June 30, 2009				December 31, 2008
Assets
Cash and cash equivalents		$	47			$	35
Mortgage loans held for sale (a)			409				464
Retained interests, trading (b)			8,997				15,601
Security held for sale			438				15
Receivables			12,813				23,792
Prepaids and other assets			3,201				3,380
Assets held for sale		$	25,905			$	43,287
Liabilities
Accounts payable, accrued expenses and other (d)			7,520				10,431
Liabilities related to assets held for sale		$	7,520			$	10,431

 

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(a) - Mortgage Loans Held for Sale

Mortgage loans held for sale consist of the following as of June 30, 2009 and December 31, 2008:

(in thousands)

		June 30, 2009				December 31, 2008
Mortgage loans held for sale, and other, net		$	2,869			$	3,022
Valuation allowance			(2,460	)			(2,558	)
Total		$	409			$	464

(b) – Retained interest, trading

The following table summarizes OITRS’s residual interests in securitizations as of June 30, 2009 and December 31, 2008:

 (in thousands)

Series	Issue Date		June 30, 2009				December 31, 2008
HMAC 2004-1	March 4, 2004		$	848			$	2,441
HMAC 2004-2	May 10, 2004			1,358				2,735
HMAC 2004-3	June 30, 2004			1,763				1,281
HMAC 2004-4	August 16, 2004			2,420				1,867
HMAC 2004-5	September 28, 2004			1,074				3,080
HMAC 2004-6	November 17, 2004			1,476				1,846
OMAC 2005-1	January 31, 2005			14				999
OMAC 2005-2	April 5, 2005			44				169
OMAC 2005-3	June 17, 2005			-				1,181
OMAC 2005-4	August 25, 2005			-				2
OMAC 2005-5	November 23, 2005			-				-
OMAC 2006-1	March 23, 2006			-				-
OMAC 2006-2	June 26, 2006			-				-
Total			$	8,997			$	15,601

As of June 30, 2009 and December 31, 2008, 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)

		June 30, 2009				December 31, 2008
Balance sheet carrying value of retained interests – fair value		$	8,997			$	15,601
Weighted average life (in years)			3.32				14.76
Prepayment assumption (annual rate)			14.26	%			19.36	%
Impact on fair value of 10% adverse change		$	(209	)		$	(1,838	)
Impact on fair value of 20% adverse change		$	(240	)		$	(3,086	)
Expected credit losses (% of original unpaid principal balance)			7.20	%			5.61	%
Impact on fair value of 10% adverse change		$	(512	)		$	(2,841	)
Impact on fair value of 20% adverse change		$	(1,127	)		$	(6,095	)
Residual cash-flow discount rate			27.5	%			27.50	%
Impact on fair value of 10% adverse change		$	(172	)		$	(1,540	)
Impact on fair value of 20% adverse change		$	(330	)		$	(2,838	)
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		$	(658	)		$	(2,692	)
Impact on fair value of 20% adverse change		$	(1,206	)		$	(5,067	)

 

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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 June 30, 2009 and December 31, 2008.

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

(in thousands)

Series	Issue Date		Original Unpaid Principal Balance				Actual Losses Through June 30, 2009				Projected Future Credit Losses as of June 30, 2009				Projected Total Credit Losses as of June 30, 2009
HMAC 2004-1	March 4, 2004		$	309,710				0.77	%			0.95	%			1.72	%
HMAC 2004-2	May 10, 2004			388,737				1.02	%			1.14	%			2.16	%
HMAC 2004-3	June 30, 2004			417,055				0.97	%			0.90	%			1.87	%
HMAC 2004-4	August 16, 2004			410,123				0.81	%			0.56	%			1.37	%
HMAC 2004-5	September 28, 2004			413,875				1.03	%			1.62	%			2.65	%
HMAC 2004-6	November 17, 2004			761,027				1.40	%			2.07	%			3.47	%
OMAC 2005-1	January 31, 2005			802,625				2.02	%			2.26	%			4.28	%
OMAC 2005-2	April 5, 2005			883,987				2.15	%			2.63	%			4.78	%
OMAC 2005-3	June 17, 2005			937,117				2.23	%			4.03	%			6.26	%
OMAC 2005-4	August 25, 2005			1,321,739				3.38	%			4.81	%			8.19	%
OMAC 2005-5	November 23, 2005			986,277				4.39	%			6.10	%			10.49	%
OMAC 2006-1	March 23, 2006			934,441				4.56	%			9.12	%			13.68	%
OMAC 2006-2	June 26, 2006			491,572				7.56	%			15.32	%			22.88	%
Total			$	9,058,285				2.79	%			4.41	%			7.20	%

The table below summarizes certain cash flows received from securitization trusts:

(in thousands)

		Six months Ended June 30,
		2009				2008
Net servicing fees  received		$	-			$	845
Servicing repayments			8,184				786
Cash flows received on retained interests			5,688				10,671

The following information presents quantitative information about delinquencies and credit losses on securitized financial assets as of June 30, 2009 and December 31, 2008:

(in thousands)

As of Date		Total Principal Amount of Loans				Principal Amount of Loans 60 Days or more delinquent				Net Credit Losses
June 30, 2009		$	3,583,127			$	829,322			$	252,532
December 31, 2008			3,920,433				728,884				129,715

 

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(c)  - 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 June 30, 2009 and December 31, 2008, 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.  The deferred tax assets and offsetting valuation allowances at June 30, 2009 and December 31, 2008 were approximately $101.2 million and $103.4 million, respectively.  The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income within OITRS.  At June 30, 2009, management believed that it was 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.  OITRS has abandoned the tax NOLs in the states where operations have ceased, and those deferred tax assets have been written-off.

For the six month periods ended June 30, 2009 and 2008, the amount of the gross tax benefit generated by the losses incurred in these period are reduced by an offsetting valuation allowance of the same amount; therefore, the tax benefit is zero.  The income tax provision or benefit for the periods ended June 30, 2009 and 2008 differ from the amount determined by applying the statutory Federal rate of 35% to the pre-tax income or loss due primarily to the recording of, and adjustments to, the deferred tax asset valuation allowances.

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, pursuant to the provisions of accounting standard FIN 48, “Accounting for Uncertainty in Income Taxes,” OITRS recorded in 2008 a tax provision for $1.5 million for taxes that may be due on EII.  Interest through June 30, 2009 has been accrued in the amount of $0.4 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.

As of June 30, 2009, OITRS has an estimated federal tax net operating loss carryforward of approximately $272.1 million, and estimated available state tax NOLs of $67.1 million, which begin to expire in 2025, and are fully available to offset future taxable income.

(d) – Commitments and Contingencies

Loans Sold to Investors. Generally, OITRS is 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 are 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 recognizes 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. The liability is recorded as a reduction of the gain on sale of mortgage loans and included as part of other liabilities in the accompanying financial statements.

 

 

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Changes in this liability for the six months ended June 30, 2009 and 2008 are presented below:

 

(in thousands)

		Six Months Ended June 30,
		2009				2008
Balance—Beginning of period		$	7,303			$	6,960
Provision			468				1,000
Settlements			(2,622	)			(1,416	)
Balance—End of period		$	5,149			$	6,544

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, it is the policy of OITRS to accrue for loss contingencies only when it is both probable that a loss has actually been incurred and an 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.  On September 5, 2007, OITRS filed a motion to dismiss Coast’s complaint based on the Florida Banking Statute of Frauds.  On February 25, 2008, the Court denied OITRS’s motion to dismiss, but the court subsequently clarified that the motion was denied because the Court needs additional facts in order to determine whether Coast’s claims are barred under the Florida Banking Statute of Frauds.  As a result, the parties conducted limited discovery relating to the Statute of Frauds and OITRS filed a motion for summary judgment in November, 2008; however, that motion was never ruled on because on February 3, 2009, Coast filed a motion for leave to amend its complaint. The Court ruled in favor of Coast on March 16, 2009 and OITRS was given 20 days, subsequently extended by three additional weeks, to answer the amended complaint.  On May 4, 2009, OITRS filed a response to the amended complaint.  The amended complaint differs from the original complaint in that it raises new facts and changes the nature of the claims.  We believe the plaintiff’s claims in this matter are without merit and we intend to vigorously defend this case.

On July 2, 2008, an amended complaint was filed in the Superior Court of the State of California for the County of Los Angeles, Central District by IndyMac Bank, F.S.B. against OITRS and others seeking monetary damages and specific performance and alleging, among other allegations, breach of contract for allegedly failing to repurchase thirty-six loans.   On August 18, 2008, the Court entered an order substituting the Federal Deposit Insurance Corporation as conservator for IndyMac Federal Bank, F.S.B., in the place of IndyMac Bank, F.S.B.   On January 16, 2009, the Court entered an order dismissing the amended complaint with prejudice pursuant to a stipulation of dismissal that was entered into among the parties to the case.  As a result of the Court’s order of dismissal, this proceeding is now concluded.  No amounts were paid by OITRS in connection with the execution of the stipulation of dismissal or the Court’s order of dismissal. 

(e) – 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, retained interests, trading and security held for sale. Depending on the nature of the asset or liability, OITRS uses various valuation techniques and assumptions when estimating the instrument’s fair value. These valuation techniques and assumptions are in accordance with SFAS No. 157.

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. When identical assets and liabilities are not traded in active markets, OITRS looks to market observable data for similar assets and liabilities. Nevertheless, certain assets and liabilities are not actively traded in observable markets and 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 June 30, 2009, Using
		Fair Value Measurements June 30, 2009				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		$	409			$	-			$	-			$	409
Retained interests, trading			8,997				-				-				8,997
Security held for sale			438				-				-				438

A reconciliation of activity for the six months ended June 30, 2009 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				Securities Held for Sale
Beginning balance		$	464			$	15,601			$	15
Gains (losses) included in earnings			27				(916	)			476
Sales and collections			(82	)			(5,688	)			(53	)
Ending Balance		$	409			$	8,997			$	438

Gains and losses included in earnings for the six months ended June 30, 2009 are reported in income on discontinued mortgage banking activities.

NOTE 12.   GAIN ON EXTINGUISHMENT OF DEBT

During the six months ended June 30, 2009, the Company entered into an agreement with Taberna Capital Management, LLC (Taberna), the collateral manager of certain collateralized debt obligations issued in 2005 and collateralized by, among other securities, the trust preferred capital securities sold by Bimini Capital Trust I (BCTI) in May of 2005 (see Note 5).  Pursuant to the terms of the agreement, the obligations under the trust preferred capital securities issued by BCTI were discharged and the securities redeemed.  Concurrently, Bimini Capital redeemed $50 million of its junior subordinated notes issued to BCTI and recognized a gain of approximately $32.4 million on the early extinguishment of this debt.

 

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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 attempts to earn a return on the spread between the yield on its assets and its costs, including the interest expense on the funds it borrows. When market conditions are not under severe stress as they are currently, Bimini Capital intends to borrow between eight and twelve times the amount of its equity capital in an attempt to enhance its returns to stockholders. This leverage may be adjusted above or below this range to the extent management or the Company’s Board of Directors deems necessary or appropriate.  For purposes of this calculation, Bimini Capital treats its 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 to sell its retail mortgage loan origination channel to a third party as well.  On June 30, 2007, OITRS entered into an amendment to this agreement.  The proceeds of the transactions were approximately $1.5 million plus the assumption of certain liabilities of OITRS.  The transaction, coupled with the disposal of the conduit and wholesale origination channels, resulted in a loss of approximately $10.5 million.  OITRS has not operated a mortgage loan origination business and the results of such operations are reported as discontinued operations.

 

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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. In December 2008, the Internal Revenue Service (IRS) issued Revenue Procedure 2008-68, providing that the IRS will treat a REIT’s distribution of common stock that is declared with respect to a taxable year ending on or before December 31, 2009 as a qualifying dividend for purposes of the 90 percent distribution requirement so long as it meets certain conditions, including a cash limitation requirement that is not less than 10% of the entire distribution.

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 six and three months ended June 30, 2009, as compared to the Company’s results of operations for the six and three months ended June 30, 2008. During the year ended December 31, 2007, the Company ceased all mortgage origination business at OITRS. As stated above, results of those operations are reported in the financial statements as discontinued operations.

Consolidated net income for the six and three months ended June 30, 2009 was $34.0 million and $31.9 million, respectively, compared to a consolidated net loss of $39.7 million and $34.6 million, respectively, for the six and three months ended June 30, 2008. Consolidated net income per basic and diluted share of Class A Common Stock was $1.26 and $1.25, respectively, for the six months ended June 30, 2009, compared to a consolidated net loss per basic and diluted share of Class A Common Stock of $1.57, for the comparable prior period.  Consolidated net income per basic and diluted share of Class A Common Stock was $1.16 for the three months ended June 30, 2009, compared to a consolidated net loss per basic and diluted share of Class A Common Stock of $1.36, for the comparable prior period.

PERFORMANCE OF BIMINI CAPITAL’S MBS PORTFOLIO

For the six and three months ended June 30, 2009, Bimini Capital generated $6.4 million and $2.7 million, respectively, of interest income from MBS assets and $0.4 million and $0.1 million, respectively, of interest expense on repo liabilities, resulting in gross portfolio interest income of $6.0 million and $2.6 million, respectively.  All repurchase agreement liabilities and the associated interest expense are the result of pledging MBS pass through securities as part of a financing agreement.  Only the MBS pass throughs are pledged. The various MBS derivatives employed in the Company’s alternative investment strategy are not pledged as part of financing arrangements or levered in any way.  In addition, for the six and three months ended June 30, 2009, Bimini Capital incurred $3.4 million and $1.3 million, respectively, of interest expense on the junior subordinated notes resulting in net interest income of $2.7 million and $1.3 million, respectively.  Gross portfolio interest income for the six and three months ended June 30, 2009 decreased by approximately $10.5 million and $4.2 million, respectively, from the same period in 2008.  The decrease is due to the substantially smaller portfolio offset to some extent by higher net interest margin available in the market in 2009. For the six and three month periods ended June 30, 2008, average investment securities held were approximately $607 million and $520 million, respectively.  For the comparable periods in the 2009, the average investment securities held were approximately $133 million and $93 million, respectively.

The results for the six and three months ended June 30, 2009, were also positively impacted by the Company’s implementation of its alternative investment strategy which employed interest only (IO) and inverse interest only (IIO) securities.  Such securities benefited from lower levels of one month LIBOR and slower repayments.

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For the six and three months ended June 30, 2009, Bimini Capital’s general and administrative costs were approximately $1.7 million and $0.7 million, respectively, compared to approximately $3.3 million and $1.4 million for the six and three months ended June 30, 2008. The largest elements of general and administrative costs are compensation and related benefits.  Compensation and related benefits were approximately $1.1 million and $0.5 million lower for the six and three months ended June 30, 2009, respectively, than for the same periods in 2008. At June 30, 2009, Bimini Capital had 5 full time and two part time employees.  At June 30, 2008, the comparable figures were 11 full time and no part time employees.

Bimini Capital had $1.5 million and $0.4 million in realized gains from the sales of securities in the MBS portfolio during the six and three months ended June 30, 2009, respectively, compared to gains of $0.7 million and $0.4 million for the six and three months ended June 30, 2008, respectively.  The sales were consummated in order to facilitate either the debt exchange of our trust preferred debt (in 2009), or to fund the wind down of the mortgage company in 2008.

For the six and three months ended June 30, 2009, Bimini Capital had income from continuing operations of $36.3 million and $34.4 million, respectively.

As of June 30, 2009, the MBS portfolio consisted of $94.5 million of agency or government MBS at fair value and had a weighted average coupon on assets of 4.58% and a net weighted average borrowing cost of 0.49%.  The following tables summarize Bimini Capital’s agency and government mortgage related securities as of June 30, 2009 and December 31, 2008:

(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
June 30, 2009
Adjustable-Rate MBS	$	41,041	43.43%	3.83%	257	1-Jun-35	3.46	10.76%	9.64%
Hybrid Adjustable-Rate MBS		34,118	36.11%	4.79%	312	1-Aug-36	18.71	10.23%	2.00%
Total Mortgage Backed Pass Through		75,159	79.54%	4.58%	281	1-Aug-36	10.38	10.52%	5.60%
Derivative MBS		19,334	20.46%	5.80%	277	25-Jun-39	n/a	n/a	n/a
Total Mortgage Assets	$	94,493	100.00%	4.58%	281	25-Jun-39	10.38	n/a	5.60%
December 31, 2008
Adjustable-Rate MBS	$	70,632	41.0%	4.79%	276	1-Jan-36	7.76	10.37%	10.11%
Fixed-Rate MBS		24,884	14.5%	6.50%	356	1-Sep-38	n/a	n/a	n/a
Hybrid Adjustable-Rate MBS		63,068	36.6%	5.03%	335	1-Apr-38	49.65	10.03%	2.00%
Total Mortgage Backed Pass Through		158,584	92.1%	5.15%	312	1-Sep-38	27.52	10.21%	5.13%
Derivative MBS		13,524	7.9%	5.64%	348	25-Jan-38	0.34	n/a	n/a
Total Mortgage Assets	$	172,108	100.0%	5.19%	315	1-Sep-38	25.02	n/a	5.13

(in thousands)

		June 30, 2009								December 31, 2008
Agency		Fair Value				Percentage of Entire Portfolio				Fair Value				Percentage of Entire Portfolio
Fannie Mae		$	88,926				94.11	%		$	141,364				82.1	%
Freddie Mac			5,567				5.89	%			30,744				17.9	%
Total Portfolio		$	94,493				100.00	%		$	172,108				100.0	%

 

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Entire Portfolio		June 30, 2009				December 31, 2008
Weighted Average Pass Through Purchase Price		$	102.25			$	102.05
Weighted Average Derivative Purchase Price			4.39				6.86
Weighted Average Pass Through Current Price		$	102.28			$	101.10
Weighted Average Derivative Current Price		$	4.59			$	6.98
Effective Duration (1)			0.960				1.279

(1) Effective duration of 0.960 indicates that an interest rate increase of 1.0% would be expected to cause a 0.960% decline in the value of the MBS in the Company’s investment portfolio at June 30, 2009.  An effective duration of 1.279 indicates that an interest rate increase of 1.0% would be expected to cause a 1.279% decline in the value of the MBS in the Company’s investment portfolio at December 31, 2008. These figures include the derivative securities in the portfolio.

In evaluating Bimini Capital’s MBS portfolio assets and their performance, Bimini Capital’s management team primarily evaluates these critical factors: asset performance in differing interest rate environments, duration of the security, yield to maturity, potential for prepayment of principal and the market price of the investment.  The Company employs two investment strategies, one involving MBS pass through securities that are leveraged via repurchase agreement financing,  and a second involving derivative MBS securities.  Our alternative investment strategy, which employs the derivative MBS securities, does not involve the use of leverage applied to the MBS derivative securities.

With respect to our levered MBS pass through strategy, Bimini Capital’s portfolio of MBS will typically be comprised of adjustable-rate MBS, fixed-rate MBS, hybrid adjustable-rate MBS and balloon maturity 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 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 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.

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.

The derivative MBS securities employed in the Company’s alternative investment strategy are inverse interest only and interest only securities.  Inverse interest only securities have coupons determined by one month LIBOR and as a result the value of such securities will be affected by actual or anticipated movements in one month LIBOR.  Both inverse interest only and interest only securities are especially sensitive to movements in prepayments of the underlying mortgage loans, as their cash flows are tied to the coupon interest of the underlying loans only.  This strategy does involve the use of any form of financing to apply leverage to the derivative portfolio.

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 financial models and empirical data and different models and methodologies can 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 June 30, 2009, 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		$	41,041
Change in Fair Value						$	489			$	(489	)		$	(978	)
Change as a % of Fair Value							1.19	%			(1.19	)%			(2.38	)%
Hybrid Adjustable Rate MBS
Fair Value		$	34,118
Change in Fair Value						$	495			$	(495	)		$	(990	)
Change as a % of Fair Value							1.45	%			(1.45	)%			(2.90	)%
Derivative MBS
Fair Value		$	19,334
Change in Fair Value						$	(77	)		$	77			$	154
Change as a % of Fair Value							(0.40	)%			0.40	%			0.80	%
Portfolio Total
Fair Value		$	94,493
Change in fair Value						$	907			$	(907	)		$	(1,814	)
Change as a % of Fair Value							0.96	%			(0.96	)%			(1.92	)%
Cash
Fair Value		$	4,821

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		$	41,041
Change in Fair Value						$	406			$	(541	)		$	(1,178	)
Change as a % of Fair Value							0.99	%			(1.32	)%			(2.87	)%
Hybrid Adjustable Rate MBS
Fair Value		$	34,118
Change in Fair Value						$	258				(690	)		$	(1,611	)
Change as a % of Fair Value							0.76	%			(2.02	)%			(4.72	)%
Derivative MBS
Fair Value		$	19,334
Change in Fair Value						$	(1,729	)		$	708			$	(406	)
Change as a % of Fair Value							(8.94	)%			3.66	%			(2.10	)%
Portfolio Total
Fair Value		$	94,493
Change in fair Value						$	(1,065	)			(523	)		$	(3,195	)
Change as a % of Fair Value							(1.13	)%			(0.55	)%			(3.38	)%
Cash
Fair Value		$	4,821

 

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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, the level of one month LIBOR (IIO’s), market expectations as to future interest rate changes and disruptions in the financial markets. 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.

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 June 30, 2009, and the twenty one 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
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 figures do reflect the quarterly retrospective adjustment, where applicable.  For the three months ended June 30, 2009, the net margin was 827 basis points compared to 29 basis points for the three months ended June 30, 2008.

 

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PERFORMANCE OF DISCONTINUED OPERATIONS OF OITRS

As previously disclosed, the Company sold or discontinued all residential mortgage origination activities at OITRS during 2007.  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 June 30, 2009, there are no remaining sources of revenue, nor have there been, outside of a small servicing portfolio, since 2007.  The only expenses incurred relate to legal expenses associated with various legal matters stemming from the mortgage loan origination operations, the allocation of audit fees, storage costs associated with mortgage loan files and various other minor administrative expenses.  However, the results of discontinued operations are impacted by the mark to market of the retained interest in securitizations.  There are no longer any originated mortgage servicing rights and mortgage loans held for sale are immaterial and not likely to result in meaningful income or loss.  Such assets are also held for sale.

Losses on OITRS activities for the six and three months ended June 30, 2009, were approximately $2.3 million and $2.5 million, respectively, compared to a losses of approximately $36.2 million and $32.0 million for the six and three months ended June 30, 2008, respectively.  The fair value adjustment of retained interest, trading was approximately $(0.9) million and $(2.2) million for the six and three months ended June 30, 2009, respectively, compared to $(34.8) million and $(32.7) million, respectively for the same periods in 2008.  The retained interests in securitizations represent residual interests in loans originated or purchased by OITRS prior to securitization.  The total fair market value of these retained interests was approximately $9.0 million as of June 30, 2009. 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 decrease in value for the period ended June 30, 2009, was primarily due to increased projected losses, driven by deteriorating fundamentals in the economy, and to a lesser extent, slightly increased forward LIBOR assumptions.

The table below provides details of OITRS’s gain (loss) on its discontinued mortgage banking activities for the six and three months ended June 30, 2009 and 2008.  OITRS recognized a gain or loss on the sale of mortgages held for sale only when the loans were actually sold.

(in thousands)

		Six Months Ended June 30,								Three Months Ended June 30,
		2009				2008				2009				2008
Fair value adjustment of retained interests, trading		$	(916	)		$	(34,830	)		$	(2,190	)		$	(32,710	)
Losses on sales of mortgage loans and securities			(5	)			(35	)			(2	)			(93	)
Change in market value of security held for sale			476				-				11				-
Change in market value of mortgage loans held for sale			30				(12	)			1				(12	)
Loss on discontinued mortgage banking activities		$	(415	)		$	(34,877	)		$	(2,180	)		$	(32,815	)

General and administrative expenses of OITRS for the six and three months ended June 30, 2009 were $1.4 million and $0.4 million, respectively, compared to $2.9 million and $1.4 million, respectively, for the six and three months ended June 30, 2008.  For the six months ended June 30, 2009, legal and professional fees of $0.5 million and a reserve against a receivable of $0.3 million were the principal components of the general and administrative expenses.

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 from  OITRS as  repayment of the intercompany debt.  The principal sources of cash at OITRS are the residual interests and collections of advances made on their servicing portfolio before it was surrendered in 2008.  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 June 30, 2009, Bimini Capital had funding in place via master repurchase agreements with one counterparty.  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.

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As of June 30, 2009, Bimini Capital had an obligation outstanding under the repurchase agreement of approximately $69.9 million with a net weighted average borrowing cost of 0.49%. Bimini Capital’s outstanding repurchase agreement obligation is due in less than 30 days.  Securing the repurchase agreement obligation as of June 30, 2009, are MBS with an estimated fair value, including accrued interest, of $75.4 million and a weighted average maturity of 283 months.

As of June 30, 2009, 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.		$	5,521				8

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

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 absent an event of default.  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 MBS portfolio.  Should this occur, Bimini Capital’s repurchase agreement counterparties could initiate margin calls, thus inhibiting its liquidity or forcing us to sell assets.

As a result of the closure of the mortgage origination operations at OITRS, the Company has had to amortize the financing line associated with retained interest in securitizations and meet the advancing obligations associated with OITRS’s remaining mortgage servicing rights. Accordingly, during the year ended December 31, 2008, the Company undertook a series of assets sales intended to raise funds necessary to support the cash needs of OITRS and maintain adequate liquidity.

Given the current difficulties with respect to the availability of funding via the repurchase market, the Company has opted to augment its existing leveraged MBS portfolio with alternative sources of income.  The Company has employed 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.  The leverage inherent in the securities replaces the leverage obtained by acquiring pass-through securities and funding them in the repurchase market.

As more fully discussed in Note 5 to the consolidated financial statements, in May 2005, Bimini Capital completed a private offering of $51.6 million of trust preferred securities of Bimini Capital Trust I (“BCTI”) resulting in the issuance by Bimini Capital of $51.6 million of junior subordinated notes. During the six months ended June 30, 2009, the Company entered into an agreement with Taberna Capital Management, LLC (Taberna), the collateral manager of certain collateralized debt obligations issued in 2005 and collateralized by, among other securities, the trust preferred capital securities sold by BCTI in May of 2005.  Pursuant to the terms of the agreement, the obligations under the trust preferred capital securities issued by BCTI where discharged and the securities redeemed.  Concurrently, Bimini Capital redeemed its junior subordinated notes issued to BCTI.

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. See Note 5 to the consolidated financial statements for a full description.

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As a result of the transaction with respect to BCTI, the Company’s interest expense associated with its trust preferred securities will be reduced going forward and, because of the gain on early extinguishment of debt of approximately $32.4 million, the Company’s stockholders’ deficit was eliminated as of June 30, 2009.

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

The Company has implemented an alternative investment strategy to supplement the levered MBS strategy in an effort to continue to maximize our net interest income and maximize the earning capacity of our limited capital. Nonetheless, in spite of the positive effects of the early debt extinguishment of trust preferred debt referred to above, 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 continued tight credit conditions, which make access to funding precarious, and the reduced size of our portfolio, even with the benefit of our alternative investment strategy, no assurance can be made of our ability to generate sufficient net interest income to cover all of our costs.

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 SFAS No. 157, Fair Value Measurements.

REPURCHASE AGREEMENTS

We finance the acquisition of our 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.

 

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RETAINED INTEREST, TRADING (CLASSIFIED AS HELD FOR SALE)

Retained interest, trading is the subordinated interests retained by OITRS from their various securitizations and includes the over-collateralization and residual net interest spread remaining after payments to the Public Certificates and NIM Notes (see Note 11). Retained interest, trading represents the present value of estimated cash flows to be received from these subordinated interests in the future. The subordinated interests retained are classified as “trading securities” and are reported at fair value with unrealized gains or losses reported in earnings.  In order to value these unrated and unquoted retained interests, the Company utilizes either pricing available directly from dealers or calculates their present value by projecting their future cash flows on a publicly-available analytical system. When a publicly-available analytical system is employed, the Company uses the following variable factors in estimating the fair value of these assets:

 

Interest Rate Forecast. LIBOR interest rate curve.

 

Discount Rate. The present value of all future cash flows utilizing a discount rate assumption established at the discretion of the Company to represent market conditions and value.

 

Prepayment Forecast. The prepayment forecast may be expressed by the Company in accordance with one of the following standard market conventions: Constant Prepayment Rate (“CPR”) or Percentage of a Prepayment Vector. Prepayment forecasts are made utilizing Citigroup Global Markets Yield Book and/or management estimates based on historical experience. Conversely, prepayment speed forecasts could have been based on other market conventions or third-party analytical systems. Prepayment forecasts may be changed as OITRS observes trends in the underlying collateral as delineated in the Statement to Certificate Holders generated by the securitization trust’s Trustee for each underlying security.

 

Credit Performance Forecast. A forecast of future credit performance of the underlying collateral pool will include an assumption of default frequency, loss severity and a recovery lag. In general, the Company will utilize the combination of default frequency and loss severity in conjunction with a collateral prepayment assumption to arrive at a target cumulative loss to the collateral pool over the life of the pool based on historical performance of similar collateral by the originator. The target cumulative loss forecast will be developed and noted at the pricing date of the individual security but may be updated by the Company consistent with observations of the actual collateral pool performance.

 

As of June 30, 2009, and December 31, 2008, key economic assumptions and the sensitivity of the current fair value of retained interests to the immediate 10% and 20% adverse change in those assumptions are as follows:

(in thousands)

		June 30, 2009				December 31, 2008
Balance Sheet Carrying value of retained interests – fair value		$	8,997			$	15,601
Weighted average life (in years)			3.32				14.76
Prepayment assumption (annual rate)			14.26	%			19.36	%
Impact on fair value of 10% adverse change		$	(209	)		$	(1,838	)
Impact on fair value of 20% adverse change		$	(240	)		$	(3,086	)
Expected Credit losses (annual rate)			7.20	%			5.61	%
Impact on fair value of 10% adverse change		$	(512	)		$	(2,841	)
Impact on fair value of 20% adverse change		$	(1,127	)		$	(6,095	)
Residual Cash-Flow Discount Rate			27.5	%			27.50	%
Impact on fair value of 10% adverse change		$	(172	)		$	(1,540	)
Impact on fair value of 20% adverse change		$	(330	)		$	(2,838	)
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		$	(658	)		$	(2,692	)
Impact on fair value of 20% adverse change		$	(1,206	)		$	(5,067	)

 

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These sensitivities are entirely hypothetical and should be used with caution. As the figures indicate, changes in fair value based upon 10% and 20% variations in assumptions generally cannot be extrapolated to greater or lesser percentage variations 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 subordinated interest is calculated without changing any other assumption.  In reality, changes in one factor may result in changes in another that 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 June 30, 2009 and December 31, 2008.

INCOME RECOGNITION

 

For securities classified as held for trading, interest income is based on the stated interest rate and the outstanding principal balance; premium or discount associated with the purchase of the MBS are not amortized.  As of January 1, 2008, all MBS portfolio securities are classified as held for trading.

All securities are either MBS pass through securities, interest only securities or inverse interest only securities. Income on MBS pass through securities classified as held for trading 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.

OITRS and its activities are subject to corporate income taxes and the applicable provisions of SFAS No. 109, Accounting for 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 previously discussed, OITRS previously pooled loans 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 $9.0 million of retained interests from securitizations as of June 30, 2009.

 

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The cash flows associated with OITRS’s securitization activities over the six months ended June 30, 2009 and 2008, were as follows:

(in thousands)

		Six months Ended June 30
		2009				2008
Net servicing fees (paid)  received		$	-			$	845
Servicing advances and repayments			8,184				786
Cash flows received on retained interests			5,688				10,671

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.

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

The Company 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.  See Notes 8 and 11(d) to the Company’s accompanying consolidated financial statements for a description of certain of these matters.

 

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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.  On September 5, 2007, OITRS filed a motion to dismiss Coast’s complaint based on the Florida Banking Statute of Frauds.  On February 25, 2008, the Court denied OITRS’s motion to dismiss, but the court subsequently clarified that the motion was denied because the Court needs additional facts in order to determine whether Coast’s claims are barred under the Florida Banking Statute of Frauds.  As a result, the parties conducted limited discovery relating to the Statute of Frauds and OITRS filed a motion for summary judgment in November, 2008; however, that motion was never ruled on because on February 3, 2009, Coast filed a motion for leave to amend its complaint. The Court ruled in favor of Coast on March 16, 2009 and OITRS was given 20 days, subsequently extended by three additional weeks, to answer the amended complaint.  On May 4, 2009, OITRS filed a response to the amended complaint.  The amended complaint differs from the original complaint in that it alleges certain new facts and amends the nature of certain claims.  We believe the plaintiff’s claims in this matter are without merit and we intend to vigorously defend this case.

On September 17, 2007, a complaint was filed in the U.S. District Court for the Southern District of Florida by William Kornfeld against us, certain of our 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 us, certain of our 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.  We filed a motion to dismiss the case on December 22, 2008, and plaintiffs have filed a response in opposition.  Our motion to dismiss is currently pending before the court.  We believe the plaintiffs’ claims in these actions are without merit and we intend to vigorously defend the cases.

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, 2008, 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. The information presented below updates and should be read in conjunction with the risk factors and information disclosed in that Form 10-K.

The actions of the U.S. government, Federal Reserve and Treasury, including the establishment of the TALF and the PPIP, may adversely affect our business.

The Term Asset-Backed Securities Loan Facility (“TALF”) was first announced by the Treasury on November 25, 2008, and has been expanded in size and scope since its initial announcement.  Under the TALF, the Federal Reserve Bank of New York makes non-recourse loans to borrowers to fund their purchase of eligible assets, currently certain asset backed securities but not mortgage-backed securities. The nature of the eligible assets has been expanded several times. The Treasury has stated that through its expansion of the TALF, non-recourse loans will be made available to investors to certain fund purchases of legacy securitization assets. On March 23, 2009, the Treasury in conjunction with the FDIC, and the Federal Reserve, announced the Public-Private Investment Program (“PPIP”). The PPIP aims to recreate a market for specific illiquid residential and commercial loans and securities through a number of joint public and private investment funds.  The PPIP is designed to draw new private capital into the market for these securities and loans by providing government equity co-investment and attractive public financing.

These programs have not been in place long enough to accurately gauge their impact on the financial markets.  To the extent  they do not function as intended, our business may not receive any benefits from this legislation.  In addition, the U.S. government, Federal Reserve, Treasury and other governmental and regulatory bodies have taken, and may continue to take,  actions to address the disruptions caused by the financial crisis that occurred in late 2008 and early 2009. We cannot predict whether or when such actions may occur, and such actions could have a dramatic impact on our business, results of operations and financial condition.

 

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To maintain our REIT qualification, we may be forced to borrow funds on unfavorable terms or sell our MBS portfolio securities at unfavorable prices to make distributions to our stockholders.

As a REIT, we must distribute at least 90% of our annual net taxable income (excluding net capital gains) to our stockholders. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our net taxable income, we will be subject to federal corporate income tax. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay to our stockholders in a calendar year is less than a minimum amount specified under the Code. From time to time, we may generate taxable income greater than our income for financial reporting purposes from, among other things, amortization of capitalized purchase premiums, or our net taxable income may be greater than our cash flow available for distribution to our stockholders. If we do not have other funds available in these situations, we could be required to borrow funds, sell a portion of our mortgage-related securities at unfavorable prices or find other sources of funds in order to meet the REIT distribution requirements and to avoid corporate income tax and the 4% excise tax. These other sources could increase our costs or reduce equity and reduce amounts available to invest in mortgage-related securities.

In December 2008, the Internal Revenue Service (IRS) issued Revenue Procedure 2008-68, providing that the IRS will treat a REIT’s distribution of common stock that is declared with respect to a taxable year ending on or before December 31, 2009 as a qualifying dividend for purposes of the 90 percent distribution requirement so long as it meets certain conditions, including a cash limitation requirement that is not less than 10% of the entire distribution.  Management is evaluating this new guidance and its impact on any potential distributions for 2009.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

At the Company’s 2009 Annual Meeting of Stockholders held on June 16, 2009, the following matters were submitted to a vote of the Company’s stockholders:

1. Election of Directors.  Frank E. Jaumot was elected and Robert J. Dwyer was re-elected as directors of the Company.  Mr. Jaumot was elected as a Class I director to serve until the Company's 2010 Annual Meeting of Stockholders.  Mr. Dwyer was re-elected as a Class III director to serve until the Company's 2012 Annual Meeting of Stockholders.  For each director nominee, votes were cast as follows:

NOMINEE		FOR				ABSTAIN
Robert E. Jaumot			16,974,455				5,792,373
Robert J. Dwyer			20,069,519				2,697,309

The following directors continued in office after the meeting:

 

Robert E. Cauley.

2. Ratification of Appointment of Independent Registered Public Accounting Firm.  At the meeting, the appointment of BDO Seidman, LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2009 was ratified by the Company’s stockholders.  The number of votes cast for and against the ratification of BDO Seidman, LLP and the number of abstentions and broker non-votes were as follows:

 

FOR		AGAINST		ABSTAIN		BROKER NON-VOTES
20,650,856		0		2,115,973		0

 

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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:                      July 10, 2009		By:	/s/ Robert E. Cauley
			Robert E. Cauley Chairman and Chief Executive Officer