,724)
Intercompany expenses
(1)
0
(37)
0
37
0
Income (loss) before income taxes
$
1,098
$
(2,217)
$
(96)
$
0
$
(1,215)
Asset
Investment
Management
Portfolio
Corporate
Eliminations
Total
2020
Advisory services, external customers
$
1,615
$
0
$
0
$
0
$
1,615
Advisory services, other operating segments
(1)
26
0
0
(26)
0
Interest and dividend income
0
912
0
0
912
Interest expense
0
(60)
(282)
(2)
0
(342)
Net revenues
1,641
852
(282)
(26)
2,185
Other
0
4,256
(2)
(3)
0
4,254
Operating expenses
(4)
(1,067)
(618)
0
0
(1,685)
Intercompany expenses
(1)
0
(26)
0
26
0
Income (loss) before income taxes
$
574
$
4,464
$
(284)
$
0
$
4,754
 
(1)
 
Includes fees paid by Royal Palm to Bimini Advisors for advisory services
 
.
(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 and fair value adjustments
 
on
retained interests in securitizations.junior subordinated notes.
(4)
 
Corporate expenses are allocated based on each segment’s proportional
 
share of total revenues.
 
Assets in each reportable segment as of March 31,June 30, 2021 and December 31, 2020 were as
 
follows:
- 20 -
 
(in thousands)
Asset
Investment
Management
Portfolio
Corporate
Total
March 31,June 30, 2021
$
1,7001,733
$
122,894120,020
12,63912,919
$
137,233134,672
December 31, 2020
1,469
113,764
13,468
128,701
 
NOTE 15. RELATED PARTY TRANSACTIONS
 
Relationships with Orchid
 
At both March 31,June 30, 2021 and December 31, 2020, the Company owned
2,595,357
 
shares of Orchid common stock, representing
approximately
2.82.2
% and
3.4
% of Orchid’s outstanding common stock on such dates.
 
The Company received dividends on this
common stock investment of approximately $
1.0
million and $
0.5
million during the six and three months ended June 30, 2021, and
approximately $
0.8
 
million and $
0.4
 
million during the six and three months ended March 31, 2021 andJune 30, 2020,
respectively.
 
Robert Cauley, the Chief Executive Officer and Chairman of the Board of Directors of the Company, also serves as Chief
Executive Officer and Chairman of the Board of Directors of Orchid, receives compensation
 
from Orchid, and owns shares of common
stock of Orchid.
 
In addition, Hunter Haas, the Chief Financial Officer, Chief Investment Officer and Treasurer of the Company, also
serves as Chief Financial Officer, Chief Investment Officer and Secretary of Orchid, is a member of Orchid’s Board of Directors,
receives compensation from Orchid, and owns shares of common stock of Orchid. Robert J.
 
Robert J. Dwyer and Frank E. Jaumot, our
independent directors, each own shares of common stock of Orchid.
 
 
- 21 -
 
ITEM 2. MANAGEMENT’S
 
DISCUSSION
 
AND ANALYSIS OF FINANCIAL
 
CONDITION
 
AND RESULTS OF
 
OPERATIONS.
 
 
The following
discussion of
our financial
condition and
results of
operations should be
 
be read
in conjunction
with the consolidated
financial
financial statements and notes
to those statements
included in Item
1 of this
Form 10-Q. The
 
The discussion may contain
certain forward-forward-looking
looking statements that involve risks
and uncertainties. Forward-looking statements
 
statements are those that
are not historical in
nature. As a result
result of many
factors, such as
those set forth
under “Risk Factors”
in our most recent
 
recent Annual Report
on Form 10-K
and any subsequent
Quarterly
Reports on Form 10-Q, our actual results
may differ materially from those anticipated in such
forward-looking statements.
 
Overview
 
Bimini Capital Management, Inc. ("Bimini Capital" or the "Company") is a holding company
 
that was formed in September 2003.
The Company’s principal wholly-owned operating subsidiary is Royal Palm Capital, LLC.
 
We operate in two business segments: the
asset management segment, which includes (a) the investment advisory services provided
 
by Royal Palm’s wholly-owned subsidiary,
Bimini Advisors Holdings, LLC, to Orchid, and (b) the investment portfolio segment, which includes
 
the investment activities conducted
by Royal Palm.
 
 
Bimini 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 serves as the external
manager of the portfolio of Orchid Island Capital, Inc. ("Orchid"). From this arrangement,
 
the Company receives management fees and
expense reimbursements.
 
As manager, Bimini Advisors is responsible for administering Orchid's business activities and day-to-day
operations.
 
Pursuant to the terms of the management agreement, Bimini Advisors
 
provides Orchid with its management team,
including its officers, along with appropriate support personnel. Bimini Advisors is at all times
 
subject to the supervision and oversight of
Orchid's board of directors and has only such functions and authority as delegated to
 
it.
 
 
Royal Palm Capital, LLC (collectively with its wholly-owned subsidiaries referred
 
to as “Royal Palm”) maintains an investment
portfolio, consisting primarily of residential mortgage-backed securities ("MBS") issued
 
and guaranteed by a federally chartered
corporation or agency ("Agency MBS"). Our investment strategy focuses on, and our
 
portfolio consists of, two categories of Agency
MBS: (i) traditional pass-through Agency MBS, such as mortgage pass-through
 
certificates issued by Fannie Mae, Freddie Mac or
Ginnie Mae (the “GSEs”) and collateralized mortgage obligations (“CMOs”) issued
 
by the GSEs (“PT MBS”) and (ii) structured Agency
MBS, such as interest only securities ("IOs"), inverse interest only securities
 
("IIOs") and principal only securities ("POs"), among other
types of structured Agency MBS. In addition, Royal Palm receives dividends from its
 
investment in Orchid common shares.
 
Impact of
the COVID-19
 
ImpactPandemic
 
Beginning
 
in mid-MarchMarch 2020,
 
2020, the global
 
global pandemic
associated
 
with the novel
 
coronavirus
 
COVID-19 (“COVID-19”)
 
and related
 
economic
conditions
 
began to impact
 
our financial
 
position and
 
results of
 
operations.
 
As a result
 
of the economic,
 
health and
 
market turmoil
 
brought
about by COVID-19,
 
the Agency
MBS market
 
experienced
 
severe dislocations.
 
This resulted
 
in falling
 
prices of our
 
assets and
 
increased
margin calls
 
margin
calls from
our repurchase
 
agreement
 
lenders, resulting
 
in material
 
adverse effects
 
on our results
 
of operations
 
and to our
 
financial
condition.statements.
The Agency
MBS market
 
largely stabilized
 
after the
 
Federal Reserve
(the “Fed”)
 
announced
 
on March 23,
 
2020 that
 
it would purchase
Agency MBS
 
MBS and U.S.
Treasuries in the
 
the amounts needed
 
needed to support
 
support smooth market
 
market functioning.
 
As of March
 
31, 2020,
 
and at all
 
times
since then,
 
then, we have timely
 
have timely
satisfied all
 
all margin calls.
 
calls. The MBS
 
MBS market continues
 
to reactcontinues to
 
react to the pandemic
 
pandemic and
the various
 
measures put
 
in
place to stabilize
 
stabilize the market.
market. To the extent the
 
the financial or
 
or mortgage markets
 
markets do
not respond
 
favorably to
 
any of these
 
actions, or
 
such
actions do
 
do not function
as intended,
 
our business,
 
results of
 
operations
 
and financial
 
condition
 
may continue
 
to be materially
 
adversely
affected. Although
 
Although the
Company cannot
 
cannot estimate the
 
the length or
 
or gravity of
 
of the impact
 
of the COVID-19
 
pandemic at
 
this time, if
the pandemic
continues,
 
it may continue
continue to
have materially
 
adverse effects
 
on the Company’s
 
results of
 
future operations,
 
financial position,
 
and liquidity
 
during 2021.
 
Stock Repurchase
Plan
 
- 22 -
 
Stock Repurchase
Plan
 
On March 26,
 
2018, the
 
Board of Directors
 
of the Company
 
approved a
 
Stock Repurchase
 
Plan (“Repurchase
 
Plan”).
 
Pursuant to
the
Repurchase
 
Plan, we
 
may purchase
 
up to 500,000
 
shares of
 
the Company’s
 
Class A Common
 
Stock from
 
time to time,
 
subject to
 
certain
limitations
 
imposed by
 
Rule 10b-18
 
of the Securities
 
Exchange Act
 
of 1934.
 
Share repurchases
 
may be executed
 
through various
 
means,
including,
 
without limitation,
 
open market
 
transactions.
 
The Repurchase
 
Plan does
 
not obligate
 
the Company
 
Company to purchase
 
purchase any shares.
 
shares. The
Repurchase
 
Plan was originally
 
as currentlyset to expire
 
on November
15, 2018,
but it has
been extended expires
by the Board
of Directors
and it is currently
set to expire
 
on November
 
15, 2021.
 
The authorization
 
for the Share
 
Repurchase
 
Plan may be
terminated,
 
increased or
 
decreased by
 
the
Company’s Board
 
Board of Directors
 
in its discretion
 
at any time.
 
From commencement
 
of the Repurchase
 
Plan, through
 
March 31,June 30, 2021,
 
2021, the Company
 
Company repurchased
 
a total of
 
70,70470,404 shares
 
at an
aggregate
 
cost of approximately
 
$166,945,
 
including commissions
 
and fees, for
 
a weighted
 
average price
 
of $2.37 per
share.
Tender Offer
In July 2021,
we completed
a “modified
Dutch auction”
tender offer
and paid an
aggregate
of $1.5 million,
excluding fees
and related
expenses, to
repurchase
812,879 shares
of our Class
A common stock,
which were
retired, at
a price of
$1.85 per
 
share.
 
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 pandemic) may
 
may impact our results
of
operations and financial condition. These factors include:
 
●
• interest rate trends;
●
• the difference between Agency MBS yields and our funding and hedging costs;
●
• competition for,
 
competition for, and supply of, investments in Agency MBS;
●
• actions taken
 
actions taken by the
U.S. government, including
the presidential
administration, the
 
presidential administration, theU.S. Federal
Reserve (the “Fed”
“Fed”), the Federal
Federal Open Market Committee (the “FOMC”), the Federal Housing Finance Agency
 
(theAgency (the “FHFA”) and the U.S. Treasury;
●
• prepayment rates on mortgages underlying our Agency MBS, and credit trends
insofar as they affect prepayment rates; and
●
• the equity markets and the ability of Orchid to raise additional capital; and
●
• other market developments.
 
In addition, a variety
of factors relating to
our business may also
impact our results of
 
of operations and financial condition.
These
factors include:
 
●
• 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 net capital loss carryforwards
to reduce our taxable
income;
●
• the impact of possible future changes in tax laws or tax rates; and
●
• our ability to manage the portfolio of Orchid and maintain our role as manager.
 
Results of
 
Operations
 
Described
 
below are
the Company’s
 
results of
operations
 
for the six and three months
ended June 30, 2021,
as compared to the six
and three
 
months ended
 
March 31,June 30, 2020.
 
2021,
 
as compared
to the three
months ended
March 31,
2020.
 
 
Net Income
(Loss) Summary
 
 
Consolidated
 
net income
 
for the three
 
months ended
 
March 31,
 
2021 was $1.3
 
million, or
 
$0.11 basic and diluted
 
income per
 
share of
Class A Common
 
Stock, as
 
compared to
 
a consolidated
 
net loss of
 
$22.3 million,
 
or $1.92 basic
 
and diluted
 
loss per share
 
of Class
 
A
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- 23 -
 
Net Income
(Loss) Summary
Consolidated
net income
for the
six months
ended June
30, 2021
was $0.4
million, or
$0.03 basic
and diluted
income per
share of
Class
A Common Stock, as compared to consolidated net loss of $18.9 million,
or $1.62 basic and diluted loss per share of Class A Common
Stock,
for the six
months ended
June 30, 2020.
Consolidated
net loss for
the three months
ended June
30, 2021 was
$0.9 million,
or $0.08 basic
and diluted
loss per share
of Class A
Common Stock,
as compared
to consolidated
net income of
$3.5 million,
or $0.30 basic
and diluted
income per share
of Class A Common
Stock,
 
for the three
 
months ended
 
March 31,June 30, 2020.
 
2020. The
 
The components
of net income (loss)
 
(loss) for
the six and three
months ended
March 31,
June 30, 2021 and 2020,
along with
the changes
in those
components
 
are presented
 
in the table
 
below.below:
 
(in thousands)
Six Months Ended June 30,
Three Months Ended March 31,June 30,
2021
2020
Change
2021
2020
Change
Advisory services revenues
$
2,0254,211
$
1,7253,340
$
300871
$
2,186
$
1,615
$
571
Interest and dividend income
1,1172,201
2,4053,317
(1,288)(1,116)
1,084
912
172
Interest expense
(289)(570)
(1,277)(1,620)
9881,050
(281)
(342)
61
Net revenues
2,8535,842
2,8535,037
-805
2,989
2,185
804
Other (expense) income (expense)
658(1,822)
(16,077)(11,823)
16,73510,001
(2,480)
4,254
(6,734)
Expenses
(1,757)(3,481)
(1,706)(3,391)
(51)(90)
(1,724)
(1,685)
(39)
Net income (loss) before income tax provision (benefit)
1,754539
(14,930)(10,177)
16,68410,716
(1,215)
4,754
(5,969)
Income tax provision (benefit)
(464)(168)
(7,403)(8,688)
6,9398,520
295
(1,286)
1,581
Net income (loss)
$
1,290371
$
(22,333)(18,865)
$
23,62319,236
$
(920)
$
3,468
$
(4,388)
 
GAAP and Non-GAAP Reconciliation
 
 
Economic Interest Expense and Economic Net Interest Income
 
We use derivative instruments, specifically Eurodollar and Treasury Note (“T-Note”) 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 derivative financial instruments as hedge accounting relationships,
 
but rather hold them for economic
hedging purposes. Changes
in fair value of these instruments are presented in a
separate line item in our consolidated
statements of
operations and not included in interest expense. As such, for financial reporting
 
purposes, interest expense and cost of funds are not
impacted by the fluctuation in value of the derivative instruments.
 
 
For the purpose of computing economic net interest income and ratios relating to cost
 
of funds measures, GAAP interest expense
has been adjusted to reflect the realized and unrealized gains or losses on certain
 
on certain derivative instruments the Company uses that
pertain to each period presented. We believe that adjusting our interest expense for the periods
 
presented by the gains or losses on
these derivative instruments would not accurately reflect our economic interest
 
expense for these periods. The reason is that these
derivative instruments may cover periods that extend into the future, not just the current
 
period.
 
Any realized or unrealized gains or
losses on the instruments reflect the change in market value of the instrument caused
 
by changes in underlying interest rates
applicable to the term covered by the instrument, not just the
current period.
 
For each period presented, we have combined the effects of the derivative financial instruments
 
in place for the respective period
with the actual interest expense incurred on borrowings to reflect total economic interest
 
expense for the applicable period. Interest
expense, including the effect of derivative instruments for the period, is referred to as economic interest
 
expense. Net interest income,
- 24 -
when calculated to include the effect of derivative instruments for the period, is referred to
 
as economic net interest income. This
presentation includes gains or losses on all contracts in effect during the reporting period, covering
 
the current period as well as
periods in the future.
 
We believe that economic interest expense and economic net interest income provide meaningful
 
information to consider, in
addition to the respective amounts prepared in accordance with GAAP. The non-GAAP measures help management to evaluate its
financial position and performance without the effects of certain transactions and GAAP adjustments
 
that are not necessarily indicative
of our current investment portfolio or operations. The unrealized gains or losses on derivative
 
instruments presented in our
consolidated statements of operations are not necessarily representative of the total interest
 
rate expense that we will ultimately
realize. This is because as interest rates move up or down in the future, the gains
 
or losses we ultimately realize, and which will affect
our total interest rate expense in future periods, may differ from the unrealized gains or losses recognized
 
as of the reporting date.
 
- 24 -
 
Our presentation of the economic
value of our hedging strategy has important limitations.
First, other market participants
may
calculate economic interest expense and economic net interest income differently than the
 
way we calculate them. Second, while we
believe that the calculation of the economic value of our hedging strategy described
 
above helps to present our financial position and
performance, it may be of limited usefulness as an analytical tool. Therefore, the economic
 
value of our investment strategy should not
be viewed in isolation and is not a substitute for interest expense and net interest
 
income computed in accordance with GAAP.
 
The tables below present a reconciliation of the adjustments to interest expense shown for each period relative to our
derivative instruments, and the consolidated statements of operations line item, gains (losses) on derivative instruments,
calculated in accordance with GAAP for each quarter in 2021 and 2020.
 
 
As a result of the market turmoil during the first quarter of 2020 several hedge positions where closed.
 
However, the
hedges closed were hedges that covered periods well beyond the first quarter of 2020.
 
Accordingly, the open equity at the
time these hedges were closed will result in adjustments to economic interest expense through the balance of their
respective original hedge periods.
 
Since the Company’s portfolio was significantly reduced during the first quarter of 2020,
the effect of applying the open equity at the time of closure of these hedge instruments to the current, and much smaller,
repurchase agreement interest expense amounts couldhas materially impactimpacted the economic interest amounts reported below.
 
Gains (Losses)Losses on Derivative Instruments - Recognized in Consolidated Statement of Operations (GAAP)
(in thousands)
Recognized in
Statement of
TBA
Operations
Securities
Futures
(GAAP)
Income (Loss)
Contracts
Three Months Ended
March 31,(GAAP)
Loss
Contracts
June 30, 2021
$
-
$
-
$
-
March 31, 2021
-
-
-
December 31, 2020
-
-
-
September 30, 2020
-
-
-
June 30, 2020
(2)
-
(2)
March 31, 2020
(5,291)
(1,441)
(3,850)
Six Months Ended
June 30, 2021
$
-
$
-
$
-
June 30, 2020
(5,292)
(1,441)
(3,851)
 
Gains (Losses) on Futures ContractsDerivative Instruments - Attributed to Current Period (Non-GAAP)
(in thousands)
Attributed to Current Period (Non-GAAP)
Attributed to Future Periods (Non-GAAP)
Repurchase
Long-Term
Repurchase
Long-Term
Statement of
Three Months Ended
Agreements
Debt
Total
Agreements
Debt
Total
Operations
Three Months Ended
March 31,June 30, 2021
$
(708)
$
(58)
$
(766)
$
708
$
58
$
766
$
-
December 31, 2020
(615)
(40)
(655)
615
40
655
-
September 30, 2020
(1,065)
(40)
(1,105)
1,065
40
1,105
-
June 30, 2020
(456)
(40)
(496)
456
38
494
(2)
March 31, 2020
(456)
(40)
(496)
(2,879)
(475)
(3,354)
(3,850)
Economic Net Portfolio Interest Income
(in thousands)
Interest Expense on Repurchase Agreements
Net Portfolio
Effect of
Interest Income
Interest
GAAP
Non-GAAP
Economic
GAAP
Economic
Income
Basis
Hedges
(1)
Basis
(2)
Basis
Basis
(3)
Three Months Ended
March 31, 2021
$
611
$
40
$
(708)
$(58)
748(766)
$708
57158
$766
(137)
December 31, 2020
597
43
(615)
658
554
(61)
September 30, 2020
604
43
(1,065)
1,108
561
(504)-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- 25 -
 
December 31, 2020
(615)
(40)
(655)
615
40
655
-
September 30, 2020
(1,065)
(40)
(1,105)
1,065
40
1,105
-
June 30, 2020
(456)
(40)
(496)
456
38
494
(2)
March 31, 2020
(456)
(40)
(496)
(2,879)
(475)
(3,354)
(3,850)
Six Months Ended
June 30, 2021
$
(1,416)
$
(116)
$
(1,532)
$
1,416
$
116
$
1,532
$
-
June 30, 2020
(912)
(80)
(992)
(2,423)
(437)
(2,860)
$
(3,852)
Economic Net Portfolio Interest Income
(in thousands)
Interest Expense on Repurchase Agreements
Net Portfolio
Effect of
Interest Income
Interest
GAAP
Non-GAAP
Economic
GAAP
Economic
Three Months Ended
Income
Basis
Hedges
(1)
Basis
(2)
Basis
Basis
(3)
June 30, 2021
$
578
$
31
$
(708)
$
739
$
547
$
(161)
March 31, 2021
611
40
(708)
748
571
(137)
December 31, 2020
597
43
(615)
658
554
(61)
September 30, 2020
604
43
(1,065)
1,108
561
(504)
June 30, 2020
523
60
(456)
516
463
7
March 31, 2020
2,040
928
(456)
1,384
1,112
656
Six Months Ended
June 30, 2021
$
1,189
$
71
$
(1,416)
$
1,487
$
1,118
$
(298)
June 30, 2020
2,563
988
(912)
1,900
1,575
663
 
(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 (Loss)
GAAP
Economic
GAAP
Non-GAAP
Economic
GAAP
Economic
Three Months Ended
Basis
Basis
(1)
Basis
Hedges
(2)
Basis
(3)
Basis
Basis
(4)
Three Months Ended
March 31,June 30, 2021
$
571547
$
(137)(161)
$
250
$
(58)
$
308
$
321297
$(469)
March 31, 2021
571
(137)
250
(58)
308
321
(445)
December 31, 2020
554
(61)
257
(40)
297
297
(358)
September 30, 2020
561
(504)
261
(40)
301
300
(805)
June 30, 2020
463
7
282
(40)
322
181
(315)
March 31, 2020
1,112
656
350
(40)
390
762
266
Six Months Ended
June 30, 2021
$
1,118
$
(298)
$
500
$
(116)
$
616
$
618
$
(914)
June 30, 2020
1,575
663
632
(80)
712
943
(49)
 
(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
Advisors to Orchid and Royal Palm. The investment portfolio segment includes the
investment activities conducted by Royal Palm.
Segment information for the three months ended March 31, 2021 and 2020 is as
 
follows:
 
(in thousands)
Asset
Investment
Management
Portfolio
Corporate
Eliminations
Total
2021
Advisory services, external customers
$
2,025
$
-
$
-
$
-
$
2,025
Advisory services, other operating segments
(1)
36
-
-
(36)
-
Interest and dividend income
-
1,117
-
-
1,117
Interest expense
-
(40)
 
(250)
(2)
-
(290)
Net revenues
2,061
1,077
(250)
(36)
2,852
Other income
-
658
 
1
(3)
-
659
Operating expenses
(4)
(1,103)
(653)
-
-
(1,756)
Intercompany expenses
(1)
-
(36)
-
36
-
Income (loss) before income taxes
$
958
$
1,046
$
(249)
$
-
$
1,755
Asset
Investment
Management
Portfolio
Corporate
Eliminations
Total
2020
Advisory services, external customers
$
1,725
$
-
$
-
$
-
$
1,725
Advisory services, other operating segments
(1)
59
-
-
(59)
-
Interest and dividend income
-
2,405
-
-
2,405
Interest expense
-
(928)
 
(350)
(2)
-
(1,278)
Net revenues
1,784
1,477
(350)
(59)
2,852
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- 26 -
 
Other expensesWe have two operating segments. The asset management segment includes the investment
advisory services provided by Bimini
Advisors to Orchid and Royal Palm. The investment portfolio segment includes the
investment activities conducted by Royal Palm.
Segment information for the six months ended June 30, 2021 and 2020 is as follows:
(in thousands)
Asset
Investment
Management
Portfolio
Corporate
Eliminations
Total
2021
Advisory services, external customers
$
4,211
$
-
(15,563)$
-
$
-
$
4,211
Advisory services, other operating segments
(1)
72
-
-
(72)
-
Interest and dividend income
-
2,201
-
-
2,201
Interest expense
-
(71)
 
(514)(499)
(2)
-
(570)
Net revenues
4,283
2,130
(499)
(72)
5,842
Other income
-
(1,976)
154
(3)
-
(16,077)(1,822)
Operating expenses
(4)
(709)(2,230)
(997)(1,251)
-
-
(1,706)(3,481)
Intercompany expenses
(1)
-
(59)(72)
-
5972
-
Income (loss) before income taxes
$
1,0752,053
$
(15,142)(1,169)
$
(864)(345)
$
-
$
(14,931)539
Asset
Investment
Management
Portfolio
Corporate
Eliminations
Total
2020
Advisory services, external customers
$
3,340
$
-
$
-
$
-
$
3,340
Advisory services, other operating segments
(1)
84
-
-
(84)
-
Interest and dividend income
-
3,317
-
-
3,317
Interest expense
-
(988)
(632)
(2)
-
(1,620)
Net revenues
3,424
2,329
(632)
(84)
5,037
Other expenses
-
(11,307)
(516)
(3)
-
(11,823)
Operating expenses
(4)
(1,690)
(1,701)
-
-
(3,391)
Intercompany expenses
(1)
-
(84)
-
84
-
Income (loss) before income taxes
$
1,734
$
(10,763)
$
(1,148)
$
-
$
(10,177)
Segment information for the three months ended June 30, 2021 and 2020 is as follows:
(in thousands)
Asset
Investment
Management
Portfolio
Corporate
Eliminations
Total
2021
Advisory services, external customers
$
2,186
$
-
$
-
$
-
$
2,186
Advisory services, other operating segments
(1)
37
-
-
(37)
-
Interest and dividend income
-
1,084
-
-
1,084
Interest expense
-
(31)
(250)
(2)
-
(281)
Net revenues
2,223
1,053
(250)
(37)
2,989
Other
-
(2,634)
154
(3)
-
(2,480)
Operating expenses
(4)
(1,125)
(599)
-
-
(1,724)
Intercompany expenses
(1)
-
(37)
-
37
-
Income (loss) before income taxes
$
1,098
$
(2,217)
$
(96)
$
-
$
(1,215)
Asset
Investment
Management
Portfolio
Corporate
Eliminations
Total
2020
Advisory services, external customers
$
1,615
$
-
$
-
$
-
$
1,615
Advisory services, other operating segments
(1)
26
-
-
(26)
-
Interest and dividend income
-
912
-
-
912
Interest expense
-
(60)
(282)
(2)
-
(342)
- 27 -
Net revenues
1,641
852
(282)
(26)
2,185
Other
-
4,256
(2)
(3)
-
4,254
Operating expenses
(4)
(1,067)
(618)
-
-
(1,685)
Intercompany expenses
(1)
-
(26)
-
26
-
Income (loss) before income taxes
$
574
$
4,464
$
(284)
$
-
$
4,754
 
(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 and fair value adjustments
 
on
retained interests in securitizations.junior subordinated notes.
(4)
 
Corporate expenses are allocated based on each segment’s proportional
 
share of total revenues.
 
Assets in each reportable segment were as follows:
 
(in thousands)
Asset
Investment
Management
Portfolio
Corporate
Total
March 31,June 30, 2021
$
1,7001,733
$
122,894120,020
$
12,63912,919
$
137,233134,672
December 31, 2020
1,469
113,764
13,468
128,701
 
Asset Management
 
Segment
 
Advisory Services
 
Revenue
 
Advisory services
 
revenue consists
 
of management
 
fees and overhead
 
reimbursements
 
charged to
 
Orchid for
 
the management
 
of its
portfolio
 
pursuant to
 
the terms
 
of a management
 
agreement.
 
We receive a monthly management fee in the amount of:
 
●
 
One-twelfth of 1.5% 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.
 
In addition, Orchid is obligated to reimburse us for any direct expenses incurred
 
on its behalf and to pay to us an amount equal to
Orchid's pro rata portion of certain overhead costs set forth in the management
 
agreement. The management agreement has been
renewed through February 2022 and provides for automatic one-year extension
 
options. Should Orchid terminate the management
agreement without cause, it will be obligated to pay to us a termination fee equal
 
to three times the average annual management fee,
as defined in the management agreement, before or on the last day of the automatic
 
renewal term.
 
The following table summarizes the advisory services revenue received from
 
Orchid in each quarter during 2021 and 2020.
 
(in thousands)
Average
Average
Advisory Services
Orchid
Orchid
Management
Overhead
Three Months Ended
MBS
Equity
Fee
Allocation
Total
June 30, 2021
$
4,504,887
$
542,679
$
1,791
$
395
$
2,186
March 31, 2021
$
4,032,716
$
453,353456,687
1,621
404
2,025
December 31, 2020
3,633,631
387,503
1,384
442
1,826
September 30, 2020
3,422,564
368,588
1,252
377
1,629
June 30, 2020
3,126,779
361,093
1,268
347
1,615
March 31, 2020
3,269,859
376,673
1,377
348
1,725
Six Months Ended
Investment Portfolio SegmentJune 30, 2021
$
Net Portfolio Interest Income4,268,801
$
499,683
$
3,412
$
799
$
4,211
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- 27 -
 
 
In response
 
to the COVID-19
 
related market
 
developments
 
during the
 
first quarter
 
of 2020 discussed
 
above, the
- 28 -
 
Company sold
June 30, 2020
3,198,319
368,883
2,645
695
3,340
 
a
Investment Portfolio Segment
significant
 
portion of
the MBS portfolio.
Our outstanding
balances under
repurchase
agreement
borrowings
declined proportionately
as
well. As a
result, many
figures discussed
below appear
distorted
when simple
average balances
are calculated,
such as average
MBS
held and average
outstanding
balances under
repurchase
agreement
borrowings.
Further, since
the sales occurred
very late
in the
quarter, interest
income and
interest expense
amounts reflect
balances of
both assets
and borrowing
in place for
the majority
of the
quarter.
The combination
of these two
factors led
to certain
metrics such
as our yield
on average
MBS and cost
of funds measures
to
appear higher
than they
would have
been had these
large sales
not occurred,
or had they
occurred earlier
in the quarter.
These factors
should be kept
in mind when
reading the
discussion of
our investment
portfolio
segment results
for the quarters
that follow.Net Portfolio Interest Income
 
We define net
 
portfolio
 
interest income
 
as interest
 
income on MBS
 
MBS less interest
 
expense on
 
repurchase
 
agreement
 
funding.
 
During the
the threesix months
 
months ended June
 
March 31,30, 2021,
 
2021, we generated
$0.6 million
of net portfolio
interest income,
consisting
of $0.6 million
of interest
income from
MBS assets
offset by $40,000
of interest
expense on
repurchase
liabilities.
For the comparable
period ended
March 31,
2020, we generated
 
$1.1 million
 
of net portfolio
 
interest income,
 
consisting
 
of $2.0$1.2
million of
interest income
from
MBS assets offset by
$0.1 million of interest
expense on repurchase liabilities.
For the comparable period ended
June 30, 2020,
we
generated
$1.6 million
of net portfolio
interest income,
consisting
of $2.6 million
 
of interest
 
income from
 
MBS assets
 
offset by
$0.91.0 million
 
of
interest expense
 
expense on
repurchase
 
liabilities.
 
The $1.4 million
 
million decrease
 
in interest
 
income for
 
the threesix months
 
months ended June
 
March30, 2021
was due to
31,a $24.9 million
decrease
in average
MBS balances,
combined
with a 200 basis
point ("bp")
decrease
in yields earned
on the portfolio.
The
$0.9 million
decrease in
interest
expense for the
six months
ended June
30, 2021 was
 
due to a 245combination
 
basis point
("bp") decrease
in yields
earned on
the portfolio,
combined with
of a $67.1 million
decrease
in average
MBS balances.
The $0.9$20.9 million
 
decrease in
interest expense
for the three
months ended
March 31,
2021 was due
to a $62.1
million
decrease in
average repurchase
 
liabilities
 
combined withand a 196
 
a 260 bp decrease
 
in cost of
 
funds.
Our economic interest
expense on repurchase
liabilities
for the six months ended
June 30, 2021 and 2020
was $1.5 million
and $1.9
million, respectively,
resulting in
($0.3) million
and $0.7 million
of economic
net portfolio
interest
income, respectively.
During the three months ended June 30, 2021, we generated approximately $547,000 of net portfolio interest income, consisting
of
approximately
$578,000 of
interest
income from MBS
assets offset
by approximately
$31,000 of
interest expense
on repurchase
liabilities.
For the
three months
ended June
30, 2020,
we generated
approximately
$523,000 of
net portfolio
interest income, consisting
of
approximately
$463,000 of
interest
income from
MBS assets
offset by approximately
$60,000 of
interest expense
on repurchase
liabilities.
 
Our economic
 
interest expense
 
on repurchase
 
liabilities
 
for the three
 
months ended
 
March 31,June 30,
 
2021 and 2020
 
2020 was $0.7 million
and
$1.4 million,
respectively, resulting
in ($0.1)
 
million and
 
$0.70.5
million, respectively,
resulting in
($0.2) million
 
of economicand approximately
 
$7,000 of
economic net
portfolio
 
interest income,
 
income, respectively.
 
 
The tables
 
below provide
 
information
 
on our
portfolio
 
average balances,
 
interest income,
 
yield on
 
assets, average
 
repurchase
agreement
 
agreement
balances, interest
 
expense, cost
 
of funds,
 
net interest
 
income and
 
net interest
 
rate spread
 
for the threesix
 
months ended
 
MarchJune 30,
31, 2021 and
 
for2020
and each quarter
 
in 2021 and
2020 on both
 
both a GAAP and
 
and economic
basis.
 
($ 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)
Three Months EndedJune 30, 2021
$
70,925
$
578
3.26%
$
72,241
$
31
$
739
0.17%
4.09%
March 31, 2021
$
69,017
$
611
3.54%
$
69,104
$
40
$
748
0.23%
4.33%
December 31, 2020
69,161
597
3.45%
67,878
43
658
0.25%
3.88%
September 30, 2020
62,981
604
3.84%
61,151
43
1,108
0.28%
7.24%7.25%
June 30, 2020
53,630
523
3.90%
51,987
60
516
0.46%
3.97%
March 31, 2020
136,142
2,040
5.99%
131,156
928
1,384
2.83%
4.22%
Six Months Ended
June 30, 2021
$
69,971
$
1,189
3.40%
$
70,672
$
71
$
1,487
0.20%
4.21%
June 30, 2020
94,886
2,563
5.40%
91,571
988
1,900
2.16%
4.15%
 
($ in thousands)
Net Portfolio
Net Portfolio
Interest Income
Interest Spread
GAAP
Economic
GAAP
Economic
Three Months Ended
Basis
Basis
(2)
Basis
Basis
(4)
Three Months EndedJune 30, 2021
$
547
$
(161)
3.09%
(0.83)%
March 31, 2021
$
571
$
(137)
3.31%
(0.79)%
December 31, 2020
554
(61)
3.20%
(0.43)%
September 30, 2020
561
(504)
3.56%
(3.40)%
June 30, 2020
463
7
3.44%
(0.07)%
March 31, 2020
1,112
656
3.16%
1.77%
(1)
Portfolio yields and costs of borrowings presented in the table above
and the tables on pages
31 and 32 are calculated based on the
average balances of the underlying investment portfolio/repurchase
agreement balances and are annualized for the quarterly periods
presented. Average balances for quarterly periods are calculated
using two data points, the beginning and ending balances.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- 28 -
(2)
Economic interest expense and economic net interest income
presented in the table above and the tables on page 32 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.
Interest Income and Average Earning Asset Yield
Our interest
income was
$0.6 million
for the three
months ended
March 31,
2021 and $2.0
million for
the three
months ended
March
31, 2020.
Average MBS
holdings were
$69.0 million
and $136.1
million for
the three months
ended March
31, 2021 and
2020,
respectively. The
$1.4 million
decrease
in interest
income was
due to a $67.1
million decrease
in average
MBS holdings,
combined with
a
245 basis point
("bp") decrease
in yields.
Average balances
as presented
here, and
in the table
below, are based
on beginning
and ending
outstanding
balances and
are skewed
lower for
the quarter
ended March
31, 2020 because
nearly all
of the disposals
occurred
at the end
of March 2020.
If average
balances were
calculated
based on
daily balances,
average MBS
holdings for
the three months
ended March
31, 2020 would
have been
$209.7 million
and the yield
would have
been 3.89%.
The table
below presents
the average
portfolio
size, income
and yields
of our respective
sub-portfolios,
consisting
of structured
MBS
and pass-through
MBS (“PT
MBS”) for
the three months
ended March
31, 2021 and
for each quarter
in 2020.
($ in thousands)
Average MBS Held
Interest Income
Realized Yield on Average MBS
PT
Structured
PT
Structured
PT
Structured
MBS
MBS
Total
MBS
MBS
Total
MBS
MBS
Total
Three Months Ended
March 31, 2021
$
68,703
$
314
$
69,017
$
605
$
6
$
611
3.53%
6.54%
3.54%
December 31, 2020
68,842
319
69,161
598
(1)
597
3.47%
(1.20)%
3.45%
September 30, 2020
62,564
417
62,981
588
16
604
3.76%
15.35%
3.84%
June 30, 2020
53,101
529
53,630
502
21
523
3.78%
16.12%
3.90%
March 31, 2020
135,044
1,098
136,142
2,029
11
2,040
6.01%
3.93%
5.99%
Interest Expense on Repurchase Agreements and the Cost of Funds
Our average
outstanding
balances under
repurchase
agreements
were $69.1
million and
$131.2 million,
generating
interest expense
of $40,000
and $0.9 million
for the three
months ended
March 31,
2021 and 2020,
respectively.
Our average
cost of funds
was 0.23%
and
2.83% for
three months
ended March
31, 2021 and
2020,
respectively.
There was
a 260 bp decrease
in the average
cost of funds
and a
$62.1 million
decrease in
average outstanding
balances under
repurchase
agreements
during the
three months
ended March
31, 2021 as
compared to
the three
months ended
March 31,
2020. Average
balances as
presented
here, and
in the table
below, are based
on
beginning and
ending outstanding
balances and
are skewed
lower for
the quarter
ended March
31, 2020 because
nearly all
of the
deleveraging
occurred at
the end of
March 2020.
If average
balances were
calculated
based on
daily balances,
average outstanding
repurchase
agreements
for the three
months ended
March 31,
2020 would
have been
$198.4 million
and the cost
of funds would
have
been 1.87%.
Our economic
interest expense
was $0.7 million
and $1.4 million
for the three
months ended
March 31, 2021
and 2020, respectively.
There was
a 11 bp increase
in the average
economic cost
of funds
to 4.33%
for the three
months ended
March 31,
2021 from
4.22% for
the
three months
ended March
31, 2020.
The $0.7
million decrease
in economic
interest expense
was due
to a 260
bp decrease
in the average
cost of funds
combined with
the unfavorable
performance
of our derivative
holdings attributed
to the current
period.
Because all
of our repurchase
agreements
are short-term,
changes in
market rates
have a more
immediate impact
on our interest
expense.
The Company’s
average cost
of funds calculated
on a GAAP
basis was 10
bps above the
average one-month
LIBOR and
equal
to the average
six-month LIBOR
for the quarter
ended March
31, 2021.
The Company’s
average economic
cost of funds
was 420 bps
above the
average one-month
LIBOR and
410 bps above
the average
six-month LIBOR
for the quarter
ended March
31, 2021.
The
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- 29 -
 
December 31, 2020
554
(61)
3.20%
(0.42)%
September 30, 2020
561
(504)
3.56%
(3.40)%
June 30, 2020
463
7
3.44%
(0.07)%
March 31, 2020
1,112
656
3.16%
1.77%
Six Months Ended
June 30, 2021
$
1,118
$
(298)
3.20%
(0.81)%
June 30, 2020
1,575
663
3.24%
1.25%
(1)
Portfolio yields and
costs of borrowings
presented in the
tables
above and the
tables on pages
29 and 30
are calculated based
on the
average termbalances of
the underlying investment
portfolio/repurchase agreement balances
and are annualized
for the periods
presented.
Average balances for quarterly periods are calculated using two data
points, the beginning and ending balances.
(2)
Economic interest expense and economic net interest income
presented in the tables above and the tables on page
30 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 maturitythe
 
of the outstandingperiod related
 
repurchase
agreements
increased from
33 days at
December 31,
2020 to 64
days at Marchhedging
31, 2021.activities divided by average MBS.
(4)
 
The tablesEconomic net interest spread is calculated by subtracting average economic
 
below presentcost of funds from yield on average MBS.
Interest Income and Average Earning Asset Yield
Our interest
income was
$1.2 million
for the six
months ended
June 30, 2021
and $2.6 million
for the six
months ended
June 30,
2020.
Average MBS
holdings were
$70.0 million
and $94.9
million for
 
the averagesix months
 
outstandingended June
 
balances under30, 2021
 
all repurchaseand 2020,
 
agreements,respectively. The
$1.4 million
decrease in
 
interest expenseincome
was due to
a $24.9 million
decrease
in average
MBS holdings,
combined with
a 200 bp decrease
in yields.
Our interest
income was $0.6
million for the
three months
ended June
30, 2021 and $0.5
million for
the three months
ended June
30,
2020.
Average MBS holdings
were $70.9 million
 
and average
economic cost
of funds,
and average
one-month
and six-month
LIBOR rates$53.6 million
 
for the three
 
months ended
 
March 31,June 30, 2021
and 2020, respectively.
The
$0.1 million
increase in
interest income
was due to
a $17.3 million
increase in
average MBS
holdings,
partially offset
by a 64 bp
decrease in
yields.
The tables below present
the average portfolio
size, income and yields
of our respective
sub-portfolios,
consisting
of structured
MBS
and PT MBS,
for the six
months ended
June 30, 2021
and 2020,
and for each
quarter during
 
2021 and for
each
quarter in
2020 on both
a GAAP and
economic basis.2020.
 
($ in thousands)
Average
Balance of MBS Held
Interest ExpenseIncome
Realized Yield on Average Cost of FundsMBS
RepurchasePT
GAAPStructured
EconomicPT
GAAPStructured
EconomicPT
Agreements
Basis
Basis
Basis
BasisStructured
Three Months Ended
MBS
MBS
Total
MBS
MBS
Total
MBS
MBS
Total
June 30, 2021
$
70,207
$
718
$
70,925
$
579
$
(1)
$
578
3.30%
(0.11)%
3.26%
March 31, 2021
$68,703
69,104314
$69,017
40605
$6
748611
0.23%3.53%
4.33%6.54%
3.54%
December 31, 2020
67,87868,842
43319
65869,161
0.25%598
3.88%(1)
597
3.47%
(1.20)%
3.45%
September 30, 2020
61,15162,564
43417
1,10862,981
0.28%588
7.24%16
604
3.76%
15.35%
3.84%
June 30, 2020
51,98753,101
60529
51653,630
0.46%502
3.97%21
523
3.78%
16.12%
3.90%
March 31, 2020
131,156135,044
9281,098
1,384136,142
2.83%2,029
4.22%11
2,040
Average GAAP Cost of Funds6.01%
Average Economic Cost of Funds3.93%
Relative to Average5.99%
Relative to Average
Average LIBOR
One-Month
Six-Month
One-Month
Six-Month
One-Month
Six-Month
LIBOR
LIBOR
LIBOR
LIBOR
ThreeSix Months Ended
March 31,June 30, 2021
0.13%$
0.23%69,455
0.10%$
0.00%516
4.20%$
4.10%69,971
December 31, 2020$
0.15%1,184
0.27%$
0.10%5
(0.02)%$
3.73%1,189
3.61%3.41%
September 30, 20201.92%
0.17%
0.35%
0.11%
(0.07)%
7.08%
6.89%3.40%
June 30, 2020
0.55%94,073
0.70%813
(0.09)%94,886
(0.24)%2,531
3.42%32
3.27%2,563
March 31, 20205.38%
1.34%7.89%
1.43%
1.49%
1.40%
2.88%
2.79%5.40%
 
Dividend IncomeInterest Expense on Repurchase Agreements and the Cost of Funds
 
At both MarchOur average
 
31, 2021outstanding
balances
under repurchase
agreements
were $70.7
million and
 
December 31,$91.6 million,
 
2020,generating
 
we owned
2,595,357 shares
of Orchid common
stock.
Orchid paid
total dividendsinterest expense
 
of
$0.1950.1 million and $1.0 million for the six months ended June 30, 2021 and 2020, respectively.
 
$0.24Our average cost of funds was 0.20% and
2.16% for
 
per share
during the
threesix months
 
ended MarchJune
 
31,30, 2021 and
 
2020,
 
respectively.
 
During theThere was
 
threea 196 bp
decrease
in the average
cost of funds
and a $20.9
million decrease
in average outstanding
repurchase
agreements
during the six months
 
ended
March 31, June 30,
 
2021, and 2020,
we received
dividends
on this common
stock investment
of approximately
$0.5
million and
$0.4
million,
respectively.
Long-Term Debt
Junior Subordinated Debt
Interest expense
on our junior
subordinated
debt securities
was approximately
$0.2 million
for the three-month
period ended
March
31, 2021,
compared to
approximately
$0.3 million
for the same
period in
2020.
The average
rate of interest
paid for the
three months
ended March
31, 2021 was
3.71% compared
 
to 5.19% forthe six months
ended June
 
the comparable30, 2020.
 
period in
 
2020. The junior
 
subordinated
debt securities
pay
interest at
a floating
rate.
The rate is
adjusted quarterly
and set at
a spread of
3.50% over
the prevailing
three-month
LIBOR rate
on the
determination
date.
As of March
31, 2021,
the interest
rate was 3.68%.
 
Note Payable
 
On October 30, 2019, the Company borrowed $680,000 from a bank. The note is payable
 
in equal monthly principal and interest
installments of approximately $4,500 through October 30, 2039. Interest accrues
 
at 4.89% through October 30, 2024. Thereafter,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- 30 -
 
Our economic
interest expense
was $1.5
million and
$1.9 million
for the
six months
ended June
30, 2021
and 2020,
respectively. There
was a 6
bp increase
in the average
economic cost
of funds
to 4.21%
for the six
months ended
June 30,
2021 from
4.15% for
the six months
ended June
30, 2020.
The $0.4
million decrease
in economic
interest
expense was
due to
the $20.9
million decrease
in average
outstanding
repurchase
agreements
during the
six months
ended June
30, 2021.
Our average
outstanding
balances
under repurchase
agreements
were $72.2
million and
$52.0 million,
generating
interest expense
of
approximately
$31,000 and
60,000 for
the three
months ended
June 30,
2021 and
2020, respectively.
Our average
cost of
funds was
0.17%
and 0.46% for
three months
ended June
30, 2021 and
2020, respectively.
There was a
29 bp decrease
in the average
cost of funds
and a
$20.3 million
increase in
average outstanding
repurchase
agreements
during the
three months
ended June
30, 2021,
compared to
the three
months ended
June 30, 2020.
Our economic interest
expense was $0.7 million
and $0.5 million for the three months ended June 30, 2021 and 2020, respectively.
There was a
12 bp increase
in the average
economic cost
of funds
to 4.09% for
the three months
ended June
30, 2021 from
3.97% for the
three months
ended June
30, 2020.
Because all of our repurchase agreements are short-term, changes in market
rates have a more immediate impact on
our interest
expense.
Our average cost of funds calculated on a GAAP basis
was 7 bps above the average one-month LIBOR and 1
bp below the
average six-month
LIBOR for
the quarter
ended June
30, 2021.
Our average
economic cost
of funds was
399 bps above
the average
one-
month LIBOR
and 391 bps above
the average
six-month LIBOR
for the quarter
ended June 30,
2021. The average
term to maturity
of the
outstanding
repurchase
agreements
decreased from
33 days at
December 31,
2020 to 25
days at June
30, 2021.
The tables
below present
the average
outstanding
balances under
our repurchase
agreements,
interest expense
and average
economic
cost of funds,
and average
one-month
and six-month
LIBOR rates
for the six months
ended June
30, 2021 and
2020, and for
each quarter
in 2021 and
2020, on both
a GAAP and
economic basis.
($ in thousands)
Average
Balance of
Interest Expense
Average Cost of Funds
Repurchase
GAAP
Economic
GAAP
Economic
Three Months Ended
Agreements
Basis
Basis
Basis
Basis
June 30, 2021
$
72,241
$
31
$
739
0.17%
4.09%
March 31, 2021
69,104
40
748
0.23%
4.33%
December 31, 2020
67,878
43
658
0.25%
3.88%
September 30, 2020
61,151
43
1,108
0.28%
7.25%
June 30, 2020
51,987
60
516
0.46%
3.97%
March 31, 2020
131,156
928
1,384
2.83%
4.22%
Six Months Ended
June 30, 2021
$
70,672
$
71
$
1,487
0.20%
4.21%
June 30, 2020
91,571
988
1,900
2.16%
4.15%
Average GAAP Cost of Funds
Average Economic Cost of Funds
Relative to Average
Relative to Average
Average LIBOR
One-Month
Six-Month
One-Month
Six-Month
Three Months Ended
One-Month
Six-Month
LIBOR
LIBOR
LIBOR
LIBOR
June 30, 2021
0.10%
0.18%
0.07%
(0.01)%
3.99%
3.91%
March 31, 2021
0.13%
0.23%
0.10%
0.00%
4.20%
4.10%
December 31, 2020
0.15%
0.27%
0.10%
(0.02)%
3.73%
3.61%
September 30, 2020
0.17%
0.35%
0.11%
(0.07)%
7.08%
6.90%
June 30, 2020
0.55%
0.70%
(0.09)%
(0.24)%
3.42%
3.27%
March 31, 2020
1.34%
1.43%
1.49%
1.40%
2.88%
2.79%
Six Months Ended
- 31 -
June 30, 2021
0.11%
0.20%
0.09%
0.00%
4.10%
4.01%
June 30, 2020
0.94%
1.06%
1.22%
1.10%
3.21%
3.09%
Dividend Income
We owned 1,520,036
shares of Orchid
common stock
as of March 31, 2020.
We acquired 975,321
additional
shares during
the three
months ended June 30, 2020, and an additional 100,000 shares during the three months ended September 30, 2020, bringing our total
ownership
to 2,595,357
shares. Orchid
paid total
dividends of
$0.39 per
share and
$0.195 per
share during
the six and
three months
ended
June 30,
2021, respectively,
and $0.405
per share
and $0.165
per share
during the
six and
three months
ended June
30, 2020,
respectively.
During the
six and
three months
ended June
30, 2021,
we received
dividends
on this
common stock
investment
of approximately
$1.0 million
and $0.5
million, respectively,
compared
to $0.8 million
and $0.4
million during
the six and
three months
ended June
30, 2020,
respectively.
Long-Term Debt
Junior Subordinated Notes
Interest expense
on our junior subordinated
debt securities
was $0.5 million
and $0.6 million
for the six months ended
June 30, 2021
and 2020,
respectively.
The average
rate of interest
paid for the six months
ended June 30, 2021
was 3.69% compared
to 4.68% for the
comparable
period in
2020.
Interest expense
on our junior subordinated
debt securities
was $0.2 million
and $0.3 million
for the three month
periods ended June
30, 2021 and 2020, respectively.
The average rate of interest paid for the three months ended June 30,
2021 was 3.67% compared to
4.17% for
the comparable
period in
2020.
The junior
subordinated
debt securities
pay interest
at a floating
rate.
The rate is
adjusted quarterly
and set at
a spread of
3.50% over
the prevailing
three-month
LIBOR rate
on the determination
date.
As of June
30, 2021,
the interest
rate was 3.62%.
Note Payable
On October 30, 2019,
the Company borrowed $680,000 from a
bank. The note is
payable in equal monthly principal and
interest
installments
of approximately
$4,500 through
October 30, 2039.
Interest accrues
at 4.89% through
October 30, 2024. Thereafter,
interest
accrues based
on the weekly
average yield
to the United
States Treasury
securities
adjusted to
 
a constant maturity
of 5 years, plus
3.25%.
plus 3.25%. The note is
secured by
a mortgage
on the Company’s
office building.
 
Paycheck Protection Plan Loan
 
On April 13,
2020, the
Company received
 
approximately
 
$152,000
 
through the Paycheck
 
Paycheck Protection
 
Program (“PPP”)
 
of the CARES
Act in the
form of a
low interest
loan.
PPP loans
may be forgiven,
in whole or
in part, if
 
the proceeds
are used for
payroll and
other
permitted
purposes in
accordance
with the requirementsform
 
of the PPPa low
 
and if certaininterest loan.
 
other requirements
are met.
These loans
carry a fixed
rate of 1.00%
and a term
of two years,
if not forgiven,
in whole or
in part.
Payments are
deferred for
the first
ten months
after the
completion
of the loan
forgiveness
period.
The Small
 
Business Administration
 
has notified the
 
the Company that,
 
that, effective as
 
as of April
 
22, 2021,
all principal
 
principal
and accrued
 
interest under
 
under the
PPP loan
 
has been forgiven.
 
Gains or Losses and Other Income
 
 
The table
 
below presents
 
our gains
 
or losses and
 
other income
 
for the six
and three
 
months ended
 
March 31,June 30, 2021
 
2021 and 2020.
 
(in thousands)
Six Months Ended June 30,
Three Months Ended June 30,
2021
2020
Change
2021
2020
Change
Realized losses on sales of MBS
$
-
$
(5,805)
$
5,805
$
-
$
-
$
-
Unrealized losses(losses) gains on MBS
(1,392)(1,898)
(574)28
(818)(1,926)
(506)
602
(1,108)
- 32 -
Total losses on(losses)
 
gains on MBS
(1,392)(1,898)
(6,379)(5,777)
4,9873,879
(506)
602
(1,108)
Losses on derivative instruments
-
(5,291)(5,292)
5,2915,292
-
(2)
2
Unrealized (losses) gains (losses) on
Orchid Island Capital, Inc. common stock
2,050(78)
(4,408)(755)
6,458677
(2,128)
3,653
(5,781)
 
We invest in
 
in MBS with
 
with the intent
 
intent to
earn net
 
income from
 
the realized
 
yield on those
 
those assets over
 
over their related
 
related funding and
 
and hedging
costs, and
 
costs,
and not for the purpose of making short term gains from trading in
 
purpose of
making short
term gains
from trading
in these securities.
 
However, we have
sold, and may
continue to sell,
sell, existing
assets to
 
acquire new assets,
 
assets, which our management believes
 
our managementmight have high
 
believes might
have higher
er risk-adjusted
returns in
 
light of current
 
or
anticipated
 
interest rates,
federal government
programs or
general economic
conditions
 
or general economic conditions or to manage our
 
our balance
sheet as part of
 
of our
asset/liability
 
management
 
strategy. During
 
During the
three six months
 
ended MarchJune 30,
 
31, 2020, we received
 
received proceeds
of approximately
 
$171.2
million from
 
from the sales
of
MBS.
Most of
 
MBS. Most
of these sales
 
occurred during
 
during the second
 
second half
of March
 
2020 as we
 
we sold assets
 
assets in order
 
order to maintain
our leverage
 
maintain our
leverage ratio
at prudent
levels, maintain
 
sufficient cash
 
cash and liquidity
 
and reduce
 
risk associated
 
with the market
 
turmoil brought
 
about
by COVID-19.
 
We did not
 
sell
any MBS during
 
during the
three six months
 
March 31,ended June
 
30, 2021.
 
The fair value of
 
of our MBS
portfolio and derivative instruments, and
 
derivativethe gains (losses) reported on
 
instruments,
and the gains
(losses) reported
on those financial
instruments,
are
sensitive to
 
changes in
 
interest rates.
 
The table
 
below presents
 
historical
 
interest rate
 
data as offor each
 
each quarter end
 
end during 2021
 
2021 and 2020.
 
5 Year
10 Year
15 Year
30 Year
Three
U.S. Treasury
U.S. Treasury
Fixed-Rate
Fixed-Rate
Month
Rate
(1)
Rate
(1)
Mortgage Rate
(2)
Mortgage Rate
(2)
Libor
(3)
June 30, 2021
0.87%
1.44%
2.27%
2.98%
0.13%
March 31, 2021
0.94%
1.75%
2.39%
3.08%
0.19%
December 31, 2020
0.36%
0.92%
2.22%
2.68%
0.23%
September 30, 2020
0.27%
0.68%
2.39%
2.89%
0.24%
June 30, 2020
0.29%
0.65%
2.60%
3.16%
0.31%
March 31, 2020
0.38%
0.70%
2.89%
3.45%
1.10%
 
(1)
 
Historical 5 Year and
 
10 Year U.S. YearTreasury
 
Treasury Rates are obtained from quoted end of
day prices on the Chicago Board
Options Exchange.
(2)
 
Historical 15 Year and
 
30 Year Fixed
 
Rate Mortgage Rates are obtained from Freddie Mac’s
 
Primary Mortgage Market Survey.
 
(3)
 
Historical LIBOR isare obtained from the Intercontinental Exchange Benchmark
 
Administration Ltd.
 
Operating Expenses
 
For the six and three months
ended June 30, 2021, our total operating expenses were approximately $3.5 million and $1.7 million,
respectively, compared
to approximately
$3.4 million
and $1.7
million for
the six and
three months
ended June
30, 2020,
respectively.
The
table below
presents a
breakdown
of operating
expenses for
the six and
three months
ended June
30, 2021 and
2020.
(in thousands)
Six Months Ended June 30,
Three Months Ended June 30,
2021
2020
Change
2021
2020
Change
Compensation and related benefits
$
2,190
$
2,147
$
43
$
1,067
$
1,047
$
20
Legal fees
77
95
(18)
32
75
(43)
Accounting, auditing and other professional fees
195
251
(56)
102
112
(10)
Directors’ fees and liability insurance
378
346
32
190
181
9
Administrative and other expenses
641
552
89
333
270
63
$
3,481
$
3,391
$
90
$
1,724
$
1,685
$
39
Income Tax Provision
We recorded an income tax provision (benefit) for the six and three months ended June 30,
2021 of approximately $0.2 million and
$(0.3) million, respectively, on consolidated pre-tax book income (loss) of $0.5 million and $(1.2) million, respectively.
We recorded an
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- 3133 -
 
For the three
months ended
March 31,
2021, our
total operating
expenses were
approximately
$1.8 million
compared
to
approximately
$1.7 million
for the three
months ended
March 31,
2020. The
table below
presents a
breakdown
of operating
expenses for
the three
months ended
March 31,
2021 and 2020.
(in thousands)
2021
2020
Change
Compensation and benefits
$
1,124
$
1,100
$
24
Legal fees
44
20
24
Accounting, auditing and other professional fees
93
139
(46)
Directors’ fees and liability insurance
188
165
23
Other G&A expenses
308
282
26
$
1,757
$
1,706
$
51
Income Tax Provision
We recorded an income tax provision for the six and three months ended March 31, 2021 of approximately
$0.5 million on consolidated
pre-tax book income of $1.8 million. We recorded an income tax provision for the three months ended
March 31,June 30, 2020 of approximately $8.7
million and $1.3 million, respectively, on
$7.4 million on a consolidated pre-tax book loss(loss) income of $14.9$(10.2) million and $4.8 million.
 
 
As a result
 
of adverse
 
economic impacts
 
of COVID-19
 
on our business,
 
management
 
performed
 
an assessment
 
of the need
 
for
additional
 
valuation allowances
 
against existing
 
deferred tax
 
assets. Following
 
the more-likely-than-not
 
standard that
 
benefits will
 
not be
realized in
 
the future,
 
we determined
 
an additional
 
valuation allowance
 
of approximately
 
$11.2 million was
 
necessary during
 
the three
months ended
 
March 31,
 
2020 for
 
the net operating
 
loss carryforwards
 
and capital
 
loss carryforwards.
 
With the evolving
 
and changing
landscape caused
 
by the pandemic,
 
we will continue
 
to closely
 
monitor the
 
impacts of
 
COVID-19
 
on the Company’s
 
ability to
 
realize its
deferred tax
 
assets and
 
may increase
 
valuation allowances
 
in the future
 
as new information
 
becomes available.
 
Financial
 
Condition:
 
Mortgage-Backed Securities
 
As of MarchJune
 
31,30, 2021,
 
our MBS portfolio
 
consisted of
 
$72.969.0 million
 
of agency or
 
government
 
MBS at fair
 
value and had
 
a weighted
average coupon
 
of 3.66%3.33%.
 
During the
 
threesix months
 
ended MarchJune
 
31,30, 2021,
 
we received
 
principal repayments
 
of $3.3$7.4 million
 
compared
to
$6.78.9 million
 
for the comparable
 
period ended
 
March 31,
June 30, 2020.
 
The average
 
prepayment
 
speeds for
 
the quarters
 
ended MarchJune
 
31,30, 2021 and
and 2020 were
 
18.3%21.9% and
 
13.7%15.3%,
 
respectively.
 
 
The following
 
table presents
 
the 3-month
 
constant prepayment
 
rate (“CPR”)
 
experienced
 
on our structured
 
and PT MBS
 
sub-
portfolios,
 
on an annualized
 
basis, for
 
the quarterly
 
periods presented.
 
CPR is a
 
method of
 
expressing the
 
prepayment
 
rate for
 
a mortgage
pool that assumes
 
that a constant
 
fraction of
 
the remaining
 
principal is
 
prepaid each
 
month or
 
year. Specifically, the
 
CPR in the
 
chart
below represents
 
the three-month
 
prepayment
 
rate of the
 
securities
 
in the respective
 
asset category.
 
Assets that
were not
owned for
the
entire quarter
have been
excluded from
the calculation.
The exclusion
of certain
assets during
periods of
high trading
activity can
create a
very high,
and often
volatile, reliance
on a small
sample of
underlying
loans.
 
Structured
PT MBS
MBS
Total
Three Months Ended
Portfolio (%)
Portfolio (%)
Portfolio (%)
June 30, 2021
21.0
31.3
21.9
March 31, 2021
18.5
16.4
18.3
December 31, 2020
12.8
24.5
14.4
September 30, 2020
13.0
32.0
15.8
June 30, 2020
12.4
25.0
15.3
March 31, 2020
11.6
18.1
13.7
The following
tables summarize
certain characteristics
of our PT
MBS and structured
MBS as of June
30, 2021 and
December 31,
2020:
($ in thousands)
Weighted
Percentage
Average
of
Weighted
Maturity
Fair
Entire
Average
in
Longest
Asset Category
Value
Portfolio
Coupon
Months
Maturity
June 30, 2021
Fixed Rate MBS
$
67,910
98.4%
3.62%
333
1-Jan-51
Interest-Only MBS
1,064
1.6%
2.16%
346
1-May-51
Inverse Interest-Only MBS
20
0.0%
5.93%
215
15-May-39
Total MBS Portfolio
$
68,994
100.0%
3.33%
333
1-May-51
December 31, 2020
Fixed Rate MBS
$
64,902
99.6%
3.89%
333
1-Aug-50
Interest-Only MBS
251
0.4%
3.56%
299
15-Jul-48
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- 3234 -
 
The following
tables summarize
certain characteristics
of our PT
MBS and structured
MBS as of March
31, 2021 and
December 31,
2020:
($ in thousands)
Weighted
Percentage
Average
of
Weighted
Maturity
Fair
Entire
Average
in
Longest
Asset Category
Value
Portfolio
Coupon
Months
Maturity
March 31, 2021
Fixed Rate MBS
$
72,504
99.5%
3.66%
335
1-Jan-51
Interest-Only MBS
329
0.5%
3.51%
298
15-Jul-48
Inverse Interest-Only MBS
23
0.0%
5.87%
218
15-May-39
Total MBS Portfolio
$
72,856
100.0%
3.66%
335
1-Jan-51
December 31, 2020
Fixed Rate MBS
$
64,902
99.6%
3.89%
333
1-Aug-50
Interest-Only MBS
251
0.4%
3.56%
299
15-Jul-48
Inverse Interest-Only MBS
25
0.0%
5.84%
221
15-May-39
Total MBS Portfolio
$
65,178
100.0%
3.89%
333
1-Aug-50
 
($ in thousands)
March 31,June 30, 2021
December 31, 2020
Percentage of
Percentage of
Agency
Fair Value
Entire Portfolio
Fair Value
Entire Portfolio
Fannie Mae
$
48,56445,707
66.7%66.2%
$
38,946
59.8%
Freddie Mac
24,29223,287
33.3%33.8%
26,232
40.2%
Total Portfolio
$
72,85668,994
100.0%
$
65,178
100.0%
 
March 31,June 30, 2021
December 31, 2020
Weighted Average Pass-through Purchase Price
$
108.84
$
109.51
Weighted Average Structured Purchase Price
$
4.284.48
$
4.28
Weighted Average Pass-through Current Price
$
109.63109.40
$
112.67
Weighted Average Structured Current Price
$
4.806.82
$
3.20
Effective Duration
(1)
3.9763.562
3.309
 
(1)
 
Effective duration is the approximate percentage change
 
in price for a 100 basis point change in rates.
 
An effective duration of 3.9763.562 indicates
that an interest rate increase of 1.0% would be expected to cause a 3.976%3.562% decrease
 
in the value of the MBS in our investment portfolio
 
at
March 31,June 30, 2021.
 
An effective duration of 3.309 indicates that an interest rate
 
increase of 1.0% would be expected to cause a 3.309% decrease
in the value of the MBS in our investment portfolio at December 31,
 
2020. These figures include the structured securities in the portfolio
 
but do
include the effect of our 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
 
threesix months
 
ended MarchJune
 
31,30, 2021 and
 
2020.
 
 
($ in thousands)
ThreeSix Months Ended March 31,June 30,
2021
2020
Total Cost
Average
Price
Weighted
Average
Yield
Total Cost
Average
Price
Weighted
Average
Yield
PT MBS
$
12,368
$
104.84
1.19%
$
20,823
$
110.83
2.64%
Structured MBS
772
7.72
3.33%
-
-
-
 
Our portfolio
 
of PT MBS
 
is typically
 
comprised of
 
adjustable-rate
 
MBS, fixed-rate
 
MBS and hybrid
 
adjustable-rate
 
MBS. We generally
seek to acquire
 
low duration
 
assets that
 
offer high levels
 
of protection
 
from mortgage
 
prepayments
 
provided that
 
they are reasonably
- 33 -
priced by the
 
market.
 
The stated
 
contractual
 
final maturity
 
of the mortgage
 
loans underlying
 
our portfolio
 
of PT MBS
 
generally ranges
 
up
to 30 years.
 
However, the effect
 
of prepayments
 
of the underlying
 
mortgage loans
 
tends to shorten
 
the resulting
 
cash flows
 
from our
investments
 
substantially. Prepayments
 
occur for
 
various reasons,
 
including refinancing
 
of underlying
 
mortgages,
 
loan payoffs
 
in
connection
 
with home
 
sales, and
 
borrowers
 
paying more
 
than their
 
scheduled loan
 
payments,
 
which accelerates
 
the amortization
 
of the
loans.
 
 
The duration
 
of our IO
 
and IIO portfolio
 
will vary greatly
 
depending
 
on the structural
 
features of
 
the securities.
 
While prepayment
activity will
 
always affect
 
the cash flows
 
associated
 
with the securities,
 
the interest
 
only nature
 
of IO’s may cause
 
their durations
 
to become
extremely negative
 
when prepayments
 
are high,
 
and less negative
 
when prepayments
 
are low. Prepayments
 
affect the duration
 
of IIO’s
similarly, but the
 
floating rate
 
nature of
 
the coupon
 
of IIOs (which
 
is inversely
 
related to
 
the level
 
of one month
 
LIBOR) causes
 
their price
movements -
 
and model duration
 
- to be affected
 
by changes
 
in both prepayments
 
and one month
 
LIBOR - both
 
current and
 
anticipated
levels.
 
As a result,
 
the duration
 
of IIO securities
 
will also vary
 
greatly.
 
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
- 35 -
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 market,
 
the effective
 
duration of
 
securities
 
collateralized
 
by such loans
 
can be quite
 
low because
 
of
expected prepayments.
 
 
We face
 
the risk that
 
the market
 
value of our
 
PT MBS assets
 
will increase
 
or decrease
 
at different
 
rates than
 
that of our
 
structured
MBS or liabilities,
 
including our
 
hedging instruments.
 
Accordingly, we
 
assess our
 
interest rate
 
risk by estimating
 
the duration
 
of our assets
and the duration
 
of our liabilities.
 
We generally
 
calculate duration
 
and effective
 
duration using
 
various third-party
 
models or obtain
 
these
quotes from
 
third parties.
 
However, empirical
 
results and
 
various third-party
 
models may
 
produce different
 
duration numbers
 
for the same
securities.
 
 
The following
 
sensitivity
 
analysis
 
shows the
 
estimated impact
 
on the fair
 
value of our
 
interest rate-sensitive
 
investments
 
and hedge
positions as
 
of March 31,June 30,
 
2021, assuming
 
rates instantaneously
 
fall 100 bps,
 
rise 100 bps
 
and rise
 
200 bps, adjusted
 
to reflect
 
the impact
of
of convexity, which
 
is the measure
 
of the sensitivity
 
of our hedge
 
positions and
 
Agency MBS’
 
effective duration
 
to movements
 
in interest
rates.
 
 
($ in thousands)
Fair
$ Change in Fair Value
% Change in Fair Value
MBS Portfolio
Value
-100BPS
+100BPS
+200BPS
-100BPS
+100BPS
+200BPS
Fixed Rate MBS
$
72,50467,910
$
2,4872,287
$
(3,399)(3,172)
$
(7,366)(6,909)
3.43%3.37%
(4.69)(4.67)%
(10.16)(10.17)%
Interest-Only MBS
3291,064
(100)(274)
74194
127289
(30.33)(25.79)%
22.55%18.29%
38.71%27.21%
Inverse Interest-Only MBS
2320
1
(3)
(7)(6)
3.56%5.01%
(14.46)(14.81)%
(30.16)(30.23)%
Total MBS Portfolio
$
72,85668,994
$
2,3882,014
$
(3,328)(2,981)
$
(7,246)(6,626)
3.28%2.92%
(4.57)(4.32)%
(9.95)(9.60)%
 
($ in thousands)
Notional
$ Change in Fair Value
% Change in Fair Value
Amount
(1)
-100BPS
+100BPS
+200BPS
-100BPS
+100BPS
+200BPS
Eurodollar Futures Contracts
Junior Subordinated Debt Hedges
$
1,000
$
(10)(5)
$
5
$
10
$
20
(1.00)%
1.00%
2.00%
$
1,000
$
(10)(5)
$
5
$
10
$
20
Gross Totals
$
2,3782,009
$
(3,318)(2,976)
$
(7,226)(6,616)
 
(1)
 
Represents the
 
average contract/notional
 
amount of Eurodollar
 
futures contracts.
- 34 -
 
In addition
 
to changes
 
in interest
 
rates, other
 
factors impact
 
the fair value
 
of our interest
 
rate-sensitive
 
investments
 
and hedging
instruments,
 
such as the
 
shape of
 
the yield curve,
 
market expectations
 
as to future
 
interest rate
 
changes and
 
other market
 
conditions.
Accordingly, in the
 
event of changes
 
in actual interest
 
rates, the
 
change in the
 
fair value
 
of our assets
 
would likely
 
differ from
 
that shown
above and
 
such difference
 
might be
 
material and
 
adverse to
 
our stockholders.
 
Repurchase Agreements
 
As of MarchJune
 
31,30, 2021,
 
we had established
 
borrowing
 
facilities
 
in the repurchase
 
agreement
 
market with
 
a number of
 
commercial
banks
banks and other
 
financial institutions
 
and had borrowings
 
in place with
 
sixfive of these
 
counterparties.
 
We
 
believe these
 
facilities
 
provide
borrowing
 
borrowing
capacity in
 
in excess of
 
our needs.
 
None of these
 
lenders are
 
affiliated with
 
us.
 
These borrowings
 
are secured
 
by our MBS.
 
 
As of MarchJune
 
31,30, 2021,
 
we had obligations
 
outstanding
 
under the
 
repurchase
 
agreements
 
of approximately
 
$73.171.3 million
 
with a net
weighted average
 
borrowing
 
cost of 0.21%0.16%.
 
The remaining
 
maturity of
 
our outstanding
 
repurchase
 
agreement
 
obligations
 
ranged from
 
6 to
12751 days, with
 
a weighted
 
average maturity
 
of 6425 days.
 
Securing the
 
repurchase
 
agreement
 
obligation
 
as of MarchJune
 
31,30, 2021 are
 
MBS with
with an estimated
 
fair value,
 
including
 
accrued interest,
 
of $73.0$69.2 million
 
and a weighted
 
average maturity
 
of 336332 months.
 
Through MayAugust
 
14,13,
- 36 -
2021, we have
 
been able
 
to maintain
 
our repurchase
 
facilities
 
with comparable
 
terms to those
 
that existed
 
at March 31,June 30,
 
2021 with
maturities
 
maturities
through AugustOctober
 
5,19, 2021.
 
The table below presents information about our period-end, maximum and average
 
repurchase agreement obligations for each
quarter in 2021 and 2020.
 
($ in thousands)
Ending
Maximum
Average
Difference Between Ending
Balance
Balance
Balance
Repurchase Agreements and
of Repurchase
of Repurchase
of Repurchase
Average Repurchase Agreements
Three Months Ended
Agreements
Agreements
Agreements
Amount
Percent
June 30, 2021
$
71,346
$
72,372
$
72,241
$
(895)
(1.24)%
March 31, 2021
$
73,136
$
76,004
$
69,104
$
4,032
5.83%
December 31, 2020
65,071
70,684
67,878
(2,807)
(4.14)%
September 30, 2020
70,685
70,794
61,151
9,534
15.59%
(1)
June 30, 2020
51,617
52,068
51,987
(370)
(0.71)%
March 31, 2020
52,357
214,921
131,156
(78,799)
(60.08)%
(2)
 
(1)
 
The higher ending balance relative to the average balance during the
 
quarter ended September 30, 2020 reflects the increase in the portfolio.
During that quarter, the Company's investment
 
in PT MBS increased $20.4 million.
(2)
 
The lower ending balance relative to the average balance during the quarter
 
ended March 31, 2020 reflects the Company’s response to
 
the
COVID-19 pandemic. During that quarter,
 
the Company's investment in PT MBS decreased $162.4 million.
 
Liquidity and Capital Resources
 
Liquidity is
 
our ability
 
to turn non-cash
 
assets into
 
cash, purchase
 
additional
 
investments,
 
repay principal
 
and interest
 
on borrowings,
fund overhead
 
and fulfill
 
margin calls.
 
Our primary
 
immediate
 
sources of
 
liquidity include
 
cash balances,
 
unencumbered
 
assets, the
availability
 
to borrow
 
under repurchase
 
agreements,
 
and fees and
 
dividends received
 
from Orchid.
 
Our borrowing
 
capacity will
 
vary over
time as the
 
market value
 
of our interest
 
earning assets
 
varies.
 
Our investments
 
also generate
 
liquidity on
 
an on-going
 
basis through
payments of
 
principal and
 
interest
 
we receive
 
on our MBS
 
portfolio.
 
 
The COVID-19
 
pandemic has
 
adversely affected
 
our liquidity,
 
assets under
 
management
 
and operating
 
results.
 
During March
 
2020,
we significantly
 
reduced our
 
MBS assets
 
to meet margin
 
calls and
 
repay debts.
 
As described
 
elsewhere
 
in this report,
 
since March
 
2020
Bimini’s operating
 
results have
 
stabilized,
 
liquidity
 
has improved
 
and our investments
 
in MBS and
 
Orchid shares
 
hashave increased.
 
 
Our hedging
 
strategy typically
 
involves taking
 
short positions
 
in Eurodollar
 
futures, T-Note
 
futures, TBAs
 
or other instruments.
- 35 -
Currently, our
 
hedge positions
 
are limited
 
to short positions
 
in Eurodollar
 
futures.
 
When the market
 
causes these
 
short positions
 
to decline
in value we
 
are required
 
to meet margin
 
calls with
 
cash.
 
This can reduce
 
our liquidity
 
position to
 
the extent
 
other securities
 
in our portfolio
move in price
 
in such a way
 
that we do
 
not receive
 
enough cash
 
through margin
 
calls to offset
 
the Eurodollar
 
related margin
 
calls. If this
were to occur
 
in sufficient
 
magnitude,
 
the loss of
 
liquidity might
 
force us to
 
reduce the
 
size of the
 
levered portfolio,
 
pledge additional
structured
 
securities
 
to raise funds
 
or risk operating
 
the portfolio
 
with less liquidity.
 
Our master
 
repurchase
 
agreements
 
have no stated
 
expiration,
 
but can be
 
terminated
 
at any time
 
at our option
 
or at the
 
option of
the
counterparty. However,
 
once a definitive
 
repurchase
 
agreement
 
under a master
 
repurchase
 
agreement
 
has been entered
 
into, it generally
may not be
 
terminated
 
by either
 
party.
 
A negotiated
 
termination
 
can occur, but
 
may involve
 
a fee to
 
be paid by
 
the party
 
seeking to
terminate
 
the repurchase
 
agreement
 
transaction.
 
Under our
 
repurchase
 
agreement funding
 
arrangements,
 
we are required
 
to post margin
 
at the initiation
 
of the borrowing.
 
The margin
posted represents
 
the haircut,
 
which is a
 
percentage
 
of the market
 
value of the
 
collateral
 
pledged.
To the extent
the market
 
value of the
asset collateralizing
 
the financing
 
transaction
 
declines, the
 
market value
 
of our posted
 
margin will
 
be insufficient
 
and we will
 
be required
 
to
- 37 -
post additional
 
collateral.
 
Conversely, if
 
the market
 
value of the
 
asset pledged
 
increases in
 
value, we
 
would be over
 
collateralized
 
and we
would be entitled
 
to have excess
 
margin returned
 
to us by the
 
counterparty.
 
Our lenders
 
typically
 
value our
 
pledged securities
 
daily to
ensure the
 
adequacy of
 
our margin
 
and make margin
 
calls as needed,
 
as do we.
 
Typically, but not always,
 
the parties
 
agree to a
 
minimum
threshold
 
amount for
 
margin calls
 
so as to avoid
 
the need for
 
nuisance margin
 
calls on a
 
daily basis.
 
As discussed
 
above, we
 
invest a portion
 
of our capital
 
in structured
 
MBS.
 
We generally
 
do not apply
 
leverage to
 
this portion
 
of our
portfolio.
 
The leverage
 
inherent in
 
the structured
 
securities
 
replaces the
 
leverage obtained
 
by acquiring
 
PT securities
 
and funding
 
them in
the repurchase
 
market.
 
This structured
 
MBS strategy
 
has been a
 
core element
 
of the Company’s
 
overall investment
 
strategy
 
since 2008.
 
However, we have
 
and may continue
 
to pledge
 
a portion
 
of our structured
 
MBS in order
 
to raise our
 
cash levels,
 
but generally
 
will not
pledge these
 
securities
 
in order
 
to acquire
 
additional
 
assets.
 
In future
 
periods we
 
expect to continue
 
to finance
 
our activities
 
through repurchase
 
agreements.
 
As of MarchJune
 
31,30, 2021,
 
we had cash
and cash equivalents
 
of $6.0$7.3 million.
 
We generated
 
cash flows
 
of $3.9$8.6 million
 
from principal
 
and interest
 
payments on
 
our MBS portfolio
and had average
 
repurchase
 
agreements
 
outstanding
 
of $69.1$70.7 million
 
during the
 
threesix months
 
ended MarchJune
 
31,30, 2021.
 
In addition,
 
during the
the threesix months
 
months ended June
 
March 31,30, 2021,
 
2021, we received
 
approximately
 
$2.04.1 million
 
in management
 
fees and expense
 
expense reimbursements
 
as manager
manager of
Orchid and
 
approximately
 
$0.51.0 million
 
in dividends
 
from our investment
 
in Orchid common
 
stock.
 
 
In order to generate additional cash to be invested in our MBS portfolio, on October
 
30, 2019, we obtained a $680,000 loan
secured by a mortgage on the Company’s office property.
 
The loan is payable in equal monthly principal and interest installments of
approximately $4,500 through October 30, 2039. Interest accrues at 4.89%, through October
 
30, 2024. Thereafter, interest accrued
based on the weekly average yield to the United States Treasury securities adjusted to a constant maturity
 
of five years, plus 3.25%.
 
Net loan proceeds were approximately $651,000.
 
In addition,
 
during 2020, we completed the sale of real property that was
 
not used in
the Company’s business.
 
The proceeds from this sale were approximately $462,000 and were
 
invested in our MBS portfolio.
 
On April 13,
2020, we received
approximately
$152,000 through
the Paycheck
Protection
Program (“PPP”)
of the CARES
Act in the
form of a
low interest
loan. These
loans carry
a fixed rate
of 1.00% and
a term of
two years,
if not forgiven,
in whole or
in part. Payments
are deferred
for the first
six months
of the loan.
PPP loans
may be forgiven,
in whole or
in part, if
the proceeds
are used for
payroll and
other permitted
purposes in
accordance
with the requirements
of the PPP
and if certain
other requirements
are met. The
Small Business
Administration
has notified
the Company
that, effective
as of April
22, 2021,
all principal
and accrued
interest under
the PPP loan
has been
forgiven.
The table below summarizes the effect that certain future contractual obligations existing as of MarchJune
 
31,30, 2021 will have on our
liquidity and cash flows. The figures below reflect forgiveness of all principal and interest under
 
the PPP loan.
- 36 -
 
(in thousands)
Obligations Maturing
Within One
Year
One to Three
Years
Three to Five
Years
More than
Five Years
Total
Repurchase agreements
$
73,13671,346
$
-
$
-
$
-
$
73,13671,346
Interest expense on repurchase agreements
(1)
7143
-
-
-
7143
Junior subordinated notes
(2)
-
-
-
26,000
26,000
Interest expense on junior subordinated notes
(1)
1,016996
1,9451,911
1,9421,908
9,4349,030
14,33713,845
Principal and interest on mortgage loan
(1)
54
107
107108
730717
998986
Totals
$
74,27772,439
$
2,0522,018
$
2,0492,016
$
36,16435,747
$
114,542112,220
 
(1)
 
Interest expense
 
on repurchase
 
agreements,
 
junior subordinated
 
notes and mortgage
 
loan are based
 
on current interest
 
rates as of MarchJune
 
31,30, 2021
and the remaining
 
term of liabilities
 
existing at
 
that date.
(2)
 
We hold a common
 
equity interest
 
in Bimini Capital
 
Trust II.
 
The amount presented
 
represents our net
 
net cash outlay.
 
Outlook
 
Orchid Island
 
Capital Inc.
 
Orchid Island Capital continued to recover from the market impact during the firsthad another strong quarter
of 2020 caused by the COVID-19
pandemic. growing its capital base.
 
Orchid was able to grow its capital base with two secondary offerings of common
stock, realizingraised net proceeds of $96.9approximately $124.7
million. However,million through its “at the market” program. As for Orchid’s financial performance, while the
economy continued its strong recovery from
the COVID-19 pandemic, the interest rate market in the U.S. reversed course during the
second quarter as rates rallied throughout the
- 38 -
quarter and even more so into the third quarter.
Orchid had positioned its portfolio and hedges quite defensively as the economic recovery from the pandemic accelerated during the first second
quarter
unfolded, and Orchid’s MBS portfolio underperformed its hedge positions, resulting in a GAAP
loss of 2021 interest rates
increased as
the market anticipated strong growth for 2021 and a potential acceleration in inflation.
As described more fully below, these
developments had an adverse impact on the Agency MBS market and Orchid incurred
a net loss for the quarter of $29.4$0.17 per share or $16.9 million.
 
The
The net effect of the capital raises andnew shares issued, the net loss was a $50.9 million increase in the shareholders
equity of Orchid Island.
The increase
in the equity base of Orchidand dividends paid resulted in an 11% increaseOrchid’s capital base increasing
$87.6 million, or
19% for during the second quarter.
Year to date Orchid has increased it capital base by approximately $138.5 million, or 33%.
As a
result, Bimini Advisor’s advisory services revenue increased 8% over the
first quarter and, as the increased capital base at Orchid was
not in advisory service revenueplace for the firstentire quarter, of 2021 versus the fourth
run rate entering the third quarter of 2020 and a 17% increase versus the first quarter of 2020. In addition, Orchidis higher still.
 
Orchid’s financial performance and dividend
activity will also continue to impact the size of the capital base going forward.
Orchid is obligated to reimburse us for direct expenses
paid on its behalf and to pay
to us Orchid’s pro rata share of overhead as
defined in the management
agreement.
 
As a stockholder of
Orchid, we will also continue to share in distributions, if any, paid by
Orchid to its stockholders.
 
Our operating results are also impacted
by changes in the market value of
our holdings of Orchid common
shares, although these
market value changes do not impact our
cash flows from Orchid.
 
The Company increased its holdings of Orchid
during the second quarter
of 2020,
as the shares of Orchid
were trading at a significant
discount to Orchid’s reported book value as of
March 31, 2020.
 
The Company currently owns
approximately 2.6 million shares of Orchid.
 
The independent Board of Directors of Orchid has the ability to terminate the
 
management agreement and thus end our ability to
collect management fees and share overhead costs.
 
Should Orchid terminate the management agreement without cause,
 
it will be
obligated to pay us a termination fee equal to three times the average annual management
 
fee, as defined in the management
agreement, before or on the last day of the current automatic renewal term.
 
Economic Summary
 
DuringThe economy
continued its
strong recovery
from the COVID-19
pandemic during
the second
quarter of
2021.
The surge
in COVID-19
cases that
occurred during
the first
quarter of
2021 abated
quickly as inoculations
of the new
vaccines were
widely distributed
throughout
the
population
– especially
to those
most susceptible
to the virus.
New COVID-19
cases, hospitalizations
and deaths
from the
virus
decreased dramatically,
allowing
the economy
to reopen
and substantial
pent-up demand
on the part
of consumers
to be unleashed.
Additional
fiscal policy
steps taken
by the Biden
administration,
as described
below, added to
the surge
in economic
activity.
The economic
data released
throughout
the second
quarter provided
evidence of
the recovery.
Retail sales,
especially
car sales,
air
travel and
hotel demand,
surged.
Home sales
grew at a
pace that
exceeded the
early 2000s.
Home price
increases exceeded
levels
seen in the
early 2000s
as well,
eventually
leading to
a slow down
in home sales
and price
appreciation
in the early
days of the
third
quarter as
elevated home
prices became
an impediment
to new sales.
As the demand
for many goods
and services
surged, the
lingering
effects of the
pandemic acted
to retard
supply, leading to
price increases.
For example,
the supply
of computer
chips in the
case of autos
and consumer
electronics
could not
keep up with
demand.
Shortages
of commodities
like lumber
in the case
of housing,
and labor
generally, constrained
the economy’s
ability to
meet demand.
Labor remained
constrained
as workers
either were
content to
collect
supplemental
unemployment
insurance
available initially
under COVID-19
related legislation,
were fearful
of excess exposure
to COVID-
19 (especially
in the case
of leisure
and hospitality
workers) or
affected by
the lack of
access to
childcare,
and thus unable
to return
to
work.
Gross domestic
product,
or GDP, expanded at
an 6.5% annualized
rate during
the second
quarter of
2021.
Importantly, the
supply/demand
imbalance
mentioned
above, coupled
with an expansion
in the monetary
base driven
by both fiscal
and monetary
policy
(the Fed’s monthly
asset purchases),
have driven
inflation higher.
The consumer
price index,
or CPI, has
accelerated
to over 5%
on a
year over year
basis for the
 
first time
since 2008.
The lone disappointment
over the period
has been job
growth, as
mentioned above.
As
we enter the
third quarter
 
of 2021 thejob
 
economy madegrowth has
 
tremendousaccelerated,
 
strides towardsbut the rapid
 
recovery from
the COVID-19
pandemic. Evidence
of
the recovery
was pervasive.
New cases
of COVID-19,
which peaked
around the
turn of the
year, moderated
significantly, as
did
hospitalizations
and deaths.
As a resultemergence
 
of the U.S.delta
 
Senate run-off
elections in
early January, both
of which were
won by Democrats,
one
party was
now in control
of the White
House and
both houses
of Congress.
This led the
way to a new
stimulus package
being passed
that
was at the
high end of
market expectations
- $1.9 trillion.
The American
Rescue Plan
Act of 2021
was signed
into law on
March 11, 2021.
This marked
the third
legislative
act related
to the nation’s
recovery from
the COVID-19
pandemic, after
the $2.2 trillion
CARES Act
(described
below), which
passed on March
27, 2020 and
the $2.3 trillion
Consolidated
Appropriations
Act of 2021,
which contained
$900
billionvariant of
 
COVID-19
 
relief andduring July
 
was signed onmay
negatively
 
December 27,impact job
 
2020.
Given the momentum
the administration
had after
passing the
- 37 -
American Rescue
Plan Act of
2021, President
Biden shortly
thereafter
announced plans
for a $2 trillion-plus
infrastructure
bill.
The vaccine
roll-out,
which initially
seemed haphazard,
improved to
the point
where the
U.S. became
a world leader.
The U.S.
was well on
its way to
herd immunity
as over 200
million inoculations
were administered
by April 21,
2021, well
ahead of even
the most optimistic
projections
at
the beginning
of the year.
Economic data
released over
the course
of the first
quarter has
been consistently
very strong.
Fueled by
two
rounds of
stimulus checks
during the
first quarter,
consumers have
been spending.
Retail sales,
home sales,
demand for
new cars
and
other durable
goods are
all benefitting
from the stimulus
and considerable
pent-up demand.
Job growth
appears to
be accelerating
quickly, and the
unemployment
rate has dropped
to 6.1%.
All of the
developments
described above
have stoked
inflation fears.
The most
obvious evidence
of potential
price pressures
relate to
supply shortages
of a variety
of consumer
goods and
commodities
caused by
the
combination
of still constrained
production
and surging
demand that
have begun
to surface
across the
economy.
The factors
highlighted
above have
led to a surging
economy, which
grew at an
annualized
rate of 6.4%
during the
first quarter.
They
have also impacted
the financial
markets.
The various
broad equity
indices are
making new
all-time highs
on a frequent
basis, and
corporate
debt issuance
levels – both
investment
grade and
high yield
– are at or
near record
levels reflecting
the demand
for capital
and
investor appetite
for yield.
U.S. Treasury
rates, at
least longer-term
rates, have
risen significantly.
The ten-year
U.S. Treasury
note yield
increased from
0.916% to
1.742% over
the course
of the first
quarter, an increase
of 82.6 basis
points, and
the U.S.
Treasury curve
has
steepened substantially.
The market
has moved up
expectations
for a recovery
from the pandemic
and return
to normalcy
significantly.
The Federal
Reserve (the
“Fed”) gave
a green light
to higher
rates, referring
to them as
a sign of economic
strength.
However, when
the
market has
attempted
to price in
an acceleration
to the timing
of the rate
increases by
the Fed, the
Fed has pushed
back against
such
sentiment.
These efforts
have largely
been successful,
and current
market pricing
only reflects
one interest
rate hike by
the end of
2022.
growth.
 
Legislative
 
Response and
 
the Federal
 
Reserve
 
 
Congress passed
 
the CARES
 
Act quickly
 
in response
 
to the pandemic’s
 
emergence
 
last spring
 
and followed
 
with additional
 
legislation
over the ensuing
 
months.
 
However, as certain
 
provisions
 
of the CARES
 
Act expired,
 
such as supplemental
 
unemployment
 
insurance
 
last
- 39 -
July, there appeared
 
to be a need
 
for additional
 
stimulus for
 
the economy
 
to deal with
 
the surge
 
in the pandemic
 
that occurred
 
as cold
weather set
 
in, particularly
 
over the Christmas
 
holiday.
 
As mentioned
 
above, the
 
Federal government
 
eventually
 
passed an additional
stimulus package
 
in late December
 
of 2020 and
 
2020 and again in March
 
in March of 2021. In
 
2021. In addition, the
 
the Fed has
provided,
 
and continues
 
to provide,
 
as
much support
 
to the markets
 
and the economy
 
as it can within
 
the
constraints
 
of its mandate.
 
During the
 
third quarter
 
of 2020, the
 
Fed
unveiled a
 
new monetary
 
policy framework
 
focused on
 
average inflation
 
rate targeting
 
that allows
 
the Fed Funds
 
rate to remain
 
quite low,
even if inflation
 
is expected
 
to temporarily
 
surpass the
 
2% target
 
level. Further,
 
the Fed will
 
look past the
 
presence of
 
very tight
 
labor
markets, should
 
they be present
 
at the time.
 
This marks
 
a significant
 
shift from
 
their prior
 
policy framework,
 
which was
 
focused on
 
the
unemployment
 
rate as a
 
key indicator
 
of impending
 
inflation.
 
Adherence
 
to this policy
 
could steepen
 
the U.S.
 
Treasury curve
 
as short-term
rates could
 
remain low
 
for a considerable
 
period but
 
longer-term
 
rates could
 
rise given
 
the Fed’s intention
 
to let inflation
 
potentially
 
run
above 2% in
 
the future
 
as the economy
 
more fully
 
recovers.
 
As mentionedThe response
 
above, thisof U.S. Treasury
 
appears torates appeared
 
be occurringto follow
this pattern
precisely
during the
first quarter
of 2021 but
it has since
reversed since
 
early in 2021the
 
now that
effective vaccinessecond quarter
 
have been
found and
inoculations
are distributed
at an accelerating
pace.2021.
 
Interest Rates
 
InterestAs economic
activity and
inflation
accelerated
during the
second quarter
of 2021, market
participants
anticipated
interest rates
 
steadily increasedwould
continue to
 
throughoutrise as they
had done
during the
first quarter
of the year.
This was most
evident in
 
the firstopen interest
 
quarter asin the various
 
described aboveU.S.
Treasury futures
 
and levels– namely the
 
level of impliedcontracts
 
volatilityshorted.
 
rose as well.However, interest
 
Mortgage
rates slowlydid
 
declined atnot continue
to rise in
 
the end of
2020 as originators
added capacity
and could handle
ever increasing
levels of production
volume.
This
trend in mortgage
rates quickly
reversed during
the firstsecond
 
quarter of
 
2021 as2021. In
fact, over
the course
of the quarter,
longer term
interest rates
 
began to increase,declined slowly
– by 27.2
bps in the
case of the
10-year U.S.
Treasury note
and 32.5 bps
in the case
of the 30-year
U.S. Treasury
bond.
Since quarter
end, rates
have accelerated
their decline,
 
especially in
 
late Februaryso as the
delta variant
of COVID-19
has appeared
to spread
at an accelerating
rate across
both the U.S.
 
and March.the globe.
The driver
of the counter-
With the increaseintuitive movement
 
in rates was
likely the result
of technical
factors,
as market positioning
was so skewed
to the short
side and there
simply were
few if any
additional
sellers.
The disappointing
job growth
figures during
the second
quarter were
also cited
as evidence
the
market may
have been
overly optimistic
about the
magnitude of
the economic
recovery.
More recently,
the rapid
spread of
the delta
variant of
COVID-19
is causing
market participants
to lower their
near-term
growth estimates
– both for
the U.S.
and globally.
The Fed has
played a role
in the evolution
of interest
 
rates prepaymentover
the course
of the quarter
as well. The
most significant
development
has been the
Fed’s insistence,
at least from
the FOMC leadership,
that the inflationary
pressures
evident in
the economy
will be transitory.
The Fed argues
that COVID-19
related supply
constraints
are driving
most price
pressures,
and that
 
activity slowed.related
to the opening
of the
economy – such
as travel,
dining out
and housing
– is causing
price pressures
related to
excessive demand,
which should
subside as
the
economy returns
to normal
levels of
activity.
Substantial
fiscal stimulus
also played
a role in
the Fed’s view
in that direct
payments to
consumers related
to the various
relief measures
passed by Congress
were one time
in nature
and their
effect will
fade.
Market pricing,
or
the level of
interest rates,
especially
long-term
rates, seems
to indicate
the market
agrees with
this point
of view.
However, at the
conclusion of
the FOMC meeting
in June, the
market was
surprised to
learn that
while the
leadership
of the Fed
maintained
this view, not
all members
of the FOMC
did.
Certain members
of the committee
believed that
inflation may
not be transitory,
and that as
a result the
Fed
would have
to raise interest
rates begin
to taper their
asset purchases
sooner than
previously
thought.
 
The percentmarket
interpreted
these
developments
as a hawkish
shift on
the part of
the Fed, although
the leadership
of the Fed
– especially
Chairman Powell
- has pushed
back against
this interpretation
and insists
the Fed’s stance
has not changed.
The Agency
RMBS Market
Performance
for the Agency
RMBS market
for the second
quarter trailed
most other
asset classes,
especially
so in June.
The total
return for
the Agency
RMBS sub-index
was 0.33%
for the quarter.
As mentioned
above, at
the conclusion
of the June
FOMC meeting
it
was evident
that not all
committee
members shared
the view of
the Fed leadership
that the removal
of accommodation
was still far
off – or
that the recovery
was far from
complete.
Certain members
thought the
Fed would
have to taper
their asset
purchases and
eventually
raise
short-term
interest rates
much sooner.
For the Agency
RMBS market,
this meant
Fed purchases
of $40 billion
per month
might be
ending
sooner than
most market
participants
expected.
The extremely
strong housing
market added
credence to
the notion
that the Fed
did not
need to continue
to provide
support to
the market
any longer
as well.
Given the length
of time the
Fed has been
supporting
the Agency
RMBS market,
coupled with
banks that are
flush with
deposits that
need to be
invested, price
levels in
the Agency
RMBS market
were
quite rich
prior to this
development.
While all sectors
of the financial
markets appear
to be priced
at the high
end of long-term
price ranges,
- 40 -
the removal
of such a large
buyer of
Agency RMBS
likely would
have a negative
effect on their
valuations.
The market
has reacted
to the
potential of
lower Fed
purchases of
Agency RMBS,
leading to
the relative
under-performance
 
of the Agency
 
RMBS universemarket
 
with sufficientduring the
second quarter
 
rate incentiveof 2021.
 
to
economically
 
refinance
The second
driver of
Agency RMBS
performance,
both for the
second quarter
of 2021 and
beyond, is,
as always,
the level of
prepayments.
As the market
 
has declinedrallied
 
from approximately– especially
 
80%long-term
 
at the end
of 2020 to
approximately
46% at the
end of the
first quarter.
However, the spread
betweenrates – rates
 
available to
 
borrowers
 
and the impliedare now back
 
yield onto levels seen
last
summer, and burn-out
in higher
coupon, more
seasoned mortgages
has
been modest.
This has been
supportive
of specified
pool
premiums, a
 
current couponcore holding
 
mortgage,of the Company.
 
known as the
primary/secondaryGoing forward,
 
spread, hasprepayment activity
 
continued tocould accelerate
 
compress.as a result
of the FHFA’s recent decision
to remove the
Adverse Market
Refinance
Fee effective
August 1,
2021, earlier
than
had been anticipated.
 
The spreadfee was
 
is still slightlypaid by originators
to the GSE’s
 
above long-termas a form
 
average levelsof compensation
 
so furtherto the GSE’s
 
compression
is possible,to cover the
 
meaning rateshigher default
 
availablerates that
were anticipated.
Originators
generally
passed
the fee on
 
to borrowers,
 
could remainso its removal
 
at currenteffectively lowers
 
levels evenavailable
 
if U.S. Treasury
rates increased
further. Since
the
end of the
first quarter,
interestmortgage rates
 
have declined
by approximately
10 basis points
in the caseamount
 
of the 10-yearfee,
 
U.S. Treasuryor 50 basis
 
note.
Accordingly, prepayment
levels on
RMBS securities
are likely
to remain
high unless
U.S. Treasury
rates increase
above current
levels.
- 38 -
The Agency
MBS Market
The
market conditions
that prevailed
throughout
the first
quarter were
not conducive
to mortgage
performance.
In fact, apart
from high
yield bonds,
all fixed income
sectors had
negative returns
for the quarter.
Interest rates
rose rapidly, and
volatility was
elevated.
Agency
RMBS had
negative absolute
and excess
returns for
the first
quarter of
-1.2% and
-0.3%, respectively
(both vs U.S
Treasuries and
LIBOR/swaps).
There is a
benefit to
higher interest
rates, and
as interest
rates rose
prepayment
levels declined.
The Mortgage
Bankers
Association
refinance
index declined
from approximately
4700 in early
January 2021
to approximately
2900 in early
April 2021,
before
rebounding
slightly since.
The Agency
RMBS market
continues to
be essentially
bifurcated
with two
separate and
distinct sub-markets.
Lower coupon
fixed rate
mortgages,
coupons of
1.5% through
2.5%, are
purchased by
the Fed.
Fed purchase
activity maintains
substantial
price pressure
under these
coupons, and
they benefit
from attractive
TBA dollar
roll drops.
Higher coupons
in the TBA
market
do not have
the benefit
of Fed purchases.
Importantly, the
Fed tends
to take the
worst performing
collateral
out of the
market.
The
absence of
Fed purchases
of higher
coupons means
the market
is left to
absorb still
very high
prepayment
speeds on these
securities
as
rates have
not risen
enough to
eliminate the
economic incentive
to refinance.
The market
expects prepayments
on higher
coupons will
eventually
decline as
“burn out”
sets in – a
phenomenon
whereby refinancing
activity declines
as borrowers
are exposed
to refinancing
incentives for
an extended
period.
Through the
April 2021
prepayment
report released
in early May, this
has yet to
occur.
While
market
participants
continue to
favor specified
pools that
have favorable
prepayment
characteristics
that mute
the refinance
incentive,
the
premium over
generic TBA
securities
has declined
significantly
with the reduced
refinance
incentive caused
by the increase
in rates
available to
borrowers.points.
 
Recent Legislative
 
and Regulatory
 
Developments
 
The Fed conducted
 
large scale
 
overnight repo
 
operations
 
from late
 
2019 until
 
July
2020 to address
 
address disruptions
 
in the U.S.
 
Treasury,
Agency debt
 
and Agency
 
MBS financing
 
markets. These
 
operations
 
ceased in July
 
2020 after
 
the central
 
bank successfully
 
tamed volatile
funding costs
 
that had threatened
 
to cause disruption
 
across the
 
financial system.
 
 
The Fed has
 
taken a number
 
of other actions
 
to stabilize
 
markets as
 
a result of
 
the impacts
 
of the COVID-19
 
pandemic. In
 
March of
2020, the
 
Fed announced
 
a $700 billion
 
asset purchase
 
program to
 
provide liquidity
 
to the U.S.
 
Treasury and
 
Agency RMBS
 
markets. The
Fed also lowered
 
the Fed Funds
 
rate to a
 
range of 0.0%
 
– 0.25%, after
 
having already
 
lowered the
 
Fed Funds
 
rate by 50
 
bps earlier
 
in the
month. Later
 
that same
 
month the
 
Fed announced
 
a program
 
to acquire
 
U.S. Treasuries
 
and Agency
 
RMBS in the
 
amounts needed
 
to
support smooth
 
market functioning.
 
With these
 
purchases,
 
market conditions
 
improved substantially.
 
Currently, the Fed
 
is committed
 
to
purchasing
 
$80 billion
 
of U.S. Treasuries
 
and $40 billion
 
of Agency
 
RMBS each
 
month. Chairman
 
Powell and
 
the Fed have
 
reiterated
 
their
commitment
 
to this level
 
of asset purchases
 
at every meeting
 
since their
 
meeting on
 
June 30,
 
2020. At the
July 2021 meeting,
the Fed
indicated they
had begun
their discussions
for adjusting
the path
and composition
of asset purchases,
but reiterated
the intention
to
provide notice
well in advance
of an announcement
to reduce
the pace of
such purchases.
Chairman
 
Powell has
 
also maintained
that the
Fed expects
 
expects to maintain
 
maintain interest
 
rates at this
 
level until
 
the Fed is
 
confident that
 
the economy
 
has weathered
 
the pandemic
 
and its impact
impact on economic
 
activity and
 
is on track
 
to achieve
 
its maximum
 
employment
 
and price
 
stability goals.
 
goals. The
Fed has taken
 
taken various other
 
othersteps
steps to support
 
certain other
 
fixed income
 
markets, to
 
support mortgage
 
servicers and
 
to implement
 
various portions
 
of the Coronavirus
Aid, Relief,
 
Aid,
Relief, and Economic
 
Economic Security
(“CARES”)
 
Act.
 
The CARES
 
Act was passed
 
by Congress
 
and signed
 
into law byon
 
President
Trump on March
27, 2020.
 
The CARESThis over $2
 
Act provided
many forms
of direct
support to
individuals
and small
businesses
in order to
stem
the steep
decline in
economic activity.
This over
$2
trillion COVID-19
 
relief bill,
 
among
other things,
 
things, provided for
 
for direct payments
 
payments to
each American
 
making up to
 
$75,000 ato $75,000
 
a year, increased
unemployment
 
benefits for
 
up to four
months (on
 
top of state
 
benefits),
 
funding to
 
hospitals and
 
health providers,
 
loans and investments
 
to
businesses,
 
states and
 
and municipalities
and grants
 
to the airline
 
industry. On April
 
24, 2020,
 
President
Trump signed an
additional
 
funding bill
was signed
bill
into law
 
that providesprovided
 
an additional
 
$484 billion
 
of
funding to
 
to individuals,
 
small businesses,
 
hospitals,
 
health care
 
providers and
 
and
additional
 
coronavirus
 
testing efforts.
 
Various provisions
 
of
the CARES
 
Act began
 
to expire in
 
in July 2020,
 
including a
 
moratorium
 
on
evictions, (July
25, 2020),
 
expanded
 
unemployment
 
benefits, (Julyand
 
31, 2020),
and a moratorium
 
on foreclosures
foreclosures.
 
(On August 31,
 
2020). On
August 8, 2020,
 
2020, PresidentExecutive Order
 
Trump issued Executive13945 was
 
Order 13945,issued,
 
directing the
 
Department
 
of Health
 
and Human
 
Services, the
Centers for
 
Centers for
Disease Control
 
and Prevention
 
(“CDC”),
 
the Department
 
of Housing
 
and Urban
 
Development,
 
and Department
 
of the
Treasury to take
 
to take
- 39 -
measures to
 
temporarily
 
halt residential
 
evictions and
 
and foreclosures,
 
including through
 
through temporary
 
financial assistance.
 
 
On December
 
27, 2020,
 
President
Trump signed into
law an additional
 
$900 billion
 
coronavirus
 
aid package
 
was signed
into law
as part of
 
the Consolidated
Consolidated
Appropriations
 
Act of 2021,
 
providing for
 
extensions
 
of many of
 
the CARES
 
Act policies
 
and programs
 
as well as
 
additional
relief. The
package provided
 
for, among other
 
things, direct
 
payments to
 
most Americans
 
with a gross
 
income of less
 
less than $75,000
 
a year, extension
extension of
unemployment
 
benefits through
 
March 14, 2021,
 
2021, funding for
 
for procurement
 
of vaccines
 
and health
 
providers,
 
loans to qualified
businesses,
 
funding for
 
rental assistance
 
and funding
 
for schools.
 
On January
 
29, 2021,
 
the CDC
 
issued guidance
 
extending eviction
moratoriums
 
for covered
 
persons through
 
March 31,
 
2021, which
 
was furthersubsequently
 
extended to
 
June 30, 2021
on March 29,to July 31,
 
2021. In addition,
on February
 
9,
- 41 -
2021, the
 
FHFA announced
 
that the foreclosure
 
moratorium
 
begun under
 
the CARES
 
Act for loans
 
backed by Fannie
 
Mae
and Freddie
Mac and the
 
eviction moratorium
 
for real estate
 
owned by Fannie
 
Mae and Freddie
 
Mac were extended
 
until March
 
31, 2021,
which was
extended to
 
further extended
to June 30,
2021 on February
25,July 31, 2021.
 
On February
 
16, 2021,
 
the U.S.
 
Housing and
 
Urban Development
Department
 
announced
 
the extension
 
of the
FHA eviction
 
eviction and
foreclosure
 
moratorium
 
to June 30,
 
2021.2021, which
was extended
to July 31,
2021 and again
in July, although
the
moratorium
no longer
applies to
all geographic
areas.
 
On March 11, 2021,
 
the $1.9 trillion
 
American Rescue
 
Plan Act of
 
2021 was signed
 
into law.
 
This stimulus
 
program furthered
 
the
Federal government’s
 
efforts to stabilize
 
the economy
 
and provide
 
assistance
 
to sectors
 
of the population
 
still suffering
 
from the
 
various
physical and
 
economic effects
 
of the pandemic.
 
In January
 
2019, the
 
Trump administration
 
made statements
 
of its plans
 
to work with
 
Congress to
 
overhaul Fannie
 
Mae and Freddie
Mac and expectations
 
to announce
 
a framework
 
for the development
 
of a policy
 
for comprehensive
 
housing finance
 
reform soon.
 
On
September
 
30, 2019,
 
the FHFA announced
 
that Fannie
 
Mae and Freddie
 
Mac were allowed
 
to increase
 
their capital
 
buffers to
 
$25 billion
and $20 billion,
 
respectively, from
 
the prior
 
limit of $3
 
billion each.
 
This step could
 
ultimately
 
lead to Fannie
 
Mae and Freddie
 
Mac being
privatized
 
and represents
 
the first
 
concrete step
 
on the road
 
to GSE reform.
 
On June 30,
 
2020, the
 
FHFA released
 
a proposed
 
rule on a
new regulatory
 
framework
 
for the GSEs
 
which seeks
 
to implement
 
both a risk-based
 
capital framework
 
and minimum
 
leverage
 
capital
requirements.
 
The final
 
rule on the
 
new capital
 
framework
 
for the GSEs
 
was published
 
in the federal
 
register in
 
December 2020.
 
On
January 14,
 
2021, the
 
U.S. Treasury
 
and the FHFA executed
 
letter agreements
 
allowing the
 
GSEs to continue
 
to retain
 
capital up
 
to their
regulatory
 
minimums, including
 
buffers, as
 
prescribed
 
in the December
 
rule.
 
These letter
 
agreements
 
provide, in
 
part, (i)
 
there will
 
be no
exit from conservatorship
 
until all
 
material litigation
 
is settled
 
and the GSE
 
has common
 
equity Tier
 
1 capital of
 
at least 3%
 
of its assets,
 
(ii)
the GSEs will
 
comply with
 
the FHFA’s regulatory
 
capital framework,
 
(iii) higher-risk
 
single-family
 
mortgage acquisitions
 
will be restricted
 
to
current levels,
 
and (iv) the
 
(iv)U.S. Treasury
and the U.S.FHFA
 
Treasury andwill establish
 
the FHFA willa timeline
 
establish aand process
 
timeline andfor future
 
process forGSE reform.
 
future GSE
reform. However,
no definitive
proposals or
 
legislation
 
have been
 
released or
 
enacted with
 
respect to
 
ending the
 
conservatorship,
 
unwinding
 
the GSEs,
 
or materially
reducing the
 
roles of the
 
GSEs in the
 
U.S. mortgage
 
market. On
June 23, 2021,
President
Biden removed
the director
of the FHFA and
appointed an
acting director.
With the leadership
change at
FHFA, some observers
anticipate
that the Biden
administration
will be less
likely to focus
on ending
the GSEs’
conservatorship
and that the
January 14,
2021, letter
agreements
between the
U.S. Treasury
and the
FHFA may be renegotiated.
 
In 2017, policymakers
 
announced
 
that LIBOR
 
will be replaced
 
by December
 
31, 2021.
 
The directive
 
was spurred
 
by the fact
 
that
banks are uncomfortable
 
contributing
 
to the LIBOR
 
panel given
 
the shortage
 
of underlying
 
transactions
 
on which to
 
base levels
 
and the
liability associated
 
with submitting
 
an unfounded
 
level. The
 
ICE Benchmark
 
Administration,
 
in its capacity
 
as administrator
 
of USD LIBOR,
has confirmed
 
that it will
 
cease publication
 
of (i) the
 
one-week and
 
two-month
 
USD LIBOR
 
settings immediately
 
following
 
the LIBOR
publication
 
on December
 
31, 2021,
 
and (ii) the
 
overnight
 
and one, three,
 
six and 12-month
 
USD LIBOR
 
settings immediately
 
following
 
the
LIBOR publication
 
on June 30,
 
2023.
A joint
statement
 
by key regulatory
 
authorities
 
calls on banks
 
to cease entering
 
into new
 
contracts
that use USD
 
LIBOR as a
 
reference rate
 
by no later
 
than December
 
31, 2021.
 
The Alternative
 
Reference
 
Rates Committee,
 
a steering
committee comprised
 
of large U.S.
 
financial institutions,
 
has proposed
 
replacing USD-LIBOR
 
with a new
 
SOFR, a rate
 
based on U.S.
 
repo
trading. OnMany
 
December 31,banks believe
 
2020, FNMAthat it may
 
and FHLMCtake four
 
ceased purchasingto five years
 
LIBOR-basedto complete
 
adjustable-rate
mortgage (“ARM”)
loans and began
accepting SOFR-based
ARMs and issuing
SOFR-based
MBS. However,
many banks
believe that
it may take
four to five
years to
complete the
transition
 
to SOFR,
 
for certain,
 
despite the
 
2021 deadline.
We will monitor
 
the emergence
 
of this new
 
rate carefully
 
as it will
potentially
 
become the
 
new benchmark
 
for hedges
 
and a range
 
of
interest rate
 
rate investments.
 
At this time,
 
however, no consensus
 
exists as to
to what rate
 
or rates may
 
become accepted
 
alternatives
 
to LIBOR.
 
Effective January
 
1, 2021, Fannie
 
Mae, in alignment
 
with Freddie
 
Mac, will extend
 
the timeframe
 
for its delinquent
 
loan buyout
 
policy
for Single-Family
 
Uniform Mortgage-Backed
 
Securities
 
(UMBS) and
 
Mortgage-Backed
 
Securities
 
(MBS) from
 
four consecutively
 
missed
- 40 -
monthly payments
 
to twenty-four
 
consecutively
 
missed monthly
 
payments (i.e.,
 
24 months past
 
due). This
 
new timeframe
 
will apply
 
to
outstanding
 
single-family
 
pools and
 
newly issued
 
single-family
 
pools and was
 
first reflected
 
when January
 
2021 factors
 
were released
 
on
the fourth
 
business day
 
in February
 
2021.
 
 
For Agency
 
RMBS investors,
 
when a delinquent
 
loan is bought
 
out of a pool
 
of mortgage
 
loans, the
 
removal of
 
the loan from
 
the pool
is the same
 
as a total
 
prepayment
 
of the loan.
 
The respective
 
GSEs currently
 
anticipate,
 
however, that
 
delinquent
 
loans will
 
be
- 42 -
repurchased
 
in most cases
 
before the
 
24-month deadline
 
under one
 
of the following
 
exceptions
 
listed below.
 
• a loan that is paid
 
in full, or
 
where the
 
related lien
 
is released
 
and/or the
 
note debt
 
is satisfied
 
or forgiven;
• a loan repurchased by
 
a seller/servicer
 
under applicable
 
selling and
 
servicing requirements;
• a loan entering a permanent
 
modification,
 
which generally
 
requires
 
it to be removed
 
from the MBS.
 
During any
 
modification
 
trial
period, the
 
loan will
 
remain in the
 
MBS until
 
the trial
 
period ends;
• a loan subject to a
 
short sale
 
or deed-in-lieu
 
of foreclosure;
 
or
• a loan referred to
 
foreclosure.
 
Because of
 
these exceptions,
 
the GSEs
 
currently believe
 
based on
prevailing
 
assumptions
 
and market
 
conditions
 
this change
 
will
have only a
 
marginal impact
 
on prepayment
 
speeds, in
 
aggregate.
 
Cohort level
 
impacts may
 
vary. For example,
 
more than
 
half of loans
referred to
 
foreclosure
 
are historically
 
referred within
 
six months
 
of delinquency. The
 
degree to
 
which speeds
 
are affected
 
depends on
delinquency
 
levels, borrower
 
response, and
 
referral to
 
foreclosure
 
timelines.
 
The scope and
 
nature of
 
the actions
 
the U.S.
 
government
 
or the Fed
 
will ultimately
 
undertake
 
are unknown
 
and will continue
 
to
evolve, especially
 
in light of
 
the COVID-19
 
pandemic, President
 
Biden’s new
 
administration
 
and the new
 
Congress in
 
the United
 
United States.
On April 28,
2021 the FHFA
announced new
refinance
options for
low-income
families with
enterprise
backed mortgages
(FNMA and
FHLMC). Eligible
borrowers
will benefit
from a reduced
interest rate
and lower
monthly payment.
Eligibility
for the program
was further
clarified
by
the respective
GSEs on May
4, 2021. The
impact on
refinancing
on the Company
and the universe
of Agency
MBS is expected
to be limited
and concentrated
in loans with
lower loan
balances.
 
Effect on Us
 
Regulatory
 
developments,
Regulatory developments,
movements
in interest
rates and
prepayment
rates affect
us in many ways,
 
ways, including
the following:
 
Effects on our Assets
 
Assets
 
A change in
 
or elimination
 
of the guarantee
 
structure
 
of Agency
 
RMBS may increase
 
our costs (if,
 
for example,
 
guarantee
 
fees
increase) or
 
require us
 
to change
 
our investment
 
strategy altogether.
 
For example,
 
the elimination
 
of the guarantee
 
structure
 
of Agency
RMBS may cause
 
us to change
 
our investment
 
strategy to
 
focus on non-Agency
 
RMBS, which
 
in turn would
 
require us
 
to significantly
increase our
 
monitoring
 
of the credit
 
risks of our
 
investments
 
in addition
 
to interest
 
rate and prepayment
 
risks.
 
Lower long-term
 
interest rates
 
can affect the
 
value of our
 
Agency RMBS
 
in a number
 
of
ways. If
prepayment
 
rates are
 
relatively
 
low
(due, in part,
 
to the refinancing
 
problems described
 
above), lower
 
long-term
 
interest rates
 
can increase
 
the value of
 
higher-coupon
 
Agency
RMBS. This
 
is because
 
investors
 
typically place
 
a premium
 
on assets
 
with yields
 
that are higher
 
than market
 
yields. Although
 
lower long-
term interest
 
rates may increase
 
asset values
 
in our portfolio,
 
we may not
 
be able to
 
invest new
 
funds in similarly-yielding
 
assets.
 
If prepayment
 
levels increase,
 
the value
 
of our Agency
 
RMBS affected
 
by such prepayments
 
may decline.
 
This is because
 
a principal
prepayment
 
accelerates
 
the effective
 
term of an
 
Agency RMBS,
 
which would
 
shorten the
 
period during
 
which an investor
 
would receive
above-market
 
returns (assuming
 
the yield on
 
the prepaid
 
asset is higher
 
than market
 
yields). Also,
 
prepayment
 
proceeds may
 
not be able
to be reinvested
 
in similar-yielding
 
assets. Agency
 
RMBS backed
 
by mortgages
 
with high
 
interest rates
 
are more susceptible
 
to
- 41 -
prepayment
 
risk because
 
holders of
 
those mortgages
 
are most likely
 
to refinance
 
to a lower
 
rate. IOs
 
and IIOs, however,
 
may be the
 
types
of Agency
 
RMBS most
 
sensitive to
 
increased prepayment
 
rates. Because
 
the holder
 
of an IO or
 
IIO receives
 
no principal
 
payments,
 
the
values of IOs
 
and IIOs are
 
entirely dependent
 
on the existence
 
of a principal
 
balance on
 
the underlying
 
mortgages.
 
If the principal
 
balance
is eliminated
 
due to prepayment,
 
IOs and IIOs
 
essentially
 
become worthless.
 
Although increased
 
prepayment
 
rates can
 
negatively
 
affect
the value of
 
our
IOs and IIOs,
 
IIOs, they have
 
have the opposite
 
effect on POs.
 
Because POs
 
act like zero-coupon
 
bonds, meaning
 
they are
purchased at
 
a discount
 
to their
 
par value and
 
have an effective
 
interest rate
 
based on the
 
discount and
 
the term of
 
the underlying
 
loan, an
increase in
 
prepayment
 
rates would
 
reduce the
 
effective term
 
of our POs
 
and
accelerate
 
the yields
 
earned on
 
those assets,
 
which would
increase our
 
net income.
 
Higher long-term
 
rates can
 
also affect
 
the value of
 
our Agency
 
RMBS.
 
As long-term
 
rates rise,
 
rates available
 
to borrowers
 
also rise.
 
This tends
 
to cause prepayment
 
activity to
 
slow and extend
 
the expected
 
average life
 
of mortgage
 
cash flows.
 
As the expected
 
average
- 43 -
life of the
 
mortgage cash
 
flows increases,
 
coupled with
 
higher discount
 
rates, the
 
value of Agency
 
RMBS declines.
 
Some of the
instruments
 
the Company
 
uses to hedge
 
our Agency
 
RMBS assets,
 
such as interest
 
rate futures,
 
swaps and
 
swaptions,
 
are stable
average life
 
instruments.
 
This means
 
that to the
 
extent we
 
use such instruments
 
to hedge our
 
Agency RMBS
 
assets, our
 
hedges may not
adequately
 
protect us
 
from price
 
declines, and
 
therefore
 
may negatively
 
impact our
 
book value.
 
It is for
 
this reason
 
we use interest
 
only
securities
 
in our portfolio.
 
As interest
 
rates rise,
 
the expected
 
average life
 
of these securities
 
increases,
 
causing generally
 
positive price
movements as
 
the number
 
and size of
 
the cash flows
 
increase the
 
longer the
 
underlying
 
mortgages
 
remain outstanding.
 
This makes
interest only
 
securities
 
desirable
 
hedge instruments
 
for pass-through
 
Agency RMBS.
 
 
As described
 
above, the
 
Agency RMBS
 
market began
 
to experience
 
severe dislocations
 
in mid-March
 
2020 as a result
 
result of
the
economic, health
 
and market
 
turmoil brought
 
about by COVID-19.
 
In March of
 
2020, the
 
Fed announced
 
that it would
 
purchase Agency
RMBS and
 
U.S. Treasuries
 
in the amounts
 
needed to
 
support smooth
 
market functioning,
 
which largely
 
stabilized the
 
Agency RMBS
market, a commitment
 
it reaffirmed
 
at all subsequent
 
Fed meetings,meetings.
 
including itsAt the July
 
most recent2021 meeting,
 
meeting inthe Fed began
 
April to discuss
plans for
adjusting
the path and
composition
of 2021.asset purchases,
but reiterated
its intention
to provide
notice well
in advance
of an announcement
to reduce
the pace of
such purchases.
 
If the Fed
 
modifies,
reduces or
 
or suspends its
 
its purchases
 
of Agency RMBS,
 
RMBS, our
investment
 
portfolio could
 
could be
negatively
 
impacted. Further,
 
the moratoriums
 
on
foreclosures
 
and evictions
 
described
 
above will
 
likely delay
 
potential defaults
 
defaults on loans
that would
 
loans that
would otherwise
 
be bought out
 
out of Agency MBS
 
MBS
pools as described
 
above.
 
Depending
 
on the ultimate
 
resolution
 
of the foreclosure
 
or
evictions,
 
when and if
 
it occurs,
 
these loans
 
may be
removed from
 
from the
pool into which
 
which they were
 
were securitized.
 
If this were
 
to occur, it would
have the effect
 
of delaying
 
a prepayment
 
on the Company’s
Company’s securities
 
until such
 
time. As the
 
majority of
 
the Company’s
 
Agency RMBS
assets were
 
acquired at
 
a premium
 
to par, this will
tend to increase
 
the realized
 
yield on the
 
asset in question.
 
Because we
 
base our investment
 
decisions on
 
risk management
 
principles
 
rather than
 
anticipated
 
movements in
 
interest rates,
 
in a
volatile interest
 
rate environment
 
we may allocate
 
more capital
 
to structured
 
Agency RMBS
 
with shorter
 
durations.
 
We believe these
securities
 
have a lower
 
sensitivity
 
to changes
 
in long-term
 
interest
 
rates than
 
other asset
 
classes. We
 
may attempt
 
to mitigate
 
our
exposure to
 
changes in
 
long-term
 
interest rates
 
by investing
 
in IOs and
 
IIOs, which
 
typically
 
have different
 
sensitivities
 
to changes
 
in long-
term interest
 
rates than
 
PT RMBS, particularly
 
PT RMBS backed
 
by fixed-rate
 
mortgages.
 
Effects on our borrowing costs
 
borrowing
costs
 
We leverage
 
our PT RMBS
 
portfolio and
 
a portion
 
of our structured
 
Agency RMBS
 
with principal
 
balances through
 
the use of
 
short-
term repurchase
 
agreement
 
transactions.
 
The interest
 
rates on
 
our debt are
 
determined
 
by the short-termshort
 
term interest rate
 
rate markets.
An
increase in
 
the Fed Funds
 
rate or LIBOR
 
would increase
 
our borrowing
 
costs, which
 
could affect
 
our interest
 
rate spread
 
if there is
 
no
corresponding
 
increase in
 
the interest
 
we earn on
 
our assets.
 
This would
 
be most prevalent
 
with respect
 
to our Agency
 
RMBS backed
 
by
fixed rate
 
mortgage loans
 
because the
 
interest rate
 
on a fixed-rate
 
mortgage loan
 
does not change
 
even though
 
market rates
 
may change.
 
In order to
 
protect our
 
net interest
 
margin against
 
increases in
 
short-term
 
interest rates,
 
we may enter
 
into interest
 
rate swaps,
 
which
economically
 
convert our
 
floating-rate
 
repurchase
 
agreement
 
debt to fixed-rate
 
debt, or utilize
 
other hedging
 
instruments
 
such as
Eurodollar, Fed
 
Funds and
 
T-Note futures
 
contracts or
 
interest rate
 
swaptions.
 
- 42 -
Summary
 
COVID-19
continues to
dominate the
performance
of the markets
and economy.
In the case
of the first
quarter of
2021 this meant
the
recovery from
the pandemic,
in stark contrast
 
to the firsttwelve
 
quarter ofmonths that
 
2020 whenpreceded the
second quarter
of 2021, COVID-19
did not suppress
 
the pandemicperformance
 
first emergedof the
markets and
 
economy in the U.S.
 
the second
quarter. The recovery
 
has
been driven
 
by many factors
 
– the emergence
 
and widespread
 
distribution
of a very effective
 
vaccine, substantial
 
government
 
stimulus and
and accommodative
 
monetary
 
policy. The economy
 
is recoveringrecovered
 
rapidly as
 
the emergencean
of an effective
vaccine has
 
allowed pent-up
demand to lead
 
lead to a surge
 
surge in demand for
 
for goods and
 
and services,
 
fueled further
 
by multiple
 
rounds of
stimulus checks
 
and numerous
 
other means
means of financial
 
support provided
 
by the government.
 
Financial markets
 
markets are
benefiting
 
from
extremely loose
 
lose financial
 
conditions,
abundant liquidity,
 
high risk tolerance
 
tolerance and
an insatiable
 
demand for
 
returns.
 
The constraint
that both
limits the
level of activity
and is a driver
of price pressures
is the lingering
effect of the
pandemic on
labor force
participation
– or lack
thereof.
A significant
part of the
price pressure
observed during
the second
quarter was
driven by
supply shortages,
which are
in turn
- 44 -
driven by under-staffed
producers
of various
goods and
services.
This constraint
should be slowly
removed over
the balance
of 2021
barring a
resurgence
of the pandemic.
 
The surge
in economic
 
activity data released
during the
second quarter
tells the story
quite well.
GDP expanded
at a 6.50%
annualized
rate.
The
housing market
is stronger
than in the
days before
 
the firstfinancial
 
quartercrisis in the
late 2000s
– both in
terms of the
number of
 
2021 and expectationshomes sold
 
for activityand
average prices
– which in
the
case of existing
home sales
are up over
23% year over
year in June
2021 versus
June 2020.
Price
pressures are
evident, due
 
to returnthe combination
 
to pre-pandemicof constrained
 
levels much
sooner thansupply channels
 
anticipatedand robust
 
caused interestdemand –
 
rates to risedriven by a
 
rapidly asstrong combination
 
of
pent-up demand
and government
stimulus.
The CPI increased
by well over
5% year over
year in June
as well.
 
The yield onFed has
insisted
these price
pressures are
temporary, and
 
the 10-yearmarket
appears to
agree based
on the level
of long-term
 
U.S. Treasury
 
note increasedrates.
 
by over 82However, not
basis pointsall members
 
and closed
the quarter
at approximately
1.75%, not
far below
the yield level
that prevailed
last January
beforeof the
 
pandemic
emerged last
March.
In addition,
the U.S.
Treasury curve
has steepened
as theFOMC or market
 
fears anparticipants
 
outbreak inagree.
 
inflation caused
by the
combination
of abundant
liquidity
via government
stimulus,
loose financial
conditions
and very
strong demand
for all types
of goods and
services.
Constrained
supply of
needed raw
materials,
various inputs
to consumer
goods, such
as micro chips,
and even labor
have
exacerbated
the upward
pressure on
prices. It
remains to
be seen if
these price
pressures prove
to be temporary
or
lead to more
sustained
inflation.
The Fed believes
the effects
are transitory.
Current market
pricing is
roughly in
line with
the Fed’s view
as the Eurodollar
and
Fed Funds
futures markets
only reflect
at most one
interest rate
hike bySince the
 
end of 2022.
disagreement
 
The Agency
RMBS market
did not perform
well during
the first quarter
as market conditions
– rapidly
rising rates
and increased
volatility –
led to extension
fears in
mortgage cash
flows, driving
convexity related
selling and
spread widening.
Agency RMBS
had
negative absolute
and excess
returns for
the first
quarter of
2021 of -1.2%
and -0.3%,
respectively
(both vs U.S.
Treasuries and
LIBOR/swaps).
A positive
impact from
higher rates
and lowered
prepayment
expectations
is slower
premium amortization,
which
enhances net
income all
else equal.
The Mortgage
Bankers Association
refinance index
declined from
approximately
4700 in early
January 2021
to approximately
2900 in early
April, before
rebounding
slightly since.
As was the
case for much
of 2020, the
Agency RMBS
market continues
to be essentially
bifurcated
with two
separate and
distinct sub-markets.
Lower coupon
fixed rate
mortgages,
coupons of
1.5% through
2.5%, are
purchased by
the Fed and
benefitstems from
 
the substantiallength
of time the
 
price pressurepressures
 
and attractive
TBA dollar
roll drops.
Higherare
couponspresent in
the TBA market
do not have
the benefit
of Fed purchases,
so the market
is left to
absorb still
very high prepayment
speeds on
these securities
as rates have
not risen
enough to
eliminate the
economic incentive
to refinance.
The market
expects prepayments
on
higher coupons
will eventually
decline as
“burn out”
sets in, although
this has yet
to occur.
One final
element to
poor MBS
performance
for
the quarter
was the impact
of higher
rates on the
premiums paid
for specified
pools.
The premium
over generic
TBA securities
has
declined significantly
with the reduced
refinance incentive
caused by
the increase
in rates available
to borrowers.
Now that
the containment
of the COVID-19
pandemic appears
to be within
sight, at least
in the U.S.,
the economy
and life as
we were
accustomed
to should return
to pre-pandemic
norms.
The key questions
 
the market,
 
must grappleit will be
 
with going
forward relate
to whether
there have
been any permanent
changes that
will result,
including,
for example,
inflationary
pressures
resulting fromresolved by
 
the unprecedented
governmentmere passage
 
stimulus andof time.
 
monetary
 
quantitative
Returns for the Agency RMBS market trailed most other sectors of the financial markets,
 
easing by theincluding fixed income and equities or
high-yield.
 
The driver was the prospect the Fed would begin to taper their asset purchases
as the impacteconomy fully recovers.
This was
especially the case in June, after the Fed concluded their FOMC meeting and revealed
there was divergence in views of committee
members regarding the timing of this step.
While Fed leadership maintains this step is still well into the future, the robustness
 
of the many
technological
advancements
that were
born out
housing market coupled with the growing divergence of views within the pandemic,
such as employees’
ability to
effectively
work remotely, the
desire to
live in congested
cities and
the implicationsFed was enough
 
for the markets to begin to price in a
commercialreduction in Fed asset purchases.
 
real estate
values for
A second factor hurting the cities
that many
may not want
to return
to, andsector was the
willingness
to gather
rally in large numbers
or travel
by
air. These factors
will matter
to both the
Company and
Orchid to the
extent they
impact the
levels of
long-term interest rates
 
and the efficacythat confounded many
market participants.
 
Rates available to borrowers are back to levels prevalent during the summer of
refinancing
 
specifically,2020 and refinancing activity has
economic activityre-accelerated, delaying once more burn-out for higher coupon, more seasoned loans
 
and inflationdriving premiums for specified pools slightly
generally.higher.
 
Critical Accounting Estimates
 
Our consolidated
 
financial
 
statements
 
are prepared
 
in accordance
 
with GAAP.
 
GAAP requires
 
our management
 
to make some
complex and
 
subjective
 
decisions
 
and assessments.
 
Our most critical
 
accounting
 
policies involve
 
decisions and
 
assessments
 
which could
significantly
 
affect reported
 
assets,
 
liabilities,
 
revenues and
 
expenses,
 
and these
 
decisions
 
and assessments
 
can change
 
significantly
- 43 -
each reporting
 
period.
 
There have
 
been no changes
 
to the processes
 
used to determine
 
our critical
 
accounting
 
estimates
 
as discussed
 
in
our annual
 
report on
 
Form 10-K for
 
the year ended
 
December 31,
 
2020.
 
Capital Expenditures
 
At March 31,June 30, 2021, we had no material commitments for capital expenditures.
 
Off-Balance Sheet Arrangements
 
 
At March 31,June 30, 2021, we did not have any off-balance sheet arrangements.
 
Inflation
 
Virtually all of our assets and liabilities are interest rate sensitive in nature. As a result,
 
interest rates and other factors influence
our performance far more so than does inflation. Changes in interest rates do not
 
necessarily correlate with inflation rates or changes in
inflation rates. Our activities and balance sheet are measured with reference to historical
 
cost and/or fair market value without
considering inflation.
 
ITEM 3.
 
QUANTITATIVE AND QUALITATIVE DISCLOSURES
 
ABOUT MARKET
 
RISK.
 
 
Not Applicable.
 
- 45 -
ITEM 4. CONTROLS AND PROCEDURES.
 
Evaluation of Disclosure Controls and Procedures
 
 
As of the end of the period covered by this report (the “evaluation date”), we carried
 
out an evaluation, under the supervision and
with the participation of our management, including our Chief Executive Officer (the “CEO”)
 
and Chief Financial Officer (the “CFO”), of
the effectiveness of the design and operation of our disclosure controls and procedures,
 
as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934 (the “Exchange Act”). Based on this evaluation, the
 
CEO and CFO concluded our disclosure controls
and procedures, as designed and implemented, were effective as of the evaluation date (1)
 
in ensuring that information regarding the
Company and its subsidiaries is accumulated and communicated to our management, including
 
including our CEO and CFO, by our employees,
as appropriate to allow timely decisions regarding required disclosure and (2) in
 
providing reasonable assurance that information we
must disclose in our periodic reports under the Exchange Act is recorded, processed,
 
summarized and reported within the time periods
prescribed by the SEC’s rules and forms.
 
Changes in Internal Controls over Financial Reporting
 
 
There were no material changes in the Company’s internal control over financial reporting that
 
that occurred during the Company’s
most recent fiscal quarter that have materially affected, or are reasonably likely to materially
 
affect, the Company’s internal control over
financial reporting.
 
 
 
 
 
- 4446 -
 
PART II.
 
OTHER INFORMATION
 
ITEM 1.
 
LEGAL PROCEEDINGS
 
On April 22, 2020, the Company received a demand for payment from Citigroup, Inc. in
 
the amount of $33.1 million related to the
indemnification provisions of various mortgage loan purchase agreements (“MLPA’s”) entered into between Citigroup Global Markets
Realty Corp and Royal Palm Capital, LLC (f/k/a Opteum Financial Services,
 
LLC) prior to the date Royal Palm’s mortgage origination
operations ceased in 2007.
 
The demand is based on Royal Palm’s alleged breaches of certain representations and warranties
 
in the
related MLPA’s.
 
The Company believes the demands are without merit and intends to defend
 
against the demand vigorously.
 
No
provision or accrual has been recorded as of March 31,June 30, 2021 related to the Citigroup
demand.
 
We are not party to any other material pending legal proceedings as described
 
in Item 103 of Regulation S-K.
 
ITEM 1A.
 
RISK FACTORS.
 
There have been
 
no material
 
changes to the
 
risk factors
 
disclosed in
 
our Annual Report
 
on Form 10-K
 
for the year
 
ended
December 31,
 
2020, filed
 
with the SEC
 
on March 15,
 
2021.
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
On March 26,
 
2018, the Company's
 
Board of Directors
 
authorized the
 
repurchase of
 
up to 500,000
 
shares of the
Company's Class
 
A common stock.
 
The maximum
 
remaining number
 
of shares that
 
may be repurchased
 
under this
authorization
 
is 429,596 shares.
 
The authorization,
 
as currently
 
extended, expires
 
on November
 
15, 2021.
 
The Company
 
did
not repurchase
 
any of its common
 
stock during
 
the three months
 
ended MarchJune 30,
 
31, 2021.
 
The Company
 
did not have
 
any unregistered
 
sales of its
 
equity securities
 
during the three
 
months ended
 
March 31,
June 30, 2021.
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
None.
 
ITEM 4.
 
MINE SAFETY
 
DISCLOSURES.
 
 
Not Applicable.
 
ITEM 5.
 
OTHER INFORMATION
 
None.
 
ITEM 6. EXHIBITS
 
Exhibit No
 
 
3.1
3.2
3.3
 
 
 
- 4547 -
 
3.4
3.5
31.1
31.2
32.1
32.2
101.INS
Instance Document***
101.SCH
Taxonomy Extension Schema
 
Document***
101.CAL
Taxonomy Extension Calculation
 
Linkbase Document***
101.DEF
Additional Taxonomy Extension
 
Definition
 
Linkbase Document***
101.LAB
Taxonomy Extension Label
 
Linkbase Document***
101.PRE
Taxonomy Extension Presentation
 
Linkbase Document***
 
*
 
Filed herewith.
** Furnished herewith
*** Submitted electronically herewith.
 
 
 
- 4648 -
 
Signatures
Pursuant to the requirements of
 
Section 13 or 15(d) of
 
the Securities Exchange Act of
 
1934, as amended, the registrant
 
has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
BIMINI CAPITAL MANAGEMENT,
 
INC.
 
 
Date:
 
May 14,August 13, 2021
By:
/s/ Robert E. Cauley
Robert E. Cauley
Chairman and Chief Executive Officer
 
 
 
Date:
 
May 14,August 13, 2021
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)