Company Quick10K Filing
Quick10K
Bimini Capital Management
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2017-01-31 Annual: 2017-01-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-08-08 Earnings, Exhibits
8-K 2019-06-11 Shareholder Vote
8-K 2019-05-09 Earnings, Exhibits
8-K 2019-03-19 Earnings, Exhibits
8-K 2018-11-01 Earnings, Exhibits
8-K 2018-09-25 Other Events
8-K 2018-08-02 Earnings, Exhibits
8-K 2018-06-12 Shareholder Vote
8-K 2018-05-07 Earnings, Exhibits
8-K 2018-03-26 Regulation FD, Exhibits
8-K 2018-03-07 Earnings, Exhibits
EDRG Rokk3R 203
IGAP Integrity Applications 66
TRUU True Drinks Holdings 50
TNRG Thunder Energies 5
GLLA Gilla 4
OZSC Ozop Surgical 1
TBMM China Vtv 0
VSYM View Systems 0
EXENT Exent 0
LZD Lazard Group 0
BMNM 2019-06-30
Part I. Financial Information
Item 1. Financial Statements
Note 1. Organization and Significant Accounting Policies
Note 2. Advisory Services
Note 3. Mortgage-Backed Securities
Note 4. Repurchase Agreements
Note 5. Derivative Financial Instruments
Note 6. Pledged Assets
Note 7. Offsetting Assets and Liabilities
Note 8. Trust Preferred Securities
Note 9. Common Stock
Note 10. Stock Incentive Plans
Note 11. Commitments and Contingencies
Note 12. Income Taxes
Note 13. Earnings per Share
Note 14. Fair Value
Note 15. Segment Information
Note 16. Related Party Transactions
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures.
Item 5. Other Information
Item 6. Exhibits
EX-31.1 bmnm10q20190630x311.htm
EX-31.2 bmnm10q20190630x312.htm
EX-32.1 bmnm10q20190630x321.htm
EX-32.2 bmnm10q20190630x322.htm

Bimini Capital Management Earnings 2019-06-30

BMNM 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 bmnm10q20190630.htm BMNI 10-Q 2019-06-30


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 June 30, 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)



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

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

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
August 9, 2019
11,608,555
Class B Common Stock, $0.001 par value
August 9, 2019
31,938
Class C Common Stock, $0.001 par value
August 9, 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
   
25
 
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
   
48
 
ITEM 4. Controls and Procedures
   
48
 
         
PART II. OTHER INFORMATION
 
         
ITEM 1. Legal Proceedings
   
49
 
ITEM 1A. Risk Factors
   
49
 
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
   
49
 
ITEM 3. Defaults Upon Senior Securities
   
49
 
ITEM 4. Mine Safety Disclosures
   
49
 
ITEM 5. Other Information
   
49
 
ITEM 6. Exhibits
   
50
 
SIGNATURES
   
51
 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BIMINI CAPITAL MANAGEMENT, INC.
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
             
   
(Unaudited)
       
   
June 30, 2019
   
December 31, 2018
 
ASSETS:
           
Mortgage-backed securities, at fair value
           
Pledged to counterparties
 
$
211,118,462
   
$
212,349,874
 
Unpledged
   
52,000
     
74,318
 
Total mortgage-backed securities
   
211,170,462
     
212,424,192
 
Cash and cash equivalents
   
5,883,398
     
4,947,801
 
Restricted cash
   
2,656,085
     
1,292,687
 
Orchid Island Capital, Inc. common stock, at fair value
   
9,667,429
     
9,713,030
 
Accrued interest receivable
   
750,193
     
780,535
 
Property and equipment, net
   
3,261,351
     
3,298,067
 
Deferred tax assets, at fair value
   
22,603,791
     
23,202,821
 
Other assets
   
3,768,804
     
3,740,543
 
Total Assets
 
$
259,761,513
   
$
259,399,676
 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
LIABILITIES:
               
Repurchase agreements
 
$
200,656,000
   
$
200,396,000
 
Junior subordinated notes due to Bimini Capital Trust II
   
26,804,440
     
26,804,440
 
Accrued interest payable
   
818,485
     
678,262
 
Other liabilities
   
1,412,628
     
2,566,353
 
Total Liabilities
   
229,691,553
     
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 June 30, 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 June 30, 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 June 30, 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 June 30, 2019 and December 31, 2018
   
32
     
32
 
Additional paid-in capital
   
334,917,723
     
334,919,265
 
Accumulated deficit
   
(304,860,536
)
   
(305,977,417
)
Stockholders’ Equity
   
30,069,960
     
28,954,621
 
Total Liabilities and Stockholders' Equity
 
$
259,761,513
   
$
259,399,676
 
See Notes to Condensed Consolidated Financial Statements
 

-1-

BIMINI CAPITAL MANAGEMENT, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
(Unaudited)
 
For the Six and Three Months Ended June 30, 2019 and 2018
 
                         
    
Six Months Ended June 30,
   
Three Months Ended June 30,
 
   
2019
   
2018
   
2019
   
2018
 
Revenues:
                       
Advisory services
 
$
3,261,116
   
$
4,060,459
   
$
1,653,796
   
$
1,966,994
 
Interest income
   
4,324,093
     
4,080,776
     
2,133,677
     
2,000,510
 
Dividend income from Orchid Island Capital, Inc. common stock
   
729,617
     
881,621
     
364,809
     
410,410
 
Total revenues
   
8,314,826
     
9,022,856
     
4,152,282
     
4,377,914
 
Interest expense
                               
Repurchase agreements
   
(2,652,893
)
   
(1,746,554
)
   
(1,340,029
)
   
(937,288
)
Junior subordinated notes
   
(806,147
)
   
(709,485
)
   
(399,592
)
   
(372,152
)
Net revenues
   
4,855,786
     
6,566,817
     
2,412,661
     
3,068,474
 
                                 
Other expense:
                               
Unrealized gains (losses) on mortgage-backed securities
   
5,276,251
     
(6,813,783
)
   
2,224,016
     
(1,933,977
)
Realized losses on mortgage-backed securities
   
-
     
(103,356
)
   
-
     
(103,356
)
Unrealized (losses) gains on Orchid Island Capital, Inc. common stock
   
(45,601
)
   
(2,675,263
)
   
(334,408
)
   
228,005
 
(Losses) gains on derivative instruments
   
(5,621,756
)
   
2,610,422
     
(3,364,345
)
   
869,710
 
Gains (losses) on retained interests in securitizations
   
275,115
     
(251,831
)
   
-
     
(169,167
)
Other income
   
494
     
915
     
248
     
308
 
Total other expense
   
(115,497
)
   
(7,232,896
)
   
(1,474,489
)
   
(1,108,477
)
                                 
Expenses:
                               
Compensation and related benefits
   
2,087,625
     
2,102,531
     
1,016,844
     
1,036,076
 
Directors' fees and liability insurance
   
321,308
     
321,225
     
160,666
     
160,612
 
Audit, legal and other professional fees
   
284,027
     
298,506
     
145,395
     
122,754
 
Administrative and other expenses
   
526,029
     
667,455
     
275,058
     
331,295
 
Total expenses
   
3,218,989
     
3,389,717
     
1,597,963
     
1,650,737
 
                                 
Net income (loss) before income tax provision (benefit)
   
1,521,300
     
(4,055,796
)
   
(659,791
)
   
309,260
 
Income tax provision (benefit)
   
404,419
     
(1,004,310
)
   
(158,069
)
   
86,980
 
                                 
Net income (loss)
 
$
1,116,881
   
$
(3,051,486
)
 
$
(501,722
)
 
$
222,280
 
                                 
Basic and Diluted Net income (loss) Per Share of:
                               
CLASS A COMMON STOCK
                               
Basic and Diluted
 
$
0.09
   
$
(0.24
)
 
$
(0.04
)
 
$
0.02
 
CLASS B COMMON STOCK
                               
Basic and Diluted
 
$
0.09
   
$
(0.24
)
 
$
(0.04
)
 
$
0.02
 
Weighted Average Shares Outstanding:
                               
CLASS A COMMON STOCK
                               
Basic and Diluted
   
12,708,587
     
12,729,666
     
12,708,555
     
12,770,265
 
CLASS B COMMON STOCK
                               
Basic and Diluted
   
31,938
     
31,938
     
31,938
     
31,938
 
See Notes to Condensed Consolidated Financial Statements
 

-2-

BIMINI CAPITAL MANAGEMENT, INC.
 
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
 
(Unaudited)
 
For the Six and Three Months Ended June 30, 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
 
Net income
   
-
     
-
     
222,280
     
222,280
 
Class A common shares repurchased and retired
   
(31
)
   
(73,316
)
   
-
     
(73,347
)
Amortization of stock based compensation
   
-
     
2,869
     
-
     
2,869
 
Balances, June 30, 2018
 
$
12,777
   
$
335,011,115
   
$
(282,250,742
)
 
$
52,773,150
 
                                 
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
 
Net loss
   
-
     
-
     
(501,722
)
   
(501,722
)
Balances, June 30, 2019
 
$
12,773
   
$
334,917,723
   
$
(304,860,536
)
 
$
30,069,960
 
See Notes to Condensed Consolidated Financial Statements
 

-3-

BIMINI CAPITAL MANAGEMENT, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(Unaudited)
 
For the Six Months Ended June 30, 2019 and 2018
 
             
   
2019
   
2018
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income (loss)
 
$
1,116,881
   
$
(3,051,486
)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
               
Stock based compensation
   
-
     
5,738
 
Depreciation
   
36,716
     
38,901
 
Deferred income tax provision (benefit)
   
599,030
     
(809,502
)
(Gains) losses on mortgage-backed securities, net
   
(5,276,251
)
   
6,917,139
 
(Gains) losses on retained interests in securitizations
   
(275,115
)
   
251,831
 
Unrealized losses on Orchid Island Capital, Inc. common stock
   
45,601
     
2,675,263
 
Realized and unrealized losses on forward settling TBA securities
   
1,801,321
     
330,078
 
Changes in operating assets and liabilities:
               
Accrued interest receivable
   
30,342
     
75,909
 
Other assets
   
(28,261
)
   
(237,926
)
Accrued interest payable
   
140,223
     
(25,584
)
Other liabilities
   
(395,183
)
   
(146,735
)
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
   
(2,204,696
)
   
6,023,626
 
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
From mortgage-backed securities investments:
               
Purchases
   
(3,285,372
)
   
(5,080,712
)
Sales
   
-
     
9,089,456
 
Principal repayments
   
9,815,353
     
14,240,674
 
Payments received on retained interests in securitizations
   
-
     
401,549
 
Proceeds from termination of retained interests
   
275,115
     
-
 
Purchases of property and equipment
   
-
     
(15,392
)
Net settlement of forward settling TBA contracts
   
(2,559,863
)
   
13,672
 
NET CASH PROVIDED BY INVESTING ACTIVITIES
   
4,245,233
     
18,649,247
 
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from repurchase agreements
   
574,564,000
     
848,802,237
 
Principal repayments on repurchase agreements
   
(574,304,000
)
   
(873,562,509
)
Class A common shares repurchased and retired
   
(1,542
)
   
(73,347
)
Class A common shares sold directly to employees
   
-
     
199,997
 
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
   
258,458
     
(24,633,622
)
                 
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
   
2,298,995
     
39,251
 
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
 
$
8,539,483
   
$
8,792,111
 
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
               
Cash paid (received) during the period for:
               
Interest expense
 
$
3,318,817
   
$
2,481,623
 
Income taxes
 
$
(46,700
)
 
$
303,458
 
See Notes to Condensed Consolidated Financial Statements
 
-4-

BIMINI CAPITAL MANAGEMENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 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 (an investment advisor registered with the Securities and Exchange Commission), 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 six and three month periods ended June 30, 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 June 30, 2019 and December 31, 2018.

(in thousands)
           
 
June 30, 2019
 
December 31, 2018
 
Cash and cash equivalents
 
$
5,883,398
   
$
4,947,801
 
Restricted cash
   
2,656,085
     
1,292,687
 
Total cash, cash equivalents and restricted cash
 
$
8,539,483
   
$
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 June 30, 2019, the Company’s cash deposits exceeded federally insured limits by approximately $4.5 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. These retained interests currently have a recorded fair value of zero, but may generate cash flows in the future. 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.

Derivative instruments are carried at fair value, and changes in fair value are recorded in the consolidated operations for each period. The Company’s derivative financial instruments are not designated as hedge accounting relationships, but rather are used as economic hedges of its portfolio assets and liabilities.

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 June 30, 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.

-9-


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 June 2016, the FASB issued Accounting Standards Update (“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 six and three months ended June 30, 2019 and 2018.

(in thousands)
                       
   
Six Months Ended June 30,
   
Three Months Ended June 30,
 
   
2019
   
2018
   
2019
   
2018
 
Management fee
 
$
2,611
   
$
3,318
   
$
1,327
   
$
1,606
 
Allocated overhead
   
650
     
742
     
327
     
361
 
Total
 
$
3,261
   
$
4,060
   
$
1,654
   
$
1,967
 

At June 30, 2019 and December 31, 2018, the net amount due from Orchid was approximately $0.6 million and $0.7 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 June 30, 2019 and December 31, 2018:

(in thousands)
           
   
June 30, 2019
   
December 31, 2018
 
Fixed-rate MBS
 
$
209,080
   
$
209,675
 
Interest-Only MBS
   
1,472
     
2,021
 
Inverse Interest-Only MBS
   
618
     
728
 
Total
 
$
211,170
   
$
212,424
 

NOTE 4.   REPURCHASE AGREEMENTS

As of June 30, 2019, the Company had outstanding repurchase agreement obligations of approximately $200.7 million with a net weighted average borrowing rate of 2.63%.  These agreements were collateralized by MBS with a fair value, including accrued interest, of approximately $211.9 million, and cash pledged to counterparties of approximately $1.9 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.

-11-


As of June 30, 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
 
June 30, 2019
                             
Fair value of securities pledged, including accrued
                             
interest receivable
 
$
1,692
   
$
89,115
   
$
116,520
   
$
4,540
   
$
211,867
 
Repurchase agreement liabilities associated with
                                       
these securities
 
$
1,146
   
$
84,967
   
$
110,355
   
$
4,188
   
$
200,656
 
Net weighted average borrowing rate
   
2.94
%
   
2.64
%
   
2.62
%
   
2.64
%
   
2.63
%
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 June 30, 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 $12.4 million and $12.4 million, respectively.  Summary information regarding amounts at risk with individual counterparties greater than 10% of equity at June 30, 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)
 
June 30, 2019
                 
ED&F Man Capital Markets Inc.
 
$
5,681
     
18.9
%
   
29
 
Mirae Asset Securities (USA) Inc.
   
3,411
     
11.3
%
   
51
 
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 June 30, 2019 and December 31, 2018.

(in thousands)
           
Derivative Instruments and Related Accounts
Balance Sheet Location
 
June 30, 2019
   
December 31, 2018
 
Liabilities
           
TBA Securities
Other liabilities
 
$
179
   
$
938
 
Total derivative liabilities, at fair value
   
$
179
   
$
938
 
                   
Margin Balances Posted to Counterparties
                 
Futures contracts
Restricted cash
 
$
685
   
$
520
 
TBA securities
Restricted cash
   
66
     
543
 
Total margin balances on derivative contracts
   
$
751
   
$
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 and T-note futures positions at June 30, 2019 and December 31, 2018.

($ in thousands)
                       
As of June 30, 2019
                       
   
Repurchase Agreement Funding Hedges
 
   
Average
   
Weighted
   
Weighted
       
   
Contract
   
Average
   
Average
       
   
Notional
   
Entry
   
Effective
   
Open
 
Expiration Year
 
Amount
   
Rate
   
Rate
   
Equity(1)
 
Eurodollar Futures Contracts (Short Positions)
                       
2019
 
$
150,000
     
2.71
%
   
1.96
%
 
$
(568
)
2020
   
150,000
     
2.84
%
   
1.61
%
   
(1,849
)
2021
   
100,000
     
2.80
%
   
1.57
%
   
(1,231
)
Total / Weighted Average
 
$
130,000
     
2.80
%
   
1.68
%
 
$
(3,648
)
                                 
Treasury Note Futures Contracts (Short Position)(2)
                               
September 2019 5-year T-Note futures
                               
(Sep 2019 - Sep 2024 Hedge Period)
 
$
25,000
     
2.60
%
   
2.15
%
 
$
(581
)

($ in thousands)
                       
As of June 30, 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
     
1.72
%
   
1.96
%
 
$
31
 
2020
   
19,500
     
1.92
%
   
1.63
%
   
(57
)
Total / Weighted Average
 
$
21,667
     
1.84
%
   
1.76
%
 
$
(26
)

-13-


($ 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
)

($ 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.
(2)
T-Note futures contracts were valued at a price of $118.16 at June 30, 2019.  The notional contract values of the short positions were $29.5 million.

The following table summarizes our contracts to purchase and sell TBA securities as of June 30, 2019 and December 31, 2018.

($ in thousands)
                   
       
Notional
               
Net
 
       
Amount
   
Cost
   
Market
   
Carrying
 
       
Long (Short)(1)
   
Basis(2)
   
Value(3)
   
Value(4)
 
June 30, 2019
                         
30-Year TBA Securities:
                         
   
3.5
%
 
$
(65,000
)
 
$
(66,280
)
 
$
(66,459
)
 
$
(179
)
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.

-14-


(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 six and three months ended June 30, 2019 and 2018.

(in thousands)
                       
    
Six Months Ended June 30,
   
Three Months Ended June 30,
 
   
2019
   
2018
   
2019
   
2018
 
Eurodollar futures contracts (short positions)
                       
Repurchase agreement funding hedges
 
$
(2,831
)
 
$
1,624
   
$
(1,860
)
 
$
534
 
Junior subordinated debt funding hedges
   
(409
)
   
557
     
(189
)
   
142
 
T-Note futures contracts (short positions)
                               
Repurchase agreement funding hedges
   
(581
)
   
759
     
(581
)
   
-
 
Net TBA securities
   
(1,801
)
   
(330
)
   
(734
)
   
194
 
(Losses) gains on derivative instruments
 
$
(5,622
)
 
$
2,610
   
$
(3,364
)
 
$
870
 

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 June 30, 2019 and December 31, 2018.

($ in thousands)
                                   
   
June 30, 2019
   
December 31, 2018
 
   
Repurchase
   
Derivative
         
Repurchase
   
Derivative
       
Assets Pledged to Counterparties
 
Agreements
   
Agreements
   
Total
   
Agreements
   
Agreements
   
Total
 
PT MBS - at fair value
 
$
209,078
   
$
-
   
$
209,078
   
$
209,675
   
$
-
   
$
209,675
 
Structured MBS - at fair value
   
2,040
     
-
     
2,040
     
2,675
     
-
     
2,675
 
Accrued interest on pledged securities
   
748
     
-
     
748
     
777
     
-
     
777
 
Restricted cash
   
1,905
     
751
     
2,656
     
230
     
1,063
     
1,293
 
Total
 
$
213,771
   
$
751
   
$
214,522
   
$
213,357
   
$
1,063
   
$
214,420
 

-15-


Assets Pledged from Counterparties

The table below summarizes assets pledged to Bimini from counterparties under repurchase agreements as of June 30, 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
 
June 30, 2019
   
December 31, 2018
 
Cash
 
$
21
   
$
371
 
Total
 
$
21
   
$
371
 

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 June 30, 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
 
June 30, 2019
                                   
Repurchase Agreements
 
$
200,656
   
$
-
   
$
200,656
   
$
(198,751
)
 
$
(1,905
)
 
$
-
 
TBA securities
   
179
     
-
     
179
     
-
     
(66
)
   
113
 
   
$
200,835
   
$
-
   
$
200,835
   
$
(198,751
)
 
$
(1,971
)
 
$
113
 
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.

-16-


As of June 30, 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 June 30, 2019, the interest rate was 5.91%. 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 substantive 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.

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 six and three months ended June 30, 2019 and 2018.

   
Six Months Ended June 30,
   
Three Months Ended June 30,
 
Shares Issued Related To:
 
2019
   
2018
   
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 six months ended June 30, 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 June 30, 2019, the Company repurchased a total of 70,404 shares at an aggregate cost of approximately $166,945, including commissions and fees, for a weighted average price of $2.37 per share.

Tender Offer

In July 2019, the Company completed a “modified Dutch auction” tender offer and paid an aggregate of $2.2 million, excluding fees and related expenses, to repurchase 1.1 million shares of Bimini Capital’s Class A common stock, which were retired, at a price of $2.00 per share. The financial statement impact of the completion of this tender offer will be reported in our September 30, 2019 quarterly results.

-17-

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.

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 six months ended June 30, 2019 and 2018:

($ in thousands, except per share data)
                       
   
Six Months Ended June 30,
 
   
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
         
$
-
           
$
6
 
Unrecognized compensation expense at period end
         
$
-
           
$
5
 
Weighted-average remaining vesting term (in years)
           
-
             
0.5
 
Intrinsic value of unvested shares at period end
         
$
-
           
$
97
 

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 June 30, 2019.

-18-


NOTE 12.  INCOME TAXES

The total income tax provision (benefit) recorded for the six months ended June 30, 2019 and 2018 was $0.4 million and $(1.0) million, respectively, on consolidated pre-tax book income (loss) of $1.5 million and $(4.1) million in the six months ended June 30, 2019 and 2018, respectively. The total income tax provision (benefit) recorded for the three months ended June 30, 2019 and 2018 was $(0.2) million and $0.1 million, respectively, on consolidated pre-tax book income (loss) of $(0.7) million and $0.3 million in the three months ended June 30, 2019 and 2018, respectively.

The Company’s tax provision is based on a projected effective rate based on annualized amounts applied to 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.

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 June 30, 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 June 30, 2019 and 2018.

The Company has dividend eligible stock incentive plan shares that were outstanding during the six and three months ended June 30, 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.

-19-


The table below reconciles the numerator and denominator of EPS for the six and three months ended June 30, 2019 and 2018.

(in thousands, except per-share information)
                       
     
Six Months Ended June 30,
   
Three Months Ended June 30,
 
   
2019
   
2018
   
2019
   
2018
 
Basic and diluted EPS per Class A common share:
                       
Income (loss) attributable to Class A common shares:
                       
Basic and diluted
 
$
1,114
   
$
(3,043
)
 
$
(501
)
 
$
221
 
Weighted average common shares:
                               
Class A common shares outstanding at the balance sheet date
   
12,709
     
12,713
     
12,709
     
12,713
 
Unvested dividend-eligible stock incentive plan shares
                               
outstanding at the balance sheet date
   
-
     
-
     
-
     
41
 
Effect of weighting