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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  March 7, 2018

3305 Flamingo Drive, Vero Beach, Florida 32963

(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code (772) 231-1400

N/A

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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.  ☐  

ITEM 2.02.   RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

On March 7, 2018, Bimini Capital Management, Inc., (the "Company") issued the press release attached hereto as Exhibit 99.1 announcing the Company's consolidated results of operations for the period ended December 31, 2017.

The information furnished under this "Item 2.02 Results of Operations and Financial Condition," including the exhibit related hereto, shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any disclosure document of the Company, except as shall be expressly set forth by specific reference in such document.

ITEM 9.01.   EXHIBITS.

Exhibit 99.1 ― Press Release of Bimini Capital Management, Inc. dated March 7, 2018.

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Details of First Quarter 2018 Results of Operations

The Company reported net loss of $3.3 million for the three month period ended March 31, 2018.   The results for the quarter included advisory services revenue of $2.1 million, interest and dividend income of $2.6 million, interest expense of $1.1 million, net realized and unrealized losses of $6.1 million, operating expenses of $1.7 million and an income tax benefit of $1.1 million.

Management of Orchid Island Capital, Inc.

Orchid is managed and advised by Bimini.  As Manager, Bimini is responsible for administering Orchid's business activities and day-to-day operations.  Pursuant to the terms of the management agreement, Bimini Advisors provides Orchid with its management team, including its officers, along with appropriate support personnel.

Bimini also maintains a common stock investment in Orchid which is accounted for under the fair value option, with changes in fair value recorded in the statement of operations for the current period.  For the three months ended March 31, 2018, Bimini's statement of operations included a fair value adjustment of $(2.9) million and dividends of $0.5 million from its investment in Orchid common stock.  Also during the three months ended March 31, 2018, Bimini recorded $2.1 million in advisory services revenue for managing Orchid's portfolio consisting of $1.7 million of management fees and $0.4 million in overhead reimbursement.

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Capital Allocation and Return on Invested Capital

The tables below present the allocation of capital between the respective portfolios at March 31, 2018 and December 31, 2017, and the return on invested capital for each sub-portfolio for the three month period ended March 31, 2018.   Capital allocation is defined as the sum of the market value of securities held, less associated repurchase agreement borrowings, plus cash and cash equivalents and restricted cash associated with repurchase agreements. Capital allocated to non-portfolio assets is not included in the calculation.

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Prepayments

For the first quarter of 2018, the Company received approximately $5.1 million in scheduled and unscheduled principal repayments and prepayments, which equated to a 3-month constant prepayment rate ("CPR") of approximately 8.6% for the first quarter of 2018.  Prepayment rates on the two MBS sub-portfolios were as follows (in CPR):

Portfolio

The following tables summarize the MBS portfolio as of March 31, 2018 and December 31, 2017:

 

($ in thousands)
					Weighted
			Percentage		Average
			of	Weighted	Maturity
		Fair	Entire	Average	in	Longest
Asset Category		Value	Portfolio	Coupon	Months	Maturity
March 31, 2018
Fixed Rate MBS	$	202,393	98.8%	4.20%	319	1-Jan-48
Interest-Only MBS		1,525	0.8%	3.45%	227	25-Dec-39
Inverse Interest-Only MBS		911	0.4%	4.70%	276	25-Apr-41
Total MBS Portfolio	$	204,829	100.0%	4.20%	318	1-Jan-48
December 31, 2017
Fixed Rate MBS	$	207,179	98.8%	4.21%	321	1-Dec-47
Interest-Only MBS		1,476	0.7%	3.43%	229	25-Dec-39
Inverse Interest-Only MBS		1,037	0.5%	5.01%	278	25-Apr-41
Total MBS Portfolio	$	209,692	100.0%	4.21%	320	1-Dec-47

 

 

 

Financing and Liquidity

As of March 31, 2018, the Company had outstanding repurchase obligations of approximately $193.8 million with a net weighted average borrowing rate of 1.94%.  These agreements were collateralized by MBS with a fair value, including accrued interest, of approximately $205.5 million, and cash pledged to counterparties of approximately $0.1.  At March 31, 2018, the Company's liquidity was approximately $5.1 million, consisting of unpledged MBS and cash and cash equivalents.

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Hedging

In connection with its interest rate risk management strategy, the Company economically hedges a portion of the cost of its repurchase agreement funding and also its junior subordinated notes by entering into derivative financial instrument contracts.  The Company has not elected hedging treatment under U.S. generally accepted accounting principles ("GAAP") in order to align the accounting treatment of its derivative instruments with the treatment of its portfolio assets under the fair value option election. As such, all gains or losses on these instruments are reflected in earnings for all periods presented.  As of March 31, 2018, such instruments were comprised entirely of Eurodollar futures contracts.

The tables below present information related to outstanding Eurodollar futures contracts at March 31, 2018.

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The Company's Book Value Per Share at March 31, 2018 was $4.13.  The Company computes Book Value Per Share by dividing total stockholders' equity by the total number of shares outstanding of the Company's Class A Common Stock. At March 31, 2018, the Company's stockholders' equity was $52.6 million, with 12,743,959 Class A Common shares outstanding.

On March 26, 2018, the Board of Directors of Bimini Capital Management, Inc. (the "Company") approved a Stock Repurchase Plan ("Repurchase Plan").  Pursuant to the 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, and it expires on November 15, 2018.  The authorization for the Share Repurchase Plan may be terminated, increased or decreased by the Company's Board of Directors in its discretion at any time.

Through March 31, 2018, the Company had not repurchased any shares under the Repurchase Plan.  Subsequent to that date, and through May 7, 2018, the Company has repurchased 11,900 shares for a net cost of approximately $26,000 and a weighted average price of $2.20 per share.

Management Commentary

Commenting on the first quarter, Robert E. Cauley, Chairman and Chief Executive Officer, said, "As 2018 got underway the market environment changed.  Starting in January the specter of inflation may have finally appeared, and the rates market reacted forcefully.  Evidence of pricing pressures in the economic data and legislation out of Washington that will add materially to the budget deficit over the next few years caught the market by surprise and interest rates rose quickly over the first six weeks of the quarter.  The 10-year US treasury came within a few basis points of 3% for the first time since early 2014.  The treasury curve steepened and market participants reconsidered their expectations for future rate hikes by the Federal Reserve.  For their part, Fed officials were very consistent in support for continued gradual rate hikes.  While last Labor Day the 10-year treasury was close to 2% and the market was only expecting one more rate hike by the end of 2018, the outlook was much different by February of 2018.  As reflected in Fed funds futures, the market expects two more rate hikes in 2018, in addition to the hike in March. Funding pressures in the short-term funding markets emerged and Libor, the primary floating rate index, moved from less than 1.70% (3-month Libor) at the end of 2017 to approximately 2.31% by March 31, 2018.

"The sell-off in the rates market reversed in late February/early March as the Trump administration announced potential tariffs on imported steel and aluminum. This was followed in short order by counter-threats from essentially all US trading partners and in turn more threats from the administration.  The latter were met with even more counter-threats.  The prospect of a meaningful trade war spooked the markets and equities sold off as interest rates rallied.  These fears diminished meaningfully in April and the markets have stabilized.  With these fears reduced, and a potentially significant flare up in Syria that in the end was short lived, the markets have once again focused on the economic data.  The data remains generally very strong and public pronouncements by Fed officials support market expectations of at least two more rate hikes in 2018.  Equity markets have recovered and with early first quarter earnings announcements coming in quite strong, fear has receded from the market.  Volatility – both in the equity market and rates market – spiked mid-quarter, but has since come back down, and in a substantial way in the case of the rates market.

"The mortgage market suffered throughout the quarter and most agency mortgages performed far worse than comparable duration treasuries.  While the fourth quarter of 2017 was a great quarter for agency MBS, as other risk assets appeared quite rich on a relative basis and mortgages benefitted, this trend reversed in the first quarter of 2018.  Going forward, prepayment fears are very benign and the resulting drop-off in the supply of new mortgages should help off-set reduced purchases by the Federal Reserve.  However, as the yield curve continues to flatten, driven by progressively higher funding rates for levered mortgage investors, returns in the mortgage market are likely to remain weak.

"The performance of the Royal Palm portfolio was consistent with what we observed in the agency mortgage market generally.  Our higher coupon, fixed rate pass-throughs under-performed our hedges and led to a 15.8% negative return for the quarter. The structured portfolio generated a 7.4% positive return but coupled with the fact the capital allocation was approximately 86%/14% in favor of pass-throughs the combined portfolio generated a negative 12.6% return.  Because of the magnitude of the underperformance of pass-throughs portfolio the resulting margin call activity prevented us from growing the portfolio during the quarter, and on a mark to market basis the portfolio actually declined in market value from approximately $210 million at December 31, 2017 to approximately $205 million at March 31, 2018.  The market has stabilized so far in the second quarter and we are hopeful to resume growing the portfolio soon as the Company is otherwise cash flow positive.

"Orchid Island did not raise additional capital during the quarter. None-the-less the advisory services segment generated approximately $2.1 million in revenue – our highest quarterly total to date."

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Summarized Financial Statements

The following is a summarized presentation of the unaudited consolidated balance sheets as of March 31, 2018, and December 31, 2017, and the unaudited consolidated statements of operations for the three months ended March 31, 2018 and 2017.  Amounts presented are subject to change.

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