Edgar Filing: BIMINI CAPITAL MANAGEMENT, INC.

bmnm10q20110630.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to ___________

Commission File Number: 001-32171

Bimini Capital Management, Inc.

(Exact name of registrant as specified in its charter)


Maryland		72-1571637
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3305 Flamingo Drive, Vero Beach, Florida 32963

(Address of principal executive offices) (Zip Code)

(772) 231-1400

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted to its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ¨ NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller Reporting Company ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO þ

As of August 11, 2011, the number of shares outstanding of the registrant’s Class A Common Stock, $0.001 par value, was 9,905,007; the number of shares outstanding of the registrant’s Class B Common Stock, $0.001 par value, was 31,938; and the number of shares outstanding of the registrant’s Class C Common Stock, $0.001 par value, was 31,938.

BIMINI CAPITAL MANAGEMENT, INC.

INDEX

PART I.	FINANCIAL INFORMATION
ITEM 1.		Financial Statements:
Consolidated Balance Sheets as of June 30, 2011 (unaudited) and December 31, 2010			1
Consolidated Statements of Operations (unaudited) for the six and three months ended June 30, 2011 and 2010			2
Consolidated Statement of Stockholders’ Equity (unaudited) for the six months ended June 30, 2011			3
Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2011 and 2010			4
Notes to Consolidated Financial Statements (unaudited)			5
ITEM 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations.	22
ITEM 3.		Quantitative and Qualitative Disclosures about Market Risk	35
ITEM 4.		Controls and Procedures	36

PART II.	OTHER INFORMATION
ITEM 1.		Legal Proceedings	37
ITEM 1A.		Risk Factors	38
ITEM 2.		Unregistered Sales of Equity Securities and Use of Proceeds	38
ITEM 6.		Exhibits	39
		SIGNATURES	41

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

BIMINI CAPITAL MANAGEMENT, INC.

CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	June 30, 2011			December 31, 2010
ASSETS:
Mortgage-backed securities, at fair value
Pledged to counterparties, at fair value	$	96,088,534		$	117,253,931
Unpledged, at fair value		17,918,919			17,879,409
Total mortgage-backed securities		114,007,453			135,133,340
Cash and cash equivalents		6,282,987			2,830,584
Restricted cash		1,106,775			3,545,885
Retained interests in securitizations		3,776,071			3,927,777
Accrued interest receivable		916,520			1,049,577
Property and equipment, net		3,923,714			3,894,717
Prepaids and other assets, net		6,076,247			6,609,043
Total Assets	$	136,089,767		$	156,990,923

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES:
Repurchase agreements, net	$	92,105,000		$	113,591,685
Junior subordinated notes due to Bimini Capital Trust II		26,804,440			26,804,440
Accrued interest payable		71,696			120,410
Accounts payable, accrued expenses and other		7,223,790			8,102,062
Total Liabilities		126,204,926			148,618,597

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; designated, 1,800,000
shares as Class A Redeemable and 2,000,000 shares as Class B Redeemable; no
shares issued and outstanding as of June 30, 2011 and December 31, 2010		-			-
Class A Common Stock, $0.001 par value; 98,000,000 shares designated: 9,905,007
shares issued and outstanding as of June 30, 2011 and 9,776,586 shares
issued and outstanding as of December 31, 2010		9,905			9,777
Class B Common Stock, $0.001 par value; 1,000,000 shares designated, 31,938 shares
issued and outstanding as of June 30, 2011 and December 31, 2010		32			32
Class C Common Stock, $0.001 par value; 1,000,000 shares designated, 31,938 shares
issued and outstanding as of June 30, 2011 and December 31, 2010		32			32
Additional paid-in capital		334,273,527			334,459,072
Accumulated deficit		(324,398,655	)		(326,096,587	)
Total Stockholders’ Equity		9,884,841			8,372,326
Total Liabilities and Stockholders’ Equity	$	136,089,767		$	156,990,923
See Notes to Consolidated Financial Statements

-1-

BIMINI CAPITAL MANAGEMENT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Six Months Ended						Three Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Interest income	$	2,913,206		$	3,708,041		$	1,303,366		$	1,809,947
Interest expense		(158,805	)		(121,616	)		(72,028	)		(53,129	)
Net interest income, before interest on junior subordinated notes		2,754,401			3,586,425			1,231,338			1,756,818
Interest expense on junior subordinated notes		(499,630	)		(1,099,962	)		(249,692	)		(549,981	)
Net interest income		2,254,771			2,486,463			981,646			1,206,837
Gains (losses) on mortgage-backed securities		1,635,921			(941,455	)		1,396,735			961,347
Losses on Eurodollar futures		(355,413	)		(149,988	)		(364,663	)		(149,988	)
Net portfolio income		3,535,279			1,395,020			2,013,718			2,018,196

Other income:
Gains (losses) on retained interests in securitizations		1,441,044			1,368,177			1,496,248			(15,973	)
Other (expense) income		(36,883	)		211,766			(9,601	)		136,289
Total other income		1,404,161			1,579,943			1,486,647			120,316

Expenses:
Compensation and related benefits		949,812			1,018,806			449,060			498,403
Directors' fees and liability insurance		302,863			262,381			153,347			134,121
Audit, legal and other professional fees		1,277,710			1,425,216			334,597			745,267
Direct REIT operating expenses		271,626			297,354			133,250			150,167
Other administrative		439,497			610,652			221,151			240,758
Total expenses		3,241,508			3,614,409			1,291,405			1,768,716

Income (loss) before income taxes		1,697,932			(639,446	)		2,208,960			369,796

Income tax (benefit) provision		-			-			-			-

Net income (loss)	$	1,697,932		$	(639,446	)	$	2,208,960		$	369,796

Basic and Diluted Net income (loss) Per Share of:
CLASS A COMMON STOCK
Basic and Diluted	$	0.17		$	(0.07	)	$	0.22		$	0.04
CLASS B COMMON STOCK
Basic and Diluted	$	0.17		$	(0.08	)	$	0.22		$	0.03
Weighted Average Shares Outstanding
CLASS A COMMON STOCK
Basic and Diluted		10,213,843			9,267,167			10,240,468			10,043,834
CLASS B COMMON STOCK
Basic and Diluted		31,938			31,938			31,938			31,938
Dividends Declared Per Common Share:
CLASS A COMMON STOCK	$	0.0325		$	0.06		$	0.0325		$	0.06
CLASS B COMMON STOCK	$	0.0325		$	0.06		$	0.0325		$	0.06
See Notes to Consolidated Financial Statements

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BIMINI CAPITAL MANAGEMENT, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

Six Months Ended June 30, 2011

	Common Stock,							Additional
	Amounts at par value							Paid-in			Accumulated
	Class A			Class B		Class C		Capital			Deficit			Total
Balances, January 1, 2011	$	9,777		$	32	$	32	$	334,459,072		$	(326,096,587	)	$	8,372,326
Net income		-			-		-		-			1,697,932			1,697,932
Dividend declared		-			-		-		(333,516	)		-			(333,516	)
Issuance of Class A common shares for board
compensation and equity plan exercises		129			-		-		100,467			-			100,596
Shares repurchased from employees in
satisfaction of withholding requirements
on equity plan distributions		(1	)		-		-		(595	)		-			(596	)
Amortization of equity plan compensation		-			-		-		48,099			-			48,099

Balances, June 30, 2011	$	9,905		$	32	$	32	$	334,273,527		$	(324,398,655	)	$	9,884,841
See Notes to Consolidated Financial Statements

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BIMINI CAPITAL MANAGEMENT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	1,697,932		$	(639,446	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Stock based compensation and equity plan amortization		148,695			116,496
Depreciation and amortization		60,352			123,172
(Gains) losses on mortgage-backed securities		(1,635,921	)		941,455
Gains on retained interests in securitizations		(1,441,044	)		(1,368,177	)
Changes in operating assets and liabilities:
Accrued interest receivable		133,057			16,011
Prepaid expenses and other assets		531,681			2,295,374
Accrued interest payable		(48,714	)		(24,337	)
Accounts payable, accrued expenses and other		(878,272	)		(49,922	)
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES		(1,432,234	)		1,410,626

CASH FLOWS FROM INVESTING ACTIVITIES:
From mortgage-backed securities investments:
Purchases		(17,674,544	)		(57,033,449	)
Sales		26,732,353			62,277,086
Principal repayments		13,705,114			17,497,919
Principal payments received on retained interests in securitizations		1,592,750			2,345,770
Decrease in restricted cash		2,439,110			2,361,521
Purchases of property and equipment		(89,349	)		(2,989	)
NET CASH PROVIDED BY INVESTING ACTIVITIES		26,705,434			27,445,858

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from repurchase agreements		204,568,239			202,113,955
Principal payments on repurchase agreements		(226,054,924	)		(230,779,160	)
Dividends paid in cash		(333,516	)		(2,192,092	)
Stock repurchases		(596	)		-
NET CASH USED IN FINANCING ACTIVITIES		(21,820,797	)		(30,857,297	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		3,452,403			(2,000,813	)
CASH AND CASH EQUIVALENTS, beginning of the period		2,830,584			6,469,795
CASH AND CASH EQUIVALENTS, end of the period	$	6,282,987		$	4,468,982

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	707,149		$	1,167,428
Income taxes		-			130,000

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Securities acquisitions settled in later period	$	-		$	1,480,225
Cash dividends declared and paid in later period		-			315,637
Dividends paid in shares of Class A Common Stock		-			16,861,973

See notes to Consolidated Financial Statements

-4-

BIMINI CAPITAL MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

June 30, 2011

NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization and Business Description

Bimini Capital Management, Inc., a Maryland corporation (“Bimini Capital”), was originally formed in September 2003 for the purpose of creating and managing a leveraged investment portfolio consisting of residential mortgage-backed securities (“MBS”). Bimini Capital has elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). As a REIT, Bimini Capital is generally not subject to federal income tax on its REIT taxable income provided that it distributes to its stockholders at least 90% of its REIT taxable income on an annual basis. In addition, a REIT must meet other provisions of the Code to retain its special tax status. Bimini Capital’s website is located at http://www.biminicapital.com.

On November 3, 2005, Bimini Capital acquired Opteum Financial Services, LLC (“OFS”), and at closing, it became a wholly-owned taxable REIT subsidiary (or “TRS”) of Bimini Capital. This entity was renamed Orchid Island TRS, LLC (“OITRS”) effective July 3, 2007 and then renamed Mortco TRS, LLC (“Mortco”) effective March 8, 2011. Hereinafter, any historical mention, discussion or references to Opteum Financial Services, LLC, Orchid Island TRS, LLC, OFS or to OITRS (such as in previously filed documents or Exhibits) now means Mortco TRS, LLC or “Mortco.”

As used in this document, discussions related to “Bimini Capital,” the parent company, the registrant, and to REIT qualifying activities or the general management of Bimini Capital’s portfolio of MBS refer to “Bimini Capital Management, Inc.” and its qualified REIT subsidiary, Orchid Island Capital, Inc. (“Orchid”). Discussions related to Bimini Capital’s taxable REIT subsidiaries or non-REIT eligible assets refer to Bimini Advisors, Inc. (“Bimini Advisors”) and Mortco and its consolidated subsidiaries. Discussions relating to “the Company” refer to the consolidated entity.

Liquidity

At June 30, 2011, Bimini Capital had an equity capital base of $9.9 million and an MBS portfolio of $114.0 million. The crisis in the U.S. financial markets during 2008/2009 and the material losses incurred by the Company in 2006 and 2007 attributable to the former mortgage origination operations of MortCo, have significantly reduced Bimini Capital’s equity capital base and the size of its MBS portfolio. Ongoing litigation costs stemming from the former operations of MortCo and Bimini Capital itself cause the Company’s overhead to be high in relation to its portfolio size. In response, during the past two years the Company has taken significant steps to reduce the leverage in its balance sheet, reduce its debt service costs, and alter its investment strategy for holding MBS securities. The Company’s alternative investment strategy that utilizes structured MBS has been elevated to a core element of its investment strategy and liquidity management. However, the Company’s ability to utilize this element of our investment strategy is limited by restrictions imposed under the Investment Company Act. Further, if cash resources are, at any time, insufficient to satisfy the Company’s liquidity requirements, such as when cash flow from operations are materially negative, the Company may be required to pledge additional assets to meet margin calls, liquidate assets, sell additional debt or equity securities or pursue other financing alternatives.

-5-

Basis of Presentation and Use of Estimates

The accompanying consolidated financial statements are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates affecting the accompanying financial statements include the fair values of MBS, Eurodollar futures contracts, retained interests and asset valuation allowances.

Consolidation

The accompanying consolidated financial statements include the accounts of Bimini Capital and its wholly-owned subsidiaries, Orchid Island Capital, Inc., Bimini Advisors and Mortco, as well as the wholly-owned subsidiaries of Mortco. All inter-company accounts and transactions have been eliminated from the consolidated financial statements.

As further described in Note 6, Bimini Capital has a common share investment in a trust used in connection with the issuance of Bimini Capital’s junior subordinated notes. Pursuant to the applicable accounting guidance for variable interest entities, Bimini Capital’s common share investment in the trust has not been consolidated in the financial statements of Bimini Capital, and accordingly, this investment has been accounted for on the equity method.

Statement of Comprehensive Income (Loss)

In accordance with FASB ASC Topic 220, Comprehensive Income, a statement of comprehensive income has not been included as the Company has no items of other comprehensive income. Comprehensive income (loss) is the same as net income (loss) for all periods presented.

Cash and Cash Equivalents and Restricted Cash

Cash and cash equivalents include cash on deposit with financial institutions and highly liquid investments with original maturities of three months or less. Restricted cash represents cash held on deposit as collateral with the repurchase agreement counterparties, which may be used to make principal and interest payments on the related repurchase agreements, and cash held by a broker as margin on Eurodollar futures contracts.

Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company has never experienced any losses related to these balances. All non-interest bearing cash balances were fully insured at June 30, 2011 due to a temporary federal program in effect from December 31, 2010 through December 31, 2012. Under the program, there is no limit to the amount of insurance for eligible accounts. Beginning 2013, insurance coverage will revert to $250,000 per depositor at each financial institution, and our non-interest bearing cash balances may again exceed federally insured limits. Interest-bearing amounts on deposit in excess of federally insured limits at June 30, 2011 approximated $3.7 million.

-6-

Mortgage-Backed Securities

The Company invests primarily in mortgage pass-through (“PT”) certificates, collateralized mortgage obligations, interest only (“IO”) securities and inverse interest only (“IIO”) securities representing interest in or obligations backed by pools of mortgage loans (collectively, MBS). MBS transactions are recorded on the trade date. The Company has elected to account for its investment in mortgage-backed securities under the fair value option. These investments meet the requirements to be classified as available for sale under ASC 320-10-25, Debt and Equity Securities, which requires the securities to be carried at fair value on the Consolidated Balance Sheet with changes in fair value charged to Other Comprehensive Income, a component of Stockholders’ Equity. Electing the fair value option allows the Company to record changes in fair value in the Statement of Operations, which, in management’s view, more appropriately reflects the results of our operations for a particular reporting period and is consistent with the underlying economics and how the portfolio is managed.

The fair value of the Company’s investments in MBS is governed by FASB ASC Topic 820, Fair Value Measurements and Disclosures. The definition of fair value in FASB ASC Topic 820 focuses on the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date. The fair value measurement assumes that the transaction to sell the asset or transfer the liability either occurs in the principal market for the asset or liability, or in the absence of a principal market, occurs in the most advantageous market for the asset or liability. Estimated fair values for MBS are based on the average of third-party broker quotes received and/or independent pricing sources when available.

Income on MBS pass-through securities is based on the stated interest rate of the security. Premiums or discounts present at the date of purchase are not amortized. For interest only securities, the income is accrued based on the carrying value and the effective yield. Cash received 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 and the contractual terms of the security. For inverse interest only securities, effective yield and income recognition calculations also take into account the index value applicable to the security.

Retained Interests

Retained interests in the subordinated tranches of securities created in securitization transactions were initially recorded at their fair value when issued by Mortco. Subsequent adjustments to fair value are reflected in earnings. Quoted market prices for these assets are generally not available, so the Company estimates fair value based on the present value of expected future cash flows using management’s best estimates of the key assumptions—expected credit losses, prepayment speeds, weighted-average life, and discount rates commensurate with the inherent risks of the asset.

Derivative Financial Instruments

The Company has entered into derivative financial instruments to manage interest rate risk, facilitate asset/liability strategies, and manage other exposures, and it may continue to do so in the future. The Company has elected to not treat any of its derivative financial instruments as hedges. FASB ASC Topic 815, Derivatives and Hedging, requires that all derivative investments be carried at fair value.

-7-

Financial Instruments

FASB ASC Topic 825, Financial Instruments, requires disclosure of the fair value of financial instruments for which it is practicable to estimate that value, either in the body of the financial statements or in the accompanying notes. MBS, Eurodollar futures contracts, mortgage loans held for sale and retained interests in securitization transactions are accounted for at fair value in the consolidated balance sheets. The methods and assumptions used to estimate fair value for these instruments are presented in Note 12 of the financial statements.

The estimated fair value of cash and cash equivalents, restricted cash, accrued interest receivable, net repurchase agreements, accrued interest payable and accounts payable and other liabilities generally approximates their carrying value as of June 30, 2011 and December 31, 2010, due to the short-term nature of these financial instruments.

It is impractical to estimate the fair value of the Company’s junior subordinated notes. Currently, there is a limited market for these types of instruments and the Company is unable to ascertain what interest rates would be available to the Company for similar financial instruments. Information regarding carrying amounts, effective interest rates and maturity dates for these instruments is presented in Note 6 to the financial statements.

Property and Equipment, net

Property and equipment, net, consists of computer equipment with a depreciable life of 3 years, office furniture and equipment with depreciable lives of 8 to 20 years, land which has no depreciable life, and buildings and improvements with depreciable lives of 30 years. Property and equipment is recorded at acquisition cost and depreciated using the straight-line method over the estimated useful lives of the assets.

Bimini Capital’s property and equipment as of June 30, 2011 and December 31, 2010, is presented net of accumulated depreciation of approximately $753,000 and $692,000, respectively. Depreciation expense was approximately $60,000 and $28,000 for the six and three months ended June 30, 2011, respectively, and $45,000 and $22,000 for the six and three months ended June 30, 2010, respectively.

Repurchase Agreements

The Company finances the acquisition of its 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. Although structured as a sale and repurchase obligation, a repurchase agreement operates as a financing under which securities are pledged as collateral to secure a short-term loan equal in value to a specified percentage (generally between 93 and 95 percent) of the market value of the pledged collateral. While used as collateral, the borrower retains beneficial ownership of the pledged collateral, including the right to distributions. At the maturity of a repurchase agreement, the borrower is required to repay the loan and concurrently receive the pledged collateral from the lender or, with the consent of the lender, renew such agreement at the then prevailing financing rate. Margin calls, whereby a lender requires that the Company pledge additional securities or cash as collateral to secure borrowings under its repurchase agreements with such a lender, are routinely experienced by the Company when the value of the MBS pledged as collateral declines or as a result of principal amortization or due to changes in market interest rates, spreads or other market conditions.

-8-

The Company’s repurchase agreements typically have terms ranging from one month to six months at inception, with some having longer terms. Should a counterparty decide not to renew a repurchase agreement at maturity, the Company must either refinance with another lender or be in a position to satisfy the obligation. If, during the term of a repurchase agreement, a lender should file for bankruptcy, the Company might experience difficulty recovering its pledged assets which could result in an unsecured claim against the lender for the difference between the amount loaned to the Company plus interest due to the counterparty and the fair value of the collateral pledged to such lender including accrued interest. At June 30, 2011, the Company had outstanding balances under repurchase agreements with two lenders with a maximum amount at risk (the difference between the amount loaned to the Company, including interest payable, and the fair value of the collateral pledged by the Company, including accrued interest) of $4.8 million.

Share-Based Compensation

The Company follows the provisions of FASB ASC Topic 718, Compensation – Stock Compensation, to account for stock and stock-based awards. For stock and stock-based awards issued to employees, a compensation charge is recorded against earnings over the vesting period based on the fair value of the award. Payments pursuant to dividend equivalent rights, which are granted along with certain equity based awards, are charged to stockholders’ equity when declared. The Company applies a zero forfeiture rate for its equity based awards, as such awards have been granted to a limited number of employees and historical forfeitures have been minimal. A significant forfeiture, or an indication that significant forfeitures may occur, would result in a revised forfeiture rate which would be accounted for prospectively as a change in an estimate. For transactions with non-employees in which services are performed in exchange for the Company's common stock or other equity instruments, the transactions are recorded on the basis of the fair value of the service received or the fair value of the equity instruments issued, whichever is more readily measurable at the date of issuance.

Earnings Per Share

The Company follows the provisions of FASB ASC Topic 260, Earnings Per Share, which requires companies with complex capital structures, common stock equivalents or two (or more) classes of securities that participate in the declared dividends to present both basic and diluted earnings per share (“EPS”) on the face of the consolidated statement of operations. Basic EPS is calculated as income available to common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted EPS is calculated using the “if converted” method for common stock equivalents. However, the common stock equivalents are not included in computing diluted EPS if the result is anti-dilutive.

Outstanding shares of Class B Common Stock, participating and convertible into Class A Common Stock, are entitled to receive dividends in an amount equal to the dividends declared on each share of Class A Common Stock if, as and when authorized and declared by the Board of Directors. Accordingly, shares of the Class B Common Stock are included in the computation of basic EPS using the two-class method and, consequently, are presented separately from Class A Common Stock.

The shares of Class C Common Stock are not included in the basic EPS computation as these shares do not have participation rights. The outstanding shares of Class B and Class C Common Stock are not included in the computation of diluted EPS for the Class A Common Stock as the conditions for conversion into shares of Class A Common Stock were not met.

-9-

Income Taxes

Bimini Capital, including its wholly-owned qualified REIT subsidiary, has elected to be taxed as a REIT under the Code. 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. At June 30, 2011, management believes that the Company has complied with Code requirements and Bimini Capital continues to qualify as a REIT. As further described in Note 10, Income Taxes, Bimini Advisors and Mortco are taxpaying entities for income tax purposes and are taxed separately from the REIT. The Company files separate federal and state tax returns for the REIT, and for each of the taxable REIT subsidiaries. Generally, returns for all periods after 2006 remain open for examination.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentations, including the reporting of Mortco as described below.

During the second quarter of 2007, the Company closed the mortgage wholesale and conduit mortgage loan origination channels of Mortco and subsequently sold substantially all of the operating assets of Mortco. Mortco was reported after that date as a discontinued operation following applicable accounting standards. Through September 30, 2010, most of the remaining assets and liabilities were considered to be contingent and were held by Mortco pursuant to the terms of the disposal of the operations. The disposal of the retained interests asset was delayed as a result of the lingering effects of the financial market crisis and a significant lack of investor interest in such securities, even though the Company made efforts to market such securities to previously active market participants. Because Mortco continued to hold these net assets, effective October 1, 2010, the assets and liabilities previously classified as held for sale were reclassified to held and used for all periods presented.

Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update 2011-05 (“ASU”) amending the authoritative guidance to allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity, but does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The provisions of this amendment require retrospective application, and are effective for annual and interim periods beginning after December 15, 2011. We anticipate that the adoption of this ASU will have no effect on the Company’s consolidated financial statements.

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In May 2011, the FASB issued ASU 2011-04 amending authoritative guidance to establish common fair value measurement and disclosure requirements in GAAP and International Financial Reporting Standards (“IFRSs”). The ASU changes the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements to ensure consistency between GAAP and IFRSs as well as expand the disclosures for Level 3 measurements. The ASU is to be applied prospectively, and are effective for annual and interim periods beginning after December 15, 2011. We anticipate that the adoption of this ASU will not have a materially effect on the Company’s consolidated financial statements.

In April 2011, the FASB issued ASU 2011-03 regarding repurchase agreements. In a typical repurchase agreement transaction, an entity transfers financial assets to a counterparty in exchange for cash with an agreement for the counterparty to return the same or equivalent financial assets for a fixed price in the future. Previous to this ASU, one of the factors in determining whether sale treatment could be used was whether the transferor maintained effective control of the transferred assets and in order to do so, the transferor must have the ability to repurchase such assets. Based on this ASU, the Financial Accounting Standards Board concluded that the assessment of effective control should focus on a transferor’s contractual rights and obligations with respect to transferred financial assets, rather than whether the transferor has the practical ability to perform in accordance with those rights or obligations. Therefore, this ASU removes the transferor’s ability criterion from consideration of effective control. This ASU is effective for the first interim or annual period beginning on or after December 15, 2011. Since the Company records repurchase agreements as secured borrowings and not sales, this ASU will have no effect on the Company’s consolidated financial statements.

NOTE 2. MORTGAGE-BACKED SECURITIES

The following table presents the Company’s MBS portfolio as of June 30, 2011 and December 31, 2010:

(in thousands)
	June 30, 2011		December 31, 2010
Pass-Through Certificates:
Hybrid Adjustable-rate Mortgages	$	2,451	$	2,783
Adjustable-rate Mortgages		63,992		64,458
Fixed-rate Mortgages		30,168		50,013
Total Pass-Through Certificates		96,611		117,254
Structured MBS Certificates:
Structured MBS		17,396		17,879
Totals	$	114,007	$	135,133

The following table summarizes the Company’s MBS portfolio as of June 30, 2011 and December 31, 2010, according to their contractual maturities. Actual maturities of MBS investments are generally shorter than stated contractual maturities and are affected by the contractual lives of the underlying mortgages, periodic payments of principal, and prepayments of principal.

(in thousands)
	June 30, 2011		December 31, 2010
Less than one year	$	496	$	-
Greater than one year and less than five years		339		1,600
Greater than five years and less than ten years		10,100		9,077
Greater than or equal to ten years		103,072		124,456
Totals	$	114,007	$	135,133

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NOTE 3. RETAINED INTERESTS IN SECURITIZATIONS

The following table summarizes the estimated fair value of the Company’s residual interests in asset backed securities as of June 30, 2011 and December 31, 2010:

(in thousands)
Series	Issue Date	June 30, 2011		December 31, 2010
HMAC 2004-1	March 4, 2004	$	626	$	430
HMAC 2004-2	May 10, 2004		676		921
HMAC 2004-3	June 30, 2004		1,116		911
HMAC 2004-4	August 16, 2004		568		558
HMAC 2004-5	September 28, 2004		790		1,108
Total		$	3,776	$	3,928

NOTE 4. REPURCHASE AGREEMENTS

As of June 30, 2011, Bimini Capital had outstanding net repurchase obligations of approximately $92.1 million with a net weighted average borrowing rate of 0.27%. These agreements were collateralized by MBS with a fair value, including accrued interest, of approximately $96.3 million. As of December 31, 2010, Bimini Capital had outstanding repurchase obligations of approximately $113.6 million with a net weighted average borrowing rate of 0.32%. These agreements were collateralized by MBS with a fair value of approximately $117.6 million.

As of June 30, 2011 and December 31, 2010, Bimini Capital's net repurchase agreements had remaining maturities as summarized below:

(in thousands)
	OVERNIGHT			BETWEEN 2			BETWEEN 31			GREATER
	(1 DAY OR			AND			AND			THAN
	LESS)			30 DAYS			90 DAYS			90 DAYS			TOTAL
June 30, 2011
Agency Backed Mortgage--Backed Securities:
Fair market value of securities pledged, including
accrued interest receivable	$	10,846		$	16,642		$	57,381		$	11,477		$	96,346
Repurchase agreement liabilities associated with
these securities	$	10,884		$	15,779		$	54,570		$	10,872		$	92,105
Net weighted average borrowing rate		0.25	%		0.33	%		0.26	%		0.27	%		0.27	%
December 31, 2010
Agency Backed Mortgage--Backed Securities:
Fair market value of securities pledged, including
accrued interest receivable	$	-		$	75,175		$	42,415		$	-		$	117,590
Repurchase agreement liabilities associated with
these securities	$	-		$	73,014		$	40,578		$	-		$	113,592
Net weighted average borrowing rate		-			0.31	%		0.33	%		-			0.32	%

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Summary information regarding the Company’s amounts at risk with individual counterparties greater than 10% of the Company’s equity at June 30, 2011 and December 31, 2010 is as follows:

(in thousands)
	Amount		Weighted Average Maturity of Repurchase
Repurchase Agreement Counterparties	at Risk(1)		Agreements in Days
June 30, 2011
MF Global, Inc.	$	4,250		64
December 31, 2010
MF Global, Inc.	$	3,444		25

(1)	Equal to the fair value of securities sold, cash posted as collateral and accrued interest receivable, minus the sum of repurchase agreement liabilities and accrued interest payable.

NOTE 5. DERIVATIVE FINANCIAL INSTRUMENTS

In connection with the Company’s interest rate risk management strategy, during the second quarter of 2010, the Company economically hedged a portion of its interest rate risk by entering into derivative financial instrument contracts. The Company did not elect hedging treatment under GAAP, and as such all gains and losses on these instruments are reflected in earnings for all periods presented.

As of June 30, 2011, such instruments are comprised entirely of Eurodollar futures contracts. Eurodollar futures are cash settled futures contracts on an interest rate, with gains and losses credited and charged to the Company’s account on a daily basis. A minimum balance, or “margin”, is required to be maintained in the account on a daily basis. The Company is exposed to the changes in value of the futures by the amount of margin held by the broker. The total amount of margin at June 30, 2011 and December 31, 2010 was approximately $522,000 and $223,000, respectively, and is reflected in restricted cash.

The Company’s Eurodollar futures contracts with a notional amount of $26 million are used to attempt to achieve a fixed interest rate related to its junior subordinated notes. The junior subordinated notes had a fixed-rate of interest until December 15, 2010, of 7.8575% and thereafter, through maturity in 2035, the rate will float at a spread of 3.50% over the prevailing three-month LIBOR rate. The Eurodollar futures contracts serve to effectively lock in a fixed LIBOR rate for a specified period of time. As of June 30, 2011, the Company has effectively locked in a weighted-average fixed LIBOR rate of 2.03% on $26 million of its junior subordinated notes through September 2014. The effective interest rate for the junior subordinated notes is 5.53%.

The Company also used Eurodollar futures contracts with a notional amount of $50 million to attempt to achieve a fixed interest rate related to a portion of its repurchase agreement obligations. As of June 30, 2011, the Company has effectively locked in a weighted-average fixed LIBOR rate of 1.01% on $50 million of its repurchase agreement obligations through December 2013.

For the six and three months ended June 30, 2011, the Company recorded losses of $355,000 and $365,000, respectively, on Eurodollar futures contracts. For the six and three months ended June 30, 2010, the Company recorded losses of $150,000 and $150,000, respectively, on Eurodollar futures contracts.

NOTE 6. TRUST PREFERRED SECURITIES

During 2005, Bimini Capital sponsored the formation of a statutory trust, known as Bimini Capital Trust II (“BCTII”) of which 100% of the common equity is owned by Bimini Capital. It was formed for the purpose of issuing trust preferred capital securities to third-party investors and investing the proceeds from the sale of such capital securities solely in junior subordinated debt securities of Bimini Capital. The debt securities held by BCTII are the sole assets of BCTII.

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As of June 30, 2011 and December 31, 2010, the outstanding principal balance on the junior subordinated debt securities owed to BCTII was $26.8 million. The BCTII trust preferred securities and Bimini Capital's BCTII Junior Subordinated Notes have a rate of interest that floats at a spread of 3.50% over the prevailing three-month LIBOR rate. As of June 30, 2011, the interest rate was 3.75%. The BCTII trust preferred securities and Bimini Capital's BCTII Junior Subordinated Notes require quarterly interest distributions and are redeemable at Bimini Capital's option, in whole or in part and without penalty, beginning December 15, 2010. Bimini Capital's BCTII Junior Subordinated Notes are subordinate and junior in right of payment of all present and future senior indebtedness.

The trust is a variable interest entity pursuant to FASB ASC Topic 810 because the holders of the equity investment at risk do not have adequate decision making ability over the trust's activities. Since Bimini Capital's investment in the trust's common equity securities was financed directly by the applicable trust as a result of its loan of the proceeds to Bimini Capital, that investment is not considered to be an equity investment at risk. Since Bimini Capital's common share investments in BCTII are not a variable interest, Bimini Capital is not the primary beneficiary of BCTII. Therefore, Bimini Capital has not consolidated the financial statements of BCTII into its financial statements.

The accompanying consolidated financial statements present Bimini Capital's BCTII Junior Subordinated Notes issued to the trust as a liability and Bimini Capital's investment in the common equity securities of BCTII as an asset. For financial statement purposes, Bimini Capital records payments of interest on the Junior Subordinated Notes issued to BCTII as interest expense.

NOTE 7. CAPITAL STOCK

Issuances of Common Stock

The table below presents information related to Class A Common Stock issued to its independent directors for the payment of director fees and to employees pursuant to the terms of its stock incentive plan grants for the six and three months ended June 30, 2011 and 2010.

	Six Months Ended June 30,				Three Months Ended June 30,
	2011		2010		2011		2010
Directors' Compensation		116,076		80,501		62,908		49,627
Incentive Plan		13,000		-		-		-
Total shares of Class A Common Stock issued		129,076		80,501		62,908		49,627

There were no issuances of the Company's Class B Common Stock and Class C Common Stock during the six and three months ended June 30, 2011 and 2010.

Stock Repurchases

On June 29, 2010, the Board of Directors authorized the repurchase of up to $1.0 million of the Company’s Class A common stock. Through June 30, 2011, the Company had repurchased 403,715 shares under the plan, for a total of $349,344. As of June 30, 2011 the remaining amount authorized under the plan was $650,656. On August 2, 2011, the Company’s Board of Directors suspended future purchases under this plan.

In addition, during 2011, the Company acquired 655 shares of Class A common stock in satisfaction of tax withholding obligations on vested incentive plan shares.

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Dividends

The table below presents information related to dividends declared by the Company’s Board of Directors during 2011 and 2010.

(in thousands, except per share amounts)
Declaration Date	Record Date	Payment Date	Per Share Amount		Total
2011
July 12, 2011	July 29, 2011	August 16, 2011	$	0.0325	$	336
April 1, 2011	April 15, 2011	April 29, 2011		0.0325		334
2010
April 1, 2010	April 15, 2010	April 30, 2010	$	0.0300	$	314
June 29, 2010	July 15, 2010	July 30, 2010		0.0300		316
October 4, 2010	October 15, 2010	October 29, 2010		0.0300		315
December 8, 2010	December 23, 2010	December 30, 2010		0.0325		332

NOTE 8. STOCK INCENTIVE PLANS

On December 18, 2003, Bimini Capital adopted the 2003 Long Term Incentive Compensation Plan (the “2003 Plan”) to provide Bimini with the flexibility to use stock options and other awards as part of an overall compensation package to provide a means of performance-based compensation to attract and retain qualified personnel. The 2003 Plan was amended and restated in March 2004. Key employees, directors and consultants are eligible to be granted stock options, restricted stock, phantom shares, dividend equivalent rights and other stock-based awards under the 2003 Plan. Subject to adjustment upon certain corporate transactions or events, a maximum of 1,448,050 shares of the Class A Common Stock (but not more than 10% of the Class A Common Stock outstanding on the date of grant) may be subject to stock options, shares of restricted stock, phantom shares and dividend equivalent rights under the 2003 Plan.

Phantom share awards represent a right to receive a share of Bimini's Class A Common Stock. These awards do not have an exercise price and are valued at the fair value of Bimini Capital’s Class A Common Stock at the date of the grant. The grant date value is amortized to compensation expense on a straight-line basis over the vesting period of the respective award. The phantom shares vest, based on the employees’ continuing employment, following a schedule as provided in the individual grant agreements, for periods through March 15, 2015. Compensation expense recognized for phantom shares was approximately $48,000 and $23,000 for the six and three months ended June 30, 2011, respectively, and $35,000 and $27,000 for the six and three months ended June 30, 2010. Dividends paid on unsettled awards are charged to stockholders’ equity when declared.

A summary of phantom share activity during the six months ended June 30, 2011 and 2010 is presented below:

	Six Months Ended June 30,
	2011					2010
				Weighted-				Weighted-
				Average				Average
				Grant-Date				Grant-Date
	Shares			Fair Value		Shares		Fair Value
Nonvested, at January 1		401,000		$	1.12		102,000	$	1.58
Granted		-			-		302,000		0.97
Vested		(13,000	)		0.97		-		-
Nonvested, at June 30		388,000		$	1.13		404,000	$	1.12

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As of June 30, 2011, there was approximately $300,000 of unrecognized compensation cost related to nonvested phantom share awards. This cost is expected to be recognized over a remaining weighted-average period of 40.8 months. The intrinsic value of the outstanding phantom shares as of June 30, 2011 and 2010 is $283,000 and $380,000, respectively. All of the remaining outstanding unvested awards at June 30, 2011 were granted with dividend participation rights.

NOTE 9. COMMITMENTS AND CONTINGENCIES

Outstanding Litigation

The Company is involved in various lawsuits and claims, both actual and potential, including some that it has asserted against others, in which monetary and other damages are sought. These lawsuits and claims relate primarily to contractual disputes arising out of the ordinary course of the Company’s business. The outcome of such lawsuits and claims is inherently unpredictable. However, management believes that, in the aggregate, the outcome of all lawsuits and claims involving the Company will not have a material effect on the Company’s consolidated financial position or liquidity; however, any such outcome may be material to the results of operations of any particular period in which costs, if any, are recognized.

A complaint by a note-holder in Preferred Term Securities XX (“PreTSL XX”) was filed on July 16, 2010 in the Supreme Court of the State of New York, New York County, against Bimini Capital Management, Inc. (“Bimini”), the Bank of New York Mellon (“BNYM”), PreTSL XX, Ltd. and Hexagon Securities, LLC (“Hexagon”). The complaint, filed by Hildene Capital Management, LLC and Hildene Opportunities Fund, Ltd. (“Hildene”), alleges that Hildene suffered losses as a result of Bimini’s repurchase of all outstanding fixed/floating rate capital securities of Bimini Capital Trust II for less than par value from PreTSL XX in October 2009. Hildene has alleged claims against BNYM for breach of the Indenture, breach of fiduciary duties and breach of covenant of good faith and fair dealing, and claims against Bimini for tortious interference with contract, aiding and abetting breach of fiduciary duty, unjust enrichment and rescission/illegality”. Plaintiff also alleges derivative claims brought in the name of Nominal Defendant BNYM. On May 2, 2011, Hexagon and Nominal Defendant PreTSL XX were voluntarily dismissed without prejudice by Hildene. Bimini and BNYM have moved to dismiss Hildene’s derivative claims, and Bimini has also moved to dismiss Hildene’s claim for “rescission/illegality.” Bimini denies that the repurchase was improper and intends to defend the suit vigorously.

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 (“Coast”) against Mortco seeking monetary damages and specific performance and alleging breach of an alleged oral contract for allegedly failing to convert approximately fifty construction loans to permanent financing. Mortco denies that there was an agreement and has several defenses to Coast's claims. The parties attempted mediation and conducted limited discovery but the case had been relatively inactive for several years. On May 3, 2011, the Court set a non-jury trial to begin on January 17, 2012. The parties will conduct fact and expert discovery through 2011. Mortco plans to continue to defend this matter vigorously.

On March 2, 2011, Orchid Island TRS, LLC, formerly known as Opteum Financial Services, LLC and presently known as Mortco TRS, LLC (“Opteum Financial”) and Opteum Mortgage Acceptance Corporation (“Opteum Acceptance”) (collectively referred to herein as “Opteum”) received a cover letter dated March 1, 2011 from Massachusetts Mutual Life Insurance Company (“Mass Mutual”) enclosing a draft complaint against Opteum. In summary, Mass Mutual alleges that it purchased residential mortgage-backed securities offered by Opteum in August 2005 and the first quarter of 2006 and that Opteum made false representations and warranties in connection with the sale of the securities in violation of Mass Gen. Laws Ch. 110A § 410(a)(2) (the “Massachusetts Blue Sky Law”). In its cover letter, Mass Mutual claims it is entitled to damages of $25 million. However, no monetary demand is contained within the enclosed draft complaint, and the actual damages Mass Mutual claims to have incurred is uncertain.

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Mass Mutual has not filed the complaint or initiated litigation. Pursuant to its request, on March 14, 2011 Mass Mutual and Opteum entered into a Tolling Agreement so that Mass Mutual could address its allegations against Opteum without incurring litigation costs. Mass Mutual has not yet contacted Opteum to schedule such discussions. On July 12, 2011, Mass Mutual offered to extend the Tolling Agreement for an additional two years. Opteum agreed to do so, and it requested Mass Mutual provide the proposed documentation.

Opteum denies Opteum Financial or Opteum Acceptance, individually or collectively, made false representations and warranties in connection with the sale of securities to Mass Mutual. As of August 11, 2011, Mass Mutual has taken no action to prosecute its claim against Opteum, and the range of loss, if any, or potential loss cannot reasonably be estimated. Should Mass Mutual initiate litigation, Opteum will defend such litigation vigorously.

Loans Sold to Investors.

Generally, Mortco was not exposed to significant credit risk on its loans sold to investors. In the normal course of business, Mortco 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 Mortco will be able to recover the repurchased loan value either through other investor channels or through the assumption of the secured real estate.

Mortco 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 six months ended June 30, 2011 and 2010 are presented below:

(in thousands)
	Six Months Ended June 30,
	2011		2010
Balance - Beginning of period	$	5,087	$	5,149
Provision		-		48
Balance - End of Period	$	5,087	$	5,197

NOTE 10. INCOME TAXES

REIT Activities

As a REIT, the Company is not subject to federal income tax on REIT taxable income distributed to its shareholders. REIT taxable income or loss, as generated by Bimini Capital’s qualifying REIT activities, is computed in accordance with the Internal Revenue Code, which is different from the Company’s financial statement net income or loss as computed in accordance with GAAP. Depending on the number and size of the various items or transactions being accounted for differently, the differences between the Company’s REIT taxable income or loss and its financial statement net income or loss can be substantial and each item can affect several years.

As of June 30, 2011, Bimini Capital has approximately $52.9 million of remaining capital loss carryforwards available to offset future capital gains and a REIT tax net operating loss carryforward of approximately $6.3 million that is immediately available to offset future REIT taxable income. The capital loss carryforwards expire in years beginning in 2012 through 2016, and the net operating loss carryforwards expire in years beginning in 2028 through 2031.

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Taxable REIT Subsidiaries

As taxable REIT subsidiaries (“TRS”), Bimini Advisors and Mortco are tax paying entities for income tax purposes and are taxed separately from Bimini Capital. Therefore, Bimini Advisors and Mortco each separately report an income tax provision or benefit based on their own taxable activities. For the six and three months ended June 30, 2011 and 2010, the TRSs had no taxable income primarily due to the utilization of NOL carryforwards.

The income tax provisions for the periods ended June 30, 2011 and 2010 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 allowance. During the six-month period ended June 30, 2011, and during the three-month periods ended June 30, 2011 and 2010, 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 periods; therefore, there are no income tax provisions related to the results of operations. The net deferred tax asset generated by the net loss incurred during the six-month period ended June 30, 2010 is offset in its entirety by a deferred tax asset valuation allowance, and the amounts of the gross tax benefit generated by this loss is reduced by an offsetting valuation allowance of the same amount.

As of June 30, 2011, Mortco had an estimated federal tax NOL carryforward of approximately $272.0 million, and estimated available state NOLs of approximately $63.1 million, which begin to expire in 2025, and are fully available to offset future taxable income. Similar amounts for Bimini Advisors are insignificant.

The net deferred tax assets and offsetting valuation allowances at June 30, 2011 and December 31, 2010 were approximately $101.1 million and $101.5 million, respectively. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income within Mortco. At June 30, 2011 and December 31, 2010, management believed that it was more likely than not that the Company will not realize the full benefits of all of the federal and state tax NOL carryforwards, which are the primary deferred tax assets of Mortco; therefore, an allowance for the full amount of the net deferred tax assets has been recorded in both years. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income or losses, and tax planning strategies in making this assessment.

NOTE 11. EARNINGS PER SHARE

Shares of Class B Common Stock, participating and convertible into Class A Common Stock, are entitled to receive dividends in an amount equal to the dividends declared on each share of Class A Common Stock if, and when, authorized and declared by the Board of Directors. Following the provisions of FASB ASC 260, the Class B Common Stock is included in the computation of basic EPS using the two-class method, and consequently is presented separately from Class A Common Stock. Shares of Class B Common Stock are not included in the computation of diluted Class A EPS as the conditions for conversion to Class A Common Stock were not met at June 30, 2011 and 2010.

Shares of Class C Common Stock are not included in the basic EPS computation as these shares do not have participation rights. Shares of Class C Common Stock are not included in the computation of diluted Class A EPS as the conditions for conversion to Class A Common Stock were not met at June 30, 2011 and 2010.

The Company has dividend eligible stock incentive plan shares that were outstanding during the six and three months ended June 30, 2011 and 2010. The basic and diluted per share computations include these unvested incentive plan shares if there is income available to Class A common shares, as they have dividend participation rights. The stock incentive plan shares have no contractual obligation to share in losses. Since there is no such obligation, the incentive plan shares are not included in the basic and diluted EPS computations when no income is available to Class A Common Stock even though they are considered participating securities.

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The table below reconciles the numerators and denominators of the basic and diluted EPS.

(in thousands, except per-share information)
	Six Months Ended June 30,						Three Months Ended June 30,
	2011			2010			2011			2010
Basic and diluted EPS per Class A common share:
Income (loss) available to Class A common shares:
Basic and diluted	$	1,693		$	(637	)	$	2,202		$	368
Weighted average common shares:
Class A common shares outstanding at the balance sheet date		9,905			10,085			9,905			10,085
Unvested dividend-eligible stock incentive plan shares
outstanding at the balance sheet date		388			-			388			-
Effect of weighting		(79	)		(818	)		(53	)		(41	)
Weighted average shares-basic and diluted		10,214			9,267			10,240			10,044
Income (loss) per Class A common share:
Basic and diluted	$	0.17		$	(0.07	)	$	0.22		$	0.04

(in thousands, except per-share information)
	Six Months Ended June 30,					Three Months Ended June 30,
	2011		2010			2011		2010
Basic and diluted EPS per Class B common share:
Income (loss) available to Class B common shares:
Basic and diluted	$	5	$	(2	)	$	7	$	1
Weighted average common shares:
Class B common shares outstanding at the balance sheet date		32		32			32		32
Effect of weighting		-		-			-		-
Weighted average shares-basic and diluted		32		32			32		32
Income (loss) per Class B common share:
Basic and diluted	$	0.17	$	(0.08	)	$	0.22	$	0.03

NOTE 12. FAIR VALUE

Authoritative accounting literature establishes a framework for using fair value to measure assets and liabilities and defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) as opposed to the price that would be paid to acquire the asset or received to assume the liability (an entry price). A fair value measure should reflect the assumptions that market participants would use in pricing the asset or liability, including the assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset and the risk of nonperformance. Required disclosures include stratification of balance sheet amounts measured at fair value based on inputs the Company uses to derive fair value measurements. These stratifications are:

·	Level 1 valuations, where the valuation is based on quoted market prices for identical assets or liabilities traded in active markets (which include exchanges and over-the-counter markets with sufficient volume),

Level 2 valuations, where the valuation is based on quoted market prices for similar instruments traded in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market, and

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Level 3 valuations, where the valuation is generated from model-based techniques that use significant assumptions not observable in the market, but observable based on Company-specific data. These unobservable assumptions reflect the Company’s own estimates for assumptions that market participants would use in pricing the asset or liability. Valuation techniques typically include option pricing models, discounted cash flow models and similar techniques, but may also include the use of market prices of assets or liabilities that are not directly comparable to the subject asset or liability.

Our MBS are valued using Level 2 valuations, and such valuations currently are determined by the Company based on the average of third-party broker quotes and/or by independent pricing sources when available. Because the price estimates may vary, the Company must make certain judgments and assumptions about the appropriate price to use to calculate the fair values. Alternatively, the Company could opt to have the value of all of our positions in MBS determined by either an independent third-party or do so internally.

Mortgage-backed securities, retained interests, Eurodollar futures contracts and mortgage loans held for sale were recorded at fair value on a recurring basis during 2011 and 2010. When determining fair value measurements, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset. When possible, the Company looks to active and observable markets to price identical assets. When identical assets are not traded in active markets, the Company looks to market observable data for similar assets. Fair value measurements for the retained interests are generated by a model that requires management to make a significant number of assumptions.

The following table presents financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2011 and December 31, 2010:

(in thousands)
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
	Fair Value		Assets		Inputs		Inputs
	Measurements		(Level 1)		(Level 2)		(Level 3)
June 30, 2011
Mortgage-backed securities	$	114,007	$	-	$	114,007	$	-
Eurodollar futures contracts		522		522		-		-
Mortgage Loans Held For Sale		40		-		-		40
Retained interests		3,776		-		-		3,776
December 31, 2010
Mortgage-backed securities	$	135,133	$	-	$	135,133	$	-
Eurodollar futures contracts		223		223		-		-
Mortgage Loans Held For Sale		40		-		-		40
Retained interests		3,928		-		-		3,928

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The following table illustrates a rollforward for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six month periods ended June 30, 2011 and 2010:

(in thousands)
	2011					2010
	Retained Interests			Mortgage Loans Held For Sale		Retained Interests			Mortgage Loans Held For Sale
Balance, January 1	$	3,928		$	40	$	5,934		$	207
Gain included in earnings		1,441			-		1,368			73
Collections, sale and settlements		(1,593	)		-		(2,345	)		(240	)
Balance, June 30	$	3,776		$	40	$	4,957		$	40

During the six month periods ended June 30, 2011 and 2010, there were no transfers of financial assets or liabilities between levels 1, 2 or 3.

NOTE 13. RELATED PARTY TRANSACTIONS

Frank E. Jaumot is a shareholder in an accounting firm from which the Company receives accounting and tax services. Mr. Jaumot is both a director and a shareholder of Bimini Capital. Professional fees incurred with this firm were $67,000 and $65,000 for the six months ended June 30, 2011 and 2010, respectively.

NOTE 14. SUBSEQUENT EVENTS

At a meeting of the Board of Directors of Bimini Capital on July 12, 2011, the members of the Board declared a common stock dividend of $0.0325 per share, which is scheduled to be paid in cash on August 16, 2011 to shareholders of record on July 29, 2011. The dividend to be paid on August 16, 2011 totals $336,000.

On May 3, 2011, Orchid filed a Form S-11 Registration Statement (the “Registration Statement”) with the Securities and Exchange Commission in connection with a proposed initial public offering of its common stock. Orchid withdrew the Registration Statement on August 4, 2011, and it does not intend to pursue the public offering contemplated by the Registration Statement at this time.

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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 SEC or in press releases or other written or oral communications, statements which are not historical in nature, including those containing words such as “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend” and similar expressions, are intended to identify “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

These forward-looking statements are subject to various risks and uncertainties, including, but not limited to, those described or incorporated by reference in “Part 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 MBS refer to “Bimini Capital Management, Inc.” and its wholly-owned qualified REIT subsidiary. Further, references to Bimini Capital’s taxable REIT subsidiaries or non-REIT eligible assets refer to Bimini Advisors, Inc. and to Mortco TRS, LLC (“Mortco”) and its consolidated subsidiaries. Mortco, which was previously named Opteum Financial Services, LLC, (referred to as “OFS”) was renamed Orchid Island TRS, LLC (referred to as “OITRS”) effective July 3, 2007 and then renamed Mortco TRS, LLC effective March 8, 2011. Hereinafter, any historical mention, discussion or references to Opteum Financial Services, LLC, Orchid Island TRS, LLC, OFS or to OITRS (such as in previously filed documents or Exhibits) now means Mortco. References to the “Company” refer to the consolidated entity (the combination of Bimini Capital and its qualified REIT subsidiary, Orchid Island Capital, Inc., and Bimini Advisors and Mortco).

Bimini Capital 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 MBS portfolio and an unlevered structured MBS portfolio. The leverage applied to the MBS portfolio will typically be less than twelve to one. Bimini Capital manages its portfolio of agency MBS and structured MBS to generate income derived from the net interest margin of its MBS portfolio, levered predominantly under repurchase agreement funding, net of associated hedging costs, and the interest income derived from its unlevered portfolio of structured 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.

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On April 18, 2007, the Board of Managers of Mortco, 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, Mortco 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 Mortco has not operated a mortgage loan origination business since that date. Since the second quarter of 2007, through September 30, 2010, Mortco was reported as a discontinued operation following applicable accounting standards, since most of the remaining assets and liabilities were considered to be contingent and were held by Mortco pursuant to the terms of the disposal of the operations. The disposal of the retained interests asset has not been achieved as a result of the lingering effects of the financial market crisis and a significant lack of investor interest in such securities, even though the Company has made efforts to market such securities to previously active market participants. Because Mortco continues to hold these net assets, and the Company has not been able to dispose of them, the remnants of the old mortgage banking business are no longer classified as discontinued operations effective October 1, 2010, and the related assets and liabilities previously classified as held for sale have been reclassified to held and used for all periods presented.

DIVIDENDS TO STOCKHOLDERS

In order to maintain its qualification as a REIT, Bimini Capital is required (among other provisions) to annually distribute dividends to its stockholders in an amount at least equal to, generally, 90% of Bimini Capital’s REIT taxable income. REIT taxable income is a term that describes Bimini Capital’s operating results calculated in accordance with rules and regulations promulgated pursuant to the Internal Revenue Code.

Bimini Capital’s REIT taxable income is computed differently from net income as computed in accordance with generally accepted accounting principles ("GAAP net income"), as reported in the Company’s accompanying consolidated financial statements. Depending on the number and size of the various items or transactions being accounted for differently, the differences between REIT taxable income and GAAP net income can be substantial and each item can affect several reporting periods. Generally, these items are timing or temporary differences between years; for example, an item that may be a deduction for GAAP net income in the current year may not be a deduction for REIT taxable income until a later year. The most significant differences are as follows: the results of the Company’s taxable REIT subsidiary do not impact REIT taxable income, unrealized gains or losses on the investment securities portfolio do not impact REIT taxable income, and interest income on structured MBS securities is computed differently for REIT taxable income and GAAP.

As a REIT, Bimini Capital may be subject to a federal excise tax if 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).

During the six months ended June 30, 2011, the Company paid distributions of $0.0325 per share on income of $0.17 per share. These distributions were funded by cash on hand and cash flows generated from the Company’s investment portfolio. While the Company intends to pay quarterly distributions to our stockholders such that substantially all of our REIT taxable income is distributed, it has not established a minimum distribution payout level and the ability to pay distributions may be adversely affected by a variety of factors. All distributions will be made at the discretion of the Company’s Board of Directors and will depend on the Company’s earnings, financial conditions, maintenance of REIT status and other factors that may be deemed relevant; therefore, distributions may be reduced or eliminated at any time. See “Outlook” appearing later in this MD&A.

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RESULTS OF OPERATIONS

Described below are the Company’s results of operations for the six and three months ended June 30, 2011, as compared to the Company’s results of operations for the six and three months ended June 30, 2010.

Net Income (Loss) Summary

Consolidated net income for the six months ended June 30, 2011 was $1.7 million, or $0.17 basic and diluted income per share of Class A Common Stock, as compared to consolidated net loss of $0.6 million, or $0.07 basic and diluted loss per share, for the six months ended June 30, 2010.

Consolidated net income for the three months ended June 30, 2011 was $2.2 million, or $0.22 basic and diluted income per share of Class A Common Stock, as compared to consolidated net income of $0.4 million, or $0.04 basic and diluted income per share for the three months ended June 30, 2010.

The components of net income (loss) for the six and three months ended June 30, 2011 and 2010, along with the changes in those components are presented in the table below:

(in thousands)
	Six Months Ended									Three Months Ended
	June 30,									June 30,
	2011			2010			Change			2011			2010			Change
Net portfolio interest	$	2,754		$	3,586		$	(832	)	$	1,231		$	1,757		$	(526	)
Interest expense on junior subordinated notes		(500	)		(1,100	)		600			(250	)		(550	)		300
Gains (losses)		1,281			(1,091	)		2,372			1,032			811			221
Net portfolio income		3,535			1,395			2,140			2,013			2,018			(5	)
Other income		1,404			1,580			(176	)		1,487			120			1,367
Expenses		(3,242	)		(3,614	)		372			(1,291	)		(1,769	)		478
Net income (loss)	$	1,697		$	(639	)	$	2,336		$	2,209		$	369		$	1,840

Net Portfolio Income

During the six months ended June 30, 2011, the REIT generated $2.8 million of net portfolio interest income, consisting of $2.9 million of interest income from MBS assets offset by $0.16 million of interest expense on repurchase liabilities. For the comparable period ended June 30, 2010, the REIT generated $3.6 million of net portfolio interest income, consisting of $3.7 million of interest income from MBS assets offset by $0.12 million of interest expense on repurchase liabilities.

During the three months ended June 30, 2011, the REIT generated $1.2 million of net portfolio interest income, consisting of $1.3 million of interest income from MBS assets offset by $0.07 million of interest expense on repurchase liabilities. For the three month period ended June 30, 2010, the REIT generated $1.8 million of net portfolio interest income, consisting of $1.8 million of interest income from MBS assets offset by $0.05 million of interest expense on repurchase liabilities.

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The table below provides information on our portfolio average balances, interest income, yield on assets, average repurchase agreement balances, interest expense, cost of funds, net interest income and net interest rate for each quarter in 2011 and 2010 and for the six month periods ended June 30, 2011 and 2010.

(dollars in thousands)
	Average				Yield on										Net
	MBS				Average			Average				Average			Portfolio		Net
	Securities		Interest		MBS			Repurchase		Interest		Cost of			Interest		Interest
	Held		Income		Securities			Agreements		Expense		Funds			Income		Spread
Three Months Ended,
June 30, 2011	$	115,521	$	1,303		4.51	%	$	93,516	$	72		0.31	%	$	1,231		4.20	%
March 31, 2011		126,084		1,610		5.11	%		104,259		87		0.33	%		1,523		4.77	%
December 31, 2010		132,955		1,497		4.51	%		110,433		88		0.32	%		1,409		4.19	%
September 30, 2010		114,165		1,262		4.42	%		89,440		69		0.31	%		1,193		4.11	%
June 30, 2010		99,856		1,810		7.25	%		74,163		53		0.29	%		1,757		6.96	%
March 31, 2010		110,914		1,898		6.85	%		88,495		68		0.31	%		1,830		6.54	%
Six Months Ended,
June 30, 2011	$	120,802	$	2,913		4.82	%	$	98,888	$	159		0.32	%	$	2,754		4.50	%
June 30, 2010		105,385		3,708		7.04	%		81,329		122		0.30	%		3,586		6.74	%

Portfolio yields and costs of borrowings presented in the table above and the tables on pages 26 and 27 are calculated based on the average balances of the underlying investment portfolio/repurchase agreement balances and are annualized for the quarterly and six month periods presented. Average balances for quarterly periods are calculated using two data points, the beginning and ending balances. Average balances for the six month periods are calculated as the average of the average quarterly periods.

Interest Income and Average Earning Asset Yield

Interest income was $2.9 million for the six months ended June 30, 2011 and $3.7 million for the six months ended June 30, 2010. Average MBS were $120.8 million and $105.4 million for the six months ended June 30, 2011 and 2010, respectively. The $0.8 million decrease in interest income was due to a 222 basis point decrease in yields, which was partially offset by a $15.4 million increase in average MBS.

Interest income was $1.3 million for the three months ended June 30, 2011 and $1.8 million for the three months ended June 30, 2010. Average MBS were $115.5 million and $99.9 million for the three months ended June 30, 2011 and 2010, respectively. The $0.5 million decrease in interest income was due to a 274 basis point decrease in yields, which was partially offset by a $15.7 million increase in average MBS.

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The table below presents the average portfolio, income and yields of our respective sub-portfolios, consisting of structured MBS and PT MBS.

(dollars in thousands)
	Average MBS Held						Interest Income						Realized Yield on Average MBS
	PT		Structured				PT		Structured				PT			Structured
	MBS		MBS		Total		MBS		MBS		Total		MBS			MBS			Total
Three Months Ended,
June 30, 2011	$	98,060	$	17,461	$	115,521	$	757	$	546	$	1,303		3.09	%		12.52	%		4.51	%
March 31, 2011		108,382		17,702		126,084		929		681		1,610		3.43	%		15.39	%		5.11	%
December 31, 2010		114,570		18,385		132,955		995		502		1,497		3.48	%		10.92	%		4.51	%
September 30, 2010		93,579		20,586		114,165		834		428		1,262		3.56	%		8.31	%		4.42	%
June 30, 2010		79,691		20,165		99,856		763		1,047		1,810		3.83	%		20.76	%		7.25	%
March 31, 2010		94,493		16,421		110,914		1,051		847		1,898		4.45	%		20.64	%		6.85	%
Six Months Ended,
June 30, 2011	$	103,221	$	17,581	$	120,802	$	1,686	$	1,227	$	2,913		3.27	%		13.97	%		4.82	%
June 30, 2010		87,092		18,293		105,385		1,814		1,894		3,708		4.17	%		20.71	%		7.04	%

Interest Expense on Repurchase Agreements and the Cost of Funds

Average outstanding repurchase agreements were $98.9 million and total interest expense was $0.16 million for the six months ended June 30, 2011. During the six months ended June 30, 2010, average outstanding repurchase agreements were $81.3 million and total interest expense was $0.12 million. Our average cost of funds was 0.32% for the six months ended June 30, 2011 and 0.30% for the six months ended June 30, 2010. There was a $0.04 million increase in interest expense for the six months ended June 30, 2011 when compared to the six months ended June 30, 2010. This change was due to a 2 basis point increase in cost of funds and a $17.6 million increase in average outstanding repurchase agreements for the six months ended June 30, 2011 when compared to the same period ended June 30, 2010.

Average outstanding repurchase agreements were $93.5 million and total interest expense was $0.07 million for the three months ended June 30, 2011. During the three months ended June 30, 2010, average outstanding repurchase agreements were $74.2 million and total interest expense was $0.05 million. Our average cost of funds was 0.31% for the three months ended June 30, 2011 and 0.29% for the three months ended June 30, 2010. There was a $0.02 million increase in interest expense for the three months ended June 30, 2011 when compared to the three months ended June 30, 2010. This change was due to a 2 basis point increase in cost of funds and a $19.4 million increase in average outstanding repurchase agreements for the three months ended June 30, 2011 when compared to the same period ended June 30, 2010.

Since all of our repurchase agreements are short-term, changes in market rates directly affect our interest expense. Our average cost of funds was 9 basis points above average one-month LIBOR and 12 basis points below average six-month LIBOR for the quarter ended June 30, 2011. The average term to maturity of the outstanding repurchase agreements increased from 28 days at December 31, 2010 to 56 days at June 30, 2011.

The Company has not elected to designate its derivative holdings, specifically, its investment in Eurodollar futures contracts for hedge accounting treatment under the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging. Changes in fair value of these investments are presented in a separate line item in the Company’s Consolidated Statement of Operations. As such, interest expense and cost of funds are not impacted by the Company’s investment in Eurodollar futures contracts.

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(dollars in thousands)
														Average			Average
	Average													Cost of Funds			Cost of Funds
	Balance of							Average			Average			Relative to			Relative to
	Repurchase		Interest		Average			One-Month			Six-Month			Average One-			Average Six-
	Agreements		Expense		Cost of Funds			LIBOR			LIBOR			Month LIBOR			Month LIBOR
Three Months Ended,
June 30, 2011	$	93,516	$	72		0.31	%		0.22	%		0.43	%		0.09	%		(0.12	)%
March 31, 2011		104,259		87		0.33	%		0.26	%		0.46	%		0.07	%		(0.13	)%
December 31, 2010		110,433		88