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Bimini Capital Management Announces Fourth Quarter 2012 Results

Stocks in this article: BMNM

The tables below detail the changes to the respective sub-portfolios, as well as the returns generated by each during the quarter. During the fourth quarter, purchases of $103.5 million, net of sales of $55.2 million and pay-downs of $2.6 million, increased the PT MBS portfolio by approximately $45.0 million. The capital allocated to the PT portfolio increased approximately $1.6 million during the three months ended December 31, 2012. Capital allocated to the structured MBS portfolio decreased by $2.6 million.

The Agency MBS market was impacted late in the third quarter when the Federal Reserve announced a third round of quantitative easing, or "QE3". The Federal Reserve began purchasing $40 billion per month of Agency MBS, plus reinvested pay-downs on their existing Agency MBS portfolio back into Agency MBS. The program is expected to remain in place until economic activity, specifically the level of unemployment, improves. During the fourth quarter Agency MBS prices sold off slightly after the initial spike upwards in price in late September. The Mortgage Bankers Association refinancing index surged to near 5,900 the week of September 28 th but then declined into year end, bottoming at approximately 3,500 the week of December 28 th. The Index has since risen to approximately 4,700, the level just before the QE3 announcement. The Freddie Mac survey decreased steadily after the QE3 announcement, falling from 3.75% the week prior to the announcement to 3.47% on December 7 th. The survey rate ended the year at 3.52% and was 3.70% on March 1 st. The impact on HARP eligible mortgages has increased as many servicers focus their attention towards these borrowers. However, the bulk of the increase in refinancing activity continues to be in lower coupon, newer, high quality loans originated after the HARP cut-off of May 31, 2009. The steepening of the US Treasury yield curve into year-end also impacted the survey rate and refinancing activity generally, in conjunction with the typical winter seasonal effect on prepayment activity.

 
Portfolio Activity for the Quarter
    Structured Security Portfolio  
  Pass-Through Interest Only Inverse Interest    
  Portfolio Securities Only Securities Sub-total Total
Market Value - September 30, 2012 $ 113,387,586  $ 3,844,291  $  8,507,099  $  12,351,390  $ 125,738,976 
Securities Purchased  103,461,639   1,980,416   --   1,980,416   105,442,055 
Securities Sold  (55,178,049)  --   (2,196,066)  (2,196,066)  (57,374,115)
 Loss on Sale  (262,152)  --   (157,197)  (157,197)  (419,349)
Return on Investment  --   (801,503)  (1,186,554)  (1,988,057)  (1,988,057)
Pay-downs  (2,593,989)  --   --   --   (2,593,989)
Premium Lost Due to Pay-downs  (164,393)  --   --   --   (164,393)
Mark to Market Gains (Losses)  (254,192)  221,237   (453,166)  (231,929)  (486,121)
Market Value - December 31, 2012 $ 158,396,450  $ 5,244,441  $  4,514,116  $  9,758,557  $  168,155,007 

The table below presents the return on invested capital for each sub-portfolio for the three month period ended December 31, 2012. The return on invested capital in the PT MBS portfolio was approximately 0.7% for the quarter. The return on invested capital for the structured MBS portfolio was approximately (4.6)%. The return was negatively impacted by negative mark-to-market adjustments and lower realized yields, particularly in the IIO sub-portfolio. The combined portfolio generated a return on invested capital of approximately (1.8)%. The decline in yields of the structured securities was the result of a combination of increased speeds assumptions, the result of QE3 and expected efforts by the government to expand efforts to refinance underwater borrowers, and demand for securities that offer the potential to hedge PT MBS securities when and if interest rates rise, an outcome the market expects at some point.

 
Return on Invested Capital
    Structured Security Portfolio  
  Pass-Through Interest Only Inverse Interest    
  Portfolio Securities Only Securities Sub-total Total
Capital Allocation - September 30, 2012* $  13,723,261  $  3,844,291  $  8,507,099  $  12,351,390  $  26,074,651 
Market Value - September 30, 2012 $ 113,387,587  $ 3,844,291  $ 8,507,099  $ 12,351,390  $ 125,738,977 
Repurchase Agreement Obligations $ 107,121,103  $ --  $ --  $ --  $ 107,121,103 
Returns for the Quarter          
Income / (loss) (net of repo cost) $ 778,276  $ (49,206) $ (129,750) $ (178,956) $ 599,320 
Realized and unrealized gains / (losses)  (680,737)  221,237   (610,364)  (389,127)  (1,069,864)
Hedge losses**  (4,538) n/a n/a n/a  (4,538)
  $ 93,001  $ 172,031  $ (740,114) $ (568,083) $ (475,082)
           
Return on Invested Capital for the Quarter
(Not Annualized) 0.7% 4.5% (8.7)% (4.6)% (1.8)%
           
* Capital Allocation is defined as the sum of the market value of securities held, less associated repurchase agreement borrowings, plus cash and cash equivalents, restricted cash (associated with repurchase agreements only) and unencumbered securities. (Capital allocated to non-portfolio assets not included. Restricted Cash at December 31, 2012 included $164,445 related to trust preferred debt funding hedges).
           
** Excludes gains of $1,856 associated with trust preferred debt funding hedges.

The following table presents the constant prepayment rate ("CPR") experienced on our structured and PT MBS sub-portfolios, on an annualized basis, for the quarterly periods presented. 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 Sub- MBS Sub- Total
  Portfolio Portfolio Portfolio
Three Months Ended,      
December 31, 2012 5.0  36.8  28.0 
September 30, 2012 8.8  34.9  26.7 
June 30, 2012 1.1  36.4  34.7 
March 31, 2012 6.5  28.9  23.0 
December 31, 2011 14.1  33.7  31.1 
September 30, 2011 13.4  22.8  20.9 
June 30, 2011 11.8  13.0  12.7 
March 31, 2011 12.0  19.1  17.2 

Highlights of the MBS Portfolio

As of December 31, 2012, Bimini Capital's MBS portfolio consisted of $168.2 million of agency or government MBS at fair value. This portfolio had a weighted average coupon of 3.07% and a net weighted average repurchase agreement borrowing cost of 0.49%. The following tables summarize Bimini Capital's agency and government mortgage related securities as of December 31, 2012 and December 31, 2011:

(in thousands)                
        Weighted   Weighted    
    Percentage   Average   Average Weighted Weighted
    Of Weighted Maturity   Coupon Average Average
  Fair Entire Average in Longest Reset in Lifetime Periodic
Asset Category Value Portfolio Coupon Months Maturity Months Cap Cap
December 31, 2012                
Adjustable Rate MBS $ 20,857  12.4% 3.27% 267  1-Sep-35 5.91  9.73% 2.00%
Fixed Rate MBS 49,846  29.6% 3.21% 180  1-Dec-40 NA NA NA
Hybrid Adjustable Rate MBS 87,693  52.2% 2.75% 356  1-Nov-42 99.58  7.75% 1.98%
Total Mortgage-backed Pass-through 158,396  94.2% 2.96% 289  1-Nov-42 81.58  8.13% 1.98%
Interest-Only Securities 5,244  3.1% 3.79% 213  25-Dec-39 NA NA NA
Inverse Interest-Only Securities 4,515  2.7% 6.10% 301  25-Nov-40 NA 6.31% NA
Structured MBS 9,759  5.8% 4.86% 254  25-Nov-40 NA NA NA
Total Mortgage Assets $ 168,155  100.0% 3.07% 287  1-Nov-42 NA NA NA
December 31, 2011                
Adjustable Rate MBS $ 12,181  13.4% 2.89% 233  1-Jan-41  4.36  11.07% 2.00%
Fixed Rate MBS 35,417  38.9% 4.84% 178  1-Nov-40 NA NA NA
Hybrid Adjustable Rate MBS 25,466  27.9% 3.57% 354  1-Dec-41  95.21  8.83% 2.00%
Total Mortgage-backed Pass-through 73,064  80.2% 4.07% 249  1-Dec-41  65.82  9.55% 2.00%
Interest-Only Securities 7,074  7.8% 4.64% 299  25-Dec-39 NA NA NA
Inverse Interest-Only Securities 11,004  12.1% 6.22% 300  25-Nov-40 NA 6.51% NA
Structured MBS 18,078  19.8% 5.61% 300  25-Nov-40 NA NA NA
Total Mortgage Assets $ 91,142  100.0% 4.37% 259  1-Dec-41 NA NA NA
 
(in thousands)
  December 31, 2012 December 31, 2011
    Percentage of   Percentage of
Agency Fair Value Entire Portfolio Fair Value Entire Portfolio
Fannie Mae $ 163,116  97.00% $  58,628  64.32%
Freddie Mac  3,396  2.02%  27,267  29.92%
Ginnie Mae  1,643  0.98%  5,247  5.76%
Total Portfolio  $ 168,155  100.00% $  91,142  100.0%
     
     
Entire Portfolio December 31, 2012 December 31, 2011
Weighted Average Pass Through Purchase Price $ 105.74  $ 104.43 
Weighted Average Structured Purchase Price $ 6.00  $ 6.13 
Weighted Average Pass Through Current Price $ 105.89  $ 106.13 
Weighted Average Structured Current Price $ 5.84  $ 6.50 
Effective Duration (1) 0.703  -3.492 
     
(1) Effective duration of 0.703 indicates that an interest rate increase of 1.0% would be expected to cause a 0.703% decrease in the value of the MBS in the Company's investment portfolio at December 31, 2012. An effective duration of  (3.492) indicates that an interest rate increase of 1.0% would be expected to cause a 3.492% increase in the value of the MBS in the Company's investment portfolio at December 31, 2011. These figures include the structured securities in the portfolio.

Recent Developments – HARP (Home Affordable Refinancing Program)

The Home Affordable Refinancing Program (known as "HARP"), was designed to increase refinancing activity of eligible loans – predominantly fixed rate mortgages with higher coupons (ranging from 5.5% to 6.5%) originated between 2006 and early 2009. Only loans originated before May 31, 2009 are eligible for refinancing under HARP. To date the impact of the HARP program has resulted in an increase in prepayment speeds with respect to loans eligible for the program; however, both the administration and FHFA have expressed a desire to see the effectiveness of the program increased. The Company owns securities collateralized by loans that fall within the program parameters of HARP and anticipates prepayment speeds on such securities to remain elevated.

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