Add
BMNM to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| BMNM > SEC Filings for BMNM > Form 10-K on 20-Mar-2013 | All Recent SEC Filings |
20-Mar-2013
Annual Report
FORWARD-LOOKING STATEMENTS
When used in this Annual Report on Form 10-K, in future filings with the SEC or
in press releases or other written or oral communications, statements which are
not historical in nature, including those containing words such as "anticipate,"
"estimate," "should," "expect," "believe," "intend" and similar expressions, are
intended to identify "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
These forward-looking statements are subject to various risks and uncertainties, including, but not limited to, those described or incorporated by reference in "Part I - Item 1A - Risk Factors" of this Form 10-K. These and other risks, uncertainties and factors, including those described in reports that the Company files from time to time with the Commission, could cause the Company's actual results to differ materially from those reflected in such forward-looking statements. All forward-looking statements speak only as of the date they are made and the Company does not undertake, and specifically disclaims, any obligation to update or revise any forward-looking statements to reflect events or circumstances occurring after the date of such statements.
The following discussion of the financial condition and results of operations should be read in conjunction with the Company's consolidated financial statements and related notes included elsewhere in this report.
INTRODUCTION
As used in the "Part I - Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations", references to "Bimini Capital," the parent company, the registrant, and to real estate investment trust ("REIT") qualifying activities or the general management of Bimini Capital's portfolio of MBS refer to Bimini Capital Management, Inc. and Orchid Island Capital, Inc. ("Orchid"), which at all times during 2012 was a wholly-owned qualified REIT subsidiary of Bimini Capital. As of the closing of Orchid's initial public offering on February 20, 2013, Bimini Capital owns approximately 29.38% of Orchid's common stock. Further, references to Bimini Capital's taxable REIT subsidiaries or non-REIT eligible assets refer to Bimini Advisors, Inc. and its wholly-owned subsidiary, Bimini Advisors, LLC (together as "Bimini Advisors") and to MortCo TRS, LLC ("MortCo") and its consolidated subsidiaries. MortCo, which was previously named Opteum Financial Services, LLC, (referred to as "OFS") was renamed Orchid Island TRS, LLC (referred to as "OITRS") effective July 3, 2007 and then renamed MortCo TRS, LLC effective March 8, 2011. Hereinafter, any historical mention, discussion or references to Opteum Financial Services, LLC, Orchid Island TRS, LLC, OFS or to OITRS (such as in previously filed documents or Exhibits) now means MortCo. References to the "Company" refer to the consolidated entity which is the combination of Bimini Capital, Orchid, Bimini Advisors, MortCo and MortCo's consolidated subsidiaries.
Bimini Capital was formed in September 2003 to invest primarily in but not limited to, residential mortgage related securities issued by the Federal National Mortgage Association (more commonly known as Fannie Mae), the Federal Home Loan Mortgage Corporation (more commonly known as Freddie Mac) and the Government National Mortgage Association (more commonly known as Ginnie Mae). Bimini Capital will deploy its capital into two core strategies. The two strategies are a levered MBS portfolio and an unlevered structured MBS portfolio. The leverage applied to the MBS portfolio will typically be less than twelve to one. Bimini Capital manages its portfolio of agency MBS and structured MBS to generate income derived from the net interest margin of its MBS portfolio, levered predominantly under repurchase agreement funding, net of associated hedging costs, and the interest income derived from its unlevered portfolio of structured MBS. Bimini Capital is self-managed and self-advised and has elected to be taxed as a REIT for U.S. federal income tax purposes.
DIVIDENDS TO STOCKHOLDERS
In order to maintain its qualification as a REIT, Bimini Capital is required (among other provisions) to annually distribute dividends to its stockholders in an amount at least equal to, generally, 90% of Bimini Capital's REIT taxable income. REIT taxable income is a term that describes Bimini Capital's operating results calculated in accordance with rules and regulations promulgated pursuant to the Internal Revenue Code.
Bimini Capital's REIT taxable income is computed differently from net income as computed in accordance with generally accepted accounting principles ("GAAP net income"), as reported in the Company's accompanying consolidated financial statements. Depending on the number and size of the various items or transactions being accounted for differently, the differences between REIT taxable income and GAAP net income can be substantial and each item can affect several reporting periods. Generally, these items are timing or temporary differences between years; for example, an item that may be a deduction for GAAP net income in the current year may not be a deduction for REIT taxable income until a later year. The most significant differences are as follows: the results of the Company's taxable REIT subsidiaries do not impact REIT taxable income, unrealized gains or losses on the investment securities portfolio do not impact REIT taxable income, and interest income on MBS securities is computed differently for REIT taxable income and GAAP.
As a REIT, Bimini Capital may be subject to a federal excise tax if it distributes less than 85% of its REIT taxable income by the end of the calendar year. Accordingly, Bimini Capital's dividends are based on its REIT taxable income (after considering the possible impact of applying NOLs to the income as described below in "Net Operating Losses"), as determined for federal income tax purposes, as opposed to its net income computed in accordance with GAAP (as reported in the accompanying consolidated financial statements).
During the year ended December 31, 2012, the Company made no dividend distributions. All distributions are made at the discretion of the Company's Board of Directors and will depend on the Company's results of operations, financial conditions, maintenance of REIT status, availability of net operating losses and other factors that may be deemed relevant. The Company declared a special dividend in December 2009 and a regular dividend in each of the six quarters thereafter. In August 2011, the Company announced that it would suspend its quarterly dividend and no distributions have been made since that date. The Company continues to evaluate its dividend payment policy. However, as more fully described below, due to net operating losses incurred in prior periods, the Company is unlikely to declare and pay dividends to stockholders until such net operating losses have been consumed.
NET OPERATING LOSSES
As described above, a REIT may be subject to a federal excise tax if it distributes less than 85% of its REIT taxable income by the end of a calendar year. In calculating the amount of excise tax payable in a given year, if any, Bimini Capital reduces REIT taxable income by distributions made to stockholders in the form of dividends and/or net operating losses ("NOL's") applied from prior years, to the extent any are available. Since income subject to excise tax is REIT taxable income less qualifying dividends and the application of NOL's, a REIT may avoid excise taxes solely by application of available NOL's without paying qualifying dividends to stockholders. Because Bimini Capital currently has approximately $13.8 million of NOL's available, in the future it could avoid excise taxes by applying such NOL's to offset REIT taxable income without making any distributions to stockholders. Further, the REIT could avoid the obligation to pay excise taxes through a combination of qualifying dividends and the application of NOL's. In any case, future distributions to stockholders may be less than taxable income until the existing NOL's are consumed.
RESULTS OF OPERATIONS
Described below are the Company's results of operations for the year ended December 31, 2012, as compared to the Company's results of operations for the year ended December 31, 2011.
Net Loss Summary
Consolidated net loss for the year ended December 31, 2012 was $2.0 million, or
$0.20 basic and diluted loss per share of Class A Common Stock, as compared to
consolidated net loss of $2.6 million, or $0.26 basic and diluted loss per share
of Class A Common Stock, for the year ended December 31, 2011.
The components of net loss for the years ended December 31, 2012 and 2011, along
with the changes in those components are presented in the table below:
(in thousands)
Years Ended December 31,
2012 2011 Change
Net portfolio interest $ 3,803 $ 4,816 $ (1,013 )
Interest expense on junior subordinated notes (1,049 ) (1,008 ) (41 )
Losses on MBS and Eurodollar futures (3,067 ) (1,939 ) (1,128 )
Net portfolio (deficiency) income (313 ) 1,869 (2,182 )
Other income 4,360 3,125 1,235
Expenses (6,077 ) (7,616 ) 1,539
Net loss $ (2,030 ) $ (2,622 ) $ 592
|
GAAP and Non-GAAP Reconciliation
To date, we have used derivatives, specifically Eurodollar futures contracts, to hedge interest rate risk on repurchase agreements and junior subordinated notes in a rising rate environment. We have not elected to designate our derivative holdings for hedge accounting treatment under the Financial Accounting Standards Board (the "FASB") Accounting Standards Codification ("ASC") Topic 815, Derivatives and Hedging. Changes in fair value of these instruments are presented in a separate line item in our Statements of Operations. As such, for financial reporting purposes, interest expense and cost of funds are not impacted by the fluctuation in value of the Eurodollar futures contracts. In the future, we may use other derivative instruments to hedge our interest expense and/or elect to designate our derivative holdings for hedge accounting treatment.
For the purpose of computing net interest income and ratios relating to cost of funds measures throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations, interest expense includes gains and losses on a Eurodollar futures contracts. Presenting the effects of the Eurodollar positions with the interest expense on interest-bearing liabilities reflects total economic interest expense on these obligations and the economic effect of our hedging strategy. Interest expense, including gains and losses on Eurodollar futures contracts, is referred to as economic interest expense. Net interest income, including gains and losses on Eurodollar futures contracts, is referred to as economic net interest income.
We believe that economic interest expense and economic net interest income provides meaningful information to consider, in addition to the respective amounts prepared in accordance with GAAP. The non-GAAP measures help us to evaluate our 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.
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 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 following table presents the effect of our hedging strategy on interest expense and net interest income for each quarter in 2012 and 2011 and for the years ended December 31, 2012 and 2011.
(dollars in thousands)
Interest Expense
Interest Expense on on Junior Net Portfolio
Repurchase Agreements Subordinated Notes Interest Income Net Interest Income
GAAP Economic GAAP Economic GAAP Economic GAAP Economic
Basis Basis Basis Basis Basis Basis Basis Basis
Three Months Ended,
December 31, 2012 $ 151 $ 155 $ 257 $ 256 $ 600 $ 596 $ 343 $ 340
September 30, 2012 104 203 266 504 1,060 961 794 $ 457
June 30, 2012 108 139 261 493 976 945 715 $ 452
March 31, 2012 73 174 265 327 1,165 1,064 900 $ 737
December 31, 2011 59 (22 ) 258 255 980 1,061 722 $ 806
September 30, 2011 53 404 250 721 1,080 729 830 $ 8
June 30, 2011 72 164 250 522 1,229 1,137 979 $ 615
March 31, 2011 87 76 250 252 1,521 1,532 1,271 $ 1,280
Years Ended,
December 31, 2012 $ 436 $ 671 $ 1,049 $ 1,580 $ 3,801 $ 3,566 $ 2,752 $ 1,986
December 31, 2011 271 622 1,008 1,750 4,810 4,459 3,802 $ 2,709
|
Net Portfolio Income
During the year ended December 31, 2012, the REIT generated $3.6 million of economic net portfolio interest income, consisting of $4.2 million of interest income from MBS assets offset by $0.7 million of economic interest expense on repurchase liabilities. For the comparable period ended December 31, 2011, the REIT generated $4.5 million of economic net portfolio interest income, consisting of $5.1 million of interest income from MBS assets offset by $0.6 million of economic interest expense on repurchase liabilities.
The table below provides information on our portfolio average balances, interest income, yield on assets, average repurchase agreement balances, economic interest expense, cost of funds, economic net interest income and net interest rate spread for each quarter in 2012 and 2011 and for the years ended December 31, 2012 and 2011.
(dollars in thousands)
Economic
Average Yield on Average Net Economic
MBS Average Average Economic Economic Portfolio Net
Securities Interest MBS Repurchase Interest Cost of Interest Interest
Held(1) Income(2) Securities Agreements(1) Expense(3) Funds Income(3) Spread
Three Months Ended,
December 31, 2012 $ 146,947 $ 751 2.04 % $ 128,708 $ 155 0.48 % $ 596 1.56 %
September 30, 2012 118,820 1,164 3.92 % 99,473 203 0.82 % 961 3.10 %
June 30, 2012 116,753 1,084 3.71 % 96,778 139 0.58 % 945 3.13 %
March 31, 2012 106,374 1,238 4.66 % 85,629 174 0.81 % 1,064 3.85 %
December 31, 2011 89,670 1,039 4.64 % 68,462 (22 ) (0.13 )% 1,061 4.77 %
September 30, 2011 101,102 1,133 4.48 % 79,750 404 2.03 % 729 2.45 %
June 30, 2011 115,521 1,301 4.51 % 93,516 164 0.70 % 1,137 3.81 %
March 31, 2011 126,084 1,608 5.10 % 104,259 76 0.29 % 1,532 4.81 %
Years Ended,
December 31, 2012 $ 122,224 $ 4,237 3.47 % $ 102,647 $ 671 0.65 % $ 3,566 2.82 %
December 31, 2011 108,094 5,081 4.70 % 86,497 622 0.72 % 4,459 3.98 %
|
(1) Portfolio yields and costs of borrowings presented in the table above and the tables on pages 61 and 62 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. Average balances for the year to date periods are calculated as the average of the average quarterly periods.
(2) Interest income presented in the table above includes only interest earned on the Company's MBS investments and excludes interest earned on cash balances and excludes the impact of discounts and premiums on MBS investments, as discounts or premiums are not amortized under the fair value option. Interest income and net portfolio interest income may not agree with the information presented in the consolidated statements of operations.
(3) Economic interest expense and economic net interest income presented in the table above and the table on page 62 includes the effect of the portion of our Eurodollar futures positions that were entered into as an economic hedge against the increase in interest on repurchase agreements in a rising rate environment.
Interest Income and Average Earning Asset Yield
Interest income was $4.2 million for the year ended December 31, 2012 and $5.1 million for the year ended December 31, 2011. Average MBS holdings were $122.2 million and $108.1 million for the years ended December 31, 2012 and 2011, respectively. The $0.8 million decrease in interest income was due to a 123 basis point decrease in yields, which was partially offset by a $14.1 million increase in average MBS holdings.
The table below presents the average portfolio size, income and yields of our respective sub-portfolios, consisting of structured MBS and PT MBS.
(dollars
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,
December
31, 2012 $ 135,892 $ 11,055 $ 146,947 $ 929 $ (179 ) $ 750 2.73 % (6.48 )% 2.04 %
September
30, 2012 105,190 13,630 118,820 696 468 1,164 2.65 % 13.75 % 3.92 %
June 30,
2012 101,991 14,762 116,753 863 221 1,084 3.38 % 6.00 % 3.71 %
March 31,
2012 90,026 16,348 106,374 774 464 1,238 3.44 % 11.35 % 4.66 %
December
31, 2011 71,230 18,440 89,670 596 443 1,039 3.35 % 9.60 % 4.64 %
September
30, 2011 83,004 18,098 101,102 588 545 1,133 2.84 % 12.03 % 4.48 %
June 30,
2011 98,060 17,461 115,521 755 546 1,301 3.08 % 12.52 % 4.51 %
March 31,
2011 108,382 17,702 126,084 927 681 1,608 3.42 % 15.39 % 5.10 %
Years Ended,
December
31, 2012 $ 108,275 $ 13,949 $ 122,224 $ 3,262 $ 974 $ 4,236 3.01 % 6.99 % 3.47 %
December
31, 2011 90,169 17,925 108,094 2,866 2,215 5,081 3.18 % 12.35 % 4.70 %
|
Interest Expense on Repurchase Agreements and the Cost of Funds
Average outstanding repurchase agreements were $102.6 million and total economic interest expense was $0.7 million for the year ended December 31, 2012. During the year ended December 31, 2011, average outstanding repurchase agreements were $86.5 million and total economic interest expense was $0.6 million. Our average economic cost of funds was 0.65% and 0.72% for years ended December 31, 2012 and 2011, respectively. There was a $0.1 million increase in economic interest expense for the year ended December 31, 2012 when compared to the year ended December 31, 2011. This change was due to the combination of a $16.1 million increase in average outstanding repurchase agreements and a 7 basis point decrease in borrowing rates for the year ended December 31, 2012 when compared to the same period ended December 31, 2011.
Since all of our repurchase agreements are short-term, changes in market rates directly affect our interest expense. Our average economic cost of funds was 26 basis points above average one-month LIBOR and 11 basis points below average six-month LIBOR for the quarter ended December 31, 2012. The average term to maturity of the outstanding repurchase agreements decreased from 25 days at December 31, 2011 to 14 days at December 31, 2012.
The table below presents the average outstanding balance under all repurchase agreements, economic interest expense and average economic cost of funds, and average one-month and six-month LIBOR rates for each quarter in 2012 and 2011 and for the years ended December 31, 2012 and 2011.
(dollars in
thousands)
Average Average
Economic Economic
Average Cost of Funds Cost of Funds
Balance of Economic Average Average Average Relative to Relative to
Repurchase Interest Economic One-Month Six-Month Average One- Average Six-
Agreements Expense Cost of Funds LIBOR LIBOR Month LIBOR Month LIBOR
Three Months
Ended,
December 31,
2012 $ 128,708 $ 155 0.48 % 0.22 % 0.59 % 0.26 % (0.11 )%
September 30,
2012 99,473 203 0.82 % 0.23 % 0.70 % 0.59 % 0.12 %
June 30, 2012 96,778 139 0.58 % 0.24 % 0.74 % 0.34 % (0.16 )%
March 31, 2012 85,629 174 0.81 % 0.26 % 0.76 % 0.55 % 0.05 %
December 31,
2011 68,462 (22 ) (0.13 )% 0.26 % 0.65 % (0.39 )% (0.78 )%
September 30,
2011 79,750 404 2.03 % 0.21 % 0.46 % 1.82 % 1.57 %
June 30, 2011 93,516 164 0.70 % 0.22 % 0.43 % 0.48 % 0.27 %
March 31, 2011 104,259 76 0.29 % 0.26 % 0.46 % 0.03 % (0.17 )%
Years Ended,
December 31,
2012 $ 102,647 $ 671 0.65 % 0.24 % 0.70 % 0.41 % (0.05 )%
December 31,
2011 86,497 622 0.72 % 0.24 % 0.50 % 0.48 % 0.22 %
|
Junior Subordinated Notes
Interest expense on the Company's junior subordinated debt securities was $1.05 million for the year ended December 31, 2012 compared to $1.01 million for the comparable period in 2011. The junior subordinated debt securities had a fixed-rate of interest until December 15, 2010, of 7.86% and thereafter, through maturity in 2035, the rate floats at a spread of 3.50% over the prevailing three-month LIBOR rate. As of December 31, 2012, the interest rate was 3.81%. The average rate of interest paid, including the amortization of debt issuance costs, for the year ended December 31, 2012 was 4.04% compared to 3.88% for the comparable period in 2011. Interest expense increased $0.04 million for the year ended December 31, 2012 when compared to the same period in 2011 due to the 16 basis point increase in interest rates.
Gains and Losses
The table below presents the Company's gains and losses for the years ended
December 31, 2012 and 2011.
(in thousands)
Years Ended December 31,
2012 2011 Change
Realized (losses) gains on sales of MBS $ (246 ) $ 941 $ (1,187 )
Unrealized losses on MBS (2,055 ) (1,787 ) (268 )
Total losses on MBS (2,301 ) (846 ) (1,455 )
Losses on Eurodollar futures (766 ) (1,094 ) 328
Gains on retained interests 4,323 3,190 1,133
|
. . .
|
|