March 31, 2010				December 31, 2009
Assets
Cash and cash equivalents		$	42			$	70
Mortgage loans held for sale (a)			205				207
Retained interests, trading (b)			5,591				5,934
Receivables (c)			4,893				6,046
Prepaids and other assets			2,044				2,075
Assets held for sale		$	12,775			$	14,332
Liabilities
Accounts payable, accrued expenses and other (d and e)			7,687				7,622
Liabilities related to assets held for sale		$	7,687			$	7,622

 

 

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(a) - Mortgage Loans Held for Sale

Mortgage loans held for sale consist of the following as of March 31, 2010 and December 31, 2009:

(in thousands)

		March 31, 2010				December 31, 2009
Mortgage loans held for sale,		$	2,149			$	2,149
Valuation allowance			(1,944	)			(1,942	)
Total		$	205			$	207

(b) – Retained interest, trading

The following table summarizes OITRS’s residual interests in securitizations as of March 31, 2010 and December 31, 2009:

 (in thousands)

Series	Issue Date		March 31, 2010				December 31, 2009
HMAC 2004-1	March 4, 2004		$	991			$	757
HMAC 2004-2	May 10, 2004			1,237				1,340
HMAC 2004-3	June 30, 2004			1,297				1,541
HMAC 2004-4	August 16, 2004			963				1,280
HMAC 2004-5	September 28, 2004			771				1,016
HMAC 2004-6	November 17, 2004			332				-
OMAC 2005-1	January 31, 2005			-				-
OMAC 2005-2	April 5, 2005			-				-
OMAC 2005-3	June 17, 2005			-				-
OMAC 2005-4	August 25, 2005			-				-
OMAC 2005-5	November 23, 2005			-				-
OMAC 2006-1	March 23, 2006			-				-
OMAC 2006-2	June 26, 2006			-				-
Total			$	5,591			$	5,934

As of March 31, 2010 and December 31, 2009, key economic assumptions and the sensitivity of the current fair value of residual cash flows to the immediate 10% and 20% adverse change in those assumptions are as follows:

(in thousands)

		March 31, 2010				December 31, 2009
Balance sheet carrying value of retained interests – fair value		$	5,591			$	5,934
Weighted average life (in years)			9.27				0.22
Prepayment assumption (annual rate)			16.58	%			12.65	%
Impact on fair value of 10% adverse change		$	(193	)		$	(37	)
Impact on fair value of 20% adverse change		$	(104	)		$	(51	)
Expected credit losses (% of original unpaid principal balance)			9.57	%			9.08	%
Impact on fair value of 10% adverse change		$	(431	)		$	(242	)
Impact on fair value of 20% adverse change		$	(903	)		$	(439	)
Residual cash-flow discount rate			27.50	%			27.50	%
Impact on fair value of 10% adverse change		$	(128	)		$	(42	)
Impact on fair value of 20% adverse change		$	(236	)		$	(83	)
Interest rates on variable and adjustable loans and bonds		Forward LIBOR Yield Curve				Forward LIBOR Yield Curve
Impact on fair value of 10% adverse change		$	(371	)		$	(113	)
Impact on fair value of 20% adverse change		$	(507	)		$	(214	)

 

 

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These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based upon a 10% variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of the variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption; in reality, changes in one factor may result in changes in another which may magnify or counteract the sensitivities. To estimate the impact of a 10% and 20% adverse change of the Forward LIBOR curve, a parallel shift in the Forward LIBOR curve was assumed based on the Forward LIBOR curve as of March 31, 2010 and December 31, 2009.

Static pool loss percentages are calculated by using the original unpaid principal balance of each pool of assets as the denominator. The following static pool loss percentages are calculated based upon all OITRS securitizations that have been completed to date:

(in thousands)

Series	Issue Date	Original Unpaid Principal Balance	As of March 31, 2010
			Actual Losses	Projected Future Credit Losses	Projected Total Credit Losses
HMAC 2004-1	March 4, 2004	$ 309,710	0.91%	0.88%	1.79%
HMAC 2004-2	May 10, 2004	388,737	1.32%	1.63%	2.95%
HMAC 2004-3	June 30, 2004	417,055	1.33%	1.26%	2.59%
HMAC 2004-4	August 16, 2004	410,123	1.15%	1.09%	2.24%
HMAC 2004-5	September 28, 2004	413,875	1.66%	1.97%	3.62%
HMAC 2004-6	November 17, 2004	761,027	2.26%	1.98%	4.24%
OMAC 2005-1	January 31, 2005	802,625	2.97%	2.43%	5.40%
OMAC 2005-2	April 5, 2005	883,987	3.16%	2.86%	6.02%
OMAC 2005-3	June 17, 2005	937,117	3.87%	4.00%	7.87%
OMAC 2005-4	August 25, 2005	1,321,739	5.60%	5.50%	11.10%
OMAC 2005-5	November 23, 2005	986,277	7.71%	6.76%	14.47%
OMAC 2006-1	March 23, 2006	934,441	8.95%	8.91%	17.86%
OMAC 2006-2	June 26, 2006	491,572	16.54%	15.26%	31.80%
Total		$9,058,285	4.92%	4.66%	9.57%

The table below summarizes certain cash flows received from and paid to securitization trusts for the three months ended March 31, 2010 and 2009:

(in thousands)

		Three months Ended March 31,
		2010				2009
Net servicing fees paid		$	(2	)		$	(1	)
Servicing advances and repayments			1,140				4,346
Cash flows received on retained interests			1,728				2,321

The following information presents quantitative information about delinquencies and credit losses on securitized financial assets as of March 31, 2010 and December 31, 2009:

(in thousands)

As of Date		Total Principal Amount of Loans				Principal Amount of Loans 60 Days or more delinquent				Net Credit Losses
March 31, 2010		$	3,129,902			$	746,748			$	445,266
December 31, 2009			3,250,632				797,883				400,920

 

 

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(c) – Receivables, net

Receivables consist of the following as of March 31, 2010 and December 31, 2009:

 (in thousands)

		March 31, 2010				December 31, 2009
Servicing advances, net of allowance for doubtful accounts of $256,000		$	3,561			$	4,957
Servicing sales			936				936
Others			396				153
		$	4,893			$	6,046

Receivables are carried at their estimated collectible amounts.  The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectability of specific customer accounts: past transaction activity, current economic conditions and changes in customer payment terms. Amounts that the Company determines are no longer collectible are written off.  Collections on amounts previously written off are included in income as received.

 (d)  - Income taxes

OITRS is a taxpaying entity for income tax purposes and is taxed separately from Bimini Capital.  Therefore, OITRS separately reports an income tax provision or benefit based on its own taxable activities.  As of March 31, 2010 and December 31, 2009, all deferred tax assets are fully provided for with a valuation allowance.  Substantially all of the deferred tax assets are a result of net tax losses incurred.  During the three months ended March 31, 2010 and 2009, a portion of the deferred tax asset valuation allowance was reversed, as the utilization of this portion of the deferred tax asset was deemed more likely than not, due to the utilization of tax net operating losses to offset estimated taxable income for the respective three-month periods; therefore, there are no income tax provisions related to the results of operations.  The income tax provision for the periods ended March 31, 2010 and 2009 differ from the amount determined by applying the statutory Federal rate of 35% to the pre-tax income due primarily to the recording of, and adjustments to, the deferred tax asset valuation allowances.

 

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income within OITRS.  At March 31, 2010, management continues to believe that it is more likely than not that the Company will not realize the full benefits of all deferred tax assets of OITRS;  therefore, an allowance for the full amount of the deferred tax assets has been recorded.

 

As of March 31, 2010, OITRS had an estimated federal net operating loss (“NOL”) carryforward of approximately $273 million, and estimated available state NOLs of $68 million, which begin to expire in 2025, and are fully available to offset future taxable income.

 

During 2008, OITRS re-evaluated a previous tax position with regards to the taxability of excess inclusion income (“EII”).  OITRS holds residual interests in various real estate mortgage investment conduits (“REMICs”), some of which generate EII pursuant to specific provisions of the Code.  OITRS based its previously-held tax position on advice received from tax consultants regarding the taxability of EII, including the aggregation (or non-aggregation) of the tax inputs from all REMICs owned for purposes of the EII tax computation.  As a result of the re-evaluation of the tax position, which included consulting with additional tax experts, OITRS now believes that it is no longer more likely than not that the tax position would be fully sustained upon examination, even though the exact computational methods and the ultimate EII tax due (if any) are still uncertain.  Therefore, OITRS recorded a 2008 tax provision for $1.5 million for taxes that may be due on EII.  Interest through March 31, 2010 has been accrued in the amount of $0.6 million.  OITRS is continuing to research all the tax issues relating to EII and its ownership of the REMICs, and will adjust the tax and interest accrual in future periods as the uncertainty is resolved.

 

 

 

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(e) – Commitments and Contingencies

Loans Sold to Investors. Generally, OITRS was not exposed to significant credit risk on its loans sold to investors. In the normal course of business, OITRS provided certain representations and warranties during the sale of mortgage loans which obligated it to repurchase loans which are subsequently unable to be sold through the normal investor channels. The repurchased loans were secured by the related real estate properties, and can usually be sold directly to other permanent investors. There can be no assurance, however, that OITRS will be able to recover the repurchased loan value either through other investor channels or through the assumption of the secured real estate.

 

OITRS recognized a liability for the estimated fair value of this obligation at the inception of each mortgage loan sale based on the anticipated repurchase levels and historical experience.

 

Changes in this liability for the three months ended March 31, 2010 and 2009 are presented below:

 

(in thousands)

		Three Months Ended March 31,
		2010				2009
Balance—Beginning of period		$	5,149			$	7,303
Provision			50				468
Settlements			(2	)			(2,622	)
Balance—End of period		$	5,197			$	5,149

Litigation Contingencies. OITRS is involved in various lawsuits and claims, both actual and potential, including some that it has asserted against others, in which monetary damages and other relief is sought.  The resolution of such lawsuits and claims is inherently unpredictable.  In accordance with GAAP, OITRS accrues for loss contingencies only when it is both probable that a loss has actually been incurred and the amount of such loss is reasonably estimable.  The lawsuits and claims involving OITRS, the most significant of which are described below, relate primarily to contractual disputes arising out of the ordinary course of OITRS's business as previously conducted. 

On June 14, 2007, a complaint was filed in the Circuit Court of the Twelfth Judicial District in and for Manatee County, Florida by Coast Bank of Florida against OITRS seeking monetary damages and specific performance and alleging breach of contract for allegedly failing to repurchase approximately fifty loans.  A mediation hearing was held on February 23, 2010.  The parties have agreed to continue mediation talks but have yet to reach a settlement. In the event a settlement is not reached, the Company believes that the plaintiff’s claims are without merit and it will continue to defend the complaint vigorously.

(f) – Fair Value

OITRS measures or monitors many of its assets on a fair value basis. Fair value is used on a recurring basis for certain assets in which fair value is the primary basis of accounting. Examples of these include, loans held for sale and retained interests. Depending on the nature of the asset or liability, OITRS uses various valuation techniques and assumptions when estimating the instrument’s fair value.

Fair value is the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at and/or marked to fair value, OITRS considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability. When possible, OITRS looks to active and observable markets to price identical assets or liabilities. If identical assets and liabilities are not traded in active markets, OITRS would look to market observable data for similar assets and liabilities. However, if similar assets and liabilities are not actively traded in observable markets, then OITRS must use alternative valuation techniques to derive a fair value measurement.

 

 

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The following table presents financial assets measured at fair value on a recurring basis:

 
 

(in thousands)

						Fair Value Measurements at March 31, 2010, Using
		Fair Value Measurements				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Mortgage loans held for sale		$	205			$	-			$	-			$	205
Retained interests, trading			5,591				-				-				5,591

A reconciliation of activity for the three months ended March 31, 2010 for assets measured at fair value based on significant unobservable (non-market) information (Level 3) is presented in the following table:

(in thousands)

		Mortgage Loans Held for Sale				Retained Interests, Trading
Beginning balance		$	207			$	5,934
Gain (loss) included in earnings			(16	)			1,384
Collections, losses and settlements			14				(1,727	)
Ending Balance		$	205			$	5,591

Gains and losses included in earnings for the three months ended March 31, 2010 and 2009 are reported in income on discontinued mortgage banking activities.

NOTE 12.   SUBSEQUENT EVENTS

The following events or transactions were not recognized in the consolidated financial statements. The Company evaluated subsequent events through the date these financial statements were issued.

Dividends

At a meeting of the Board of Directors of Bimini Capital on April 1, 2010, the members of the Board declared a common stock dividend of $0.03 per share, which was paid in cash on April 30, 2010 to shareholders of record on April 15, 2010.  The dividend paid on April 30, 2010 totaled $314,000.

 

 

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

FORWARD-LOOKING STATEMENTS

 

When used in this Quarterly Report on Form 10-Q, in future filings with the Securities and Exchange Commission (the “Commission”) 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 II - Item 1A - Risk Factors of this Form 10-Q. 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 this document, 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 mortgage-backed securities (“MBS”) refer to “Bimini Capital Management, Inc.”  Further, references to Bimini Capital’s taxable REIT subsidiary or non-REIT eligible assets refer to Orchid Island TRS, LLC and its consolidated subsidiaries. This entity, which was previously named Opteum Financial Services, LLC, and referred to as “OFS,” was renamed Orchid Island TRS, LLC effective July 3, 2007.   Hereinafter, any historical mention, discussion or references to Opteum Financial Services, LLC or to OFS (such as in previously filed documents or Exhibits) now means Orchid Island TRS, LLC or “OITRS.”  References to the “Company” refer to the consolidated entity (the combination of Bimini Capital and OITRS).

Bimini Capital Management, Inc., formerly Opteum Inc. and Bimini Mortgage Management, Inc., 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 mortgage-backed securities portfolio and an unlevered derivative mortgage-backed securities portfolio.  The leverage applied to the mortgage-backed securities portfolio will typically be less than twelve to one.  Bimini Capital manages its portfolio of agency mortgage-backed securities and derivative mortgage-backed securities to generate income derived from the net interest margin of its mortgage-backed securities portfolio, levered predominantly under repurchase agreement funding, net of associated hedging costs, and the interest income derived from its unlevered portfolio of derivative mortgage-backed securities.  Bimini Capital treats its remaining junior subordinated notes as an equity capital equivalent. Bimini Capital is self-managed and self-advised and has elected to be taxed as a REIT for U.S. federal income tax purposes.

On April 18, 2007, the Board of Managers of OITRS, at the recommendation of the Board of Directors of the Company, approved the closure of the wholesale and conduit mortgage loan origination channels.  Both channels ceased accepting new applications for mortgage loans on April 20, 2007.  On May 7, 2007, OITRS signed a binding agreement, later amended, to sell its retail mortgage loan origination channel to a third party.  The transaction closed on June 30, 2007 and OITRS has not operated a mortgage loan origination business since that date.

 

 

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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 difference is that the results of the Company’s taxable REIT subsidiary do not impact REIT taxable income.

As a REIT, Bimini Capital may be subject to a federal excise tax if Bimini Capital distributes less than 85% of its taxable income by the end of the calendar year.  Accordingly, Bimini Capital’s dividends are based on its taxable income, 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).

Results of Operations

PERFORMANCE OVERVIEW

Described below are the Company’s results of operations for the three months ended March 31, 2010, as compared to the Company’s results of operations for the three months ended March 31, 2009. During the year ended December 31, 2007, the Company ceased all mortgage origination business at OITRS, and therefore the results of those operations are reported in the financial statements as discontinued operations.

Loss from continuing operations for the three months ended March 31, 2010 was $2.0 million, compared to income from continuing operations of $1.9 million for the three months ended March 31, 2009. Consolidated net loss for the three months ended March 31, 2010 was $1.0 million, compared to a consolidated net income of $2.2 for the three months ended March 31, 2009. Consolidated net loss per basic and diluted share of Class A Common Stock was $0.12, for the three months ended March 31, 2010, compared to a consolidated net income per basic and diluted share of Class A Common Stock of $0.81, for the comparable prior period.

PERFORMANCE OF BIMINI CAPITAL’S MBS PORTFOLIO

For the three months ended March 31, 2010, the REIT generated $1.83 million of net portfolio interest income, consisting of $1.90 million of interest income from MBS assets offset by $0.07 million of interest expense on repurchase liabilities.  For the comparable period ended March 31, 2009, the REIT generated $3.42 million of net portfolio interest income, consisting of $3.67 million of interest income from MBS assets offset by $0.25 million of interest expense on repurchase liabilities.  During the three months ended March 31, 2010, average investment securities held were approximately 16% lower than the comparable period ended March 31, 2009, and the yield on average interest earning assets was also approximately 355 basis points lower.  The MBS portfolio was reduced slightly near the end of the three month period ended March 31, 2010 in order to avoid elevated prepayments owing to Fannie Mae and Freddie Mac prepayments associated with delinquent loan buy-outs announced during the period.  The MBS portfolio was also reduced relative to the 2009 period in order to fund the extinguishment of approximately 74% of the Company’s junior subordinated debt securities in the second and third quarters of 2009.  Finally, the average yield on the Company’s derivative MBS portfolio decreased in the 2010 period over the comparable period in 2009, representing the bulk of the 355 basis point decline in yield on average interest earning assets.  The combination of the smaller portfolio size and reduced asset yield contributed to a decline in portfolio interest income of approximately $1.78 million compared to the three months ended March 31, 2010.  The decline in portfolio interest income more than offset the decline in repurchase agreement interest expense of $0.19 million, which was attributable in part to a 60 basis point decline in the Company’s average cost of funds.

 

 

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Interest expense on the Company’s junior subordinated debt securities was $0.55 million for the three months ended March 31, 2010, compared to $2.09 million for the comparable period in the prior year.  During 2009, the Company was able to extinguish $76.3 million of its $103.1 million in outstanding junior subordinated notes.

Bimini Capital had $0.01 million in realized losses (based on security prices from the previous quarter) from the sales of securities in the MBS portfolio during the three months ended March 31, 2010, compared to gains of $1.14 million for the three months ended March 31, 2009. Market value adjustments to the Company’s investment portfolio resulted in unrealized losses of approximately $1.89 million for the three months ended March 31, 2010 compared to $0.56 million of unrealized gains for the same period in 2009.  As a result, (losses)/gains on trading securities were ($1.90) million and $1.69 million, for the three months ended March 31, 2010, and March 31, 2009, respectively.  The declines for the 2010 period were predominantly the result of mark to market adjustments to the Company’s derivative positions, resulting from the Fannie Mae and Freddie Mac buy-out activity described above.

For the three months ended March 31, 2010, Bimini Capital’s general and administrative costs were approximately $1.25 million, compared to approximately $0.95 million for the three months ended March 31, 2009.  Compensation and related benefits were approximately $0.42 million for the three months ended March 31, 2010 representing an increase of approximately $0.1 million from the comparable period in the prior year.  Audit, legal and professional fees were $0.56 million for the three months ended March 31, 2010, representing an increase of approximately $0.17 million. The increase in audit, legal and professional fees was predominantly associated with legal costs.

For the three months ended March 31, 2010, (loss)/income from continuing operations was ($2.02) million compared to $1.92 million for the period ended March 31, 2009.  The decline in interest income of $1.78 million and the increase in general and administrative expenses of $0.32 million negated the decline in interest expense on the Company’s junior subordinated debt of approximately $1.54 million.  Results of continuing operations were further negatively impacted by the $3.59 million reversal of realized and unrealized gains on trading securities (gains/(losses) on trading securities were ($1.90) million and $1.69 million, for the three months ended March 31, 2010, and March 31, 2009, respectively).

As of March 31, 2010, the MBS portfolio consisted of $102.1 million of agency or government MBS at fair value and had a weighted average coupon on assets of 4.45% and a net weighted average borrowing cost of 0.26%.  The following tables summarize Bimini Capital’s agency and government mortgage related securities as of March 31, 2010 and December 31, 2009:

(in thousands)

Asset Category		Fair  Value	Percentage of Entire Portfolio	Weighted Average Coupon	Weighted Average Maturity in Months	Longest Maturity	Weighted Average Coupon Reset in Months	Weighted Average Lifetime Cap	Weighted Average Periodic Cap
March 31, 2010
Adjustable-Rate MBS	$	13,865	13.6%	2.57%	203	1-Jan-32	2.12	11.66%	27.38%
Fixed-Rate MBS		33,973	33.3%	5.21%	198	1-Oct-37	n/a	n/a	n/a
Hybrid Adjustable-Rate MBS		36,272	35.4%	3.85%	355	1-Dec-39	55.03	8.85%	2.00%
Total Mortgage-backed Pass-through		84,110	82.3%	4.19%	263	1-Dec-39	40.40	9.63%	6.86%
Derivative MBS		18,050	17.7%	5.65%	247	15-Aug-38	n/a	n/a	n/a
Total Mortgage Assets	$	102,160	100.0%	4.45%	263	1-Dec-39	40.40	n/a	6.86%
December 31, 2009
Adjustable-Rate MBS	$	32,598	27.2%	3.75%	261	1-Oct-35	4.87	11.16%	10.34%
Fixed-Rate MBS		5,242	4.4%	6.50%	333	1-Oct-37	n/a	n/a	n/a
Hybrid Adjustable-Rate MBS		67,036	56.0%	4.45%	338	1-Dec-39	40.27	9.45%	2.00%
Total Mortgage-backed Pass-through		104,876	87.6%	4.33%	305	1-Dec-39	28.69	10.01%	4.40%
Derivative MBS		14,793	12.4%	5.59%	240	25-Jan-39	n/a	n/a	n/a
Total Mortgage Assets	$	119,669	100.0%	4.49%	305	1-Dec-39	28.69	n/a	4.40%

 

 

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(in thousands)

		March 31, 2010								December 31, 2009
Agency		Fair Value				Percentage of Entire Portfolio				Fair Value				Percentage of Entire Portfolio
Fannie Mae		$	87,037				85.20	%		$	108,775				90.9	%
Freddie Mac			15,123				14.80	%			10,894				9.1	%
Total Portfolio		$	102,160				100.00	%		$	119,669				100.0	%

Entire Portfolio		March 31, 2010				December 31, 2009
Weighted Average Pass Through Purchase Price		$	103.66			$	103.13
Weighted Average Derivative Purchase Price			5.11				4.66
Weighted Average Pass Through Current Price		$	104.28			$	103.79
Weighted Average Derivative Current Price		$	5.16			$	4.93
Effective Duration (1)			2.643				1.593

(1) Effective duration of 2.643 indicates that an interest rate increase of 1.0% would be expected to cause a 2.643% decline in the value of the MBS in the Company’s investment portfolio at March 31, 2010.  An effective duration of 1.593 indicates that an interest rate increase of 1.0% would be expected to cause a 1.593% decline in the value of the MBS in the Company’s investment portfolio at December 31, 2009. These figures include the derivative securities in the portfolio.

Bimini Capital’s portfolio of pass-through MBS (“PT MBS”) will typically be comprised of adjustable-rate MBS, fixed-rate MBS and hybrid adjustable-rate MBS. Bimini Capital seeks to acquire low duration assets that offer high levels of protection from mortgage prepayments. Although the duration of an individual asset can change as a result of changes in interest rates, Bimini Capital strives to maintain a PT MBS portfolio with an effective duration of less than 2.0. The stated contractual final maturity of the mortgage loans underlying Bimini Capital’s 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 Bimini Capital’s investments substantially. Prepayments occur for various reasons, including refinancing of underlying mortgages and loan payoffs in connection with home sales.

The duration of Bimini Capital’s IO and IIO portfolio will vary greatly owing to 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. With respect to IIO’s, prepayments affect their durations in a similar fashion to that of IO’s, but the floating rate nature of their coupon (which is inversely related to the level of one month LIBOR) cause 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 Bimini Capital’s MBS can alter the timing of the cash flows from the underlying loans to the Company. As a result, Bimini Capital gauges the interest rate sensitivity of its assets by measuring their effective duration. While modified duration measures the price sensitivity of a bond to movements in interest rates, effective duration captures both the movement in interest rates and the fact that cash flows to a mortgage related security are altered when interest rates move. Accordingly, when the contract interest rate on a mortgage loan is substantially above prevailing interest rates in the market, the effective duration of securities collateralized by such loans can be quite low because of expected prepayments. Although some of the fixed-rate MBS in Bimini Capital’s portfolio are collateralized by loans with a lower propensity to prepay when the contract rate is above prevailing rates, their price movements track securities with like contract rates and therefore exhibit similar effective duration.

Bimini Capital faces the risk that the market value of its assets will increase or decrease at different rates than that of its liabilities, including its hedging instruments.  Accordingly, the Company assesses its interest rate risk by estimating the duration of its assets and the duration of its liabilities. Bimini Capital generally calculates duration using various third party models.  However, empirical results and different third party models may produce different duration numbers for the same securities.

 

 

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The following sensitivity analysis shows the estimated impact on the fair value of Bimini Capital's interest rate-sensitive investments as of March 31, 2010, assuming rates instantaneously fall 100 basis points, rise 100 basis points and rise 200 basis points:

(in thousands)

						Interest Rates Fall 100 BPS				Interest Rates Rise 100 BPS				Interest Rates Rise 200 BPS
Adjustable Rate MBS
Fair Value		$	13,865
Change in Fair Value						$	112			$	(112	)		$	(224	)
Change as a % of Fair Value							0.81	%			(0.81	)%			(1.62	)%
Fixed Rate MBS
Fair Value		$	33,973
Change in Fair Value						$	1,199			$	(1,199	)		$	(2,398	)
Change as a % of Fair Value							3.53	%			(3.53	)%			(7.06	)%
Hybrid Adjustable Rate MBS
Fair Value		$	36,272
Change in Fair Value						$	1,118			$	(1,118	)		$	(2,237	)
Change as a % of Fair Value							3.08	%			(3.08	)%			(6.17	)%
Derivative MBS
Fair Value		$	18,050
Change in Fair Value						$	271			$	(271	)		$	(541	)
Change as a % of Fair Value							1.50	%			(1.50	)%			(3.00	)%
Portfolio Total
Fair Value		$	102,160
Change in fair Value						$	2,700			$	(2,700	)		$	(5,400	)
Change as a % of Fair Value							2.64	%			(2.64	)%			(5.29	)%
Cash
Fair Value		$	5,159

 

 

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The table below reflects the same analysis presented above but with the figures in the columns that indicate the estimated impact of a 100 basis point fall or rise adjusted to reflect the impact of convexity.

(in thousands)

						Interest Rates Fall 100 BPS				Interest Rates Rise 100 BPS				Interest Rates Rise 200 BPS
Adjustable Rate MBS
Fair Value		$	13,865
Change in Fair Value						$	78			$	(133	)		$	(319	)
Change as a % of Fair Value							0.56	%			(0.97	)%			(2.30	)%
Fixed Rate MBS
Fair Value		$	33,973
Change in Fair Value						$	934			$	(1,335	)		$	(2,777	)
Change as a % of Fair Value							2.75	%			(3.93	)%			(8.18	)%
Hybrid Adjustable Rate MBS
Fair Value		$	36,272
Change in Fair Value						$	503			$	(1,405	)		$	(3,093	)
Change as a % of Fair Value							1.39	%			(3.87	)%			(8.53	)%
Derivative MBS
Fair Value		$	18,050
Change in Fair Value						$	(2,155	)		$	928			$	64
Change as a % of Fair Value							(11.94	)%			5.14	%			0.35	%
Portfolio Total
Fair Value		$	102,160
Change in fair Value						$	(641	)		$	(1,946	)		$	(6,126	)
Change as a % of Fair Value							(0.63	)%			(1.91	)%			(6.00	)%
Cash
Fair Value		$	5,159

In addition to changes in interest rates, other factors impact the fair value of Bimini Capital's 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 Bimini Capital's assets would likely differ from that shown above and such difference might be material and adverse to Bimini Capital's stockholders.

 

 

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The table below shows Bimini Capital’s average investments held, total interest income, yield on average earning assets, average repurchase obligations outstanding, interest expense, average cost of funds, net interest income and net interest spread for the quarter ended March 31, 2010, and the twenty-four previous quarters for Bimini Capital’s portfolio of MBS securities only. The data in the table below does not include information pertaining to discontinued operations at OITRS.

RATIOS FOR THE QUARTERS HAVE BEEN ANNUALIZED

(in thousands)

Quarter Ended		Average Investment Securities Held				Total Interest Income				Quarterly Retrospective Adj.				Premium Lost due to Paydowns				Yield on Average Interest Earning Assets (1)				Average Balance of Repurchase Agreements Outstanding				Interest Expense (2)				Average Cost of Funds (2)				Net Interest Income				Net Interest Spread				Trust Preferred Interest Expense
March 31, 2010		$	110,914				1,898				-				23				6.76	%		$	88,495				68				0.31	%		$	1,830				6.45	%		$	550
December 31, 2009			112,973				1,784				-				1,554				0.82	%			80,904				59				0.29	%			1,725				0.52	%			617
September 30, 2009			100,386				2,882				-				1,787				4.37	%			65,712				69				0.42	%			2,813				3.95	%			982
June 30, 2009			92,949				2,683				-				627				8.85	%			72,312				105				0.58	%			2,578				8.27	%			1,204
March 31, 2009			131,756				3,674				-				277				10.31	%			111,715				254				0.91	%			3,420				9.41	%			1,933
December 31, 2008			199,338				3,093				-				458				5.29	%			174,701				1,114				2.55	%			1,979				2.74	%			1,933
September 30, 2008			375,239				6,149				-				568				5.95	%			326,577				4,193				5.14	%			1,956				0.81	%			1,933
June 30, 2008			519,614				6,787				-				415				4.91	%			471,732				5,448				4.62	%			1,339				0.29	%			1,933
March 31, 2008			602,948				10,112				-				652				6.28	%			584,597				7,590				5.19	%			2,522				1.08	%			1,933
December 31, 2007			972,236				11,364				(345	)			-				4.68	%			944,832				10,531				4.46	%			833				0.22	%			1,933
September 30, 2007			1,536,265				24,634				(404	)			-				6.41	%			1,497,409				20,998				5.61	%			3,636				0.81	%			1,933
June 30, 2007			2,375,216				26,970				(6,182	)			-				4.54	%			2,322,727				33,444				5.76	%			(6,475	)			(1.22	%)			1,933
March 31, 2007			2,870,265				38,634				1,794				-				5.38	%			2,801,901				37,405				5.34	%			1,229				0.04	%			1,933
December 31, 2006			2,944,397				31,841				(4,013	)			-				4.33	%			2,869,210				39,448				5.50	%			(7,607	)			(1.17	%)			1,933
September 30, 2006			3,243,674				43,051				3,523				-				5.31	%			3,151,813				42,683				5.42	%			368				(0.11	%)			1,933
June 30, 2006			3,472,921				54,811				13,395				-				6.31	%			3,360,421				41,674				4.96	%			13,137				1.35	%			1,933
March 31, 2006			3,516,292				40,512				1,917				-				4.61	%			3,375,777				36,566				4.33	%			3,946				0.28	%			1,933
December 31, 2005			3,676,175				43,140				3,249				-				4.69	%			3,533,486				35,337				4.00	%			7,803				0.69	%			1,858
September 30, 2005			3,867,263				43,574				4,348				-				4.51	%			3,723,603				32,345				3.48	%			11,230				1.03	%			973
June 30, 2005			3,587,629				36,749				2,413				-				4.10	%			3,449,744				26,080				3.02	%			10,668				1.07	%			454
March 31, 2005			3,136,142				31,070				1,013				-				3.96	%			2,976,409				19,731				2.65	%			11,339				1.31	%			-
December 31, 2004			2,305,748				20,463				1,250				-				3.55	%			2,159,891				10,796				2.00	%			9,667				1.55	%			-
September 30, 2004			1,573,343				11,017				-				-				2.80	%			1,504,919				4,253				1.13	%			6,764				1.67	%			-
June 30, 2004			1,512,481				10,959				-				-				2.90	%			1,452,004				4,344				1.20	%			6,615				1.70	%			-
March 31, 2004			871,140				7,194				-				-				3.30	%			815,815				2,736				1.34	%			4,458				1.96	%			-

(1)	Adjusted for premium lost on paydowns

(2)	Excludes Trust Preferred Interest

The net interest figures in the table above exclude interest associated with the trust preferred debt, which is reflected in the last column separately. The net interest income figures reflect the quarterly retrospective adjustment, where applicable.  As a result of the entire MBS portfolio being classified as held for trading for the year ended December 31, 2008, there are no longer quarterly retrospective adjustments.

PERFORMANCE OF DISCONTINUED OPERATIONS OF OITRS

As stated above, the Company has sold or discontinued all residential mortgage origination activities at OITRS.  The principal business activities of OITRS were the origination and sale of mortgage loans.  In addition, as part of the securitization of loans sold, OITRS retained an interest in the resulting residual interest cash flows more fully described below.  Finally, OITRS serviced the loans securitized as well as some loans sold on a whole loan basis.  As of March 31, 2010, there are no remaining originated mortgage servicing rights. Mortgage loans held for sale are immaterial at March 31, 2010 and not likely to result in meaningful income or loss in the future.  Such assets are also held for sale.

 

 

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Gains realized on the OITRS activities for the three months ended March 31, 2010, were $1.37 million compared to $1.77 million for the three months ended March 31, 2009.  The fair value adjustment of retained interest, trading was $1.38 million and $1.27 million for the three months ended March 31, 2010 and 2009, respectively.  The retained interests in securitizations represent residual interests in loans originated or purchased by OITRS prior to securitization.  The total fair value of these retained interests was approximately $5.59 million as of March 31, 2010. Fluctuations in value of retained interests are primarily driven by projections of future interest rates (the forward LIBOR curve), the discount rate used to determine the present value of the residual cash flows and prepayment and loss estimates on the underlying mortgage loans.

The table below provides details of OITRS’s gain on mortgage banking activities for the three months ended March 31, 2010 and 2009.  OITRS recognized a gain or loss on the sale of mortgages held for sale only when the loans were actually sold.

 (in thousands)

		Three Months Ended March 31,
		2010				2009
Fair Value adjustment of retained interests, trading		$	1,384			$	1,274
Loss on sales of mortgage loans and securities			(13	)			(3	)
Change in market value of security held for sale			-				465
Change in market value of mortgage loans held for sale			(2	)			29
Gain on mortgage banking activities		$	1,369			$	1,765

General and administrative expenses of OITRS for the three months ended March 31, 2010 were $0.40 million compared to $1.00 million for the three months ended March 31, 2009.

Liquidity and Capital Resources

Our principal sources of cash generally consist of borrowings under repurchase agreements, payments of principal and interest we receive on our MBS portfolio, and cash flows received by OITRS from the residual interests and the collection of prior servicing advances that are used to repay intercompany debt.  Our principal uses of cash are the repayment of principal and interest on our repurchase agreements, purchases of MBS, funding our operations and, to the extent dividends are declared, making dividend payments on our capital stock.

As of March 31, 2010, Bimini Capital had repurchase agreements in place with three counterparties and funding in place with one of those counterparties.  The counterparty to this agreement is not an affiliate of Bimini Capital. The agreement is secured by Bimini Capital’s MBS and bears interest rates that are based on a spread to LIBOR.

As of March 31, 2010, Bimini Capital had an obligation outstanding under the repurchase agreement of approximately $76.7 million with a net weighted average borrowing cost of 0.26%. Bimini Capital’s outstanding repurchase agreement obligation has a weighted average maturity of 59 days.  Securing the repurchase agreement obligation as of March 31, 2010, are MBS with an estimated fair value, including accrued interest, of $80.0 million and a weighted average maturity of 272 months.

As of March 31, 2010, Bimini Capital had amounts at risk greater than 10% of the equity of the Company with the following counterparty:

 (in thousands)

Repurchase Agreement Counterparties		Amount at Risk(1)				Weighted Average Maturity of Repurchase Agreements in Days
MF Global, Inc.		$	2,758				59

(1)	Equal to the fair value of securities sold, plus accrued interest income, minus the sum of repurchase agreement liabilities, plus accrued interest expense.

 

 

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Bimini Capital’s master repurchase agreements have no stated expiration, but can be terminated at any time at Bimini Capital’s 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.

As discussed above, increases in short-term interest rates could negatively impact the valuation of Bimini Capital’s PT MBS portfolio.  Should this occur, Bimini Capital’s repurchase agreement counterparties could initiate margin calls, thus inhibiting liquidity or forcing the sale of assets.

As a result of losses incurred during and shortly after the period when the Company operated its mortgage loan origination business, the Company was forced to materially downsize its operations and was left with a depleted capital base.  This period covered the years 2006, 2007 and 2008. One consequence of this development was the Company had progressively less access to funding via repurchase agreements and from fewer counterparties.  The Company therefore opted to augment its existing leveraged MBS portfolio with alternative sources of income.  The Company developed an alternative investment strategy utilizing derivative mortgage-backed securities collateralized by MBS with comparable borrower and prepayment characteristics to the securities currently in the portfolio.  Such securities are not funded in the repurchase market but instead are purchased directly, thus reducing – but not eliminating - the Company’s reliance on access to repurchase agreement funding.  The leverage inherent in the securities replaces the leverage obtained by acquiring pass-through securities and funding them in the repurchase market.  As described above, this strategy is now a core element of the Company’s investment strategy.

In addition, in October 2005, Bimini Capital completed a private offering of an additional $51.5 million of trust preferred securities of Bimini Capital Trust II (“BCTII”) resulting in the issuance by Bimini Capital of an additional $51.5 million of junior subordinated notes. On October 21, 2009, the Company purchased $24 million of trust preferred capital securities issued by BCT II. The total cost for the transaction, including fees was approximately $14.5 million.  The Company cancelled the trust preferred capital securities and the $24.74 million of its junior subordinated notes issued to BCT II.  As of March 31, 2010, $26.8 million of the trust preferred securities of BCT II remain outstanding.

Bimini Capital attempts to ensure that the income generated from available investment opportunities, when the use of leverage is employed for the purchase of assets, exceeds the cost of its borrowings. However, the issuance of debt at a fixed rate for any long-term period, considering the use of leverage, could create an interest rate mismatch if Bimini Capital is not able to invest at yields that exceed the interest rates of the Company’s junior subordinated notes and other borrowings.

Outlook

During 2009, the Company executed two transactions whereby $74 million of its $100 million trust preferred debt was extinguished early.  As a result, the Company’s balance sheet is substantially less leveraged and the associated interest charges have been reduced accordingly.  The repurchase agreement funding markets, while still not functioning as before the financial crisis, have returned to a level of functionality so that most firms managing levered agency PT MBS portfolios have adequate access to funding. However, Bimini Capital, owing to its small portfolio and limited profitable operating history, still has limited access to repurchase agreement funding.  While the Company’s funding sources are limited, the funding it does obtain is at extremely low levels.  Further, the Company has been able to offset the limited access to funding with its alternative investment strategy.  The combination of the low funding levels and the alternative investment strategy has enabled the Company to generate the largest Net Interest Margin (“NIM”), in percentage terms, in its brief operating history.

 Nonetheless, the reduced size of the portfolio in relation to the Company’s operating expenses will constrain the earnings potential of the Company in the near term.  Given the limited access to funding and the reduced size of its portfolio, even with the benefit of the alternative investment strategy, no assurance can be made of the Company’s ability to generate sufficient net interest income to cover all of its costs.  The Company’s ability to generate sufficient net interest income to cover its costs will also be impacted by funding costs, which in turn will depend on how long funding rates will remain at current levels.

 

 

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Critical Accounting Policies

The Company’s financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company’s significant accounting policies are described in Note 1 to the Company’s accompanying Consolidated Financial Statements.

GAAP requires the Company’s management to make some complex and subjective decisions and assessments. The Company’s most critical accounting policies involve decisions and assessments which could significantly affect reported assets and liabilities, as well as reported revenues and expenses. The Company believes that all of the decisions and assessments upon which its financial statements are based were reasonable at the time made based upon information available to it at that time. Management has identified its most critical accounting policies to be the following:

MORTGAGE-BACKED SECURITIES

The Company’s investments in MBS are classified as held for trading.  Changes in fair value of securities held for trading are recorded through the statement of operations. The Company’s MBS have fair values determined by management based on the average of third-party broker quotes received and/or by independent pricing sources when available. Because the price estimates may vary to some degree between sources, management must make certain judgments and assumptions about the appropriate price to use to calculate the fair values for financial reporting purposes. Alternatively, management could opt to have the value of all of its positions in MBS determined by either an independent third-party pricing source or do so internally based on management’s own estimates. Management believes pricing on the basis of third-party broker quotes is the most consistent with the definition of fair value described in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures.

REPURCHASE AGREEMENTS

The Company finances the acquisition of PT MBS through the use of repurchase agreements. Repurchase agreements are treated as collateralized financing transactions and are carried at their contractual amounts, including accrued interest, as specified in the respective agreements.

INCOME RECOGNITION

 

All securities are either MBS pass-through securities, interest only securities or inverse interest only securities. Income on MBS pass-through securities is based on the stated interest rate of the security. Premium or discount present at the date of purchase is not amortized. For inverse interest only and interest only securities classified as held for trading, the income is accrued based on the carrying value and the effective yield. As cash is received it is first applied to accrued interest and then to reduce the carrying value. At each reporting date, the effective yield is adjusted prospectively from the reporting period based on the new estimate of prepayments. The new effective yield is calculated based on the carrying value at the end of the previous reporting period, the new prepayment estimates and the contractual terms of the security.  Changes in fair value during the period are recorded in earnings and reported as fair value adjustment-held for trading securities in the accompanying consolidated statement of operations.

INCOME TAXES

Bimini Capital has elected to be taxed as a REIT under the Code. As further described below, Bimini Capital’s subsidiary, OITRS a taxpaying entity for income tax purposes and is taxed separately from Bimini Capital. Bimini Capital will generally not be subject to federal income tax on its REIT taxable income to the extent that Bimini Capital distributes its REIT taxable income to its stockholders and satisfies the ongoing REIT requirements, including meeting certain asset, income and stock ownership tests. A REIT must generally distribute at least 90% of its REIT taxable income to its stockholders, of which 85% generally must be distributed within the taxable year, in order to avoid the imposition of an excise tax. The remaining balance may be distributed up to the end of the following taxable year, provided the REIT elects to treat such amount as a prior year distribution and meets certain other requirements.

 

 

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OITRS and its activities are subject to corporate income taxes and the applicable provisions of FASB ASC 740, Income Taxes. All of the consequences of OITRS’s income tax accounting are included in discontinued operations.  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. 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. To the extent management believes deferred tax assets will not be fully realized in future periods, a provision is recorded so as to reflect the net portion, if any, of the deferred tax asset management expects to realize.

Off-Balance Sheet Arrangements

As discussed above, OITRS previously pooled loans that it had originated or purchased and then sold them or securitized them to obtain long-term financing for its assets. Securitized loans were transferred to a trust where they served as collateral for asset-backed bonds, which the trust primarily issued to the public. OITRS held approximately $5.6 million of retained interests from securitizations as of March 31, 2010.  In addition, OITRS retained the servicing related to the loans sold or securitized.  While such servicing has since been sold and or surrendered, advances made prior to such transactions continued to be collected as the underlying properties are liquidated.

The cash flows associated with OITRS’s securitization activities over the three months ended March 31, 2010 and 2009, were as follows:

(in thousands)

		Three months Ended March 31,
		2010				2009
Net servicing fees (paid) received		$	(2	)		$	(1	)
Servicing advances and repayments			1,140				4,346
Cash flows received on retained interests			1,728				2,321

 

 

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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM 4T.  CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.  In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of the end of the period covered by this report, the Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures.  Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

Changes in Internal Controls over Financial Reporting

There was no change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

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PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

We are involved in various lawsuits and claims, both actual and potential, including some that we have asserted against others, in which monetary and other damages are sought. Except as described below, these lawsuits and claims relate primarily to contractual disputes arising out of the ordinary course of our business. The outcome of such lawsuits and claims is inherently unpredictable. However, we believe that, in the aggregate, the outcome of all lawsuits and claims involving us will not have a material effect on our consolidated financial position or liquidity; however, any such outcome may be material to the results of operations of any particular quarterly reporting period in which costs, if any, are recognized. See also Notes 8 and 11(e) to our accompanying consolidated financial statements.

On June 14, 2007, a complaint was filed in the Circuit Court of the Twelfth Judicial District in and for Manatee County, Florida by Coast Bank of Florida against OITRS seeking monetary damages and specific performance and alleging breach of contract for allegedly failing to repurchase approximately fifty loans.   A mediation hearing was held on February 23, 2010.  The parties have agreed to continue mediation talks but have yet to reach a settlement.   In the event a settlement is not reached, the Company believes the plaintiff’s claims are without merit and it will continue to defend the complaint vigorously.

On September 17, 2007, a complaint was filed in the U.S. District Court for the Southern District of Florida by William Kornfeld against Bimini Capital, certain of its current and former officers and directors, Flagstone Securities, LLC and BB&T Capital Markets alleging various violations of the federal securities laws and seeking class action certification.  On October 9, 2007, a complaint was filed in the U.S. District Court for the Southern District of Florida by Richard and Linda Coy against the Company, certain of its current and former officers and directors, Flagstone Securities, LLC and BB&T Capital Markets alleging various violations of the federal securities laws and seeking class action certification.  The cases have been consolidated, class certification has been granted, and lead plaintiffs’ counsel has been appointed.  The Company filed a motion to dismiss the case on December 22, 2008, and plaintiffs have filed a response in opposition.  On September 30, 2009, the court granted a partial motion to dismiss and gave plaintiffs until October 12, 2009 to file an amended complaint.  The partial dismissal released defendants Flagstone Securities, LLC, BB&T Capital Markets, Bimini Capital’s former outside directors and certain officers, as well as certain charges contained in the original complaint.  Plaintiffs filed an amended complaint on October 12, 2009 and on October 23, 2009 Bimini Capital filed an answer and affirmative defenses to the amended complaint. At a mediation held on February 12, 2010, the parties reached a tentative settlement of this matter for $2.35 million. As of December 31, 2009, the Company had accrued approximately $0.5 million related to the settlement.  This amount represented the remainder of the $1.0 million retention that the Company was required to pay under the terms of its Directors and Officers insurance policy. As of April 30, 2010, approximately $0.4 million of the accrual remains. The remainder of the settlement and legal fees and costs associated with finalizing the settlement will be paid by the insurance carrier.  The settlement is contingent upon the parties' executing a written stipulation of settlement, presenting the settlement to the Court for preliminary approval, providing notice to the Class and an opportunity to opt out of the settlement,  and receiving final approval from the Court at a final fairness hearing.  This process is expected to be completed during the current year.  Bimini Capital made no admission of liability in connection with the settlement.  If the settlement is not finalized, the class action would continue.  While Bimini Capital expects that this settlement will be finalized and approved by the Court, there is no guarantee that the settlement will be finalized.  The failure to finalize the settlement could have a material adverse impact on the Bimini Capital.

A complaint was filed on December 23, 2009 in the Southern District of New York against Bimini Capital, the Bank of New York Mellon ("BNYM"), and Hexagon Securities, LLC ("Hexagon"). It alleges that plaintiff, a note-holder in Preferred Term Securities XX ("PreTSL XX"), suffered losses as a result of Bimini Capital’s repurchase of all outstanding fixed/floating rate capital securities of Bimini Capital Trust II for less than par value from PreTSL XX in December 2009. Plaintiff alleged breach of the indenture and breach of fiduciary duties by BNYM, and tortuous interference with contract and aiding and abetting breach of fiduciary duty by Bimini Capital and Hexagon. Plaintiff also purported to allege derivative claims brought on behalf of Nominal Defendant PreTSL XX.  On February 22, 2010, plaintiff filed an amended complaint, adding derivative claims on behalf of BNYM as trustee, in addition to the prior derivative claims asserted on behalf of PreTSL XX.  Plaintiff has also added a claim for "unjust enrichment" against Bimini Capital and Hexagon.  On March 26, 2010, all Defendants moved to dismiss each count of Plaintiff's amended complaint. Bimini Capital denies that the repurchase was improper and intends to defend the suit vigorously.

 

 

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ITEM 1A.  RISK FACTORS.

    In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2009, which could materially affect our business, financial condition or future results. The materialization of any risks and uncertainties identified in our forward looking statements  contained in this report together with those previously disclosed in the Form 10-K or those that are presently unforeseen could result in significant adverse  effects on our  financial  condition,  results of  operations  and cash flows.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

UNREGISTERED SALES OF EQUITY SECURITIES

As of March 31, 2010, the Company issued 22,461 and 8,413 shares of Class A Common Stock to Robert J. Dwyer and Frank E. Jaumot, respectively, in consideration for their service on the Company’s Board of Directors and on certain committees of the Board of Directors.  The shares were issued pursuant to the exemption from registration under the Securities Act of 1933, as amended, contained in Section 4(2) thereof.

ISSUER PURCHASES OF EQUITY SECURITIES

Except as described below, the Company has not repurchased any shares of its equity securities during 2010.  The following table shows shares of common stock deemed to have been repurchased in connection with the withholding of a portion of shares of Class A Common Stock to cover federal withholding taxes on share dividends paid to employees on unvested phantom shares for each calendar month during the quarter ended March 31, 2010.

Calendar Month		Total Number of Shares Purchased				Average Price Paid per Share				Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs				Maximum Amount That May Yet Be Purchased Under the Plans or Programs
January 2010			90,059			$	2.30				-				-
February 2010			-				-				-				-
March 2010			-				-				-				-
Total			90,059			$	2.30				-				-

 

 

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ITEM 6.                        EXHIBITS.

Exhibit No.

3.1	Articles of Amendment and Restatement, incorporated by reference to Exhibit 3.1 to the Company’s Form S-11/A, filed with the SEC on April 29, 2004
3.2	Articles Supplementary, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, dated November 3, 2005, filed with the SEC on November 8, 2005
3.3	Articles of Amendment, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, dated February 10, 2006, filed with the SEC on February 15, 2006
3.4	Articles of Amendment, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, dated September 24, 2007, filed with the SEC on September 24, 2007
3.5	Certificate of Notice, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, dated January 28, 2008, filed with the SEC on February 1, 2008
3.6	Articles of Amendment, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, dated May 27, 2008, filed with the SEC on May 29, 2008
3.7	Amended and Restated Bylaws, incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, dated September 24, 2007, filed with the SEC on September 24, 2007
†10.1	Bimini Capital Management, Inc. 2003 Long Term Incentive Compensation Plan, as amended September 28, 2007, incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2007, filed with the SEC on November 8, 2007
†10.2	Bimini Capital Management, Inc. 2004 Performance Bonus Plan, as amended September 28, 2007, incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2007, filed with the SEC on November 8, 2007
†10.3	Form of Phantom Share Award Agreement incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2007, filed with the SEC on November 8, 2007
†10.4	Form of Restricted Stock Award Agreement incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2007, filed with the SEC on November 8, 2007
†10.5	Separation Agreement and General Release, dated as of June 29, 2007, by and among Opteum Inc., Opteum Financial Services, LLC and Peter R. Norden, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, dated June 30, 2007, filed with the SEC on July 5, 2007
†10.6	Separation Agreement and General Release by and between Bimini Capital Management, Inc. and Jeffrey J. Zimmer, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated April 14, 2008, filed with the SEC on April 16, 2008
†10.7	Retention and Severance Agreement between Bimini Capital Management, Inc. and G. Hunter Haas, IV, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated April 18, 2008, filed with the SEC on April 18, 2008
†10.8	Retention and Severance Agreement between Bimini Capital Management, Inc. and J. Christopher Clifton, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, dated April 18, 2008, filed with the SEC on April 18, 2008
†10.9	Employment Agreement dated as of April 27, 2006, by and between Opteum Inc. and J. Christopher Clifton, incorporated by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q, dated August 11, 2008, filed with the SEC on August 11, 2008
†10.10	Agreement dated as of June 30, 2009, by and between Bimini Capital Management, Inc. and Robert E. Cauley, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K, dated June 30, 2009, filed with the SEC on July 2, 2009
†10.11	Agreement dated as of June 30, 2009, by and between Bimini Capital Management, Inc. and G. Hunter Haas, incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K, dated June 30, 2009, filed with the SEC on July 2, 2009
10.12	Voting Agreement, among certain stockholders of Bimini Mortgage Management, Inc., Jeffrey J. Zimmer, Robert E. Cauley, Amber K. Luedke, George H. Haas, IV, Kevin L. Bespolka, Maureen A. Hendricks, W. Christopher Mortenson, Buford H. Ortale, Peter Norden, certain of Mr. Norden’s affiliates, Jason Kaplan, certain of Mr. Kaplan’s affiliates and other former owners of Opteum Financial Services, LLC, incorporated by reference to Exhibit 99(D) to the Schedule 13D, dated November 3, 2005, filed with the SEC on November 14, 2005
10.13	Membership Interest Purchase, Option and Investor Rights Agreement among Opteum Inc., Opteum Financial Services, LLC and Citigroup Global Markets Realty Corp. dated as of December 21, 2006, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated December 21, 2006, filed with the SEC on December 21, 2006
10.14	Seventh Amended and Restated Limited Liability Company Agreement of Orchid Island TRS, LLC, dated as of July 20, 2007, made and entered into by Opteum Inc. and Citigroup Global Markets Realty Corp., incorporated by reference to Exhibit 10.12 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2007, filed with the SEC on August 14, 2007
10.15	Asset Purchase Agreement, dated May 7, 2007, by and among Opteum Financial Services, LLC, Opteum Inc. and Prospect Mortgage Company, LLC, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated May 7, 2007, filed with the SEC on May 7, 2007
10.16	First Amendment to Purchase Agreement, dated June 30, 2007, by and among Metrocities Mortgage, LLC – Opteum Division, Opteum Financial Services, LLC and Opteum Inc., incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated June 30, 2007, filed with the SEC on July 5, 2007
10.17	Membership Interest Purchase Agreement, dated May 27, 2008, by and among Bimini Capital Management, Inc., Orchid Island TRS, LLC and Citigroup Global Markets Realty Corp., incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated May 27, 2008, filed with the SEC on May 29, 2008
10.18	Eighth Amended and Restated Limited Liability Company of Orchid Island TRS, LLC, dated as of May 27, 2008, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, dated May 27, 2008, filed with the SEC on May 29, 2008
10.19	Amended and Restated Junior Subordinated Indenture, dated as of September 26, 2005, between the Company and JPMorgan Chase Bank, National Association, as trustee.
10.20	Second Amended and Restated Trust Agreement, dated as of September 26, 2005, among the Company, as depositor, JPMorgan Chase Bank, National Association, as property trustee, Chase Bank USA, National Association, as Delaware trustee and the Administrative Trustees named therein.
10.21	Indenture, dated as of October 5, 2005, between the Company and Wilmington Trust Company, as debenture trustee.
10.22	Amended and Restated Declaration of Trust, dated as of October 5, 2005, by and among Wilmington Trust Company, as Delaware trustee, Wilmington Trust Company, as institutional trustee, the Company, as sponsor, and Jeffrey J. Zimmer, Robert E. Cauley and Amber K. Luedke, as administrators.
*31.1	Certification of the Principal Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31.2	Certification of the Principal Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*32.1	Certification of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*32.2	Certification of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	* Filed herewith. † Management compensatory plan or arrangement required to be filed by Item 601 of Regulation S-K.

 

 

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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 7, 2010		By:	/s/ Robert E. Cauley
			Robert E. Cauley Chairman and Chief Executive Officer

Date:                      May 7, 2010		By:	/s/ G. Hunter Haas
			G. Hunter Haas IV President, Chief Financial Officer, Chief Investment Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)