BIMINI CAPITAL MANAGEMENT, INC. - Annual Report: 2011 (Form 10-K)

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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.)

 

 

Title of Each Class

Class A Common Stock, $0.001 par value

 

 

 

 

 

 

 

 

 

Title of each Class		Shares held by non-affiliates				Aggregate market value held by non-affiliates
Class A Common Stock, $0.001 par value			8,627,622			$	6,300,000	(a)
Class B Common Stock, $0.001 par value			20,760			$	1,000	(b)
Class C Common Stock, $0.001 par value			31,938			$	1,500	(b)

 

 

 

 

Title of each Class	Latest Practicable Date		Shares Outstanding
Class A Common Stock, $0.001 par value	March 9, 2012			10,086,854
Class B Common Stock, $0.001 par value	March 9, 2012			31,938
Class C Common Stock, $0.001 par value	March 9, 2012			31,938

 

 

 

PART I
ITEM 1. Business.			1
ITEM 1A. Risk Factors			29
ITEM 1B. Unresolved Staff Comments.			48
ITEM 2. Properties.			49
ITEM 3. Legal Proceedings.			49
ITEM 4. Mine Safety Disclosure.			50
PART II
ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.			51
ITEM 6. Selected Financial Data.			53
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.			54
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.			69
ITEM 8. Financial Statements and Supplementary Data.			70
ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.			101
ITEM 9A. Controls and Procedures.			101
ITEM 9B. Other Information.			104
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance.			105
ITEM 11. Executive Compensation.			105
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.			105
ITEM 13. Certain Relationships and Related Transactions, and Director Independence.			105
ITEM 14. Principal Accountant Fees and Services.			105
PART IV
ITEM 15. Exhibits, Financial Statement Schedules.			106

·

On November 3, 2005, Bimini Mortgage acquired Opteum Financial Services, LLC (“OFS”).  Upon closing of the transaction, OFS became a wholly-owned taxable REIT subsidiary of the Company.  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.

·	On February 10, 2006, Bimini Mortgage changed its name to Opteum Inc. (“Opteum”).

·

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 MortCo’s wholesale and conduit mortgage loan origination channels in the second quarter of 2007.  Also, during the second and third quarters of 2007, substantially all of the other operating assets of MortCo were sold and the proceeds were primarily used to repay secured indebtedness.

·	On September 28, 2007, Opteum changed its name to Bimini Capital Management, Inc.

 
 

·	Monitoring and adjusting, if necessary, the interest rate sensitivity of our mortgage related securities compared with the interest rate sensitivities of our borrowings.

 
 

·

Attempting to structure our repurchase agreements that fund our purchases of PT MBS to have a range of different maturities and interest rate adjustment periods. We attempt to structure these repurchase agreements to match the reset dates on our PT MBS when possible. At December 31, 2011, the weighted average months to reset of our adjustable-rate mortgage-backed securities was 65.8 months and the weighted average reset on the corresponding repurchase agreements was 25 days; and

·

Actively managing, on an aggregate basis, the interest rate indices and interest rate adjustment periods of our mortgage related securities compared to the interest rate indices and adjustment periods of our borrowings. Our liabilities under our repurchase agreements are all LIBOR-based, and we, among other considerations, select our adjustable-rate mortgage-backed securities to favor LIBOR indexes.

·

Owning securities with lower anticipated levels of prepayments so as to avoid excessive margin calls when monthly prepayments are announced.  Prepayment speeds are typically made available prior to the receipt of the related cash flows, thus causing the market value of the related security to decrease prior to the receipt of the associated cash.  This gives rise to a temporary collateral deficiency and generally results in margin calls by lenders.

·	Maintaining larger balances of cash or unencumbered assets to meet margin calls.

·	Proactively making margin calls on our credit counterparties when we have an excess of collateral pledged against our borrowings by actively monitoring the asset prices and collateral levels for assets pledged against such borrowings.

 

 

 

·	Reducing our leverage.

·	Redeploying capital from our levered MBS portfolio to our unlevered structured MBS portfolio.

·	Obtaining funding arrangements whereby prepayment related margin calls are deferred or waived in exchange for payments to the lender tied to the dollar amount of the collateral deficiency and a pre-determined interest rate.

·

Fixed-Rate Mortgages.    As of December 31, 2011, 38.9% of our portfolio consisted of fixed-rate MBS. Fixed-rate mortgages are those where the borrower pays an interest rate that is constant throughout the term of the loan. Traditionally, most fixed-rate mortgages have an original term of 30 years. However, shorter terms (also referred to as final maturity dates) have become common in recent years. Because the interest rate on the loan never changes, even when market interest rates change, over time there can be a divergence between the interest rate on the loan and current market interest rates. This in turn can make a fixed-rate mortgages price sensitive to market fluctuations in interest rates. In general, the longer the remaining term on the mortgage loan, the greater the price sensitivity.

·

Collateralized Mortgage Obligations.    As of December 31, 2011, we held no collateralized mortgage obligations in our portfolio. Collateralized mortgage obligations, or CMOs, are a type of MBS. Interest and principal on a CMO are paid, in most cases, on a monthly basis. CMOs may be collateralized by whole mortgage loans, but are more typically collateralized by portfolios of mortgage pass-through securities issued directly by or under the auspices of Ginnie Mae, Freddie Mac or Fannie Mae. CMOs are structured into multiple classes, with each class bearing a different stated maturity. Monthly payments of principal, including prepayments, are first returned to investors holding the shortest maturity class. Investors holding the longer maturity classes receive principal only after the first class has been retired. Generally, fixed-rate mortgages are used to collateralize CMOs. However, the CMO tranches need not all have fixed-rate coupons. Some CMO tranches have floating rate coupons that adjust based on market interest rates, subject to some limitations. Such tranches, often called "CMO floaters," can have relatively low price sensitivity to interest rates.

·

Adjustable-Rate Mortgages.    As of December 31, 2011, 13.4% of our portfolio consisted of adjustable-rate mortgage-backed securities (“ARMs”). ARMs, are those for which the borrower pays an interest rate that varies over the term of the loan. The interest rate usually resets based on market interest rates, although the adjustment of such an interest rate may be subject to certain limitations. Traditionally, interest rate resets occur at regular set intervals (for example, once per year). We will refer to such ARMs as "traditional" ARMs. Because the interest rates on ARMs fluctuate based on market conditions, ARMs tend to have interest rates that do not deviate from current market rates by a large amount. This in turn can mean that ARMs have less price sensitivity to interest rates.

·

Hybrid Adjustable-Rate Mortgages.    As of December 31, 2011, 27.9% of our portfolio consisted of hybrid ARMs. Hybrid ARMs have a fixed-rate for the first few years of the loan, often three, five, or seven years, and thereafter reset periodically like a traditional ARM. Effectively such mortgages are hybrids, combining the features of a pure fixed-rate mortgage and a "traditional" ARM. Hybrid ARMs have price sensitivity to interest rates similar to that of a fixed-rate mortgage during the period when the interest rate is fixed and similar to that of an ARM when the interest rate is in its periodic reset stage. However, because many hybrid ARMs are structured with a relatively short initial time span during which the interest rate is fixed, even during that segment of its existence, the price sensitivity may be high.

·

Balloon Maturity Mortgages.    As of December 31, 2011, we held no balloon maturity MBS in our portfolio. Balloon maturity mortgages are a type of fixed-rate mortgage where all or most of the principal amount is due at maturity, rather than paid down, or amortized, over the life of the loan. These mortgages have a static interest rate for the life of the loan. However, the term of the loan is usually quite short, typically less than seven years. As the balloon maturity mortgage approaches its maturity date, the price sensitivity of the mortgage declines.

·

Interest Only Securities (“IO”). As of December 31, 2011, 7.7% of our portfolio consisted of IO securities. IO securities represent the stream of interest payments on a pool of mortgages, either fixed-rate mortgages or hybrid ARMs; holders of IO securities have no claim to any principal payments.  The value of IOs depends primarily on two factors: prepayments and interest rates. Prepayments on the underlying pool of mortgages reduce the stream of interest payments going forward, hence IOs are highly sensitive to the rate at which the mortgages in the pool are prepaid. IOs are also sensitive to changes in interest rates. An increase in interest rates reduces the present value of future interest payments on a pool of mortgages. On the other hand, an increase in interest rates has a tendency to reduce prepayments, which increases the expected absolute amount of future interest payments.

·

Inverse Interest Only Securities (“IIO”). As of December 31, 2011, 12.1% of our portfolio consisted of IIO securities.  IIO securities represent the stream of interest payments on a pool of mortgages, either fixed-rate mortgages or hybrid adjustable-rate mortgages; holders of IIO securities have no claim to any principal payments.  The value of IIOs depends primarily on three factors; prepayments, LIBOR rates and term interest rates. Prepayments on the underlying pool of mortgages reduce the stream of interest payments; hence IIOs are highly sensitive to the rate at which the mortgages in the pool are prepaid. The coupon on IIO securities is derived from both the coupon interest rate on the underlying pool of mortgages and one month LIBOR.  IIO securities are typically created in conjunction with a floating rate CMO which has a principal balance and which is entitled to receive all of the principal payments on the underlying pool of mortgages.  The coupon on the floating rate CMO is also based on one month LIBOR.  Typically, the coupon on the floating rate CMO and the IIO, when combined, equal the coupon on the pool of underlying mortgages.  The coupon on the pool of underlying mortgages typically represents a cap or ceiling on the combined coupons of the floating rate CMO and the IIO. Accordingly, when the value of one month LIBOR increases, the coupon of the floating rate CMO will increase and the coupon on the IIO will decrease. When the value of one month LIBOR falls, the opposite is true.  Accordingly, the value of IIO securities are sensitive to the level of one month LIBOR and expectations by market participants of future movements in the level of one month LIBOR. IIO securities are also sensitive to changes in interest rates. An increase in interest rates reduces the present value of future interest payments on a pool of mortgages. On the other hand, an increase in interest rates has a tendency to reduce prepayments, which increases the expected absolute amount of future interest payments.

·

Principal Only Securities (“PO”).    As of December 31, 2011, we held no PO securities in our portfolio. PO securities represent the stream of principal payments on a pool of mortgages; holders of PO securities have no claim to any interest payments, although the ultimate amount of principal to be received over time is known – it equals the principal balance of the underlying pool of mortgages.  What is not known is the timing of the receipt of the principal payments. The value of POs depends primarily on two factors; prepayments and interest rates. Prepayments on the underlying pool of mortgages accelerate the stream of principal repayments; hence POs are highly sensitive to the rate at which the mortgages in the pool are prepaid. POs are also sensitive to changes in interest rates. An increase in interest rates reduces the present value of future principal payments on a pool of mortgages. Further, an increase in interest rates also has a tendency to reduce prepayments, which decelerates, or pushes further out in time, the ultimate receipt of the principal payments. The opposite is true when interest rates decline.

(in thousands)
		December 31,
		2011								2010
		Carrying				% of				Carrying				% of
		Value				Total				Value				Total
Pass-Through Certificates:
Adjustable-rate Mortgages		$	12,181				13.4			$	64,458				47.7
Fixed-rate Mortgages			35,417				38.9				50,013				37.0
Hybrid ARMs			25,466				27.9				2,783				2.1
Total Pass-Through Certificates			73,064				80.2				117,254				86.8
Structured Mortgage Certificates:
Interest Only MBS			7,074				7.7				4,772				3.5
Inverse IO MBS			11,004				12.1				13,107				9.7
Total Structured Mortgage Certificates			18,078				19.8				17,879				13.2
Totals		$	91,142				100.0			$	135,133				100.0

 
 

·	dealers in securities or currencies;

·	traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;

·

banks;

·	tax-exempt organizations (except to the extent described below in “— Taxation of Tax-Exempt Stockholders”);

·	certain insurance companies;

 
 

·	persons liable for the alternative minimum tax;

 

·	persons that hold common stock as a hedge against interest rate or currency risks or as part of a straddle or conversion transaction; and

 

 

 

·	stockholders whose functional currency is not the U.S. dollar.

 
 

 
 

·	We will pay federal income tax on taxable income, including net capital gain, that we do not distribute to stockholders during, or within a specified time period after, the calendar year in which the income is earned.

·	We may be subject to the “alternative minimum tax” on any items of tax preference that we do not distribute or allocate to stockholders.

·	We will pay income tax at the highest corporate rate on:

−	net income from the sale or other disposition of property acquired through foreclosure, or foreclosure property, that we hold primarily for sale to customers in the ordinary course of business, and

−	other non-qualifying income from foreclosure property.

·	We will pay a 100% tax on our net income from sales or other dispositions of property, other than foreclosure property, that we hold primarily for sale to customers in the ordinary course of business.

·	If we fail to satisfy the 75% gross income test or the 95% gross income test, as described below under  “— Requirements for Qualification — Gross Income Tests,” and nonetheless continue to qualify as a REIT because we meet other requirements, we will pay a 100% tax on:

 

 

 

−	the greater of (i) the amount by which we fail the 75% gross income test or (ii) the amount by which 95% of our gross income exceeds the amount of our income qualifying under the 95% gross income test, multiplied by

−	a fraction intended to reflect our profitability.

·

In the event of a more than de minimis failure of any of the asset tests, as described below under “—Requirement for Qualification — Asset Tests,” as long as the failure was due to reasonable cause and not to willful neglect, we file a description of the assets that caused such failure with the IRS, and we dispose of the assets or otherwise comply with the asset tests within six months after the last day of the quarter in which we identify such failure, we will pay a tax equal to the greater of $50,000 or 35% of the net income from the nonqualifying assets during the period in which we failed to satisfy any of the asset tests.

·	In the event of a failure to satisfy one or more requirements for REIT qualification, other than the gross income tests or the asset tests, as long as such failure was due to reasonable cause and not to willful neglect, we will be required to pay a penalty of $50,000 for each such failure.

·	We will pay a 4% nondeductible excise tax on the excess of the required distribution over the amount we actually distributed if we fail to distribute during a calendar year at least the sum of:

−	85% of our REIT ordinary income for the year,

−	95% of our REIT capital gain net income for the year, and

−	any undistributed taxable income required to be distributed from earlier periods,

·

We may elect to retain and pay income tax on our net long-term capital gain. In that case, a U.S. stockholder would be taxed on its proportionate share of our undistributed long-term capital gain (to the extent that we make a timely designation of such gain to the stockholder) and would receive a credit or refund for its proportionate share of the tax we paid.

·	We will be subject to a 100% excise tax on transactions between us and a TRS that are not conducted on an arm’s-length basis.

·

If we acquire any asset from a C corporation, or a corporation that generally is subject to full corporate-level tax, in a merger or other transaction in which we acquire a basis in the asset that is determined by reference either to the C corporation’s basis in the asset or to another asset, we will pay tax at the highest regular corporate rate applicable if we recognize gain on the sale or disposition of the asset during the 10-year period after we acquire the asset. The amount of gain on which we will pay tax is the lesser of:

−	the amount of gain that we recognize at the time of the sale or disposition, and

−	the amount of gain that we would have recognized if we had sold the asset at the time we acquired it.

·

If we own a residual interest in a real estate mortgage investment conduit, or (“REMIC”), we will be taxed at the highest corporate rate on the portion of any excess inclusion income that we derive from the REMIC residual interests equal to the percentage of our stock that is held by “disqualified organizations.” Similar rules may apply if we own an equity interest in a taxable mortgage pool. To the extent that we own a REMIC residual interest or an equity interest in a taxable mortgage pool through a TRS, we will not be subject to this tax. For a discussion of “excess inclusion income,” see “—Requirements for Qualification —Taxable Mortgage Pools.” A “disqualified organization” includes:

 

 

 

−	the United States;

−	any state or political subdivision of the United States;

−	any foreign government;

−	any international organization;

−	any agency or instrumentality of any of the foregoing;

−	any other tax-exempt organization, other than a farmer’s cooperative described in section 521 of the Code, that is exempt both from income taxation and from taxation under the unrelated business taxable income provisions of the Code; and

−	any rural electrical or telephone cooperative.

 
 

(1)	It is managed by one or more trustees or directors.

(2)	Its beneficial ownership is evidenced by transferable shares, or by transferable certificates of beneficial interest.

(3)	It would be taxable as a domestic corporation, but for the REIT provisions of the federal income tax laws.

(4)	It is neither a financial institution nor an insurance company subject to special provisions of the federal income tax laws.

(5)	At least 100 persons are beneficial owners of its shares or ownership certificates.

(6)	Not more than 50% in value of its outstanding shares or ownership certificates is owned, directly or indirectly, by five or fewer individuals, which the federal income tax laws define to include certain entities, during the last half of any taxable year.

 

(7)	It elects to be a REIT, or has made such election for a previous taxable year, and satisfies all relevant filing and other administrative requirements established by the IRS that must be met to elect and maintain REIT status.

(8)	It meets certain other qualification tests, described below, regarding the nature of its income and assets and the distribution of its income.

 

·	substantially all of its assets consist of debt obligations or interests in debt obligations;

·	more than 50% of those debt obligations are real estate mortgage loans or interests in real estate mortgage loans as of specified testing dates;

·	the entity has issued debt obligations that have two or more maturities; and

·	the payments required to be made by the entity on its debt obligations “bear a relationship” to the payments to be received by the entity on the debt obligations that it holds as assets.

 
 

 
 

·	rents from real property;

·	interest on debt secured by a mortgage on real property, or on interests in real property;

·	dividends or other distributions on, and gain from the sale of, shares in other REITs;

·	gain from the sale of real estate assets;

·	amounts, such as commitment fees, received in consideration for entering into an agreement to make a loan secured by real property, unless such amounts are determined by income and profits;

·	income derived from a REMIC in proportion to the real estate assets held by the REMIC, unless at least 95% of the REMIC’s assets are real estate assets, in which case all of the income derived from the REMIC; and

·	income derived from the temporary investment of new capital that is attributable to the issuance of our stock or a public offering of our debt with a maturity date of at least five years and that we receive during the one-year period beginning on the date on which we received such new capital.

·	an amount that is based on a fixed percentage or percentages of receipts or sales; and

·

an amount that is based on the income or profits of a debtor, as long as the debtor derives substantially all of its income from the real property securing the debt from leasing substantially all of its interest in the property, and only to the extent that the amounts received by the debtor would be qualifying “rents from real property” if received directly by a REIT.

 

 

 

·	First, the amount of rent must not be based in whole or in part on the income or profits of any person. However, an amount received or accrued generally will not be excluded from rents from real property solely by reason of being based on fixed percentages of receipts or sales.

·

Second, rents we receive from a “related party tenant” will not qualify as rents from real property in satisfying the gross income tests unless the tenant is a TRS, at least 90% of the property is leased to unrelated tenants and the rent paid by the TRS is substantially comparable to the rent paid by the unrelated tenants for comparable space and the rent is not attributable to a modification of a lease with a controlled TRS (i.e., a TRS in which we own directly or indirectly more than 50% of the voting power or value of the stock). A tenant is a related party tenant if the REIT, or an actual or constructive owner of 10% or more of the REIT, actually or constructively owns 10% or more of the tenant.

·	Third, if rent attributable to personal property, leased in connection with a lease of real property, is greater than 15% of the total rent received under the lease, then the portion of rent attributable to the personal property will not qualify as rents from real property.

·

Fourth, we generally must not operate or manage our real property or furnish or render noncustomary services to our tenants, other than through an “independent contractor” who is adequately compensated and from whom we do not derive revenue. However, we may provide services directly to tenants if the services are “usually or customarily rendered” in connection with the rental of space for occupancy only and are not considered to be provided for the tenants’ convenience. In addition, we may provide a minimal amount of “noncustomary” services to the tenants of a property, other than through an independent contractor, as long as our income from the services does not exceed 1% of our income from the related property. Furthermore, we may own up to 100% of the stock of a TRS, which may provide customary and noncustomary services to tenants without tainting its rental income from the related properties.

·

that is acquired by a REIT as the result of the REIT having bid on such property at foreclosure, or having otherwise reduced such property to ownership or possession by agreement or process of law, after there was a default or default was imminent on a lease of such property or on indebtedness that such property secured;

·	for which the related loan or lease was acquired by the REIT at a time when the default was not imminent or anticipated; and

·	for which the REIT makes a proper election to treat the property as foreclosure property.

·

on which a lease is entered into for the property that, by its terms, will give rise to income that does not qualify for purposes of the 75% gross income test, or any amount is received or accrued, directly or indirectly, pursuant to a lease entered into on or after such day that will give rise to income that does not qualify for purposes of the 75% gross income test;

 

 

 

·	on which any construction takes place on the property, other than completion of a building or any other improvement, where more than 10% of the construction was completed before default became imminent; or

·	which is more than 90 days after the day on which the REIT acquired the property and the property is used in a trade or business which is conducted by the REIT, other than through an independent contractor from whom the REIT itself does not derive or receive any income.

·	our failure to meet such tests was due to reasonable cause and not due to willful neglect; and

·	following such failure for any taxable year, a schedule of the sources of our income is filed with the IRS.

 
 

·	cash or cash items, including certain receivables;

·	government securities;

·	interests in real property, including leaseholds and options to acquire real property and leaseholds;

·	interests in mortgage loans secured by real property;

·	stock in other REITs;

·	investments in stock or debt instruments during the one-year period following our receipt of new capital that we raise through equity offerings or public offerings of debt with at least a five-year term; and

·

regular or residual interests in a REMIC. However, if less than 95% of the assets of a REMIC consist of assets that are qualifying real estate-related assets under the federal income tax laws, determined as if we held such assets, we will be treated as holding directly our proportionate share of the assets of such REMIC.

 
 

 

 

 
 

·

“Straight debt” securities, which is defined as a written unconditional promise to pay on demand or on a specified date a sum certain in money if (i) the debt is not convertible, directly or indirectly, into stock, and (ii) the interest rate and interest payment dates are not contingent on profits, the borrower’s discretion, or similar factors. “Straight debt” securities do not include any securities issued by a partnership or a corporation in which we or any controlled TRS (i.e., a TRS in which we own directly or indirectly more than 50% of the voting power or value of the stock) hold non-“straight debt” securities that have an aggregate value of more than 1% of the issuer’s outstanding securities. However, “straight debt” securities include debt subject to the following contingencies:

−

a contingency relating to the time of payment of interest or principal, as long as either (i) there is no change to the effective yield of the debt obligation, other than a change to the annual yield that does not exceed the greater of 0.25% or 5% of the annual yield, or (ii) neither the aggregate issue price nor the aggregate face amount of the issuer’s debt obligations held by us exceeds $1 million and no more than 12 months of unaccrued interest on the debt obligations can be required to be prepaid; and

−	a contingency relating to the time or amount of payment upon a default or prepayment of a debt obligation, as long as the contingency is consistent with customary commercial practice.

·	Any loan to an individual or an estate.

·	Any “section 467 rental agreement,” other than an agreement with a related party tenant.

·	Any obligation to pay “rents from real property.”

·	Certain securities issued by governmental entities.

·	Any security issued by a REIT.

·	Any debt instrument of an entity treated as a partnership for federal income tax purposes to the extent of our interest as a partner in the partnership.

·

Any debt instrument of an entity treated as a partnership for federal income tax purposes not described in the preceding bullet points if at least 75% of the partnership’s gross income, excluding income from prohibited transactions, is qualifying income for purposes of the 75% gross income test described above in “—Requirements for Qualification — Gross Income Tests.”

 
 

·	we satisfied the asset tests at the end of the preceding calendar quarter; and

·	the discrepancy between the value of our assets and the asset test requirements arose from changes in the market values of our assets and was not wholly or partly caused by the acquisition of one or more non-qualifying assets.

 
 

·	the sum of

−	90% of our “REIT taxable income,” computed without regard to the dividends paid deduction and our net capital gain or loss, and

−	90% of our after-tax net income, if any, from foreclosure property, minus

 

 

 

·	the sum of certain items of non-cash income.

·	85% of our REIT ordinary income for such year,

·	95% of our REIT capital gain income for such year, and

·	any undistributed taxable income from prior periods,

 
 

 
 

·	Because we may deduct capital losses only to the extent of our capital gains, we may have taxable income that exceeds our economic income.

·

We will recognize taxable income in advance of the related cash flow if any of our MBS are deemed to have original issue discount. We generally must accrue original issue discount based on a constant yield method that takes into account projected prepayments but that defers taking into account credit losses until they are actually incurred.

·

We may recognize taxable market discount income when we receive the proceeds from the disposition of, or principal payments on, loans that have a stated redemption price at maturity that is greater than our tax basis in those loans, although such proceeds often will be used to make non-deductible principal payments on related borrowings.

·

We may recognize taxable income without receiving a corresponding cash distribution if we foreclose on or make a significant modification to a loan, to the extent that the fair market value of the underlying property or the principal amount of the modified loan, as applicable, exceeds our basis in the original loan.

·	We may recognize taxable income from any residual interests in REMICs or retained ownership interests in mortgage loans subject to collateralized mortgage obligation debt.

 

 

 
 

 
 

 
 

 
 

 
 

·	a citizen or resident of the United States;

·	a corporation or partnership (including an entity treated as a corporation or partnership for U.S. federal income tax purposes) created or organized under the laws of the United States, any of its states or the District of Columbia;

·	an estate whose income is subject to federal income taxation regardless of its source; or

·	any trust if (i) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (ii) it has a valid election in place to be treated as a U.S. person.

 

 

 

 

·	the percentage of our dividends that the tax-exempt trust would be required to treat as unrelated business taxable income is at least 5%;

·

we qualify as a REIT by reason of the modification of the rule requiring that no more than 50% of our stock be owned by five or fewer individuals that allows the beneficiaries of the pension trust to be treated as holding our stock in proportion to their actuarial interests in the pension trust; and

·	either: (i) one pension trust owns more than 25% of the value of our stock or (ii) a group of pension trusts individually holding more than 10% of the value of our stock collectively owns more than 50% of the value of our stock.

·	a lower treaty rate applies and the non-U.S. stockholder files an IRS Form W-8BEN evidencing eligibility for that reduced rate with us, or

·	the non-U.S. stockholder files an IRS Form W-8ECI with us claiming that the distribution is effectively connected income.

·	the gain is effectively connected with the non-U.S. stockholder’s U.S. trade or business, in which case the non-U.S. stockholder will be subject to the same treatment as U.S. stockholders with respect to such gain, or

·	the non-U.S. stockholder is a nonresident alien individual who was present in the U.S. for 183 days or more during the taxable year and has a “tax home” in the United States, in which case the non-U.S. stockholder will incur a tax of 30% on his or her capital gains.

·	is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact; or

·	provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding, and otherwise complies with the applicable requirements of the backup withholding rules.

 
 

 
 

 
 

 
 

 
 

 
 

·	allowing certain homeowners whose homes are encumbered by Fannie Mae or Freddie Mac conforming mortgages to refinance those mortgages into lower interest rate mortgages with either Fannie Mae or Freddie Mac;

·	creating the Homeowner Stability Initiative, which is intended to utilize various incentives for banks and mortgage servicers to modify residential mortgage loans with the goal of reducing monthly mortgage principal and interest payments for certain qualified homeowners; and

·	allowing judicial modifications of Fannie Mae and Freddie Mac conforming residential mortgages loans during bankruptcy proceedings.

·

A portion of our pass-through Agency MBS backed by ARMs and hybrid ARMs may initially bear interest at rates that are lower than their fully indexed rates, which are equivalent to the applicable index rate plus a margin. If a PT MBS backed by ARMs or hybrid ARMs is prepaid prior to or soon after the time of adjustment to a fully-indexed rate, we will have held that Agency MBS while it was less profitable and lost the opportunity to receive interest at the fully-indexed rate over the remainder of its expected life.

·	If we are unable to acquire new Agency MBS to replace the prepaid Agency MBS, our returns on capital may be lower than if we were able to quickly acquire new Agency MBS.

·

Our repurchase agreement borrowings are secured by our pass-through Agency MBS and may be secured by a portion of our structured Agency MBS under repurchase agreements. A decline in the market value of the pass-through Agency MBS or structured Agency MBS used to secure these debt obligations could limit our ability to borrow or result in lenders requiring us to pledge additional collateral to secure our borrowings. In that situation, we could be required to sell Agency MBS under adverse market conditions in order to obtain the additional collateral required by the lender. If these sales are made at prices lower than the carrying value of the Agency MBS, we would experience losses.

·

To the extent we are compelled to liquidate qualifying real estate assets to repay debts, our compliance with the REIT rules regarding our assets and our sources of gross income could be negatively affected, which could jeopardize our qualification as a REIT. Losing our REIT qualification would cause us to be subject to U.S. federal income tax (and any applicable state and local taxes) on all of our income and would decrease profitability and cash available for distributions to stockholders.

·	the movement of interest rates;

 

 

 

·	the availability of financing in the market; and

·	the value and liquidity of our Agency MBS.

·	hedging can be expensive, particularly during periods of rising and volatile interest rates;

·	available interest rate hedging may not correspond directly with the interest rate risk for which protection is sought;

·	the duration of the hedge may not match the duration of the related liability;

·	certain types of hedges may expose us to risk of loss beyond the fee paid to initiate the hedge;

·	the amount of gross income that a REIT may earn from certain hedging transactions is limited by federal income tax provisions governing REITs;

 

 

 

·	the credit quality of the counterparty on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; and

·	the counterparty in the hedging transaction may default on its obligation to pay.

 

 

·	we would be taxed as a regular domestic corporation, which, among other things, means that we would be unable to deduct distributions to stockholders in computing taxable income and would be subject to federal income tax on our taxable income at regular corporate rates;

 
 

·	any resulting tax liability could be substantial and would reduce the amount of cash available for distribution to stockholders, and could force us to liquidate assets at inopportune times, causing lower income or higher losses than would result if these assets were not liquidated; and

·

unless we were entitled to relief under applicable statutory provisions, we would be disqualified from treatment as a REIT for the subsequent four taxable years following the year during which we lost our REIT qualification, and our cash available for distribution to its stockholders therefore would be reduced for each of the years in which we do not qualify as a REIT.

 
 

PART II

 

 

		First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Full Year
2011
High		$	0.98			$	0.89			$	0.85			$	0.75			$	0.98
Low			0.71				0.68				0.30				0.25				0.25
Close			0.77				0.73				0.61				0.37				0.37
Dividends declared per share			-				0.0325				0.0325				-				0.0650
2010
High		$	3.00			$	1.74			$	1.01			$	0.95			$	3.00
Low			0.80				0.74				0.77				0.74				0.74
Close			0.99				0.94				0.84				0.78				0.78
Dividends declared per share			-				0.0600				-				0.0625				0.1225

•

90% of our REIT taxable income (computed without regard to our deduction for dividends paid and our net capital gains);

•

plus 90% of the excess of net income from foreclosure property over the tax imposed on such income by the Code;

•

minus any excess non-cash income that exceeds a percentage of our income.

			Total number of securities to be issued upon exercise of outstanding options, warrants and rights			Weighted-average exercise price of outstanding options, warrants and rights			Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Plan Category			(a)			(b)
Equity compensation plans approved by security holders (1)			367,844	(2)		-			4,956,404	(3)
Equity compensation plans not approved by security holders			-			-			-
Total			367,844			-			4,956,404
(1)	Equity compensation plans approved by shareholders include the Bimini Capital Management, Inc. 2003 Long Term Incentive Plan (the “2003 Plan”) and the Bimini Capital Management, Inc. 2011 Long Term Incentive Compensation Plan (the "2011 Plan").  The 2003 plan was approved by shareholders on December 18, 2003, prior to our initial public offering.  The 2011 Plan was approved by shareholders on August 12, 2011. Both plans are broad-based equity incentive plans that permit the grant of stock options, restricted stock, phantom shares, dividend equivalent rights and other stock-based awards.  Subject to adjustment upon certain corporate transactions or events, a maximum of 1,448,050 shares of Class A Common Stock (but no more than 10% of the number of shares of Class A Common Stock outstanding on any particular grant date) may be subject to awards under the 2003 Plan.  Subject to adjustment upon certain transactions or events, a maximum of 4,000,000 shares of Class A Common Stock (but no more than 10% of the number of shares of Class A Common Stock outstanding on any particular grant date) may be subject to awards under the 2011 Plan.
(2)	Represents the aggregate number of shares of Class A Common Stock remaining to be issued upon settlement of phantom share awards granted pursuant to the 2003 Plan and outstanding as of December 31, 2011. As of December 31, 2011, no shares have been awarded under the 2011 Plan.
(3)	Represents the maximum number of shares remaining available for future issuance under the terms of the 2003 and 2011 plans irrespective of the 10% limitation described in footnote 1 above. Taking into account the 10% limitation and the number of shares of Class A Common Stock outstanding as of December 31, 2011, there were no additional shares remaining available for future issuance under the terms of the 2003 Plan and, 1,008,686 shares are available for future issuance under the terms of the 2011 Plan as of December 31, 2011.

 

(in thousands)
		Years Ended December 31,
		2011				2010				Change
Net portfolio interest		$	4,816			$	6,189			$	(1,373	)
Interest expense on junior subordinated notes			(1,008	)			(2,118	)			1,110
Losses on MBS and Eurodollar futures			(1,939	)			(864	)			(1,075	)
Net portfolio income			1,869				3,207				(1,338	)
Other income			3,125				2,722				403
Expenses			(7,616	)			(7,821	)			205
Income tax benefit			-				145				(145	)
Net loss		$	(2,622	)		$	(1,747	)		$	(875	)

(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,
December 31, 2011		$	89,670			$	1,039				4.64	%		$	68,462			$	59				0.35	%		$	980				4.29	%
September 30, 2011			101,102				1,133				4.48	%			79,750				53				0.26	%			1,080				4.22	%
June 30, 2011			115,521				1,301				4.51	%			93,516				72				0.31	%			1,229				4.20	%
March 31, 2011			126,084				1,608				5.10	%			104,259				87				0.33	%			1,521				4.77	%
December 31, 2010			132,955				1,496				4.50	%			110,433				88				0.32	%			1,408				4.18	%
September 30, 2010			114,165				1,260				4.42	%			89,440				69				0.31	%			1,191				4.11	%
June 30, 2010			99,856				1,807				7.24	%			74,163				53				0.29	%			1,754				6.95	%
March 31, 2010			110,914				1,896				6.84	%			88,495				68				0.31	%			1,828				6.53	%
Years Ended,
December 31, 2011		$	108,094			$	5,081				4.70	%		$	86,497			$	271				0.31	%		$	4,810				4.39	%
December 31, 2010			114,473				6,459				5.64	%			90,633				278				0.31	%			6,181				5.34	%

(dollars in thousands)
		Average MBS Held												Interest Income												Realized Yield on Average MBS
		PT				Structured								PT				Structured								PT				Structured
		MBS				MBS				Total				MBS				MBS				Total				MBS				MBS				Total
Three Months Ended,
December 31, 2011		$	71,230			$	18,440			$	89,670			$	596			$	443			$	1,039				3.35	%			9.60	%			4.64	%
September 30, 2011			83,004				18,098				101,102				588				545				1,133				2.84	%			12.03	%			4.48	%
June 30, 2011			98,060				17,461				115,521				755				546				1,301				3.08	%			12.52	%			4.51	%
March 31, 2011			108,382				17,702				126,084				927				681				1,608				3.42	%			15.39	%			5.10	%
December 31, 2010			114,570				18,385				132,955				994				502				1,496				3.47	%			10.92	%			4.50	%
September 30, 2010			93,579				20,586				114,165				833				427				1,260				3.56	%			8.31	%			4.42	%
June 30, 2010			79,691				20,165				99,856				761				1,046				1,807				3.82	%			20.76	%			7.24	%
March 31, 2010			94,493				16,421				110,914				1,048				848				1,896				4.44	%			20.64	%			6.84	%
Years Ended,
December 31, 2011		$	90,169			$	17,925			$	108,094			$	2,866			$	2,215			$	5,081				3.18	%			12.35	%			4.70	%
December 31, 2010			95,583				18,890				114,473				3,635				2,824				6,459				3.80	%			14.95	%			5.64	%