BIMINI CAPITAL MANAGEMENT, INC. (Form: 10-Q, Received: 05/10/2019 14:00:18)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑Q

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

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

☐ 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 ý No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ☐

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


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ý

Securities registered pursuant to Section 12(b) of the Act: None.

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date:

Title of each Class	Latest Practicable Date	Shares Outstanding
Class A Common Stock, $0.001 par value	May 10, 2019		12,708,555
Class B Common Stock, $0.001 par value	May 10, 2019		31,938
Class C Common Stock, $0.001 par value	May 10, 2019		31,938

BIMINI CAPITAL MANAGEMENT, INC.

TABLE OF CONTENTS

	Page

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements		1
Condensed Consolidated Balance Sheets (unaudited)		1
Condensed Consolidated Statements of Operations (unaudited)		2
Condensed Consolidated Statement of Stockholders’ Equity (unaudited)		3
Condensed Consolidated Statements of Cash Flows (unaudited)		4
Notes to Condensed Consolidated Financial Statements		5
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk		44
ITEM 4. Controls and Procedures		44

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings		45
ITEM 1A. Risk Factors		45
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		45
ITEM 3. Defaults Upon Senior Securities		45
ITEM 4. Mine Safety Disclosures		45
ITEM 5. Other Information		45
ITEM 6. Exhibits		56
SIGNATURES		47

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BIMINI CAPITAL MANAGEMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	March 31, 2019			December 31, 2018
ASSETS:
Mortgage-backed securities, at fair value
Pledged to counterparties	$	211,581,999		$	212,349,874
Unpledged		59,359			74,318
Total mortgage-backed securities		211,641,358			212,424,192
Cash and cash equivalents		5,003,253			4,947,801
Restricted cash		1,783,440			1,292,687
Orchid Island Capital, Inc. common stock, at fair value		10,001,837			9,713,030
Accrued interest receivable		764,511			780,535
Property and equipment, net		3,279,616			3,298,067
Deferred tax assets, at fair value		22,445,722			23,202,821
Other assets		3,873,179			3,740,543
Total Assets	$	258,792,916		$	259,399,676

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
Repurchase agreements	$	199,146,000		$	200,396,000
Junior subordinated notes due to Bimini Capital Trust II		26,804,440			26,804,440
Accrued interest payable		434,865			678,262
Other liabilities		1,835,929			2,566,353
Total Liabilities		228,221,234			230,445,055

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; 100,000 shares
designated Series A Junior Preferred Stock, 9,900,000 shares undesignated;
no shares issued and outstanding as of March 31, 2019 and December 31, 2018		-			-
Class A Common stock, $0.001 par value; 98,000,000 shares designated: 12,708,555
shares issued and outstanding as of March 31, 2019 and 12,709,269 shares issued
and outstanding as of December 31, 2018		12,709			12,709
Class B Common stock, $0.001 par value; 1,000,000 shares designated, 31,938 shares
issued and outstanding as of March 31, 2019 and December 31, 2018		32			32
Class C Common stock, $0.001 par value; 1,000,000 shares designated, 31,938 shares
issued and outstanding as of March 31, 2019 and December 31, 2018		32			32
Additional paid-in capital		334,917,723			334,919,265
Accumulated deficit		(304,358,814	)		(305,977,417	)
Stockholders’ Equity		30,571,682			28,954,621
Total Liabilities and Stockholders' Equity	$	258,792,916		$	259,399,676
See Notes to Condensed Consolidated Financial Statements

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BIMINI CAPITAL MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended March 31, 2019 and 2018

	2019			2018
Revenues:
Advisory services	$	1,607,320		$	2,093,465
Interest income		2,190,416			2,080,266
Dividend income from Orchid Island Capital, Inc. common stock		364,809			471,211
Total revenues		4,162,545			4,644,942
Interest expense
Repurchase agreements		(1,312,865	)		(809,266	)
Junior subordinated notes		(406,555	)		(337,333	)
Net revenues		2,443,125			3,498,343

Other income (expense):
Unrealized gains (losses) on mortgage-backed securities		3,052,235			(4,879,806	)
Unrealized gains (losses) on Orchid Island Capital, Inc. common stock		288,807			(2,903,269	)
(Losses) gains on derivative instruments		(2,257,411	)		1,740,712
Gains (losses) on retained interests in securitizations		275,115			(82,664	)
Other income		246			606
Total other income (expense)		1,358,992			(6,124,421	)

Expenses:
Compensation and related benefits		1,070,781			1,066,455
Directors' fees and liability insurance		160,641			160,613
Audit, legal and other professional fees		138,632			175,752
Administrative and other expenses		250,972			336,158
Total expenses		1,621,026			1,738,978

Net income (loss) before income tax provision (benefit)		2,181,091			(4,365,056	)
Income tax provision (benefit)		562,488			(1,091,290	)

Net income (loss)	$	1,618,603		$	(3,273,766	)

Basic and Diluted Net income (loss) Per Share of:
CLASS A COMMON STOCK
Basic and Diluted	$	0.13		$	(0.26	)
CLASS B COMMON STOCK
Basic and Diluted	$	0.13		$	(0.26	)
Weighted Average Shares Outstanding:
CLASS A COMMON STOCK
Basic and Diluted		12,708,618			12,730,070
CLASS B COMMON STOCK
Basic and Diluted		31,938			31,938
See Notes to Condensed Consolidated Financial Statements

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BIMINI CAPITAL MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
For the Three Months Ended March 31, 2019 and 2018

	Stockholders' Equity
	Common		Additional				Accumulated
	Stock		Paid-in Capital				Deficit				Total
Balances, January 1, 2018	$	12,725		$	334,878,779			$	(279,199,256	)		$	55,692,248
Net loss		-			-				(3,273,766	)			(3,273,766	)
Class A common shares sold directly to employees		83			199,914				-				199,997
Amortization of stock based compensation		-			2,869				-				2,869

Balances, March 31, 2018	$	12,808		$	335,081,562			$	(282,473,022	)		$	52,621,348

Balances, January 1, 2019	$	12,773		$	334,919,265			$	(305,977,417	)		$	28,954,621
Net income		-			-				1,618,603				1,618,603
Class A common shares repurchased and retired		-			(1,542	)			-				(1,542	)

Balances, March 31, 2019	$	12,773		$	334,917,723			$	(304,358,814	)		$	30,571,682
See Notes to Condensed Consolidated Financial Statements

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BIMINI CAPITAL MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended March 31, 2019 and 2018

	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	1,618,603		$	(3,273,766	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Stock based compensation		-			2,869
Depreciation		18,451			19,449
Deferred income tax provision (benefit)		757,099			(896,482	)
(Gains) losses on mortgage-backed securities, net		(3,052,235	)		4,879,806
(Gains) losses on retained interests in securitizations		(275,115	)		82,664
Unrealized (gains) losses on Orchid Island Capital, Inc. common stock		(288,807	)		2,903,269
Realized and unrealized losses on forward settling TBA securities		1,067,686			523,438
Changes in operating assets and liabilities:
Accrued interest receivable		16,024			6,900
Other assets		(132,636	)		(510,719	)
Accrued interest payable		(243,397	)		(167,468	)
Other liabilities		(856,704	)		(541,710	)
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES		(1,371,031	)		3,028,250

CASH FLOWS FROM INVESTING ACTIVITIES:
From mortgage-backed securities investments:
Purchases		-			(5,080,712	)
Principal repayments		3,835,069			5,064,092
Payments received on retained interests in securitizations		-			298,978
Proceeds from termination of retained interests		275,115			-
Purchases of property and equipment		-			(15,393	)
Net settlement of forward settling TBA contracts		(941,406	)		-
NET CASH PROVIDED BY INVESTING ACTIVITIES		3,168,778			266,965

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from repurchase agreements		348,756,000			439,403,535
Principal repayments on repurchase agreements		(350,006,000	)		(445,766,637	)
Class A common shares repurchased and retired		(1,542	)		-
Class A common shares sold directly to employees		-			199,997
NET CASH USED IN FINANCING ACTIVITIES		(1,251,542	)		(6,163,105	)

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		546,205			(2,867,890	)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of the period		6,240,488			8,752,860
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of the period	$	6,786,693		$	5,884,970

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest expense	$	1,962,817		$	1,314,067
Income taxes	$	(46,700	)	$	281,808
See Notes to Condensed Consolidated Financial Statements

-4-

BIMINI CAPITAL MANAGEMENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

March 31, 2019

NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Business Description

Bimini Capital Management, Inc., a Maryland corporation (“Bimini Capital” or the “Company”) formed in September 2003, is a holding company. The Company operates in two business segments through its principal wholly-owned operating subsidiaries, Bimini Advisors Holdings, LLC and Royal Palm Capital, LLC.

Bimini Advisors Holdings, LLC and its wholly-owned subsidiary, Bimini Advisors, LLC (a registered investment advisor), are collectively referred to as "Bimini Advisors." Bimini Advisors manages a residential mortgage-backed securities (“MBS”) portfolio for Orchid Island Capital, Inc. ("Orchid") and receives fees for providing these services. Bimini Advisors also manages the MBS portfolio of Royal Palm Capital, LLC.

Royal Palm Capital, LLC maintains an investment portfolio, consisting primarily of MBS investments, for its own benefit. Royal Palm Capital, LLC and its wholly-owned subsidiaries are collectively referred to as "Royal Palm."

Consolidation

The accompanying consolidated financial statements include the accounts of Bimini Capital, Bimini Advisors and Royal Palm. All inter-company accounts and transactions have been eliminated from the consolidated financial statements.

Variable Interest Entities (“VIEs”)

Financial Accounting Standards Board (the "FASB") Accounting Standards Codification ("ASC") Topic 810, Consolidation, requires the consolidation of a variable interest entity ("VIE") by an enterprise if it is deemed the primary beneficiary of the VIE. Bimini Capital has a common share investment in a trust used in connection with the issuance of Bimini Capital's junior subordinated notes. See Note 8 for a description of the accounting used for this VIE.

The Company obtains interests in VIEs through its investments in mortgage-backed securities. The interests in these VIEs are passive in nature and are not expected to result in the Company obtaining a controlling financial interest in these VIEs in the future. As a result, the Company does not consolidate these VIEs and accounts for the interest in these VIEs as mortgage-backed securities. See Note 3 for additional information regarding the Company’s investments in mortgage-backed securities. The maximum exposure to loss for these VIEs is the carrying value of the mortgage-backed securities.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they may not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.

-5-

The consolidated balance sheet at December 31, 2018 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete consolidated financial statements. For further information, refer to the financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Use of Estimates

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 consolidated financial statements include determining the fair values of MBS, investment in Orchid common shares, derivatives and retained interests, determining the amounts of asset valuation allowances, and the computation of the income tax provision or benefit and the deferred tax asset allowances recorded for each accounting period.

Statement of Comprehensive Income

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

Segment Reporting

The Company’s operations are classified into two principal reportable segments: the asset management segment and the investment portfolio segment. These segments are evaluated by management in deciding how to allocate resources and in assessing performance. The accounting policies of the operating segments are the same as the Company’s accounting policies with the exception that inter-segment revenues and expenses are included in the presentation of segment results. For further information see Note 15.

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 at the time of purchase. Restricted cash includes cash pledged as collateral for repurchase agreements and derivative instruments. The following table presents the Company’s cash, cash equivalents and restricted cash as of March 31, 2019 and December 31, 2018.

(in thousands)
	March 31, 2019			December 31, 2018
Cash and cash equivalents		$	5,003,253		$	4,947,801
Restricted cash			1,783,440			1,292,687
Total cash, cash equivalents and restricted cash		$	6,786,693		$	6,240,488

The Company maintains cash balances at several banks and excess margin with an exchange clearing member. At times, balances may exceed federally insured limits. The Company has not experienced any losses related to these balances. The Federal Deposit Insurance Corporation insures eligible accounts up to $250,000 per depositor at each financial institution. At March 31, 2019, the Company’s cash deposits exceeded federally insured limits by approximately $3.7 million. The Company also maintains excess margin in accounts with derivative exchanges. Restricted cash balances are uninsured, but are held in separate accounts that are segregated from the general funds of the counterparty. The Company limits uninsured balances to only large, well-known banks and exchange clearing members and believes that it is not exposed to significant credit risk on cash and cash equivalents or restricted cash balances.

-6-

Advisory Services

Orchid is externally managed and advised by Bimini Advisors pursuant to the terms of a management agreement. Under the terms of the management agreement, Orchid is obligated to pay Bimini Advisors a monthly management fee and a pro rata portion of certain overhead costs and to reimburse the Company for any direct expenses incurred on its behalf. Revenues from management fees are recognized over the period of time in which the service is performed.

Mortgage-Backed Securities

The Company invests primarily in mortgage pass-through (“PT”) certificates, collateralized mortgage obligations (“CMOs”), and interest-only (“IO”) securities and inverse interest-only (“IIO”) securities representing interest in or obligations backed by pools of mortgage-backed loans. The Company has elected to account for its investment in MBS under the fair value option. Electing the fair value option requires the Company to record changes in fair value in the consolidated 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 Company records MBS transactions on the trade date. Security purchases that have not settled as of the balance sheet date are included in the MBS balance with an offsetting liability recorded, whereas securities sold that have not settled as of the balance sheet date are removed from the MBS balance with an offsetting receivable recorded.

The fair value of the Company’s investment in MBS is governed by ASC Topic 820, Fair Value Measurement . The definition of fair value in 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 independent pricing sources and/or third-party broker quotes, when available.

Income on PT MBS is based on the stated interest rate of the security. Premiums or discounts present at the date of purchase are not amortized. Premium lost and discount accretion resulting from monthly principal repayments are reflected in unrealized gains on MBS in the consolidated statements of operations. For IO securities, the income is accrued based on the carrying value and the effective yield. The difference between income accrued and the interest received on the security is characterized as a return of investment and serves to reduce the asset’s carrying value. At each reporting date, the effective yield is adjusted prospectively for future reporting periods based on the new estimate of prepayments and the contractual terms of the security. For IIO securities, effective yield and income recognition calculations also take into account the index value applicable to the security. Changes in fair value of MBS during each reporting period are recorded in earnings and reported as unrealized gains or losses on mortgage-backed securities in the accompanying consolidated statements of operations. The amount reported as unrealized gains or losses on mortgage backed securities thus captures the net effect of changes in the fair market value of securities caused by market developments and any premium or discount lost as a result of principal repayments during the period.

Orchid Island Capital, Inc. Common Stock

The Company has elected the fair value option for its investment in Orchid common shares. The change in the fair value of this investment and dividends received on this investment are reflected in the consolidated statements of operations. We estimate the fair value of our investment in Orchid on a market approach using “Level 1” inputs based on the quoted market price of Orchid’s common stock on a national stock exchange. Electing the fair value option requires the Company to record changes in fair value in the consolidated statements of operations, which, in management’s view, more appropriately reflects the results of our operations for a particular reporting period and is consistent with how the investment is managed.

-7-

Retained Interests in Securitizations

Retained interests in the subordinated tranches of securities created in securitization transactions were initially recorded at their fair value when issued by Royal Palm. Any cash received from the retained interests are reflected in the consolidated statement of cash flows. Realized gains and subsequent adjustments to fair value are reflected in the consolidated statements of operations.

Derivative Financial Instruments

The Company uses derivative 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 principal instruments that the Company has used to date are Treasury Note (“T-Note”) and Eurodollar futures contracts, and “to-be-announced” (“TBA”) securities transactions, but it may enter into other derivatives in the future.

The Company accounts for TBA securities as derivative instruments if either the TBA securities do not settle in the shortest period of time possible or if the Company cannot assert that it is probable at inception of the TBA transaction, or throughout its term, that it will take physical delivery of the MBS for a long position, or make delivery of the MBS for a short position, upon settlement of the trade. Gains and losses associated with TBA securities transactions are reported in gain (loss) on derivative instruments in the accompanying consolidated statements of operations.

FASB ASC Topic 815, Derivatives and Hedging , requires that all derivative instruments be carried at fair value. Changes in fair value are recorded in the consolidated operations for each period. The Company does not designate any of its derivative financial instruments as hedges in order to align the accounting treatment of its derivative instruments with the treatment of its portfolio assets under the fair value option election.

Holding derivatives creates exposure to credit risk related to the potential for failure by counterparties to honor their commitments. In addition, the Company may be required to post collateral based on any declines in the market value of the derivatives. In the event of default by a counterparty, the Company may have difficulty recovering its collateral and may not receive payments provided for under the terms of the agreement. To mitigate this risk, the Company uses only well-established commercial banks as counterparties.

Financial Instruments

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, Orchid common stock and derivative assets and liabilities 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 14 of the consolidated financial statements.

The estimated fair value of cash and cash equivalents, restricted cash, accrued interest receivable, other assets, repurchase agreements, accrued interest payable and other liabilities generally approximates their carrying value as of March 31, 2019 and December 31, 2018, 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. Further Information regarding these instruments is presented in Note 8 to the consolidated financial statements.

-8-

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.

Repurchase Agreements

The Company finances the acquisition of the majority of its PT MBS through the use of repurchase agreements under master repurchase agreements. Pursuant to ASC Topic 860, Transfers and Servicing , the Company accounts for repurchase transactions as collateralized financing transactions, which are carried at their contractual amounts, including accrued interest, as specified in the respective agreements.

Share-Based Compensation

The Company follows the provisions of 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. 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 the issuance of the common stock.

Earnings Per Share

The Company follows the provisions of 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 dividend distributions 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 treasury stock or two-class method, as applicable 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, if any, on each share of Class A Common Stock. 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.

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Income Taxes

Income taxes are provided for using the asset and liability method. Deferred tax assets and liabilities represent the differences between the financial statement and income tax bases of assets and liabilities using enacted tax rates. The measurement of net deferred tax assets is adjusted by a valuation allowance if, based on the Company’s evaluation, it is more likely than not that they will not be realized.

The Company’s U.S. federal income tax returns for years ended on or after December 31, 2015 remain open for examination. Although management believes its calculations for tax returns are correct and the positions taken thereon are reasonable, the final outcome of tax audits could be materially different from the tax returns filed by the Company, and those differences could result in significant costs or benefits to the Company. For tax filing purposes, Bimini Capital and Bimini Advisors are consolidated as a single tax paying entity. Royal Palm files as a separate tax paying entity.

The Company measures, recognizes and presents its uncertain tax positions in accordance with ASC Topic 740, Income Taxes . Under that guidance, the Company assesses the likelihood, based on their technical merit, that tax positions will be sustained upon examination based on the facts, circumstances and information available at the end of each period. The measurement of uncertain tax positions is adjusted when new information is available, or when an event occurs that requires a change. The Company recognizes tax positions in the financial statements only when it is more likely than not that the position will be sustained upon examination by the relevant taxing authority based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized upon settlement. The difference between the benefit recognized and the tax benefit claimed on a tax return is referred to as an unrecognized tax benefit and is recorded as a liability in the consolidated balance sheets. The Company records income tax-related interest and penalties, if applicable, within the income tax provision.

Recent Accounting Pronouncements

In November 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-18, Statement of Cash Flows – (Topic 230): Restricted Cash. ASU 2016-18 requires that restricted cash and restricted cash equivalents be included as components of total cash and cash equivalents as presented on the statement of cash flows. ASU 2016-18 is effective for fiscal years, and for interim periods within those years, beginning after December 15, 2017. Early application is permitted. The Company early adopted the ASU beginning with the first quarter of 2017.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (CECL) model). ASU 2016-13 is effective for fiscal years, and for interim periods within those years, beginning after December 15, 2019. Early application is permitted for fiscal periods beginning after December 15, 2018. The Company is currently evaluating the potential effect of this ASU on its consolidated financial statements.

NOTE 2. ADVISORY SERVICES

Bimini Advisors serves as the manager and advisor for Orchid pursuant to the terms of a management agreement. As Manager, Bimini Advisors is responsible for administering Orchid's business activities and day-to-day operations. Pursuant to the terms of the management agreement, Bimini Advisors provides Orchid with its management team, including its officers, along with appropriate support personnel. Bimini Advisors is at all times subject to the supervision and oversight of Orchid's board of directors and has only such functions and authority as delegated to it. Bimini Advisors receives a monthly management fee in the amount of:

·	One-twelfth of 1.5% of the first $250 million of Orchid’s month-end equity, as defined in the management agreement,

·	One-twelfth of 1.25% of Orchid’s month-end equity that is greater than $250 million and less than or equal to $500 million, and

·	One-twelfth of 1.00% of Orchid’s month-end equity that is greater than $500 million.

-10-

Orchid is obligated to reimburse Bimini Advisors for any direct expenses incurred on its behalf and to pay to Bimini Advisors an amount equal to Orchid's pro rata portion of certain overhead costs set forth in the management agreement. The management agreement has been renewed through February 20, 2020 and provides for automatic one-year extension options thereafter. Should Orchid terminate the management agreement without cause, it will be obligated to pay to Bimini Advisors a termination fee equal to three times the average annual management fee, as defined in the management agreement, before or on the last day of the current automatic renewal term.

The following table summarizes the advisory services revenue from Orchid for the three months ended March 31, 2019 and 2018 .

(in thousands)
	2019		2018
Management fee	$	1,285	$	1,712
Allocated overhead		322		381
Total	$	1,607	$	2,093

At March 31, 2019 and December 31, 2018, the net amount due from Orchid was approximately $0.5 million and $0.8 million, respectively. These amounts are included in “other assets” in the consolidated balance sheets.

NOTE 3. MORTGAGE-BACKED SECURITIES

The following table presents the Company’s MBS portfolio as of March 31, 2019 and December 31, 2018:

(in thousands)
	March 31, 2019		December 31, 2018
Fixed-rate MBS	$	209,262	$	209,675
Interest-Only MBS		1,703		2,021
Inverse Interest-Only MBS		676		728
Total	$	211,641	$	212,424

At March 31, 2019 and December 31, 2018, the portfolio consisted entirely of securities with contractual maturities in excess of ten years. 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.

NOTE 4. REPURCHASE AGREEMENTS

As of March 31, 2019, the Company had outstanding repurchase agreement obligations of approximately $199.1 million with a net weighted average borrowing rate of 2.71%. These agreements were collateralized by MBS with a fair value, including accrued interest, of approximately $212.3 million. As of December 31, 2018, the Company had outstanding repurchase agreement obligations of approximately $200.4 million with a net weighted average borrowing rate of 2.56%. These agreements were collateralized by MBS with a fair value, including accrued interest, of approximately $213.1 million, and cash pledged to counterparties of approximately $0.2 million.

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As of March 31, 2019 and December 31, 2018, the Company’s 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
March 31, 2019
Fair value of securities pledged, including accrued
interest receivable	$	1,844		$	97,966		$	112,534		$	-	$	212,344
Repurchase agreement liabilities associated with
these securities	$	1,374		$	91,861		$	105,911		$	-	$	199,146
Net weighted average borrowing rate		2.99	%		2.76	%		2.66	%		-		2.71	%
December 31, 2018
Fair value of securities pledged, including accrued
interest receivable	$	-		$	107,876		$	105,251		$	-	$	213,127
Repurchase agreement liabilities associated with
these securities	$	-		$	101,327		$	99,069		$	-	$	200,396
Net weighted average borrowing rate		-			2.56	%		2.56	%		-		2.56	%

If, during the term of a repurchase agreement, a lender files 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 the accrued interest receivable, and cash posted by the Company as collateral, if any. At March 31, 2019 and December 31, 2018, the Company had an aggregate amount at risk (the difference between the amount loaned to the Company, including interest payable, and the fair value of securities and cash pledged (if any), including accrued interest on such securities) with all counterparties of approximately $12.8 million and $12.4 million, respectively. Summary information regarding amounts at risk with individual counterparties greater than 10% of equity at March 31, 2019 and December 31, 2018 is presented in the table below.

($ in thousands)
			% of			Weighted
			Stockholders'			Average
	Amount		Equity			Maturity
Repurchase Agreement Counterparties	at Risk		at Risk			(in Days)
March 31, 2019
ED&F Man Capital Markets Inc.	$	4,564		14.9	%		25
Mirae Asset Securities (USA) Inc.		3,418		11.2	%		43
December 31, 2018
ED&F Man Capital Markets Inc.	$	4,037		13.9	%		17
Mirae Asset Securities (USA) Inc.		3,506		12.1	%		40

NOTE 5. DERIVATIVE FINANCIAL INSTRUMENTS

In connection with its interest rate risk management strategy, the Company economically hedges a portion of the cost of its repurchase agreement funding and junior subordinated notes by entering into derivatives and other hedging contracts. To date the Company has entered into Eurodollar and T-Note futures contracts, but may enter into other contracts in the future. The Company has not elected hedging treatment under GAAP, and as such all gains or losses (realized and unrealized) on these instruments are reflected in earnings for all periods presented.

In addition, the Company utilizes TBA securities as a means of investing in and financing MBS or as a means of reducing its exposure to MBS. The Company accounts for TBA securities as derivative instruments.

-12-

Derivative Liabilities, at Fair Value

The table below summarizes fair value information about our derivative liabilities as of March 31, 2019 and December 31, 2018.

(in thousands)
Derivative Instruments and Related Accounts	Balance Sheet Location	March 31, 2019		December 31, 2018
Liabilities
TBA Securities	Other liabilities	$	1,064	$	938
Total derivative liabilities, at fair value		$	1,064	$	938

Margin Balances Posted to (from) Counterparties
Futures contracts	Restricted cash	$	616	$	520
TBA securities	Restricted cash		1,167		543
Total margin balances on derivative contracts		$	1,783	$	1,063

Eurodollar and T-Note futures are cash settled futures contracts on an interest rate, with gains and losses credited or charged to the Company’s cash accounts on a daily basis. A minimum balance, or “margin”, is required to be maintained in the account on a daily basis. The tables below present information related to the Company’s Eurodollar positions at March 31, 2019 and December 31, 2018.

($ in thousands)
As of March 31, 2019
	Repurchase Agreement Funding Hedges
	Average		Weighted			Weighted
	Contract		Average			Average
	Notional		Entry			Effective			Open
Expiration Year	Amount		Rate			Rate			Equity ⁽¹⁾
2019	$	133,333		2.63	%		2.47	%	$	(160	)
2020		150,000		2.84	%		2.21	%		(947	)
2021		100,000		2.80	%		2.13	%		(669	)
Total / Weighted Average	$	127,273		2.77	%		2.26	%	$	(1,776	)

($ in thousands)
As of March 31, 2019
	Junior Subordinated Debt Funding Hedges
	Average		Weighted			Weighted
	Contract		Average			Average
	Notional		Entry			Effective			Open
Expiration Year	Amount		Rate			Rate			Equity ⁽¹⁾
2019	$	26,000		1.68	%		2.48	%	$	157
2020		19,500		1.92	%		2.23	%		60
Total / Weighted Average	$	22,286		1.80	%		2.35	%	$	217

($ in thousands)
As of December 31, 2018
	Repurchase Agreement Funding Hedges
	Average		Weighted			Weighted
	Contract		Average			Average
	Notional		Entry			Effective			Open
Expiration Year	Amount		Rate			Rate			Equity ⁽¹⁾
2019	$	125,000		2.56	%		2.67	%	$	139
2020		150,000		2.84	%		2.49	%		(523	)
2021		100,000		2.80	%		2.46	%		(346	)
Total / Weighted Average	$	125,000		2.74	%		2.54	%	$	(730	)

-13-

($ in thousands)
As of December 31, 2018
	Junior Subordinated Debt Funding Hedges
	Average		Weighted			Weighted
	Contract		Average			Average
	Notional		Entry			Effective			Open
Expiration Year	Amount		Rate			Rate			Equity ⁽¹⁾
2019	$	26,000		1.63	%		2.68	%	$	271
2020		26,000		1.95	%		2.49	%		142
2021		26,000		2.22	%		2.46	%		61
Total / Weighted Average	$	26,000		1.93	%		2.54	%	$	474

(1)	Open equity represents the cumulative gains (losses) recorded on open futures positions from inception.

The following table summarizes our contracts to purchase and sell TBA securities as of March 31, 2019 and December 31, 2018.

($ in thousands)
			Notional						Net
			Amount		Cost		Market		Carrying
			Long (Short) ⁽¹⁾		Basis ⁽²⁾		Value ⁽³⁾		Value ⁽⁴⁾
March 31, 2019
30-Year TBA Securities:
	3.0%	$	(50,000)	$	(48,719)	$	(49,783)	$	(1,064)
December 31, 2018
30-Year TBA Securities:
	3.0%	$	(50,000)	$	(47,844)	$	(48,782)	$	(938)

(1)	Notional amount represents the par value (or principal balance) of the underlying Agency MBS.

(2)	Cost basis represents the forward price to be paid (received) for the underlying Agency MBS.

(3)	Market value represents the current market value of the TBA securities (or of the underlying Agency MBS) as of period-end.

(4)	Net carrying value represents the difference between the market value and the cost basis of the TBA securities as of period-end and is reported in derivative assets (liabilities), at fair value in our consolidated balance sheets.

(Losses) Gains On Derivative Instruments

The table below presents the effect of the Company’s derivative financial instruments on the consolidated statements of operations for the three months ended March 31, 2019 and 2018.

(in thousands)
	2019			2018
Eurodollar futures contracts (short positions)
Repurchase agreement funding hedges	$	(969	)	$	1,090
Junior subordinated debt funding hedges		(220	)		415
T-Note futures contracts (short positions)
Repurchase agreement funding hedges		-			759
Net TBA securities		(1,068	)		(523	)
(Losses) gains on derivative instruments	$	(2,257	)	$	1,741

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Credit Risk-Related Contingent Features

The use of derivatives creates exposure to credit risk relating to potential losses that could be recognized in the event that the counterparties to these instruments fail to perform their obligations under the contracts. The Company attempts to minimize this risk in several ways. For instruments which are not centrally cleared on a registered exchange, the Company limits its counterparties to major financial institutions with acceptable credit ratings , and by monitoring positions with individual counterparties. In addition, the Company may be required to pledge assets as collateral for its derivatives, whose amounts vary over time based on the market value, notional amount and remaining term of the derivative contract. In the event of a default by a counterparty, the Company may not receive payments provided for under the terms of its derivative agreements, and may have difficulty recovering its assets pledged as collateral for its derivatives. The cash and cash equivalents pledged as collateral for the Company’s derivative instruments are included in restricted cash on the consolidated balance sheets.

NOTE 6. PLEDGED ASSETS

Assets Pledged to Counterparties

The table below summarizes Bimini’s assets pledged as collateral under its repurchase agreements and derivative agreements as of March 31, 2019 and December 31, 2018.

($ in thousands)
	March 31, 2019						December 31, 2018
	Repurchase		Derivative				Repurchase		Derivative
Assets Pledged to Counterparties	Agreements		Agreements		Total		Agreements		Agreements		Total
PT MBS - at fair value	$	209,262	$	-	$	209,262	$	209,675	$	-	$	209,675
Structured MBS - at fair value		2,320		-		2,320		2,675		-		2,675
Accrued interest on pledged securities		762		-		762		777		-		777
Restricted cash		-		1,783		1,783		230		1,063		1,293
Total	$	212,344	$	1,783	$	214,127	$	213,357	$	1,063	$	214,420

Assets Pledged from Counterparties

The table below summarizes assets pledged to Bimini from counterparties under repurchase agreements as of March 31, 2019 and December 31, 2018. Cash received as margin is recognized in cash and cash equivalents with a corresponding amount recognized as an increase in other liabilities in the consolidated balance sheets.

($ in thousands)
Assets Pledged to Bimini	March 31, 2019		December 31, 2018
PT MBS - at fair value	$	698	$	-
Cash		305		371
Total	$	1,003	$	371

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NOTE 7. OFFSETTING ASSETS AND LIABILITIES

The Company’s derivatives and repurchase agreements are subject to underlying agreements with master netting or similar arrangements, which provide for the right of offset in the event of default or in the event of bankruptcy of either party to the transactions. The Company reports its assets and liabilities subject to these arrangements on a gross basis. The following tables present information regarding those assets and liabilities subject to such arrangements as if the Company had presented them on a net basis as of March 31, 2019 and December 31, 2018.

(in thousands)
Offsetting of Liabilities
										Gross Amount Not Offset in the
							Net Amount			Consolidated Balance Sheet
				Gross Amount			of Liabilities			Financial
	Gross Amount			Offset in the			Presented in the			Instruments				Cash
	of Recognized			Consolidated			Consolidated			Posted as				Posted as				Net
	Liabilities			Balance Sheet			Balance Sheet			Collateral				Collateral				Amount
March 31, 2019
Repurchase Agreements		$	199,146		$	-		$	199,146		$	(199,146	)		$	-			$	-
TBA securities			1,064			-			1,064			-				(1,167	)			(103	)
		$	200,210		$	-		$	200,210		$	(199,146	)		$	(1,167	)		$	(103	)
December 31, 2018
Repurchase Agreements		$	200,396		$	-		$	200,396		$	(200,166	)		$	(230	)		$	-
TBA securities			938			-			938			-				(543	)			395
		$	201,334		$	-		$	201,334		$	(200,166	)		$	(773	)		$	395

The amounts disclosed for collateral received by or posted to the same counterparty are limited to the amount sufficient to reduce the asset or liability presented in the consolidated balance sheet to zero in accordance with ASC 210-20-50. The fair value of the actual collateral received by or posted to the same counterparty typically exceeds the amounts presented. See Note 6 for a discussion of collateral posted for, or received against, repurchase obligations and derivative instruments.

NOTE 8. 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.

As of March 31, 2019 and December 31, 2018, 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 March 31, 2019, the interest rate was 6.11%. 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. Bimini Capital's BCTII Junior Subordinated Notes are subordinate and junior in right of payment to all present and future senior indebtedness.

BCTII is a VIE because the holders of the equity investment at risk do not have adequate decision making ability over BCTII’s activities. Since Bimini Capital's investment in BCTII’s common equity securities was financed directly by BCTII 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 investment in BCTII is 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 consolidated financial statements, and this investment is accounted for on the equity method.

-16-

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

NOTE 9. COMMON STOCK

The table below presents information related to Bimini Capital’s Class A Common Stock issued during the three months ended March 31, 2019 and 2018.

Shares Issued Related To:	2019		2018
Shares sold directly to employees		-		83,332
Total shares of Class A Common Stock issued		-		83,332

There were no issuances of Bimini Capital's Class B Common Stock and Class C Common Stock during the three months ended March 31, 2019 and 2018.

Stock Repurchase Plan

On March 26, 2018, the Board of Directors of Bimini Capital Management, Inc. (the “Company”) approved a Stock Repurchase Plan (“Repurchase Plan”). Pursuant to Repurchase Plan, the Company may purchase up to 500,000 shares of its Class A Common Stock from time to time, subject to certain limitations imposed by Rule 10b-18 of the Securities Exchange Act of 1934. Share repurchases may be executed through various means, including, without limitation, open market transactions. The Repurchase Plan does not obligate the Company to purchase any shares. The Repurchase Plan was originally set to expire on November 15, 2018, but it was extended by the Board of Directors until November 15, 2019. The authorization for the Share Repurchase Plan may be terminated, increased or decreased by the Company’s Board of Directors in its discretion at any time.

From the inception of the Repurchase Plan through March 31, 2019, the Company repurchased a total of 70,404 shares at an aggregate cost of approximately $166,241, including commissions and fees, for a weighted average price of $2.37 per share.

NOTE 10. STOCK INCENTIVE PLANS

On August 12, 2011, Bimini Capital’s shareholders approved the 2011 Long Term Compensation Plan (the “2011 Plan”) to assist the Company in recruiting and retaining employees, directors and other service providers by enabling them to participate in the success of Bimini Capital and to associate their interests with those of the Company and its stockholders. The 2011 Plan is intended to permit the grant of stock options, stock appreciation rights (“SARs”), stock awards, performance units and other equity-based and incentive awards. The maximum aggregate number of shares of common stock that may be issued under the 2011 Plan pursuant to the exercise of options and SARs, the grant of stock awards or other equity-based awards and the settlement of incentive awards and performance units is equal to 4,000,000 shares.

-17-

Performance Units

The Compensation Committee of the Board of Directors of Bimini Capital (the "Committee") has issued, and may in the future issue additional, Performance Units under the 2011 Plan to certain officers and employees. “Performance Units” represent the participant’s right to receive an amount, based on the value of a specified number of shares of common stock, if the terms and conditions prescribed by the Committee are satisfied. The Committee will determine the requirements that must be satisfied before Performance Units are earned, including but not limited to any applicable performance period and performance goals. Performance goals may relate to the Company’s financial performance or the participant’s performance or such other criteria determined by the Committee, including goals stated with reference to the performance measures discussed below. If Performance Units are earned, they will be settled in cash, shares of common stock or a combination thereof.

The following table presents the activity related to Performance Units during the three months ended March 31, 2019 and 2018:

($ in thousands, except per share data)
	Three Months Ended March 31,
	2019					2018
			Weighted					Weighted
			Average					Average
			Grant Date					Grant Date
			Fair Value					Fair Value
	Shares		Per Share		Shares			Per Share
Unvested, beginning of period		-	$	-			41,000	$	0.84
Granted		-		-			-		-
Vested and issued		-		-			-		-
Unvested, end of period		-	$	-			41,000	$	0.84

Compensation expense during the period			$	-				$	3
Unrecognized compensation expense at period end			$	-				$	8
Weighted-average remaining vesting term (in years)				-					0.7
Intrinsic value of unvested shares at period end			$	-				$	96

NOTE 11. COMMITMENTS AND CONTINGENCIES

From time to time, the Company may become involved in various claims and legal actions arising in the ordinary course of business. Management is not aware of any significant reported or unreported contingencies at March 31, 2019.

NOTE 12. INCOME TAXES

The total income tax provision (benefit) recorded for the three months ended March 31, 2019 and 2018 was $0.6 million and $(1.1) million, respectively, on consolidated pre-tax book income (loss) of $2.2 million and $(4.4) million in the three months ended March 31, 2019 and 2018, respectively.

The Company’s tax provision is based on actual income to date and includes the expected realization of a portion of the tax benefits of federal and state net operating losses carryforwards (“NOLs”). In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of capital loss and NOL carryforwards is dependent upon the generation of future capital gains and taxable income in periods prior to their expiration. The Company currently provides a valuation allowance against a portion of the NOLs since the Company believes that it is more likely than not that some of the benefits will not be realized in the future. The Company will continue to assess the need for a valuation allowance at each reporting date.

-18-

NOTE 13. 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 March 31, 2019 and 2018.

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 March 31, 2019 and 2018.

The Company has dividend eligible stock incentive plan shares that were outstanding during the three months ended March 31, 2018. The basic and diluted per share computations include these unvested incentive plan shares if there is income available to Class A common stock, as they have dividend participation rights. The stock incentive plan shares have no contractual obligation to share in losses. Because 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.

The table below reconciles the numerator and denominator of EPS for the three months ended March 31, 2019 and 2018.

(in thousands, except per-share information)
	2019		2018
Basic and diluted EPS per Class A common share:
Income (loss) attributable to Class A common shares:
Basic and diluted	$	1,615	$	(3,266	)
Weighted average common shares:
Class A common shares outstanding at the balance sheet date		12,709		12,744
Effect of weighting		-		(14	)
Weighted average shares-basic and diluted		12,709		12,730
Income (loss) per Class A common share:
Basic and diluted	$	0.13	$	(0.26	)

(in thousands, except per-share information)
	2019		2018
Basic and diluted EPS per Class B common share:
Income (loss) attributable to Class B common shares:
Basic and diluted	$	4	$	(8	)
Weighted average common shares:
Class B common shares outstanding at the balance sheet date		32		32
Effect of weighting		-		-
Weighted average shares-basic and diluted		32		32
Income (loss) per Class B common share:
Basic and diluted	$	0.13	$	(0.26	)

-19-

NOTE 14. 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 non-performance. 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

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.

MBS, Orchid common stock, retained interests and TBA securities were all recorded at fair value on a recurring basis during the three months ended March 31, 2019 and 2018. 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 Company's MBS and TBA securities are valued using Level 2 valuations, and such valuations currently are determined by the Company based on independent pricing sources and/or third party broker quotes, 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. The Company and the independent pricing sources use various valuation techniques to determine the price of the Company’s securities. These techniques include observing the most recent market for like or identical assets, spread pricing techniques (option adjusted spread, zero volatility spread, spread to the U.S. Treasury curve or spread to a benchmark such as a TBA security), and model driven approaches (the discounted cash flow method, Black Scholes and SABR models which rely upon observable market rates such as the term structure of interest rates and volatility). The appropriate spread pricing method used is based on market convention. The pricing source determines the spread of recently observed trade activity or observable markets for assets similar to those being priced. The spread is then adjusted based on variances in certain characteristics between the market observation and the asset being priced. Those characteristics include: type of asset, the expected life of the asset, the stability and predictability of the expected future cash flows of the asset, whether the coupon of the asset is fixed or adjustable, the guarantor of the security if applicable, the coupon, the maturity, the issuer, size of the underlying loans, year in which the underlying loans were originated, loan to value ratio, state in which the underlying loans reside, credit score of the underlying borrowers and other variables if appropriate. The fair value of the security is determined by using the adjusted spread.

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The following table presents financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018:

(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)
March 31, 2019
Mortgage-backed securities	$	211,641		$	-	$	211,641		$	-
Orchid Island Capital, Inc. common stock		10,002			10,002		-			-
TBA securities		(1,064	)		-		(1,064	)		-
December 31, 2018
Mortgage-backed securities	$	212,424		$	-	$	212,424		$	-
Orchid Island Capital, Inc. common stock		9,713			9,713		-			-
TBA securities		(938	)		-		(938	)		-

The following table illustrates a roll forward for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2019 and 2018:

(in thousands)
	Retained Interests in Securitizations
	Three Months Ended March 31,
	2019			2018
Balances, January 1	$	-		$	653
Gain (loss) included in earnings		275			(83	)
Collections		(275	)		(298	)
Balances, March 31	$	-		$	272

During the three months ended March 31, 2019 and 2018, there were no transfers of financial assets or liabilities between levels 1, 2 or 3.

NOTE 15. SEGMENT INFORMATION

The Company’s operations are classified into two principal reportable segments: the asset management segment and the investment portfolio segment.

The asset management segment includes the investment advisory services provided by Bimini Advisors to Orchid and Royal Palm. As discussed in Note 2, the revenues of the asset management segment consist of management fees and overhead reimbursements received pursuant to a management agreement with Orchid. Total revenues received under this management agreement for the three months ended March 31, 2019 and 2018, were approximately $1.6 million and $2.1 million, respectively, accounting for approximately 39% and 45% of consolidated revenues, respectively.

The investment portfolio segment includes the investment activities conducted by Royal Palm. The investment portfolio segment receives revenue in the form of interest and dividend income on its investments.

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Segment information for the three months ended March 31, 2019 and 2018 is as follows:

(in thousands)
	Asset			Investment
	Management			Portfolio			Corporate			Eliminations			Total
2019
Advisory services, external customers	$	1,607		$	-		$	-		$	-		$	1,607
Advisory services, other operating segments ⁽¹⁾		68			-			-			(68	)		-
Interest and dividend income		-			2,555			-			-			2,555
Interest expense		-			(1,313	)		(406	) ⁽²⁾		-			(1,719	)
Net revenues		1,675			1,242			(406	)		(68	)		2,443
Other		-			1,304			55	⁽³⁾		-			1,359
Operating expenses ⁽⁴⁾		(630	)		(991	)		-			-			(1,621	)
Intercompany expenses ⁽¹⁾		-			(68	)		-			68			-
Income (loss) before income taxes	$	1,045		$	1,487		$	(351	)	$	-		$	2,181

	Asset			Investment
	Management			Portfolio			Corporate			Eliminations			Total
2018
Advisory services, external customers	$	2,093		$	-		$	-		$	-		$	2,093
Advisory services, other operating segments ⁽¹⁾		58			-			-			(58	)		-
Interest and dividend income		-			2,551			-			-			2,551
Interest expense		-			(809	)		(337	) ⁽²⁾		-			(1,146	)
Net revenues		2,151			1,742			(337	)		(58	)		3,498
Other		-			(6,457	)		333	⁽³⁾		-			(6,124	)
Operating expenses ⁽⁴⁾		(761	)		(978	)		-			-			(1,739	)
Intercompany expenses ⁽¹⁾		-			(58	)		-			58			-
Income (loss) before income taxes	$	1,390		$	(5,751	)	$	(4	)	$	-		$	(4,365	)

(1)	Includes fees paid by Royal Palm to Bimini Advisors for advisory services.

(2)	Includes interest on junior subordinated note.

(3)	Includes gains (losses) on Eurodollar futures contracts entered into as a hedge on junior subordinated notes and fair value adjustments on retained interests in securitizations.

(4)	Corporate expenses are allocated based on each segment’s proportional share of total revenues.

Assets in each reportable segment were as follows:

(in thousands)
	Asset			Investment
	Management			Portfolio			Corporate			Total
March 31, 2019		$	1,507		$	245,045		$	12,241		$	258,793
December 31, 2018			1,488			245,866			12,046			259,400

NOTE 16. RELATED PARTY TRANSACTIONS

Relationships with Orchid

At both March 31, 2019 and December 31, 2018, the Company owned 1,520,036 shares of Orchid common stock, representing approximately 3.0% and 3.1% of Orchid’s outstanding common stock on such dates. The Company received dividends on this common stock investment of approximately $0.4 million and $0.5 million during the three months ended March 31, 2019 and 2018, respectively.

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Robert Cauley, the Chief Executive Officer and Chairman of the Board of Directors of the Company, also serves as Chief Executive Officer and Chairman of the Board of Directors of Orchid, receives compensation from Orchid, and owns shares of common stock of Orchid. In addition, Hunter Haas, the Chief Financial Officer, Chief Investment Officer and Treasurer of the Company, also serves as Chief Financial Officer, Chief Investment Officer and Secretary of Orchid, is a member of Orchid’s Board of Directors, receives compensation from Orchid, and owns shares of common stock of Orchid. Robert J. Dwyer and Frank E. Jaumot, our independent directors, each own shares of common stock of Orchid.

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

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and notes to those statements included in Item 1 of this Form 10-Q. The discussion may contain certain forward-looking statements that involve risks and uncertainties. Forward-looking statements are those that are not historical in nature. As a result of many factors, such as those set forth under “Risk Factors” in our most recent Annual Report on Form 10-K, our actual results may differ materially from those anticipated in such forward-looking statements.

Overview

Bimini Capital Management, Inc. ("Bimini Capital" or the "Company") is a holding company that was formed in September 2003. The Company’s principal wholly-owned operating subsidiaries are Bimini Advisors Holdings, LLC and Royal Palm Capital, LLC. We operate in two business segments: the asset management segment, which includes the investment advisory services provided by Bimini Advisors to Orchid, and the investment portfolio segment, which includes the investment activities conducted by Bimini Capital and Royal Palm.

Bimini Advisors Holdings, LLC and its wholly-owned subsidiary, Bimini Advisors, LLC (a registered investment advisor), are collectively referred to as “Bimini Advisors.” Bimini Advisors serves as the external manager of the portfolio of Orchid Island Capital, Inc. ("Orchid"). From this arrangement, the Company receives management fees and expense reimbursements. As manager, Bimini Advisors is responsible for administering Orchid's business activities and day-to-day operations. Pursuant to the terms of the management agreement, Bimini Advisors provides Orchid with its management team, including its officers, along with appropriate support personnel. Bimini Advisors is at all times subject to the supervision and oversight of Orchid's board of directors and has only such functions and authority as delegated to it. In addition, the Company receives dividends from its investment in Orchid common shares.

Royal Palm Capital, LLC (collectively with its wholly-owned subsidiaries referred to as “Royal Palm”) maintains an investment portfolio, consisting primarily of residential mortgage-backed securities ("MBS") issued and guaranteed by a federally chartered corporation or agency ("Agency MBS"). Our investment strategy focuses on, and our portfolio consists of, two categories of Agency MBS: (i) traditional pass-through Agency MBS ("PT MBS") and (ii) structured Agency MBS, such as collateralized mortgage obligations ("CMOs"), interest only securities ("IOs"), inverse interest only securities ("IIOs") and principal only securities ("POs"), among other types of structured Agency MBS.

Stock Repurchase Plan

Through March 31, 2019, the Company repurchased a total of 70,704 shares at an aggregate cost of approximately $166,241, including commissions and fees, for a weighted average price of $2.37 per share.

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Factors that Affect our Results of Operations and Financial Condition

A variety of industry and economic factors may impact our results of operations and financial condition. These factors include:

·	interest rate trends;

·	the difference between Agency MBS yields and our funding and hedging costs;

·	competition for investments in Agency MBS;

·	actions taken by the U.S. government, including the presidential administration, the Federal Reserve (the “Fed”), the Federal Open Market Committee (the “FOMC”) and the U.S. Treasury;

·	prepayment rates on mortgages underlying our Agency MBS, and credit trends insofar as they affect prepayment rates; and

·	the equity markets and the ability of Orchid to raise additional capital; and

·	other market developments.

In addition, a variety of factors relating to our business may also impact our results of operations and financial condition. These factors include:

·	our degree of leverage;

·	our access to funding and borrowing capacity;

·	our borrowing costs;

·	our hedging activities;

·	the market value of our investments;

·	the requirements to qualify for a registration exemption under the Investment Company Act;

·	our ability to use net operating loss carryforwards and net capital loss carryforwards to reduce our taxable income;

·	the impact of possible future changes in tax laws; and

·	our ability to manage the portfolio of Orchid and maintain our role as manager.

Results of Operations

Described below are the Company’s results of operations for the three months ended March 31, 2019, as compared to the three months ended March 31, 2018.

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Net Income (Loss) Summary

Consolidated net income for the three months ended March 31, 2019 was $1.6 million, or $0.13 basic and diluted income per share of Class A Common Stock, as compared to a consolidated net loss of $3.3 million, or $0.26 basic and diluted loss per share of Class A Common Stock, for the three months ended March 31, 2018. The components of net income (loss) for the three months ended March 31, 2019 and 2018, along with the changes in those components are presented in the table below.

(in thousands)
	Three Months Ended March 31,
	2019			2018			Change
Advisory services revenues	$	1,607		$	2,093		$	(486	)
Interest and dividend income		2,555			2,551			4
Interest expense		(1,719	)		(1,146	)		(573	)
Net revenues		2,443			3,498			(1,055	)
Other income (expense)		1,359			(6,124	)		7,483
Expenses		(1,621	)		(1,739	)		118
Net income (loss) before income tax provision (benefit)		2,181			(4,365	)		6,546
Income tax provision (benefit)		562			(1,091	)		1,653
Net income (loss)	$	1,619		$	(3,274	)	$	4,893

GAAP and Non-GAAP Reconciliation

Economic Interest Expense and Economic Net Interest Income

We use derivative instruments, specifically Eurodollar and Treasury Note (“T-Note”) futures contracts and TBA short positions to hedge a portion of the interest rate risk on repurchase agreements in a rising rate environment.

We have not elected to designate our derivative holdings for hedge accounting treatment under ASC Topic 815, Derivatives and Hedging . Changes in fair value of these instruments are presented in a separate line item in our consolidated statements of operations and not included in interest expense. As such, for financial reporting purposes, interest expense and cost of funds are not impacted by the fluctuation in value of the derivative instruments.

For the purpose of computing economic net interest income and ratios relating to cost of funds measures, GAAP interest expense has been adjusted to reflect the realized and unrealized gains or losses on certain derivative instruments the Company uses that pertain to each period presented. We believe that adjusting our interest expense for the periods presented by the gains or losses on these derivative instruments would not accurately reflect our economic interest expense for these periods. The reason is that these derivative instruments may cover periods that extend into the future, not just the current period. Any realized or unrealized gains or losses on the instruments reflect the change in market value of the instrument caused by changes in underlying interest rates applicable to the term covered by the instrument, not just the current period.

For each period presented, we have combined the effects of the derivative financial instruments in place for the respective period with the actual interest expense incurred on borrowings to reflect total economic interest expense for the applicable period. Interest expense, including the effect of derivative instruments for the period, is referred to as economic interest expense. Net interest income, when calculated to include the effect of derivative instruments for the period, is referred to as economic net interest income. This presentation includes gains or losses on all contracts in effect during the reporting period, covering the current period as well as periods in the future.

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We believe that economic interest expense and economic net interest income provide meaningful information to consider, in addition to the respective amounts prepared in accordance with GAAP. The non-GAAP measures help management to evaluate its financial position and performance without the effects of certain transactions and GAAP adjustments that are not necessarily indicative of our current investment portfolio or operations. The unrealized gains or losses on derivative instruments presented in our consolidated statements of operations are not necessarily representative of the total interest rate expense that we will ultimately realize. This is because as interest rates move up or down in the future, the gains or losses we ultimately realize, and which will affect our total interest rate expense in future periods, may differ from the unrealized gains or losses recognized as of the reporting date.

Our presentation of the economic value of our hedging strategy has important limitations. First, other market participants may calculate economic interest expense and economic net interest income differently than the way we calculate them. Second, while we believe that the calculation of the economic value of our hedging strategy described above helps to present our financial position and performance, it may be of limited usefulness as an analytical tool. Therefore, the economic value of our investment strategy should not be viewed in isolation and is not a substitute for interest expense and net interest income computed in accordance with GAAP.

The tables below present a reconciliation of the adjustments to interest expense shown for each period relative to our derivative instruments, and the consolidated statements of operations line item, gains (losses) on derivative instruments, calculated in accordance with GAAP for each quarter in 2019 and 2018.

Gains (Losses) on Derivative Instruments - Recognized in Consolidated Statement of Operations (GAAP)

(in thousands)

Recognized in

Statement of

TBA

Operations

Securities

Futures

(GAAP)

Income (Loss)

Contracts

Three Months Ended