**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-Q**

 

**ý****QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended March 31, 2005**

 

**or**

 

**o****TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934**

 

**For the transition period from         to        .**

 

**Commission File No. 001-32171**

 

**BIMINI MORTGAGE MANAGEMENT, INC.**

(Exact name of registrant as specified in itscharter)

 
| **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 reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes ýNo o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Exchange Act Rule 12b-2). Yes o No ý

 

At March 31, 2005, the number of shares outstanding of the registrant’sClass A Common Stock, $0.001 par value, was 20,374,883; the number of sharesoutstanding of the registrant’s Class B Common Stock, $0.001 par value, was 319,388;and the number of shares outstanding of the registrant’s Class C Common Stock,$0.001 par value, was 319,388.

 

 

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**BIMINI MORTGAGEMANAGEMENT, INC.**

** **

**INDEX**

 
| PART I. FINANCIAL INFORMATION                                                                                                | 3      |
|------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                         |   |   |
| ITEM 1. FINANCIAL STATEMENTS                                                                                                 | 3      |
|                                                                                                                         |   |   |
| BALANCE  SHEETS                                                                                                              | 3      |
|                                                                                                                         |   |
| STATEMENTS  OF INCOME                                                                                                        | 4      |
|                                                                                                                         |   |
| STATEMENT  OF STOCKHOLDERS’ EQUITY                                                                                      | 5      |
|                                                                                                                         |   |
| STATEMENTS OF CASH FLOWS                                                                                                     | 6      |
|                                                                                                                         |   |
| NOTES TO FINANCIAL  STATEMENTS                                                                                               | 7      |
|                                                                                                                         |   |
| ITEM  2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF  OPERATIONS     | 21     |
|                                                                                                                         |   |   |
| ITEM  3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                          | 27     |
|                                                                                                                         |   |   |
| ITEM 4. CONTROLS AND  PROCEDURES                                                                                             | 33     |
|                                                                                                                         |   |   |
| PART II OTHER INFORMATION                                                                                                    | 34     |
|                                                                                                                         |   |   |
| ITEM 1. LEGAL PROCEEDINGS                                                                                                    | 34     |
|                                                                                                                         |   |   |
| ITEM  2. UNREGISTERED SALES OF EQUITY SECURITIES AND  USE OF PROCEEDS                                                        | 34     |
|                                                                                                                         |   |   |
| ITEM 3. DEFAULTS  UPON SENIOR SECURITIES                                                                                     | 34     |
|                                                                                                                         |   |   |
| ITEM  4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                 | 34     |
|                                                                                                                         |   |   |
| ITEM 5. OTHER INFORMATION                                                                                                    | 34     |
|                                                                                                                         |   |   |
| ITEM 6. EXHIBITS  AND REPORTS ON FORM 8-K                                                                               | 34     |

 

2

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# **PART I.**                                                    FINANCIAL INFORMATION

 

# **ITEM 1.**                                                     FINANCIALSTATEMENTS

 

## **BIMINI MORTGAGE MANAGEMENT, INC.**

BALANCE SHEETS

 
| ** **                                                                                                                                                                           | ** ** | **(Unaudited)  March 31, 2005** | ** **    | **December 31, 2004** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|---------------|-----------------------|------------|
| ASSETS                                                                                                                                                                               |       |                            |          |                  |       |
|                                                                                                                                                                                 |       |                            |          |                  |       |
| MORTGAGE-BACKED SECURITIES:                                                                                                                                                          |       |                            |          |                  |       |
| Pledged to counterparties, at fair value                                                                                                                                             |       | $                               | 3,287,521,075 |                  | $          | 2,901,158,559 |   |
| Unpledged, at fair value                                                                                                                                                             |       | 11,530,486                      |          | 72,074,338            |       |
|                                                                                                                                                                                 |       |                            |          |                  |       |
| TOTAL MORTGAGE-BACKED SECURITIES                                                                                                                                                     |       | 3,299,051,561                   |          | 2,973,232,897         |       |
|                                                                                                                                                                                 |       |                            |          |                  |       |
| CASH AND CASH EQUIVALENTS                                                                                                                                                            |       | 113,855,808                     |          | 128,942,436           |       |
| RESTRICTED CASH                                                                                                                                                                      |       | 29,590,000                      |          | 8,662,000             |       |
| PRINCIPAL PAYMENTS RECEIVABLE                                                                                                                                                        |       | 5,875,514                       |          | 3,419,199             |       |
| ACCRUED INTEREST RECEIVABLE                                                                                                                                                          |       | 13,681,819                      |          | 11,377,807            |       |
| PROPERTY AND EQUIPMENT, net                                                                                                                                                          |       | 2,131,135                       |          | 2,050,923             |       |
| PREPAIDS AND OTHER ASSETS                                                                                                                                                            |       | 5,774,331                       |          | 732,469               |       |
|                                                                                                                                                                                 |       |                            |          |                  |       |
|                                                                                                                                                                                 |       | $                               | 3,469,960,168 |                  | $          | 3,128,417,731 |   |
|                                                                                                                                                                                 |       |                            |          |                  |       |
| LIABILITIES  AND STOCKHOLDERS’ EQUITY                                                                                                                                           |       |                            |          |                  |       |
|                                                                                                                                                                                 |       |                            |          |                  |       |
| LIABILITIES:                                                                                                                                                                         |       |                            |          |                  |       |
| Repurchase agreements                                                                                                                                                                |       | $                               | 3,181,655,356 |                  | $          | 2,771,162,957 |   |
| Accrued interest payable                                                                                                                                                             |       | 14,926,521                      |          | 7,980,829             |       |
| Unsettled security purchases                                                                                                                                                         |       | —                          |          | 65,765,630            |       |
| Dividends payable                                                                                                                                                                    |       | 11,241,953                      |          | —                |       |
| Compensation and related benefits payable                                                                                                                                            |       | 116,279                         |          | 87,323                |       |
| Accounts payable, accrued expenses and  other                                                                                                                                        |       | 402,429                         |          | 458,665               |       |
|                                                                                                                                                                                 |       |                            |          |                  |       |
| TOTAL LIABILITIES                                                                                                                                                                    |       | 3,208,342,538                   |          | 2,845,455,404         |       |
|                                                                                                                                                                                 |       |                            |          |                  |       |
| COMMITMENTS AND CONTINGENCIES                                                                                                                                                        |       |                            |          |                  |       |
|                                                                                                                                                                                 |       |                            |          |                  |       |
| STOCKHOLDERS’ EQUITY:                                                                                                                                                           |       |                            |          |                  |       |
| Preferred stock, $0.001 par value;  10,000,000 shares authorized, no shares issued and outstanding                                                                                   |       | —                          |          | —                |       |
| Class A common stock, $0.001 par value;  98,000,000 shares designated; issued and outstanding, 20,374,883 shares at March  31, 2005 and 20,368,915 shares at December  31, 2004 |       | 20,375                          |          | 20,369                |       |
| Class B common stock, $0.001 par value;  1,000,000 shares designated, 319,388 shares issued and outstanding each  period                                                             |       | 319                             |          | 319                   |       |
| Class C common stock, $0.001 par value;  1,000,000 shares designated, 319,388 shares issued and outstanding each  period                                                             |       | 319                             |          | 319                   |       |
| Additional paid-in capital                                                                                                                                                           |       | 285,685,505                     |          | 285,174,651           |       |
| Accumulated other comprehensive loss                                                                                                                                                 |       | (22,677,214                     | )             | (1,155,771            | )          |
| Accumulated deficit                                                                                                                                                                  |       | (1,411,674                      | )             | (1,077,560            | )          |
|                                                                                                                                                                                 |       |                            |          |                  |       |
| STOCKHOLDERS’ EQUITY, net                                                                                                                                                       |       | 261,617,630                     |          | 282,962,327           |       |
|                                                                                                                                                                                 |       |                            |          |                  |       |
|                                                                                                                                                                                 |       | $                               | 3,469,960,168 |                  | $          | 3,128,417,731 |   |

 

See notes to financial statements.

 

3

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## **BIMINI MORTGAGE MANAGEMENT, INC.**

STATEMENTS OF INCOME

 
| ** **                                                                                         | ** ** | **(Unaudited)  Three months ended  March 31, 2005** | ** ** | **(Unaudited)  Three months ended  March 31, 2004** |   |
|----------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|--------|
|                                                                                               |       |                                                |       |                                                |   |
| Interest income, net of amortization of  premium and discount                                      |       | $                                                   | 31,069,934 |                                                | $      | 7,194,033 |   |
| Interest expense                                                                                   |       | 19,841,710                                          |       | 2,736,434                                           |   |
|                                                                                               |       |                                                |       |                                                |   |
| NET INTEREST INCOME                                                                                |       | 11,228,224                                          |       | 4,457,599                                           |   |
|                                                                                               |       |                                                |       |                                                |   |
| GAIN ON  SALES OF MORTGAGE-BACKED SECURITIES                                                       |       | 1,982,382                                           |       | —                                              |   |
|                                                                                               |       |                                                |       |                                                |   |
| DIRECT OPERATING EXPENSES:                                                                         |       |                                                |       |                                                |   |
| Trading costs, commissions, and other  trading expenses                                            |       | 536,284                                             |       | 200,064                                             |   |
| Other direct costs                                                                                 |       | 53,689                                              |       | 25,919                                              |   |
|                                                                                               |       |                                                |       |                                                |   |
| TOTAL DIRECT OPERATING EXPENSES                                                                    |       | 589,973                                             |       | 225,983                                             |   |
|                                                                                               |       |                                                |       |                                                |   |
| GENERAL AND ADMINISTRATIVE EXPENSES:                                                               |       |                                                |       |                                                |   |
| Compensation and related benefit/costs                                                             |       | 1,205,333                                           |       | 91,345                                              |   |
| Directors’ fees                                                                               |       | 92,027                                              |       | 24,750                                              |   |
| Directors’ liability insurance costs                                                          |       | 64,423                                              |       | 41,082                                              |   |
| Audit, legal and other professional fees                                                           |       | 198,005                                             |       | 33,834                                              |   |
| Other administrative expenses                                                                      |       | 153,006                                             |       | 97,443                                              |   |
|                                                                                               |       |                                                |       |                                                |   |
| TOTAL GENERAL AND ADMINISTRATIVE EXPENSES                                                          |       | 1,712,794                                           |       | 288,454                                             |   |
|                                                                                               |       |                                                |       |                                                |   |
| NET INCOME                                                                                         |       | $                                                   | 10,907,839 |                                                | $      | 3,943,162 |   |
|                                                                                               |       |                                                |       |                                                |   |
| BASIC AND DILUTED INCOME PER CLASS A COMMON  SHARE                                                 |       | $                                                   | 0.52       |                                                | $      | 0.49 |   |
|                                                                                               |       |                                                |       |                                                |   |
| BASIC AND DILUTED INCOME PER CLASS B COMMON  SHARE                                                 |       | $                                                   | 0.51       |                                                | $      | — |   |
|                                                                                               |       |                                                |       |                                                |   |
| WEIGHTED AVERAGE NUMBER OF CLASS A COMMON  SHARES OUTSTANDING USED IN COMPUTING PER SHARE AMOUNTS: |       |                                                |       |                                                |   |
|                                                                                               |       |                                                |       |                                                |   |
| BASIC AND DILUTED                                                                                  |       | 20,795,612                                          |       | 8,001,052                                           |   |
| WEIGHTED AVERAGE NUMBER OF CLASS B COMMON  SHARES OUTSTANDING USED IN COMPUTING PER SHARE AMOUNTS: |       |                                                |       |                                                |   |
|                                                                                               |       |                                                |       |                                                |   |
| BASIC AND DILUTED                                                                                  |       | 319,388                                             |       | —                                              |   |
|                                                                                               |       |                                                |       |                                                |   |
| CASH DIVIDENDS DECLARED PER:                                                                       |       |                                                |       |                                                |   |
| CLASS A COMMON SHARE                                                                               |       | $                                                   | 0.53       |                                                | $      | 0.39 |   |
|                                                                                               |       |                                                |       |                                                |   |
| CLASS B COMMON SHARE                                                                               |       | $                                                   | 0.53       |                                                | $      | — |   |

 

See notes to financial statements.

 

4

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## **BIMINI MORTGAGE MANAGEMENT, INC.**

## **STATEMENTOF STOCKHOLDERS’ EQUITYTHREE MONTHS ENDED MARCH 31, 2005**

## **(UNAUDITED)**

 
| ** **                                               | ** ** | ** **                              | ** ** | ** **              | ** ** | ** **               | ** ** | ** **      | ** ** | **Accumulated** | ** ** | ** **  | ** ** | ** **  | ** **  |
|----------------------------------------------------------|------------|-----------------------------------------|------------|-------------------------|------------|--------------------------|------------|-----------------|------------|-----------------|------------|-------------|------------|-------------|-------------|
| ** **                                               | ** ** | **Common stock,  Amounts at Par Value** | ** ** | **Additional  Paid-in** | ** ** | **Other  Comprehensive** | ** ** | **Accumulated** | ** ** | ** **      | ** ** |
| ** **                                               | ** ** | **Class A**                             | ** ** | **Class B**             | ** ** | **Class C**              | ** ** | **Capital**     | ** ** | **Loss**        | ** ** | **Deficit** | ** ** | **Total**   | ** **  |
|                                                     |       |                                    |       |                    |       |                     |       |            |       |            |       |        |       |        |        |
| Balances,  December 31, 2004                             |       | $                                       | 20,369     |                    | $          | 319                      |       | $               | 319        |            | $          | 285,174,651 |       | $           | (1,155,771  | ) | $ | (1,077,560 | ) | $ | 282,962,327 |   |
|                                                     |       |                                    |       |                    |       |                     |       |            |       |            |       |        |       |        |        |
| Issuance of Class  A common shares as board compensation |       | 6                                       |       |                    |       |                     |       | 92,021          |       |            |       |        |       | 92,027      |        |
| Cash dividends  declared, March 2005                     |       |                                    |       |                    |       |                     |       |            |       |            |       | (11,241,953 | )          | (11,241,953 | )           |
| Amortization of  equity plan compensation                |       |                                    |       |                    |       |                     |       | 462,763         |       |            |       |        |       | 462,763     |        |
| Stock issuance  costs                                    |       |                                    |       |                    |       |                     |       | (43,930         | )          |            |       |        |       | (43,930     | )           |
| Reclassify  unrealized loss on security sales            |       |                                    |       |                    |       |                     |       |            |       | (1,982,382      | )          |        |       | (1,982,382  | )           |
| Net income                                               |       |                                    |       |                    |       |                     |       |            |       |            |       | 10,907,839  |       | 10,907,839  |        |
| Unrealized loss  on available for sale securities, net   |       |                                    |       |                    |       |                     |       |            |       | (19,539,061     | )          |        |       | (19,539,061 | )           |
| Comprehensive loss                                       |       |                                    |       |                    |       |                     |       |            |       |            |       |        |       | (10,613,604 | )           |
|                                                     |       |                                    |       |                    |       |                     |       |            |       |            |       |        |       |        |        |
| Balances, March  31, 2005                                |       | $                                       | 20,375     |                    | $          | 319                      |       | $               | 319        |            | $          | 285,685,505 |       | $           | (22,677,214 | ) | $ | (1,411,674 | ) | $ | 261,617,630 |   |

 

5

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## **BIMINI MORTGAGE MANAGEMENT, INC.**

## **STATEMENTS OF CASHFLOWS**

 
| ** **                                                            | ** ** | **(Unaudited)  Three months ended  March 31, 2005** | ** **  | **(Unaudited)  Three months ended  March 31, 2004** | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------------------------------------|-------------|-----------------------------------------------------|------------|
| CASH FLOWS FROM OPERATING ACTIVITIES:                                 |       |                                                |        |                                                |       |
| Net income                                                            |       | $                                                   | 10,907,839  |                                                | $          | 3,943,162 |   |
| Amortization of premium and discount                                  |       | 8,097,698                                           |        | 1,898,016                                           |       |
| Stock compensation and depreciation                                   |       | 566,758                                             |        | 28,473                                              |       |
| Gain on sales of mortgage-backed securities                           |       | (1,982,382                                          | )           | —                                              |       |
| Changes in certain assets and liabilities:                            |       |                                                |        |                                                |       |
| Accrued interest receivable                                           |       | (2,304,010                                          | )           | (4,362,526                                          | )          |
| Prepaids and other assets                                             |       | (5,041,862                                          | )           | (370,691                                            | )          |
| Accrued interest payable                                              |       | 6,945,692                                           |        | 1,993,227                                           |       |
| Accounts payable, accrued expenses and  other                         |       | (27,280                                             | )           | 160,974                                             |       |
| NET CASH PROVIDED BY OPERATING ACTIVITIES                             |       | 17,162,453                                          |        | 3,290,635                                           |       |
|                                                                  |       |                                                |        |                                                |       |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                 |       |                                                |        |                                                |       |
| From available-for-sale securities:                                   |       |                                                |        |                                                |       |
| Purchases                                                             |       | (827,611,830                                        | )           | (1,311,612,358                                      | )          |
| Sales                                                                 |       | 172,040,665                                         |        | —                                              |       |
| Principal repayments                                                  |       | 233,893,795                                         |        | 22,972,383                                          |       |
| Purchases of property and equipment                                   |       | (92,180                                             | )           | (66,910                                             | )          |
| NET CASH USED IN INVESTING ACTIVITIES                                 |       | (421,769,550                                        | )           | (1,288,706,885                                      | )          |
|                                                                  |       |                                                |        |                                                |       |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                 |       |                                                |        |                                                |       |
| Increase in restricted cash                                           |       | (20,928,000                                         | )           | —                                              |       |
| Net borrowings under repurchase agreements                            |       | 410,492,399                                         |        | 1,253,947,000                                       |       |
| Stock issuance costs                                                  |       | (43,930                                             | )           | —                                              |       |
| Proceeds from sales of common stock, net of  costs of issuance        |       | —                                              |        | 85,112,817                                          |       |
| NET CASH PROVIDED BY FINANCING ACTIVITIES                             |       | 389,520,469                                         |        | 1,339,059,817                                       |       |
|                                                                  |       |                                                |        |                                                |       |
| NET CHANGE IN CASH AND CASH EQUIVALENTS                               |       | (15,086,628                                         | )           | 53,643,567                                          |       |
|                                                                  |       |                                                |        |                                                |       |
| CASH AND CASH EQUIVALENTS, Beginning of the  period                   |       | 128,942,436                                         |        | 18,404,130                                          |       |
|                                                                  |       |                                                |        |                                                |       |
| CASH AND CASH EQUIVALENTS, End of the  period                         |       | $                                                   | 113,855,808 |                                                | $          | 72,047,697 |   |
|                                                                  |       |                                                |        |                                                |       |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW  INFORMATION:                   |       |                                                |        |                                                |       |
| Cash paid during the period for interest                              |       | $                                                   | 12,896,018  |                                                | $          | 743,207 |   |
|                                                                  |       |                                                |        |                                                |       |
| SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING  AND FINANCING ACTIVITIES: |       |                                                |        |                                                |       |
| Cash dividends declared and payable, not  yet paid                    |       | $                                                   | 11,241,953  |                                                | $          | 3,903,569 |   |

 

See notes to financial statements.

 

6

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## **BIMINI MORTGAGE MANAGEMENT, INC.**

## **NOTES TO FINANCIALSTATEMENTS**

## **(UNAUDITED)**

**MARCH 31, 2005**

 

**NOTE 1.****                             ORGANIZATIONAND SIGNIFICANT ACCOUNTING POLICIES**

 

**Organization and Business Description**

 

BiminiMortgage Management, Inc. (the “Company”) was incorporated in Maryland onSeptember 24, 2003 and it commenced its planned business activities onDecember 19, 2003, the date of the initial closing of a private issuanceof its common stock.

 

The Companywas formed to invest primarily in residential mortgage related securitiesissued by the Federal National Mortgage Association (more commonly known asFannie Mae), the Federal Home Loan Mortgage Corporation (more commonly known asFreddie Mac) and the Government National Mortgage Association (more commonlyknown as Ginnie Mae).

 

The Companyhas elected to be taxed as a real estate investment trust (“REIT”) under theInternal Revenue Code of 1986, as amended. In order to maintain its REITstatus, the Company must comply with a number of requirements under Federal taxlaw, including that it must distribute at least 90% of its annual taxable netincome to its stockholders, subject to certain adjustments. As a REIT, theCompany will routinely distribute substantially all of its taxable incomegenerated from operations to its stockholders. The Company will generally not be subject to Federal income tax to theextent that it distributes its net income to the stockholders, and satisfiesthe ongoing REIT requirements including meeting certain asset, income and stockownership tests.

 

**Interim Financial Statements**

 

Theaccompanying interim financial statements reflect all adjustments, consistingof normal recurring items that, in the opinion of management are necessary fora fair presentation of the Company’s financial position, results of operationsand cash flows for the periods presented. These interim financial statementshave been prepared in accordance with disclosure requirements for interimfinancial information and accordingly, they may not include all of theinformation and footnotes required by U.S. generally accepted accountingprinciples (“GAAP”) for annual financial statements. The operating results forthe interim period ended March 31, 2005 are not necessarily indicative ofresults that can be expected for the year ended December 31, 2005.  The financial statements included as part ofthis Form 10-Q should be read in conjunction with the financial statementsand notes thereto included in the Company’s Annual Report on Form 10-K for theyear ended December 31, 2004. Certain prior year amounts have beenreclassified to conform to the current year presentation.

 

**Basis of Presentation and Use of Estimates**

 

Theaccompanying financial statements are prepared on the accrual basis ofaccounting in accordance with GAAP. The preparation of financial statements inconformity with GAAP requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period.Actual results could differ from those estimates. Significant estimatesaffecting the accompanying financial statements include the fair values ofmortgage-backed securities (“MBS”) and the prepayment speeds used to calculateamortization and accretion of premiums and discounts on MBS.

 

7

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**Securities and Interest Income Recognition**

 

The Companyinvests primarily in residential mortgage related securities issued by FannieMae, Freddie Mac, and Ginnie Mae.

 

In accordancewith GAAP, the Company classifies its investments as either tradinginvestments, available-for-sale investments or held-to-maturity investments.Management determines the appropriate classification of the securities at thetime they are acquired and evaluates the appropriateness of suchclassifications at each balance sheet date. The Company currently classifiesall of its securities as available-for-sale, and assets so classified arecarried on the balance sheet at fair value, and unrealized gains or lossesarising from changes in market values are excluded from earnings and reported inother comprehensive income or loss as a component of stockholders’ equity.Permanent impairment losses, if any, are reported in earnings.

 

Securities arerecorded on the date the securities are purchased or sold, which is generallythe trade date. Realized gains or losses from securities transactions aredetermined based on the specific identification method.

 

Interestincome is accrued based on the outstanding principal amount of the securitiesand their stated contractual terms. Premiums and discounts associated with thepurchase of the securities are accreted or amortized into interest income overthe estimated lives of the assets adjusted for estimated prepayments using theeffective interest method. Adjustments are made using the retrospective methodto the effective interest computation each reporting period based on the actualprepayment experiences to date, and the present expectation of futureprepayments of the underlying mortgages.

 

**Cash and Cash Equivalents**

 

Cash and cashequivalents include cash on hand and highly liquid investments with originalmaturities of three months or less. The carrying amount of cash equivalentsapproximates its fair value at March 31, 2005 and December 31, 2004.

 

**RestrictedCash**

 

Restrictedcash represents cash held on deposit as collateral with certain repurchaseagreement counter-parties.  Such amountsmay be used to make principal and interest payments on the related repurchaseagreements.

 

**Credit Risk**

 

AtMarch 31, 2005, the Company had limited its exposure to credit losses onits portfolio of securities by purchasing primarily securities from federalagencies or federally chartered entities, such as, but not limited to, FannieMae, Freddie Mac, and Ginnie Mae. The portfolio is diversified to avoid undueloan originator, geographic and other types of concentrations. The Companymanages the risk of prepayments of the underlying mortgages by creating adiversified portfolio with a variety of prepayment characteristics.

 

The Company isengaged in various trading and brokerage activities in which counter-partiesprimarily include broker-dealers, banks, and other financial institutions. Inthe event counter-parties do not fulfill their obligations, the Company may beexposed to risk of loss. The risk of default depends on the creditworthiness ofthe counter-party and/or issuer of the instrument. It is the Company’s policyto review, as necessary, the credit standing for each counter-party.

 

8

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**Repurchase Agreements**

 

The Companyfinances the acquisition of its MBS through the use of repurchase agreements.Under these repurchase agreements, the Company sells securities to a lender andagrees to repurchase the same securities in the future for a price that ishigher than the original sales price. The difference between the sale pricethat the Company receives and the repurchase price that the Company paysrepresents interest paid to the lender. Although structured as a sale andrepurchase obligation, a repurchase agreement operates as a financing underwhich the Company pledges its securities as collateral to secure a loan whichis equal in value to a specified percentage of the estimated fair value of thepledged collateral. The Company retains beneficial ownership of the pledgedcollateral. At the maturity of a repurchase agreement, the Company is requiredto repay the loan and concurrently receives back its pledged collateral fromthe lender or, with the consent of the lender, the Company may renew suchagreement at the then prevailing financing rate. These repurchase agreementsmay require the Company to pledge additional assets to the lender in the eventthe estimated fair value of the existing pledged collateral declines. As ofMarch 31, 2005 and December 31, 2004, the Company did not have anymargin calls on its repurchase agreements that it was not able to satisfy witheither cash or additional pledged collateral.

 

Original termsto maturity of the Company’s repurchase agreements generally range from onemonth to 36 months; however, the Company is not precluded from entering intorepurchase agreements with longer maturities. Should a counter-party decide notto renew a repurchase agreement at maturity, the Company must either refinanceelsewhere or be in a position to satisfy this obligation. If, during the termof a repurchase agreement, a lender should file for bankruptcy, the Companymight experience difficulty recovering its pledged assets and may have anunsecured claim against the lender’s assets for the difference between theamount loaned to the Company and the estimated fair value of the collateralpledged to such lender.  At March 31,2005, the Company had amounts outstanding under repurchase agreements with fifteenseparate lenders with a maximum net exposure (the difference between the amountloaned to the Company and the estimated fair value of the security pledged bythe Company as collateral) to any single lender of approximately $25.0 million.At December 31, 2004, the Company had amounts outstanding under repurchaseagreements with twelve separate lenders with a maximum net exposure to anysingle lender of approximately $29.0 million.

 

9

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AtMarch 31, 2005, the Company’s repurchase agreements had the followingcounter-parties, amounts at risk and weighted average remaining maturities(unaudited):

 
| **Repurchase Agreement Counter-parties** |       | **Amount  Outstanding** |          | **Amount  at Risk(1)** |   | **Weighted Average  Maturity of  Repurchase  Agreements  in Days** |       | **Percent  of Total  Amount  Outstanding** |       |
|------------------------------------------|------------|-------------------------|---------------|------------------------|--------|--------------------------------------------------------------------|------------|--------------------------------------------|------------|
|                                     |       | **($000)**              |          | **($000)**             |   |                                                               |       |                                       |       |
| Nomura Securities International, Inc.    |       | $                       | 485,270       |                   | $      | 25,007                                                             |       | 160                                        |       | 15.3 | % |
| JP Morgan Securities                     |       | 403,899                 |          | 15,385                 |   | 30                                                                 |       | 12.7                                       | %          |
| Deutsche Bank Securities, Inc.           |       | 385,439                 |          | 16,638                 |   | 142                                                                |       | 12.1                                       | %          |
| Bear Stearns & Co. Inc.              |       | 297,251                 |          | 11,808                 |   | 98                                                                 |       | 9.3                                        | %          |
| Goldman Sachs                            |       | 264,902                 |          | 8,438                  |   | 82                                                                 |       | 8.3                                        | %          |
| Cantor Fitzgerald                        |       | 247,942                 |          | 12,367                 |   | 151                                                                |       | 7.8                                        | %          |
| Washington Mutual                        |       | 239,851                 |          | 10,920                 |   | 73                                                                 |       | 7.5                                        | %          |
| Banc of America Securities, LLC          |       | 239,290                 |          | 11,932                 |   | 93                                                                 |       | 7.5                                        | %          |
| UBS Investment Bank, LLC                 |       | 148,360                 |          | 6,534                  |   | 70                                                                 |       | 4.7                                        | %          |
| Lehman Brothers                          |       | 144,277                 |          | 4,458                  |   | 96                                                                 |       | 4.6                                        | %          |
| Countrywide Securities Corp.             |       | 131,062                 |          | 6,235                  |   | 39                                                                 |       | 4.1                                        | %          |
| Merrill Lynch                            |       | 103,032                 |          | 1                      |   | 92                                                                 |       | 3.2                                        | %          |
| Daiwa Securities America Inc.            |       | 59,046                  |          | 3,370                  |   | 99                                                                 |       | 1.9                                        | %          |
| Morgan Stanley                           |       | 28,288                  |          | 1,213                  |   | 12                                                                 |       | 0.9                                        | %          |
| REFCO Securities, LLC                    |       | 3,746                   |          | 208                    |   | 55                                                                 |       | 0.1                                        | %          |
|                                     |       |                    |          |                   |   |                                                               |       |                                       |       |
| **Total**                                | ** ** | **$**                   | **3,181,655** | ** **             | **$**  | **134,514**                                                        | ** ** | ** **                                 | ** ** | **100.0** | **%** |
|                                          |            |                         |               |                        |        |                                                                    |            |                                            |            |  |  |  |

 

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*(1)**                                                      *Equalto the fair value of securities sold, plus accrued interest income, minus thesum of repurchase agreement liabilities, plus accrued interest expense.

 

AtDecember 31, 2004, the Company’s repurchase agreements had the followingcounter–parties, amounts at risk and weighted average remaining maturities:

 
| **Repurchase Agreement Counter-parties** | ** ** | **Amount  Outstanding** | ** ** | **Amount  at Risk(1)** | ** ** | **Weighted Average  Maturity of  Repurchase  Agreements  in Days** | ** ** | **Percent  of Total  Amount  Outstanding** | ** ** |
|------------------------------------------|------------|-------------------------|------------|------------------------|------------|--------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                               | ** ** | **($000)**              | ** ** | **($000)**             | ** ** | ** **                                                         | ** ** | ** **                                 | ** ** |
| UBS Investment Bank, LLC                 |       | $                       | 512,697    |                   | $          | 29,005                                                             |       | 64                                         |       | 18.5 | % |
| Nomura Securities International, Inc.    |       | 463,901                 |       | 26,083                 |       | 99                                                                 |       | 16.7                                       |       |
| Banc of America Securities, LLC          |       | 309,270                 |       | 18,079                 |       | 66                                                                 |       | 11.2                                       |       |
| Deutsche Bank Securities, Inc.           |       | 308,645                 |       | 16,246                 |       | 227                                                                |       | 11.1                                       |       |
| Lehman Brothers                          |       | 257,191                 |       | 8,793                  |       | 81                                                                 |       | 9.3                                        |       |
| Bear Stearns & Co. Inc.              |       | 255,229                 |       | 14,068                 |       | 127                                                                |       | 9.2                                        |       |
| Countrywide Securities Corp.             |       | 178,574                 |       | 8,447                  |       | 43                                                                 |       | 6.4                                        |       |
| Morgan Stanley                           |       | 119,659                 |       | 352                    |       | 65                                                                 |       | 4.3                                        |       |
| Daiwa Securities America Inc.            |       | 114,436                 |       | 5,287                  |       | 67                                                                 |       | 4.2                                        |       |
| Goldman Sachs                            |       | 107,822                 |       | 1,706                  |       | 37                                                                 |       | 3.9                                        |       |
| Merrill Lynch                            |       | 83,561                  |       | 2,268                  |       | 172                                                                |       | 3.0                                        |       |
| JP Morgan Securities                     |       | 60,178                  |       | 3,152                  |       | 37                                                                 |       | 2.2                                        |       |
|                                     |       |                    |       |                   |       |                                                               |       |                                       |       |
| Total                                    |       | $                       | 2,771,163  |                   | $          | 133,486                                                            |       |                                       |       | 100.0 | % |

 

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*(1)*                                                       Equalto the fair value of securities sold, plus accrued interest income, minus thesum of repurchase agreement liabilities, plus accrued interest expense.

 

**Stock-Based Compensation**

 

Stock-basedcompensation is accounted for using the fair value based method prescribed byStatement of Financial Accounting Standards (“SFAS”) No. 123, “Accountingfor Stock-Based Compensation.” The adoption of SFAS No. 123(R), “Share-BasedPayment,” on January 1, 2006 is not expected to have an impact on the Company.For stock and stock-based awards issued to employees, a compensation charge isrecorded against earnings based on the fair value of the award. For transactionswith non-employees in which services are performed in exchange for the Company’scommon stock or other equity

 

10

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Instruments, the transactions are recorded on the basis of the fairvalue of the service received or the fair value of the equity instrumentsissued, whichever is more readily measurable at the date of issuance. TheCompany’s stock-based compensation transactions resulted in an aggregate of $554,784and $24,750 of compensation expense for the three months ended March 31,2005 and March 31, 2004, respectively.

 

**Earnings Per Share**

 

The Companyfollows the provisions of SFAS No. 128, “Earnings per Share,”(SFAS 128) and the guidance provided in EITF 03-6, “ParticipatingSecurities and the two-class method under FASB Statement No. 128, EarningsPer Share,” (EITF 03-6) which requires companies with complex capitalstructures, common stock equivalents, or two classes of participatingsecurities to present both basic and diluted earnings per share (“EPS”) on theface of the statement of operations. Basic EPS is calculated as incomeavailable to common stockholders divided by the weighted average number ofcommon shares outstanding during the period. Diluted EPS is calculated usingthe “if converted” method for common stock equivalents.

 

EffectiveJuly 9, 2004, the shares of Class B Common Stock, participating andconvertible into Class A common stock, became entitled to receivedividends in an amount equal to the dividends declared on each share ofClass A Common Stock if, as and when authorized and declared by the Boardof Directors. Following the provisions of EITF 03-6, the Class B CommonStock, beginning in the three-month period ended September 30, 2004, isincluded in the computation of basic EPS using the two-class method, andconsequently is presented separately from Class A Common Stock. Prior toJuly 9, 2004, the Class B shares of common stock are not included inthe basic EPS computation as the conditions to participate in earnings were notmet, and they were not included in the computation of diluted Class A EPSas the conditions for conversion to Class A shares were not met.

 

TheClass C common shares are not included in the basic EPS computation asthese shares do not have participation rights. The Class C common sharestotaling 319,388 are not included in the computation of diluted Class AEPS as the conditions for conversion to Class A shares were not met.

 

11

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The tablebelow reconciles the numerators and denominators of the basic and diluted EPS.

 
| ** **                                                                                | ** ** | **Three months  ended  March 31, 2005** | ** ** | **Three months  ended  March 31, 2004** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                                | ** ** | **(unaudited)**                         | ** ** | **(unaudited)**                         | ** ** |
| ** **                                                                                | ** ** | ** **                              | ** ** | ** **                              | ** ** |
| *Basic and diluted EPS per Class A  common share:*                                   |       |                                    |       |                                    |       |
| Numerator: net income allocated to the  Class A common shares                        |       | $                                       | 10,743,594 |                                    | $          | 3,943,162 |   |
|                                                                                      |       |                                    |       |                                    |       |
| *Denominator—basic and diluted:*                                                     |       |                                    |       |                                    |       |
| Class A common shares outstanding at  the balance sheet date                         |       | 20,374,883                              |       | 10,009,150                              |       |
| Phantom shares issued as of the balance  sheet date                                       |       | 516,961                                 |       | —                                  |       |
| Effect of weighting                                                                       |       | (96,232                                 | )          | (2,008,098                              | )          |
|                                                                                      |       |                                    |       |                                    |       |
|                                                                                      |       |                                    |       |                                    |       |
| Weighted average shares—basic and diluted                                            |       | 20,795,612                              |       | 8,001,052                               |       |
|                                                                                      |       |                                    |       |                                    |       |
| Basic and diluted EPS per Class A  common share                                      |       | $                                       | 0.52       |                                    | $          | 0.49 |   |
|                                                                                      |       |                                    |       |                                    |       |
| *Basic and diluted EPS per Class B common  share:*                                   |       |                                    |       |                                    |       |
| Numerator: net income allocated to the  Class B common shares                        |       | $                                       | 164,245    |                                    | $          | — |   |
|                                                                                      |       |                                    |       |                                    |       |
| *Denominator—basic and diluted:*                                                     |       |                                    |       |                                    |       |
| Class B common shares outstanding at  the balance sheet date                         |       | 319,388                                 |       | 319,388                                 |       |
| Effect of weighting (based on the date the  Class B shares participate in dividends) |       | —                                  |       | (319,388                                | )          |
|                                                                                      |       |                                    |       |                                    |       |
| Weighted average shares—basic and diluted                                            |       | 319,388                                 |       | —                                  |       |
|                                                                                      |       |                                    |       |                                    |       |
| Basic and diluted EPS per Class B  common share                                      |       | $                                       | 0.51       |                                    | $          | — |   |

 

12

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**Comprehensive Income (Loss)**

 

In accordancewith SFAS No. 130, “Reporting Comprehensive Income,” the Company isrequired to separately report its comprehensive income. Other comprehensiveincome refers to revenue, expenses, gains, and losses that under GAAP areincluded in comprehensive income but are excluded from net income, as theseamounts are recorded directly as an adjustment to stockholders’ equity. Othercomprehensive income (loss) arises from unrealized gains or losses generatedfrom changes in market values of its securities held as available-for-sale.Comprehensive income (loss) for the three months ended March 31, 2005 andMarch 31, 2004, respectively, is as follows:

 
| ** **                                                   | ** ** | **Three months ended** | ** **  |
|--------------------------------------------------------------|------------|------------------------|-------------|
| ** **                                                   | ** ** | **March 31, 2005**     | ** **  | **March 31, 2004** | ** ** |
| ** **                                                   | ** ** | **(unaudited)**        | ** **  |
|                                                         |       |                   |        |   |   |
| Net Income                                                   |       | $                      | 10,907,839  |   | $ | 3,943,162 |   |
|                                                         |       |                   |        |   |   |
| Realized gain on available for sale securities, net          |       | (1,982,382)            |        | — |   |
|                                                         |       |                   |        |   |   |
| Unrealized (loss) gain on available for sale securities, net |       | (19,539,061            | )           | 3,176,287 |   |
|                                                         |       |                   |        |   |   |
| Comprehensive (Loss) Income                                  |       | $                      | (10,613,604 | ) | $ | 7,119,449 |   |

 

13

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**NOTE 2.****                             SECURITIES**

 

AtMarch 31, 2005 and December 31, 2004, all of the Company’s securitieswere classified as available-for-sale and, as such, are reported at their estimatedfair value. Estimated fair value was determined based on the average ofthird-party broker quotes received and/or independent pricing sources whenavailable.

 

14

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The followingare the carrying values of the Company’s securities at March 31, 2005 andDecember 31, 2004:

 
| ** **                | ** ** | **March 31, 2005** | ** **    | **December 31, 2004** | ** ** |
|---------------------------|------------|--------------------|---------------|-----------------------|------------|
| ** **                | ** ** | **(Unaudited)**    | ** **    | ** **            | ** ** |
| Floating-Rate CMO’s  |       | $                  | 73,743,802    |                  | $          | 250,438,730 |   |
| Hybrid Arms and Balloons  |       | 563,520,406        |          | 569,623,089           |       |
| Adjustable-Rate Mortgages |       | 1,674,786,388      |          | 1,403,381,666         |       |
| Fixed-Rate Mortgages      |       | 987,000,965        |          | 749,789,412           |       |
|                      |       |               |          |                  |       |
|                      |       | $                  | 3,299,051,561 |                  | $          | 2,973,232,897 |   |

 

The followingtable presents the components of the carrying value of the Company’s MBSportfolio at March 31, 2005 and December 31, 2004:

 
| ** **                          | ** ** | **March 31, 2005** | ** **    | **December 31, 2004** | ** ** |
|-------------------------------------|------------|--------------------|---------------|-----------------------|------------|
| ** **                          | ** ** | **(Unaudited)**    | ** **    | ** **            | ** ** |
| Principal balance                   |       | $                  | 3,212,516,823 |                  | $          | 2,876,568,150 |   |
| Unamortized premium                 |       | 110,136,659        |          | 98,202,287            |       |
| Unaccreted discount                 |       | (924,706           | )             | (381,769              | )          |
| Gross unrealized gains              |       | 6,132,352          |          | 7,824,313             |       |
| Gross unrealized losses             |       | (28,809,567        | )             | (8,980,084            | )          |
|                                |       |               |          |                  |       |
| Carrying value/estimated fair value |       | $                  | 3,299,051,561 |                  | $          | 2,973,232,897 |   |

 

The followingtable presents for the Company’s investments with gross unrealized losses, theestimated fair value and gross unrealized losses aggregated by investmentcategory, at March 31, 2005(unaudited):

 
| ** **                 | ** ** | **Less than 12 Months**   | ** **        | **More than 12 Months** | ** ** | **Total**                 | ** ** |
|----------------------------|------------|---------------------------|-------------------|-------------------------|------------|---------------------------|------------|
| ** **                 | ** ** | **Estimated  Fair Value** | ** **        | **Unrealized  Losses**  | ** ** | **Estimated  Fair Value** | ** ** | **Unrealized  Losses** | ** ** | **Estimated  Fair Value** | ** ** | **Unrealized  Losses** | ** ** |
| ** **                 | ** ** | ** **                | ** **        | ** **              | ** ** | ** **                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Fixed-Rate Mortgages       |       | $                         | 919,025,604       |                    | $          | (11,477,797               | )          | $ | — |   | $ | — |   | $ | 919,025,604 |   | (11,477,797 | ) |
| Floating-Rate CMOs         |       | —                    |              | —                  |       | —                    |       | — |   | — |   | — |   |
| Adjustable-Rate Mortgages  |       | 1,133,574,693             |              | (10,798,550             | )          | —                    |       | — |   | 1,133,574,693 |   | (10,798,550 | ) |
| Hybrid Arms & Balloons |       | 462,130,424               |              | (6,533,220              | )          | —                    |       | — |   | 462,130,424 |   | (6,533,220 | ) |
| ** **                 | ** ** | **$**                     | **2,514,730,721** | ** **              | **$**      | **(28,809,567**           | **)**      | **$** | — | ** ** | **$** | **—** | ** ** | **$** | **2,514,730,721** | ** ** | **$** | **(28,809,567** | **)** |
|                            |            |                           |                   |                         |            |                           |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

15

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The followingtable presents for the Company’s investments with gross unrealized losses, theestimated fair value and gross unrealized losses aggregated by investmentcategory, at December 31, 2004:

 
| ** **                | ** ** | **Less than 12 Months**   | ** **    | **More than 12 Months** | ** ** | **Total**                 | ** ** |
|---------------------------|------------|---------------------------|---------------|-------------------------|------------|---------------------------|------------|
| ** **                | ** ** | **Estimated  Fair Value** | ** **    | **Unrealized  Losses**  | ** ** | **Estimated  Fair Value** | ** ** | **Unrealized  Losses** | ** ** | **Estimated  Fair Value** | ** ** | **Unrealized  Losses** | ** ** |
| ** **                | ** ** | ** **                | ** **    | ** **              | ** ** | ** **                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Floating-Rate CMOs        |       | $                         | —        |                    | $          | —                    |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   |
| Hybrid Arms and Balloons  |       | 334,918,233               |          | (1,974,605              | )          | 31,954,324                |       | (75,968 | ) | 366,872,557 |   | (2,050,573 | ) |
| Adjustable-Rate Mortgages |       | 479,284,021               |          | (2,930,772              | )          | 9,374,573                 |       | (21,845 | ) | 488,658,594 |   | (2,952,617 | ) |
| Fixed-Rate Mortgages      |       | 519,546,019               |          | (3,950,372              | )          | 11,260,668                |       | (26,522 | ) | 530,806,687 |   | (3,976,894 | ) |
|                      |       |                      |          |                    |       |                      |       |   |   |   |   |   |   |
|                      |       | $                         | 1,333,748,273 |                    | $          | (8,855,749                | )          | $ | 52,589,565 |   | $ | (124,335 | ) | $ | 1,386,337,838 |   | $ | (8,980,084 | ) |

 

All of theCompany’s investments have contractual maturities greater than two years.Actual maturities of MBS are generally shorter than stated contractualmaturities. Actual maturities of the Company’s MBS are affected by thecontractual lives of the underlying mortgages, periodic payments of principal,and prepayments of principal.

 

The unrealizedlosses on the investments are not considered other-than-temporary, and aretherefore not written-down as being impaired. The factors considered in makingthis determination included: the expected cash flow from the investment, thegeneral quality of the MBS owned, any credit protection available, currentmarket conditions, the magnitude and duration of the historical decline inmarket prices as well as the Company’s ability and intention to hold suchsecurities owned.  Because management’sassessments are based on factual information as well as subjective informationavailable at the time of assessment, the determination as to whether another-than-temporary decline exists and, if so, the amount considered impairedis also subjective and, therefore, constitutes material estimates that aresusceptible to significant change.  AtMarch 31, 2005 and December 31, 2004, the Company had no securities on which animpairment charge had been made.

 

**NOTE 3.****                             REPURCHASEAGREEMENTS**

 

The Companyhas entered into repurchase agreements to finance most of its securitypurchases. The repurchase agreements are short-term borrowings that bearinterest rates that have historically moved in close relationship to LIBOR(London Interbank Offered Rate). At March 31, 2005, the Company had anoutstanding amount of $3.18 billion with a net weighted average borrowing rateof 2.78%, and these agreements were collateralized by MBS with a fair value of$3.29 billion. At December 31, 2004, the Company had an outstanding amountof $2.77 billion with a net weighted average borrowing rate of 2.28% and theseagreements were collateralized by MBS with a fair value of $2.90 billion.

 

16

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AtMarch 31, 2005, the Company’s repurchase agreements had remainingmaturities as summarized below (unaudited):

 
| ** **                                                                   | ** ** | **OVERNIGHT  (1 DAY OR LESS)** | ** **  | **BETWEEN 2 AND  30 DAYS** | ** ** | **BETWEEN 31 AND  90 DAYS** | ** ** | **GREATER THAN  90 DAYS** | ** **  | **TOTAL** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------|-------------|----------------------------|------------|-----------------------------|------------|---------------------------|-------------|-----------|------------|
| **Agency-Backed Mortgage-Backed Securities:**                                |       |                           |        |                       |       |                        |       |                      |        |      |       |
|                                                                         |       |                           |        |                       |       |                        |       |                      |        |      |       |
| Amortized cost of securities sold,  including accrued interest receivable    |       | $                              | 133,628,739 |                       | $          | 845,093,807                 |       | $                         | 507,704,595 |      | $          | 1,697,506,162 |   | $ | 3,183,933,303 |   |
| Fair market value of securities sold,  including accrued interest receivable |       | $                              | 133,041,311 |                       | $          | 846,271,283                 |       | $                         | 503,411,543 |      | $          | 1,683,751,845 |   | $ | 3,166,475,982 |   |
| Repurchase agreement liabilities associated  with these securities           |       | $                              | 133,837,000 |                       | $          | 847,691,598                 |       | $                         | 502,127,646 |      | $          | 1,697,999,112 |   | $ | 3,181,655,356 |   |
| Average interest rate of repurchase  agreement liabilities                   |       | 2.57                           |        | 2.59                       |       | 2.68                        |       | 2.93                      |        | 2.78      |       |

 

17

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AtDecember 31, 2004, the Company’s repurchase agreements had remainingmaturities as summarized below:

 
| ** **                                                                   | ** ** | **OVERNIGHT  (1 DAY OR LESS)** | ** ** | **BETWEEN 2 AND  30 DAYS** | ** ** | **BETWEEN 31 AND  90 DAYS** | ** ** | **GREATER THAN  90 DAYS** | ** **  | **TOTAL** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------|------------|----------------------------|------------|-----------------------------|------------|---------------------------|-------------|-----------|------------|
| **Agency-Backed Mortgage-Backed Securities:**                                |       |                           |       |                       |       |                        |       |                      |        |      |       |
| Amortized cost of securities sold,  including accrued interest receivable    |       | $                              | —     |                       | $          | 821,387,879                 |       | $                         | 975,251,727 |      | $          | 1,028,522,165 |   | $ | 2,825,161,771 |   |
| Fair market value of securities sold,  including accrued interest receivable |       | $                              | —     |                       | $          | 823,087,580                 |       | $                         | 975,020,524 |      | $          | 1,025,389,631 |   | $ | 2,823,497,735 |   |
| Repurchase agreement liabilities associated  with these securities           |       | $                              | —     |                       | $          | 797,655,321                 |       | $                         | 968,417,528 |      | $          | 1,005,090,108 |   | $ | 2,771,162,957 |   |
| Average interest rate of repurchase  agreement liabilities                   |       | —                         |       | 2.28                       | %          | 2.11                        | %          | 2.45                      | %           | 2.28      | %          |

 

18

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**NOTE 4.          CAPITAL STOCK**

 

**Issuances of Common Stock**

 

During the three-months ended March 31, 2005, the Company issued atotal of 5,968 shares of Class A Common Stock to its four independent directorsfor the payment of director fees for services rendered during the quarter.

 

**Dividends**

 

On March 9, 2005, the Board of Directors declared a regular quarterlycash dividend of $0.53 per share on the Company’s Class A and Class B CommonStock for the quarter ending March 31, 2005. The dividend was paid on April 8,2005.

 

19

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**NOTE 5.****          STOCK INCENTIVE PLAN**

 

OnDecember 1, 2003, the Company adopted the 2003 Long Term IncentiveCompensation Plan (the “2003 Plan”) to provide the Company with the flexibilityto use stock options and other awards as part of an overall compensationpackage to provide a means of performance-based compensation to attract andretain qualified personnel. The 2003 Plan was amended and restated inMarch 2004. Key employees, directors and consultants are eligible to begranted stock options, restricted stock, phantom shares, dividend equivalentrights and other stock-based awards under the 2003 Plan.

 

For the threemonths ended March 31, 2005, the Company granted 203,361 phantom shares to employees.Each phantom share represents a right to receive a share of the Company’sClass A Common Stock, and a dividend equivalent right was also granted oneach phantom share.  The phantom shareawards were valued at the fair value of the Company’s Class A Common Stockat the date of the grant, for a total grant date value of $3,097,389. Thephantom awards do not have an exercise price. The grant date value is beingamortized to compensation expense on a straight-line basis over the vestingperiod.  The phantom shares vest, basedon the employees’ continuing employment, on a quarterly schedule as provided inthe grant agreements, for periods from February 15, 2005 through November 15,2008.

 

As of March31, 2005, of all phantom stock awards granted to date, 62,619 shares have fullyvested and 454,342 shares remain unvested. No phantom share awards have expired or been forfeited by thegrantee.  Total compensation costrecognized for the three months ended March 31, 2005 and 2004, was $462,763 and$0, respectively.  Dividends paid onphantom shares are charged to retained earnings when declared.

 

20

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**ITEM 2.****                  MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

The following discussion of our financialcondition and results of operations should be read in conjunction with ourfinancial statements and related notes included elsewhere in this report.

 

**Introduction and Overview**

 

Bimini Mortgage Management, Inc. (“we”, “our”or “Company”) was formed in September 2003 to invest primarily inresidential mortgage related securities issued by the Federal National MortgageAssociation (more commonly known as Fannie Mae), the Federal Home Loan MortgageCorporation (more commonly known as Freddie Mac) and the Government NationalMortgage Association (more commonly known as Ginnie Mae). We earn returns onthe spread between the yield on our assets and our costs, including theinterest expense on the funds we borrow. We intend to borrow between eight and 12times the amount of equity capital to attempt to enhance our returns tostockholders. We are self-managed and self-advised. We have elected to be taxedas a real estate investment trust, or REIT, for federal income tax purposescommencing with our initial taxable period ended December 31, 2003. As aREIT, we generally are not subject to federal income tax on the REIT taxableincome that we distribute to our stockholders. In evaluating our assets andtheir performance, our management team primarily evaluates these criticalfactors: asset performance in differing interest rate environments, duration ofthe security, yield to maturity, potential for prepayment of principal, and themarket price of the investment.

 

**Financial Condition**

 

All of our assets at March 31, 2005 wereacquired with the proceeds of our private placements and public offerings anduse of leverage. We received net proceeds after offering costs of approximately$141.7 million in our private placements, which closed on December 19,2003, January 30, 2004 and February 17, 2004. We received netproceeds of approximately $66.1 million in our initial public offering,which closed on September 21, 2004. On September 24, 2004 we receivedan additional $9.8 million of net proceeds pursuant to the underwriters’exercise of their over allotment option. We received net proceeds ofapproximately $66.7 million in a secondary public offering of our Class ACommon Stock which closed on December 21, 2004.

 

***Mortgage Related Securities***

 

At March 31, 2005, we held $3.3 billionof mortgage related securities at fair value. Our portfolio of mortgage relatedsecurities will typically be comprised of fixed-rate mortgage-backedsecurities, floating rate collateralized mortgage obligations, adjustable-ratemortgage-backed securities, hybrid adjustable-rate mortgage-backed securitiesand balloon maturity mortgage-backed securities. We seek to acquire lowduration assets that offer high levels of protection from mortgage prepayments.Although the duration of an individual asset can change as a result of changesin interest rates, we plan to maintain a portfolio with an average effectiveduration of less than 2.0. The stated contractual final maturity of themortgage loans underlying our portfolio of mortgage related securitiesgenerally ranges up to 30 years. However, the effect of prepayments of theunderlying mortgage loans tends to shorten the resulting cash flows from ourinvestments substantially. Prepayments occur for various reasons, includingrefinancings of underlying mortgages and payoffs associated with sales of theunderlying homes as people move.

 

For the three months ended March 31, 2005, wehad interest income of $31.1 million and interest expense of$19.8 million. As of March 31, 2005, we had a weighted average yield onassets of 3.63% and a net weighted average borrowings cost of 2.78%. Theconstant prepayment rate for the portfolio was 23.5% for March 2005, whichreflects the annualized proportion of principal that was prepaid. Prepaymentson the loans underlying our mortgage related securities can alter the timing ofthe cash flows from the underlying loans to the company. As a result, we gaugethe interest rate sensitivity of our assets by measuring their effectiveduration. While modified duration measures the price sensitivity of a bond tomovements in interest rates, effective duration captures both the movement ininterest rates and the fact that

 

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cash flows to a mortgage related security are altered when interestrates move. Accordingly, when the contract interest rate on a mortgage loan issubstantially above prevailing interest rates in the market, the effectiveduration of securities collateralized by such loans can be quite low because ofexpected prepayments. Although the fixed-rate mortgage-backed securities in ourportfolio are collateralized by loans with a lower propensity to prepay whenthe contract rate is above prevailing rates, their price movements tracksecurities with like contract rates and therefore exhibit similar effectiveduration. The value of our portfolio will change as interest rates rise orfall. See “Qualitative and Quantitative Disclosures about Market Risk—InterestRate Risk—Effect on Fair Value.”

 

Over the course of the first quarter of 2005 there was a substantialmove in the short end of the yield curve. The yield associated with the on-the-run two year Treasury noteincreased 71 basis points from 3.069% to 3.779%.  During that same period the shorter 12-monthLIBOR rate increased 74.5 basis points from 3.100% to 3.845%.  In the latter part of the quarter, largevolumes of seasoned hybrid ARMs were sold by banks and money managers.  This selling put upward pressure on shorterresetting ARM spreads, widening them substantially.  Simultaneously, an increase in the genericprepayment consensus for ARMs and hybrid ARMs caused spreads to widen further.  The combination of higher interest rates andwider spreads resulted in approximately a $22.7 million dollar decline in themarket value of our portfolio.

 

The following tables summarize our mortgagerelated securities as of March 31, 2005:

 
| **Asset  Category**                                | ** ** | **Market  Value** | ** ** | **Percentage  of  Entire  Portfolio** | ** ** | **Weighted  Average  Coupon** | ** ** | **Weighted  Average  Maturity in  Months** | ** ** | **Longest  Maturity** | ** ** | **Weighted  Average Coupon  Reset in Months** | ** ** | **Weighted  Average  Lifetime Cap** | ** ** | **Weighted  Average Periodic Cap** | ** ** |
|----------------------------------------------------|------------|-------------------|------------|---------------------------------------|------------|-------------------------------|------------|--------------------------------------------|------------|-----------------------|------------|-----------------------------------------------|------------|-------------------------------------|------------|------------------------------------|------------|
|                                               |       | **($000)**        |       |                                  |       |                          |       |                                       |       |                  |       |                                          |       |                                |       |                               |       |
| Fixed-Rate  Mortgage-Backed Securities             |       | $                 | 987,001    |                                  | 29.91      | %                             | 6.51       | %                                          | 272        |                  | 1-Mar-35   |                                          | n/a        |                                | n/a        |                               | n/a        |   |
| CMO Floaters                                       |       |              | 73,744     |                                  | 2.24       | %                             | 3.26       | %                                          | 330        |                  | 25-May-34  |                                          | 0.70       |                                | 7.78       | %                                  | n/a        |   |
| Adjustable-Rate  Mortgage-Backed Securities        |       |              | 1,674,786  |                                  | 50.77      | %                             | 4.03       | %                                          | 343        |                  | 1-Dec-42   |                                          | 3.83       |                                | 10.81      | %                                  | 1.44       | % |
| Hybrid Adjustable  Rate Mortgage-Backed Securities |       |              | 499,492    |                                  | 15.14      | %                             | 4.62       | %                                          | 348        |                  | 20-Jan-35  |                                          | 26.69      |                                | 10.25      | %                                  | 1.23       | % |
| Balloon Maturity  Mortgage-Backed Securities       |       |              | 64,029     |                                  | 1.94       | %                             | 4.07       | %                                          | 57         |                  | 1-Feb-11   |                                          | n/a        |                                | n/a        |                               | n/a        |   |
| Total Portfolio                                    |       | $                 | 3,299,052  |                                  | 100.00     | %                             | 4.84       | %                                          | 317        |                  | 1-Dec-42   |                                          | 8.81       |                                | 10.59      | %                                  | 1.37       | % |

 
| **Agency**          | ** ** | **Market Value** | ** ** | **Percentage of Entire  Portfolio** | ** ** |
|---------------------|------------|------------------|------------|-------------------------------------|------------|
|                |       | **($000)**       |       |                                |       |
| Fannie Mae          |       | $                | 2,148,247  |                                | 65.12      | % |
| Freddie Mac         |       |             | 514,470    |                                | 15.59      | % |
| Ginnie Mae          |       |             | 636,335    |                                | 19.29      | % |
|                |       |             |       |                                |       |
| **Total Portfolio** |       | $                | 3,299,052  |                                | 100.00     | % |

 

**Entire Portfolio**

 
| Effective Duration              |   | 1.23 |   |
|---------------------------------|--------|------|--------|
| Weighted Average Purchase Price |   | $    | 103.45 |   |
| Weighted Average Current Price  |   | $    | 102.69 |   |

 

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As of March 31, 2005, approximately 47.37% ofour portfolio of 15-year fixed-rate coupon mortgage securities, and 30.93% ofour 30-year fixed-rate coupon mortgage securities, contain only loans withprincipal balances of $85,000 or less. Because of the low loan balance on thesemortgages, we believe borrowers have a lower economic incentive to refinanceand have historically prepaid more slowly than comparable securities.

 

We had approximately $113.9 million ofcash and cash equivalents as of March 31, 2005.

 

***Liabilities***

 

We have entered into repurchase agreements tofinance acquisitions of mortgage related securities. None of the counter-partiesto these agreements are affiliates of us. These agreements are secured by ourmortgage related securities and bear interest rates that have historicallymoved in close relationship to LIBOR. As of March 31, 2005, we had 18 masterrepurchase agreements with various investment banking firms and other lendersand had outstanding balances under 15 of these agreements.

 

At March 31, 2005, we had approximately$3.18 billion outstanding under repurchase agreements with a net weightedaverage borrowing cost of 2.78%, $133.8 million of which matures in one day, $847.7 millionof which matures between two and 30 days, $502.1 million of whichmatures between 31 and 90 days, and $1,698 million of which maturesin more than 90 days. It is our present intention to seek to renew theserepurchase agreements as they mature under the then-applicable borrowing termsof the counter-parties to our repurchase agreements. At March 31, 2005, therepurchase agreements were secured by mortgage related securities with anestimated fair value of $3.29 billion and a weighted average maturity of 317 months.

 

At March 31, 2005, our repurchase agreementshad the following counter-parties, amounts outstanding, amounts at risk andweighted average remaining maturities:

 
| **Repurchase Agreement Counter-parties** | ** ** | **Amount Outstanding** | ** **    | **Amount  at Risk (1)** | ** ** | **Weighted  Average  Maturity of  Repurchase  Agreements  in Days** | ** ** | **Percent  of Total  Amount  Outstanding** | ** ** |
|------------------------------------------|------------|------------------------|---------------|-------------------------|------------|---------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                               | ** ** | **($000)**             |          | **($000)**              | ** ** | ** **                                                          | ** ** | ** **                                 | ** ** |
| Nomura Securities International, Inc.    |       | $                      | 485,270       |                    | $          | 25,007                                                              |       | 160                                        |       | 15.3 | % |
| JP Morgan Securities                     |       | 403,899                |          | 15,385                  |       | 30                                                                  |       | 12.7                                       | %          |
| Deutsche Bank Securities, Inc.           |       | 385,439                |          | 16,638                  |       | 142                                                                 |       | 12.1                                       | %          |
| Bear Stearns & Co. Inc.              |       | 297,251                |          | 11,808                  |       | 98                                                                  |       | 9.3                                        | %          |
| Goldman Sachs                            |       | 264,902                |          | 8,438                   |       | 82                                                                  |       | 8.3                                        | %          |
| Cantor Fitzgerald                        |       | 247,942                |          | 12,367                  |       | 151                                                                 |       | 7.8                                        | %          |
| Washington Mutual                        |       | 239,851                |          | 10,920                  |       | 73                                                                  |       | 7.5                                        | %          |
| Banc of America Securities, LLC          |       | 239,290                |          | 11,932                  |       | 93                                                                  |       | 7.5                                        | %          |
| UBS Investment Bank, LLC                 |       | 148,360                |          | 6,534                   |       | 70                                                                  |       | 4.7                                        | %          |
| Lehman Brothers                          |       | 144,277                |          | 4,458                   |       | 96                                                                  |       | 4.6                                        | %          |
| Countrywide Securities Corp.             |       | 131,062                |          | 6,235                   |       | 39                                                                  |       | 4.1                                        | %          |
| Merrill Lynch                            |       | 103,032                |          | 1                       |       | 92                                                                  |       | 3.2                                        | %          |
| Daiwa Securities America Inc.            |       | 59,046                 |          | 3,370                   |       | 99                                                                  |       | 1.9                                        | %          |
| Morgan Stanley                           |       | 28,288                 |          | 1,213                   |       | 12                                                                  |       | 0.9                                        | %          |
| REFCO Securities, LLC                    |       | 3,746                  |          | 208                     |       | 55                                                                  |       | 0.1                                        | %          |
|                                     |       |                   |          |                    |       |                                                                |       |                                       |       |
| **Total**                                | ** ** | **$**                  | **3,181,655** | ** **              | **$**      | **134,514**                                                         | ** ** | ** **                                 | ** ** | **100.0** | **%** |

 

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

 

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**Results of Operations**

 

***Three Months Ended March 31, 2005 Compared to Three Months Ended March31, 2004***

 

It should be noted that due to thesignificant growth in our assets as well as the completion of private equityraises in January 2004 and February 2004 and our public offerings in September2004 and December 2004, the amount and components of our income and expensesfor the three month period ending March 31, 2005 differ significantly from thesame period in 2004.

 

In response to the changing interest rateenvironment, in the first quarter of 2005 we continued to modify the mix ofmortgage related securities in our portfolio by purchasing greater percentagesof adjustable-rate and hybrid adjustable-rate mortgage related securities and asmaller percentage of fixed-rate mortgage related securities than we ownedprior to this quarter. This process began during the third quarter of 2004.During the first quarter of 2005, we sold floating-rate collateralized mortgageobligations in order to reduce exposure to 8.0% lifetime caps, for proceeds of$172.0 million. In connection with these sales, we recorded gains ofapproximately $1.98 million. With the proceeds of these sales we purchased acombination of monthly resetting eleventh district cost of funds indexedadjustable rate securities and low duration fixed rate agency debt with anaverage life tied to the prepayments of a Fannie Mae mortgage-backed securitypool (the “reference” pool). These sales and subsequent purchases have alteredthe mix of mortgage related securities in our portfolio such that thepercentage of adjustable-rate securities whose coupons reset in one year orless had increased to 50.8% from 47.2% at year end 2004. The percentage offloating rate collateralized mortgage obligations has decreased to 2.2% of theportfolio from 8.4% at year end 2004. We are generally using the proceeds ofour monthly mortgage-backed securities principal payments to purchase greaterpercentages of adjustable-rate and hybrid-adjustable-rate mortgage relatedsecurities and a smaller percentage of fixed-rate mortgage backed pools than weowned at the beginning of the year.

 

For the three months ended March 31, 2005 and2004, we recorded $10.9 million and $3.9 million in net income, respectively.  Our net interest income for the three monthsended March 31, 2005 and 2004 was $11.2 million and $4.5 million, respectively andour expenses were $2.3 million net of $1.98 million of realized gainsand $0.5 million, respectively, resulting in net income of $10.9 millionor $0.52 per diluted Class A Common Share and $3.9 million or $0.49 perdiluted Class A Common Share, respectively.

 

For the three months ended March 31, 2005 and2004, comprehensive (loss) income was ($10.6 milllion) including the net unrealizedloss on the available for sale securities of ($19.5 million) and $7.1 millionincluding the net unrealized gain on available for sale securities of $3.2million, respectively. The factors resulting in the unrealized loss onavailable for sale securities are described previously in the section, “FinancialConditions, Mortgage Related Securities” discussing the Company’s securitiesportfolio.

 

As a result of our public secondary offeringin December of 2004, our assets increased substantially in the first quarter of2005 as compared to the fourth quarter of 2004 and the first quarter of 2004.The proceeds from that secondary offering were deployed by the end of January2005.

 

**Liquidity and Capital Resources**

 

Our primary source of funds as of March 31,2005 consisted of repurchase agreements totaling $3.18 billion, with a netweighted average borrowing cost of 2.78%. We expect to continue to borrow fundsin the form of repurchase agreements. At March 31, 2005, we had masterrepurchase agreements in place with 18 counter-parties and had outstandingbalances under 15 of these agreements. These master repurchase agreements haveno stated expiration but can be terminated at any time at our option or at theoption of the counter-party. However, once a definitive repurchase agreementunder a master repurchase agreement has been entered into, it generally may notbe terminated by either party. As of March 31, 2005, all of our existingrepurchase agreements matured in less than one year. Increases in short-terminterest rates could negatively impact the valuation of our mortgage relatedsecurities, which could limit our borrowing ability or cause our lenders toinitiate margin calls.

 

In December of 2004, the Company entered intocontracts and paid commitment fees to three lenders providing for an aggregateof $900 million in committed repurchase lines at pre-determined borrowing ratesand haircuts for a 364 day period following the commencement date of eachcontract. The Company has no obligation to utilize these repurchase lines.During the first quarter of 2005, the Company commenced negotiations toincrease the size and improve the terms of these agreements with one of thelenders. It is anticipated that this will be finalized during the secondquarter of 2005.

 

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For liquidity, we will also rely on cash flowfrom operations, primarily monthly principal and interest payments to bereceived on our mortgage related securities, as well as any primary securitiesofferings authorized by our Board of Directors.

 

We believe that equity capital, combined withthe cash flow from operations and the utilization of borrowings, will besufficient to enable us to meet anticipated liquidity requirements. Variouschanges in market conditions could adversely affect our liquidity, includingincreases in interest rates and increases in prepayment rates substantiallyabove our expectations. If our cash resources are at any time insufficient tosatisfy our liquidity requirements, we may be required to pledge additional assetsto meet margin calls, liquidate mortgage related securities or sell debt oradditional equity securities. If required, the sale of mortgage relatedsecurities at prices lower than the carrying value of such assets would resultin losses and reduced income.

 

We may in the future increase our capitalresources by making additional offerings of equity and debt securities,including classes of preferred stock, common stock, commercial paper,medium-term notes, collateralized mortgage obligations and senior orsubordinated notes. All debt securities, other borrowings, and classes ofpreferred stock will be senior to the Class A Common Stock in aliquidation of our Company. Additional equity offerings may be dilutive tostockholders’ equity or reduce the market price of our Class A CommonStock, or both. We are unable to estimate the amount, timing or nature of anyadditional offerings as they will depend upon market conditions and otherfactors.

 

**Contractual Obligations and Commitments**

 

The following table provides information withrespect to our contractual obligations at March 31, 2005.

 
| ** **                  | ** ** | **Payment due by period** | ** **    |
|-----------------------------|------------|---------------------------|---------------|
| **Contractual Obligations** | ** ** | **Total**                 | ** **    | **Less than  1 year** | ** ** |
|                        |       |                      |          |   |   |
| Repurchase Agreements       |       | $                         | 3,181,655,356 |   | $ | 3,181,655,356 |   |
|                        |       |                      |          |   |   |
| Total                       |       | $                         | 3,181,655,356 |   | $ | 3,181,655,356 |   |
|                        |       |                      |          |   |   |

** **

**Critical Accounting Policies**

 

Our financial statements are prepared inaccordance with U.S. generally accepted accounting principles (GAAP). Theseaccounting principles require us to make some complex and subjective decisionsand assessments. Our most critical accounting policies involve decisions andassessments which could significantly affect our reported assets andliabilities, as well as our reported revenues and expenses. We believe that allof the decisions and assessments upon which our financial statements are basedwere reasonable at the time made based upon information available to us at thattime. For a description of the accounting policies that management believes arethe most critical, refer to our Annual Report on Form 10-K for the year endedDecember 31, 2004.

 

**Classificationsof Investment Securities**

 

In accordance with applicable GAAP, ourinvestments in mortgage related securities are classified as available-for-salesecurities. As a result, changes in fair value are recorded as a balance sheetadjustment to accumulated other comprehensive income (loss), which is acomponent of stockholders’ equity, rather than through our statement ofoperations. If available-for-sale securities were classified as tradingsecurities, there could be substantially greater volatility in earnings fromperiod-to-period.

 

**Valuationsof Mortgage Related Securities**

 

All investment securities are carried on thebalance sheet at fair value. Our mortgage related securities have fair valuesdetermined by management based on the average of third-party broker quotesreceived and/or by independent pricing sources when available. Because theprice estimates may vary to some degree between sources, management must makecertain judgments and assumptions about the appropriate price to use tocalculate the fair values for financial reporting purposes. Different judgmentsand assumptions could result in different presentations of value. 

 

When the fair value of an available-for-salesecurity is less than amortized cost, management considers whether there is another-than-temporary impairment in the value of the security (for example,whether the security will be sold prior to the recovery of fair value). If, inmanagement’s judgment, an other-than-temporary impairment exists, the costbasis of the security is written down to the then-current fair value, and thisloss is realized and charged against earnings. The determination of other than temporaryimpairment is a subjective process, and different judgments and assumptionscould affect the timing of loss realization.

 

The decline in fair value of investments heldin our portfolio at March 31, 2005, and December 31, 2004 is notconsidered to be other than temporary. Accordingly the write down to fair value is recorded in othercomprehensive loss as an unrealized loss.  The factors considered in making thisdetermination included the expected cash flow from the investment, the generalquality of the mortgage related security owned, any credit protectionavailable, current market conditions, and the magnitude and duration of thehistorical decline in market prices as well as the Company’s ability andintention to hold such securities owned.

 

**InterestIncome Recognition**

 

Interest income on our mortgage relatedsecurities is accrued based on the actual coupon rate and the outstandingprincipal amount of the underlying mortgages. Premiums and discounts areamortized or accreted into interest income over the estimated lives of thesecurities using the effective yield method adjusted for the effects ofestimated prepayments based on Statement of Financial Accounting Standards, orSFAS, No. 91, Accounting for Nonrefundable Fees and Costs Associated withOriginating or Acquiring Loans and Initial Direct Costs of Leases—an amendmentof FASB Statements No. 13, 60, and 65 and a rescission of FASB StatementNo. 17. Adjustments are made using the retrospective method to theeffective interest computation each reporting period based on the actualprepayment experiences to date and the present expectation of futureprepayments of the underlying mortgages. To make assumptions as to futureestimated rates of prepayments, we currently use actual market prepaymenthistory for our securities and for similar securities that we do not own andcurrent market conditions. If our estimate of prepayments is incorrect, we arerequired to make an adjustment to the amortization or accretion of premiums anddiscounts that would have an impact on future income.

 

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**Future REIT Taxable Income Distributions**

 

In order to maintain our qualification as a REIT, we are required(among other provisions) to distribute dividends to our stockholders in anamount at least equal to 90% of our “REIT taxable income.” “REIT taxableincome” is a term that describes our operating results following taxation rulesand regulations governed by various provisions of the Internal RevenueCode.  REIT taxable income is computeddifferently from our net income as computed in accordance with generallyaccepted accounting principles (“GAAP net income”).  Depending on the number and size of thevarious items or transactions being accounted for differently, the differencesbetween REIT taxable income and GAAP net income can be substantial and eachitem can affect several years.  See ourAnnual Report on Form 10-K for the year ended December 31, 2004 for a moreextensive description.

 

For the three month period ended March 31, 2005, the Company’s REITtaxable income was estimated to be approximately $370,000 greater than theCompany’s GAAP net income, and the Company therefore has declared and paid REITdistributions (dividends) based on this higher amount.  The most significant portion of this amountis attributable to the phantom stock awards, and the future deduction of thisamount against REIT taxable income is uncertain both to the year and as to theamount.

 

Depending on the actual size of these timing or temporary differences,some of which are not entirely in the Company’s control, future REITdistributions (dividends) may be substantially greater than or less than theCompany’s GAAP net income in any future fiscal reporting quarter or year.  Since inception through March 31, 2005, theCompany’s REIT taxable income is estimated to be approximately $1,283,660greater than the Company’s GAAP net income.

 

**Inflation**

 

Virtually allof our assets and liabilities are financial in nature. As a result, interestrates and other factors influence our performance far more so than doesinflation. Changes in interest rates do not necessarily correlate withinflation rates or changes in inflation rates. Our financial statements areprepared in accordance with accounting principles generally accepted in theUnited States and our distributions are determined by our board of directorsbased primarily on our net income as calculated for tax purposes; in each case,our activities and balance sheet are measured with reference to historical costand or fair market value without considering inflation.

 

**Forward-Looking Statements**

 

When used in this quarterly report on Form 10-Q, in future filings withthe SEC or in press releases or other written or oral communications,statements which are not historical in nature, including those containing wordssuch as “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend” andsimilar expressions, are intended to identify “forward-looking statements”within the meaning of Section 27A of the Securities Act of 1933, as amended(“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, asamended (“Exchange Act”), and, as such, may involve known and unknown risks,uncertainties and assumptions.

 

These forward-looking statements are subject to various risks anduncertainties, including, but not limited to, those relating to: changes in theprepayment rates on the mortgage loans securing the Company’s MBS; changes ininterest rates and the market value of the Company’s MBS; the Company’s abilityto use borrowings to finance its assets; changes in government regulationsaffecting the Company’s business; the Company’s ability to maintain itsqualification as a REIT for federal income tax purposes; and changes inbusiness conditions and the general economy. These and other risks, uncertaintiesand factors, including those described in reports that the Company files fromtime to time with the SEC, could cause the Company’s actual results to differmaterially from those projected in any forward-looking statements it makes. Allforward-looking statements speak only as of the date they are made and theCompany does not undertake, and specifically disclaims, any obligation toupdate or revise any forward-looking statements to reflect events orcircumstances occurring after the date of such statements.

 

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**ITEM 3.****                 ****QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

The Company believes the primary risk inherent in itsinvestments is the effect of movements in interest rates. This arises because thechanges in interest rates on the Company’s borrowings will not be perfectlycoordinated with the effects of interest rate changes on the income from, orvalue of, its investments. The Company therefore follows an interest rate riskmanagement program designed to offset the potential adverse effects resultingfrom the rate adjustment limitations on its mortgage related securities. TheCompany seeks to minimize differences between the interest rate indices andinterest rate adjustment periods of its adjustable-rate mortgage-backedsecurities and those of its related borrowings.

 

The Company’s interest rate risk management programencompasses a number of procedures, including the following:

 

•      monitoring and adjusting, if necessary,the interest rate sensitivity of its mortgage related securities compared withthe interest rate sensitivities of its borrowings;

 

•      attempting to structure its repurchaseagreements that fund its purchases of adjustable-rate mortgage-backedsecurities to have a range of different maturities and interest rate adjustmentperiods. The Company attempts to structure these repurchase agreements to matchthe reset dates on its adjustable-rate mortgage-backed securities. At March 31,2005, the weighted average months to reset of the Company’s adjustable-ratemortgage-backed securities was 3.83 months and the weighted average reset onthe corresponding repurchase agreements was 2.5 months; and

 

•      actively managing, on an aggregate basis,the interest rate indices and interest rate adjustment periods of its mortgagerelated securities compared to the interest rate indices and adjustment periodsof its borrowings. The Company’s liabilities under its repurchase agreementsare all LIBOR-based, and the Company, among other considerations, selects itsadjustable-rate mortgage-backed securities to favor LIBOR indexes. As of March31, 2005, over 28.3% of its adjustable-rate mortgage-backed securities wereLIBOR-based.

 

As a result, the Company expects to be able to adjustthe average maturities and reset periods of its borrowings on an ongoing basisby changing the mix of maturities and interest rate adjustment periods asborrowings mature or are renewed. Through the use of these procedures, theCompany attempts to reduce the risk of differences between interest rateadjustment periods of its adjustable-rate mortgage-backed securities and thoseof its related borrowings.

 

Because the Company attempts to match its assets andliabilities from an interest rate perspective and hold its assets to maturity, itexpects to have limited exposure to changes in interest rates. However, theCompany will be exposed to changes in interest rates either (i) uponrefinancing borrowings that expire before the related assets are repaid or (ii)upon reinvesting (and refinancing) proceeds following the maturity of currentinvestments, if interest rates were to rise substantially.

 

As a further means of protecting its portfolio againstthe effects of major interest rate changes the Company may employ a limitedhedging strategy under which it purchases interest rate cap contracts (underwhich it would generally be entitled to payment if interest rate indices exceedthe agreed rates).

 

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**Interest Rate Risk**

 

The Company is subject to interest rate risk inconnection with its investments in mortgage related securities and its relateddebt obligations, which are generally repurchase agreements of limited durationthat are periodically refinanced at current market rates.

 

**Effect on Net Interest Income**

 

The Company funds its investments in long-termfixed-rate and hybrid adjustable-rate mortgage-backed securities withshort-term borrowings under repurchase agreements. During periods of risinginterest rates, the borrowing costs associated with those fixed-rate and hybridadjustable-rate mortgage-backed securities tend to increase while the incomeearned on such fixed-rate mortgage-backed securities and hybrid adjustable-ratemortgage-backed securities (during the fixed-rate component of such securities)may remain substantially unchanged. This results in a narrowing of the netinterest spread between the related assets and borrowings and may even resultin losses. The Company may enter into interest rate cap contracts or forwardfunding agreements seeking to mitigate the negative impact of a rising interestrate environment. Hedging techniques will be based, in part, on assumed levelsof prepayments of the Company’s fixed-rate and hybrid adjustable-ratemortgage-backed securities. If prepayments are slower or faster than assumed,the life of the mortgage related securities will be longer or shorter, whichwould reduce the effectiveness of any hedging techniques the Company mayutilize and may result in losses on such transactions. Hedging techniquesinvolving the use of derivative securities are highly complex and may producevolatile returns. The Company’s hedging activity will also be limited by theasset and sources-of-income requirements applicable to it as a REIT.

 

**Extension Risk**

 

The Company invests in fixed-rate and hybridadjustable-rate mortgage-backed securities. Hybrid adjustable-ratemortgage-backed securities have interest rates that are fixed for the first fewyears of the loan—typically three, five, seven or 10 years—and thereafter theirinterest rates reset periodically on the same basis as adjustable-ratemortgage-backed securities. As of March 31, 2005, approximately 15.1% of theCompany’s investment portfolio was comprised of hybrid adjustable-ratemortgage-backed securities. The Company computes the projected weighted averagelife of its fixed-rate and hybrid adjustable-rate mortgage-backed securitiesbased on the market’s assumptions regarding the rate at which the borrowerswill prepay the underlying mortgages. In general, when a fixed-rate or hybridadjustable-rate mortgage-backed security is acquired with borrowings, theCompany may, but is not required to, enter into interest rate cap contracts orforward funding agreements that effectively cap or fix its borrowing costs fora period close to the anticipated average life of the fixed-rate portion of therelated mortgage-backed security. This strategy is designed to protect theCompany from rising interest rates because the borrowing costs are fixed forthe duration of the fixed-rate portion of the related mortgage-backed security.However, if prepayment rates decrease in a rising interest rate environment,the life of the fixed-rate portion of the related mortgage-backed securitycould extend beyond the term of the swap agreement or other hedging instrument.This situation could negatively impact the Company as borrowing costs would nolonger be fixed after the end of the hedging instrument, while the incomeearned on the fixed-rate or hybrid adjustable-rate mortgage-backed securitywould remain fixed. This situation may also cause the market value of theCompany’s fixed-rate and hybrid adjustable-rate mortgage-backed securities todecline with little or no offsetting gain from the related hedgingtransactions. In extreme situations, the Company may be forced to sell assetsand incur losses to maintain adequate liquidity.

 

**Adjustable-Rate and HybridAdjustable-Rate Mortgage-Backed Security Interest Rate Cap Risk**

 

The Company also invests in adjustable-rate and hybridadjustable-rate mortgage-backed securities, which are based on mortgages thatare typically subject to periodic and lifetime interest rate caps and floors,which limit the amount by which an adjustable-rate or hybrid adjustable-ratemortgage-

 

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backed security’sinterest yield may change during any given period. However, the Company’sborrowing costs pursuant to its repurchase agreements will not be subject tosimilar restrictions. Hence, in a period of increasing interest rates, interestrate costs on the Company’s borrowings could increase without limitation bycaps, while the interest-rate yields on the Company’s adjustable-rate andhybrid adjustable-rate mortgage-backed securities would effectively be limitedby caps. This problem will be magnified to the extent the Company acquiresadjustable-rate and hybrid adjustable-rate mortgage-backed securities that arenot based on mortgages which are fully indexed. Further, the underlyingmortgages may be subject to periodic payment caps that result in some portionof the interest being deferred and added to the principal outstanding. Thiscould result in the Company’s receipt of less cash income on itsadjustable-rate and hybrid adjustable-rate mortgage-backed securities than itneeds in order to pay the interest cost on its related borrowings. Thesefactors could lower the Company’s net interest income or cause a net lossduring periods of rising interest rates, which would negatively impact theCompany’s financial condition, cash flows and results of operations.

 

**Interest Rate Mismatch Risk**

 

The Company intends to fund a substantial portion ofits acquisitions of adjustable-rate and hybrid adjustable-rate mortgage-backedsecurities with borrowings that have interest rates based on indices andrepricing terms similar to, but of somewhat shorter maturities than, theinterest rate indices and repricing terms of the mortgage related securities itis financing. Thus, the Company anticipates that in most cases the interest rateindices and repricing terms of its mortgage related securities and its fundingsources will not be identical, thereby creating an interest rate mismatchbetween assets and liabilities. Therefore, the Company’s cost of funds wouldlikely rise or fall more quickly than would its earnings rate on assets. Duringperiods of changing interest rates, such interest rate mismatches couldnegatively impact the Company’s financial condition, cash flows and results ofoperations.

 

**Prepayment Risk**

 

Prepayment rates for existing mortgage relatedsecurities generally increase when prevailing interest rates fall below themarket rate existing when the underlying mortgages were originated. Inaddition, prepayment rates on adjustable-rate and hybrid adjustable-ratemortgage-backed securities generally increase when the difference betweenlong-term and short-term interest rates declines or becomes negative.Prepayments of mortgage related securities could harm the Company’s results ofoperations in several ways. Some adjustable-rate mortgages underlying theCompany’s adjustable-rate mortgage-backed securities may bear initial “teaser”interest rates that are lower than their “fully-indexed” rates, which refers tothe applicable index rates plus a margin. In the event that such anadjustable-rate mortgage is prepaid prior to or soon after the time ofadjustment to a fully-indexed rate, the holder of the related mortgage-backedsecurity would have held such security while it was less profitable and lostthe opportunity to receive interest at the fully-indexed rate over the expectedlife of the adjustable-rate mortgage-backed security. The Company currentlyowns mortgage related securities that were purchased at a premium. Theprepayment of such mortgage related securities at a rate faster thananticipated would result in a write-off of any remaining capitalized premiumamount and a consequent reduction of the Company’s net interest income by suchamount. Finally, in the event that the Company is unable to acquire newmortgage related securities to replace the prepaid mortgage related securities,its financial condition, cash flow and results of operations could be harmed.

 

**Effect on Fair Value**

 

Another component of interest rate risk is the effectchanges in interest rates will have on the fair value of the Company’s assets.The Company faces the risk that the fair value of its assets will increase ordecrease at different rates than that of its liabilities, including its hedginginstruments.

 

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The Company primarily assesses its interest rate riskby estimating the duration of its assets and the duration of its liabilities.Duration essentially measures the market price volatility of financialinstruments as interest rates change. The Company generally calculates durationusing various financial models and empirical data, and different models andmethodologies can produce different duration numbers for the same securities.

 

The following sensitivity analysis table shows theestimated impact on the fair value of the Company’s interest rate-sensitiveinvestments at March 31, 2005, assuming rates instantaneously fall 100 basispoints, rise 100 basis points and rise 200 basis points: 

 
| ** **                  | ** ** | **Interest Rates Fall  100 BPS** | ** ** | **Interest Rates Rise  100 BPS** | ** ** | **Interest Rates Rise  200 BPS** | ** ** |
|-----------------------------|------------|----------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| **Adjustable-Rate**         |       |                             |       |                             |       |                             |       |
| Fair Value $1,674,786,388   |       |                             |       |                             |       |                             |       |
| Change in Fair Value        |       | $                                | 10,540,958 |                             | $          | (10,540,958                      | )          | $ | (21,081,917 | ) |
| Change as a % of Fair Value |       | 0.63                             | %          | (0.63                            | )%         | (1.26                            | )%         |
|                        |       |                             |       |                             |       |                             |       |
| **Fixed-Rate**              |       |                             |       |                             |       |                             |       |
| Fair Value $987,000,965     |       |                             |       |                             |       |                             |       |
| Change in Fair Value        |       | $                                | 22,451,156 |                             | $          | (22,451,156                      | )          | $ | (44,902,312 | ) |
| Change as a % of Fair Value |       | 2.27                             | %          | (2.27                            | )%         | (4.55                            | )%         |
|                        |       |                             |       |                             |       |                             |       |
| **CMO Floaters**            |       |                             |       |                             |       |                             |       |
| Fair Value $73,743,802      |       |                             |       |                             |       |                             |       |
| Change in Fair Value        |       | $                                | (250,729   | )                                | $          | 250,729                          |       | $ | 501,458 |   |
| Change as a % of Fair Value |       | (0.34                            | )%         | 0.34                             | %          | 0.68                             | %          |
|                        |       |                             |       |                             |       |                             |       |
| **Hybrid**                  |       |                             |       |                             |       |                             |       |
| Fair Value $499,491,623     |       |                             |       |                             |       |                             |       |
| Change in Fair Value        |       | $                                | 7,287,583  |                             | $          | (7,287,583                       | )          | $ | (14,575,166 | ) |
| Change as a % of Fair Value |       | 1.46                             | %          | (1.46                            | )%         | (2.92                            | )%         |
|                        |       |                             |       |                             |       |                             |       |
| **Balloon**                 |       |                             |       |                             |       |                             |       |
| Fair Value $64,028,783      |       |                             |       |                             |       |                             |       |
| Change in Fair Value        |       | $                                | 1,805,612  |                             | $          | (1,805,612                       | )          | $ | (3,611,223 | ) |
| Change as a % of Fair Value |       | 2.82                             | %          | (2.82                            | )%         | (5.64                            | )%         |
|                        |       |                             |       |                             |       |                             |       |
| **Cash**                    |       |                             |       |                             |       |                             |       |
| Fair Value $113,855,808     |       |                             |       |                             |       |                             |       |
|                        |       |                             |       |                             |       |                             |       |
| **Portfolio Total**         |       |                             |       |                             |       |                             |       |
| Fair Value $3,299,051,561   |       |                             |       |                             |       |                             |       |
| Change in Fair Value        |       | $                                | 41,834,580 |                             | $          | (41,834,580                      | )          | $ | (83,669,160 | ) |
| Change as a % of Fair Value |       | 1.27                             | %          | (1.27                            | )%         | (2.54                            | )%         |

 

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The table below reflects the same analysis presentedabove but with the figures in the columns that indicate the estimated impact ofa 100 basis point fall, a 100 basis point rise, and a 200 basis point rise adjustedto reflect the impact of convexity. 

 
| ** **                  | ** ** | **Interest Rates Fall  100 BPS** | ** ** | **Interest Rates Rise  100 BPS** | ** ** | **Interest Rates Rise  200 BPS** | ** ** |
|-----------------------------|------------|----------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| **Adjustable-Rate**         |       |                             |       |                             |       |                             |       |
| Fair Value $1,674,786,388   |       |                             |       |                             |       |                             |       |
| Change in Fair Value        |       | $                                | 4,765,658  |                             | $          | (13,792,514                      | )          | $ | (34,174,498 | ) |
| Change as a % of Fair Value |       | 0.28                             | %          | (0.82                            | )%         | (2.04                            | )%         |
|                        |       |                             |       |                             |       |                             |       |
| **Fixed-Rate**              |       |                             |       |                             |       |                             |       |
| Fair Value $987,000,965     |       |                             |       |                             |       |                             |       |
| Change in Fair Value        |       | $                                | 11,190,574 |                             | $          | (22,979,582                      | )          | $ | (53,734,663 | ) |
| Change as a % of Fair Value |       | 1.13                             | %          | (2.33                            | )%         | (5.44                            | )%         |
|                        |       |                             |       |                             |       |                             |       |
| **CMO Floaters**            |       |                             |       |                             |       |                             |       |
| Fair Value $73,743,802      |       |                             |       |                             |       |                             |       |
| Change in Fair Value        |       | $                                | (210,170   | )                           | $          | 210,170                          |       | $ | 145,275 |   |
| Change as a % of Fair Value |       | (0.29                            | )%         | 0.29                             | %          | 0.20                             | %          |
|                        |       |                             |       |                             |       |                             |       |
| **Hybrid**                  |       |                             |       |                             |       |                             |       |
| Fair Value $499,491,623     |       |                             |       |                             |       |                             |       |
| Change in Fair Value        |       | $                                | 3,616,319  |                             | $          | (9,730,097                       | )          | $ | (22,542,056 | ) |
| Change as a % of Fair Value |       | 0.72                             | %          | (1.95                            | )%         | (4.51                            | )%         |
|                        |       |                             |       |                             |       |                             |       |
| **Balloon**                 |       |                             |       |                             |       |                             |       |
| Fair Value $64,028,783      |       |                             |       |                             |       |                             |       |
| Change in Fair Value        |       | $                                | 1,326,036  |                             | $          | (1,651,943                       | )          | $ | (3,345,504 | ) |
| Change as a % of Fair Value |       | 2.07                             | %          | (2.58                            | )%         | (5.23                            | )%         |
|                        |       |                             |       |                             |       |                             |       |
| **Cash**                    |       |                             |       |                             |       |                             |       |
| Fair Value $113,855,808     |       |                             |       |                             |       |                             |       |
|                        |       |                             |       |                             |       |                             |       |
| **Portfolio Total**         |       |                             |       |                             |       |                             |       |
| Fair Value $3,299,051,561   |       |                             |       |                             |       |                             |       |
| Change in Fair Value        |       | $                                | 20,688,417 |                             | $          | (47,943,966                      | )          | $ | (113,651,446 | ) |
| Change as a % of Fair Value |       | 0.63                             | %          | (1.45                            | )%         | (3.44                            | )%         |

 

In addition tochanges in interest rates, other factors impact the fair value of the Company’sinterest rate-sensitive investments and hedging instruments, such as the shapeof the yield curve, market expectations as to future interest rate changes andother market conditions. Accordingly, in the event of changes in actualinterest rates, the change in the fair value of the Company’s assets wouldlikely differ from that shown above, and such difference might be material andadverse to the Company’s stockholders.

 

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The Company’s liabilities, consisting primarily ofrepurchase agreements, are also affected by changes in interest rates. As ratesrise, the value of the underlying asset, or the collateral, declines. Incertain circumstances, the Company could be required to post additionalcollateral in order to maintain the repurchase agreement position. The Companymaintains a substantial cash position, as well as unpledged assets, to coverthese types of situations. As an example, if interest rates increased 200 basispoints, as shown on the prior table, the Company’s collateral as of March 31,2005 would decline in value by approximately $113.7 million. Its cash andunpledged assets are currently sufficient to cover such shortfall. There can beno assurance, however, that the Company will always have sufficient cash orunpledged assets to cover shortfalls in all situations.

 

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# **ITEM 4.**                  CONTROLS ANDPROCEDURES

 

The Companymaintains disclosure controls and procedures that are designed to ensure thatinformation required to be disclosed in the Company’s Exchange Act reports isrecorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and forms, and that such information is accumulated andcommunicated to the Company’s management, including its Chief Executive Officerand Chief Financial Officer, as appropriate, to allow timely decisionsregarding required disclosure based closely on the definition of “disclosurecontrols and procedures” in Rule 13a-14(c). In designing and evaluating the disclosure controls and procedures,management recognized that any controls and procedures, no matter how welldesigned and operated, can provide only reasonable assurance of achieving thedesired control objectives, and management necessarily was required to applyits judgment in evaluating the cost-benefit relationship of possible controlsand procedures.

 

Within 90 daysprior to the date of this report, the Company carried out an evaluation, underthe supervision and with the participation of the Company’s management,including the Company’s Chief Executive Officer and the Company’s ChiefFinancial Officer, of the effectiveness of the design and operation of theCompany’s disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and ChiefFinancial Officer concluded that the Company’s disclosure controls andprocedures were effective.

 

There havebeen no significant changes in the Company’s internal controls or in otherfactors that could significantly affect the internal controls subsequent to thedate the Company completed its evaluation.

 

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# **PART II                 OTHERINFORMATION**

# ** **

# **ITEM 1.                  LEGALPROCEEDINGS**

# ** **

None

 

**ITEM 2.                  UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

 

None

 

# **ITEM 3.                  DEFAULTSUPON SENIOR SECURITIES**

# ** **

None

 

# **ITEM 4.                  SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS**

# ** **

The Annual Meeting of Shareholders of the Company washeld on March 24, 2005.

 

1.  *Election of Directors.* At the meeting, two directors were elected for terms expiring in2008.  For each nominee, the number ofvotes cast for and withheld were as follows:

 
| **NOMINEE**       | ** ** | **FOR**    | ** ** | **WITHHELD** | ** ** |
|-------------------|------------|------------|------------|--------------|------------|
| Robert E.  Cauley |       | 17,988,454 |       | 119,368      |       |
| Buford H.  Ortale |       | 17,823,151 |       | 284,671      |       |

 

The following directors continued in office after themeeting: Maureen A. Hendricks, Jeffrey J. Zimmer, Kevin L. Bespolka andW. Christopher Mortenson.

 

2.  *Ratification of Appointment of Independent Auditors*.  At the meeting, the selection of Ernst &Young LLP as the Company’s independent auditors for the year ending December31, 2005 was ratified.  The number ofvotes cast for and against the selection of the auditors and the number ofabstentions were as follows:

 
| **FOR**    | ** ** | **AGAINST** | ** ** | **ABSTAIN** | ** ** |
|------------|------------|-------------|------------|-------------|------------|
| 18,028,444 |       | 25,410      |       | 53,968      |       |

 

# **ITEM 5.**                  OTHERINFORMATION

 

None

 

# **ITEM 6.**                  EXHIBITS

 

31.1      Certificationof Chief Executive Officer pursuant to Rule 13a-14(a) of the SecuritiesExchange Act, as amended.

 

31.2      Certificationof Chief Financial Officer pursuant to Rule 13a-14(a) of the SecuritiesExchange Act, as amended.

 

32         Certificationsof Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002.

 

 

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## **SIGNATURES**

## ** **

Pursuant tothe requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
|   | BIMINI MORTGAGE MANAGEMENT, INC. |
|--------|----------------------------------|
|   |                             |
|   |                             |
|   | By:                              |   /s/ Robert  E. Cauley |   |
|   |                             | Robert E. Cauley |
|   |                             | Chief Financial Officer and Secretary |
|   |                             |   |
|   |                             |   |
| Date:  | April 25, 2005                   |   |   |
|        |                                  |  |  |  |

 

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