** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-Q**

 

**ý****                                 QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period endedSeptember 30, 2005**

 

**or**

 

**o****                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934**

 

**For the transition period from         to        .**

 

**Commission FileNo. 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)

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes ý No o

 

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

 

AtSeptember 30, 2005, the number of shares outstanding of the registrant’sClass A Common Stock, $0.001 par value, was 20,397,210; the number ofshares outstanding of the registrant’s Class B Common Stock, $0.001 parvalue, was 319,388; and the number of shares outstanding of the registrant’sClass C Common Stock, $0.001 par value, was 319,388.

 

 

**BIMINIMORTGAGE MANAGEMENT, INC.**

** **

**INDEX**

** **
| PART I.  | FINANCIAL INFORMATION                                                                              | 3      |
|---------------|----------------------------------------------------------------------------------------------------|--------|
|          |                                                                                               |   |
| ITEM  1.      | FINANCIAL  STATEMENTS                                                                              | 3      |
|          |                                                                                               |   |
|          | Balance Sheet as of  September 30, 2005 (unaudited) and December 31, 2004                          | 3      |
|          |                                                                                               |   |
|          | Statements  of Income for the three and nine months ended September 30, 2005 and 2004  (unaudited) | 4      |
|          |                                                                                               |   |
|          | Statement of Stockholder’s Equity for the nine months  ended September 30, 2005 (unaudited)   | 5      |
|          |                                                                                               |   |
|          | Statements of Cash Flows for the nine months ended  September 30, 2005 and 2004 (unaudited)        | 6      |
|          |                                                                                               |   |
|          | Notes  to Financial Statements (unaudited)                                                         | 7      |
|          |                                                                                               |   |
| ITEM 2.       | MANAGEMENT’S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATIONS        | 17     |
|          |                                                                                               |   |
| ITEM 3.       | QUANTITATIVE AND QUALITATIVE DISCLOSURES  ABOUT MARKET RISK                                        | 26     |
|          |                                                                                               |   |
| ITEM 4.       | CONTROLS AND PROCEDURES                                                                            | 31     |
|          |                                                                                               |   |
| PART II. | OTHER INFORMATION                                                                                  | 32     |
|          |                                                                                               |   |
| ITEM 1.       | LEGAL PROCEEDINGS                                                                                  | 32     |
|          |                                                                                               |   |
| ITEM 2.       | UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                       | 32     |
|          |                                                                                               |   |
| ITEM 3.       | DEFAULTS UPON  SENIOR SECURITIES                                                                   | 32     |
|          |                                                                                               |   |
| ITEM 4.       | SUBMISSION OF  MATTERS TO A VOTE OF SECURITY HOLDERS                                               | 32     |
|          |                                                                                               |   |
| ITEM 5.       | OTHER INFORMATION                                                                                  | 32     |
|          |                                                                                               |   |
| ITEM 6.       | EXHIBITS AND REPORTS ON FORM 8-K                                                              | 32     |

 

2

----

**PART I.   FINANCIAL INFORMATION**

# **ITEM 1.**   Financial Statements

 

## **BIMINI MORTGAGEMANAGEMENT, INC.**

**BALANCE SHEETS**

 
| ** **                                                                                                                                                                                         | ** ** | **September 30, 2005** | ** **    | **December 31, 2004** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|---------------|----------------------------|------------|
| ** **                                                                                                                                                                                         | ** ** | **(Unaudited)**             | ** **    | ** **                 | ** ** |
| ASSETS                                                                                                                                                                                             |       |                        |          |                       |       |
|                                                                                                                                                                                               |       |                        |          |                       |       |
| MORTGAGE-BACKED  SECURITIES:                                                                                                                                                                       |       |                        |          |                       |       |
| Pledged to counterparties,  at fair value                                                                                                                                                          |       | $                           | 3,856,216,501 |                       | $          | 2,901,158,559 |   |
| Unpledged, at fair value                                                                                                                                                                           |       | 2,103,201                   |          | 72,074,338                 |       |
|                                                                                                                                                                                               |       |                        |          |                       |       |
| TOTAL MORTGAGE-BACKED  SECURITIES                                                                                                                                                                  |       | 3,858,319,702               |          | 2,973,232,897              |       |
|                                                                                                                                                                                               |       |                        |          |                       |       |
| CASH AND CASH EQUIVALENTS                                                                                                                                                                          |       | 130,089,802                 |          | 128,942,436                |       |
| RESTRICTED CASH                                                                                                                                                                                    |       | —                      |          | 8,662,000                  |       |
| PRINCIPAL PAYMENTS  RECEIVABLE                                                                                                                                                                     |       | 29,192,949                  |          | 3,419,199                  |       |
| ACCRUED INTEREST  RECEIVABLE                                                                                                                                                                       |       | 16,696,603                  |          | 11,377,807                 |       |
| PROPERTY AND EQUIPMENT,  net                                                                                                                                                                       |       | 2,619,988                   |          | 2,050,923                  |       |
| INVESTMENT IN BIMINI  CAPITAL TRUST I                                                                                                                                                              |       | 1,550,000                   |          | —                     |       |
| PREPAIDS AND OTHER ASSETS                                                                                                                                                                          |       | 3,949,278                   |          | 732,469                    |       |
|                                                                                                                                                                                               |       |                        |          |                       |       |
|                                                                                                                                                                                               |       | $                           | 4,042,418,322 |                       | $          | 3,128,417,731 |   |
|                                                                                                                                                                                               |       |                        |          |                       |       |
| LIABILITIES  AND STOCKHOLDERS’ EQUITY                                                                                                                                                         |       |                        |          |                       |       |
|                                                                                                                                                                                               |       |                        |          |                       |       |
| LIABILITIES:                                                                                                                                                                                       |       |                        |          |                       |       |
| Repurchase agreements                                                                                                                                                                              |       | $                           | 3,729,373,642 |                       | $          | 2,771,162,957 |   |
| Junior subordinated notes  due to Bimini Capital Trust I                                                                                                                                           |       | 51,550,000                  |          | —                     |       |
| Accrued interest payable                                                                                                                                                                           |       | 20,104,380                  |          | 7,980,829                  |       |
| Unsettled security  purchases                                                                                                                                                                      |       | —                      |          | 65,765,630                 |       |
| Dividend payable                                                                                                                                                                                   |       | 8,064,084                   |          | —                     |       |
| Compensation and related  costs payable                                                                                                                                                            |       | 175,291                     |          | 87,323                     |       |
| Accounts payable, accrued  expenses and other                                                                                                                                                      |       | 546,131                     |          | 458,665                    |       |
|                                                                                                                                                                                               |       |                        |          |                       |       |
| TOTAL LIABILITIES                                                                                                                                                                                  |       | 3,809,813,528               |          | 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, 20,397,210 shares at September 30, 2005 and 20,368,915  shares at December 31, 2004 |       | 20,397                      |          | 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                                                                                                                                                                        |       | 286,923,304                 |          | 285,174,651                |       |
| Accumulated  other comprehensive loss                                                                                                                                                              |       | (52,470,499                 | )             | (1,155,771                 | )          |
| Accumulated  deficit                                                                                                                                                                               |       | (1,869,046                  | )             | (1,077,560                 | )          |
|                                                                                                                                                                                               |       |                        |          |                       |       |
| TOTAL STOCKHOLDERS’ EQUITY                                                                                                                                                                    |       | 232,604,794                 |          | 282,962,327                |       |
|                                                                                                                                                                                               |       |                        |          |                       |       |
|                                                                                                                                                                                               |       | $                           | 4,042,418,322 |                       | $          | 3,128,417,731 |   |

 

Seenotes to financial statements.

 

3

----

 

## **BIMINI MORTGAGEMANAGEMENT, INC.**

STATEMENTS OF INCOME

 
| ** **                                                                                               | ** ** | **Nine months ended**        | ** **  | **Three months ended**       | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|------------------------------|-------------|------------------------------|------------|
| ** **                                                                                               | ** ** | **September 30,  2005** | ** **  | **September 30,  2004** | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** |
| ** **                                                                                               | ** ** | **(Unaudited)**              | ** **  | **(Unaudited)**              | ** ** |
| Interest  income, net of amortization of premium and discount                                            |       | $                            | 111,392,882 |                         | $          | 29,170,477 |   | $ | 43,574,308 |   | $ | 11,017,346 |   |
| Interest  expense                                                                                        |       | (80,053,678                  | )           | (11,691,806                  | )          | (33,508,546 | ) | (4,405,998 | ) |
|                                                                                                     |       |                         |        |                         |       |   |   |   |   |
| NET  INTEREST INCOME                                                                                     |       | 31,339,204                   |        | 17,478,671                   |       | 10,065,762 |   | 6,611,348 |   |
|                                                                                                     |       |                         |        |                         |       |   |   |   |   |
| NET  GAIN ON SALES OF MORTGAGE-BACKED SECURITIES                                                         |       | 1,993,457                    |        | 121,664                      |       | 11,075 |   | 121,664 |   |
|                                                                                                     |       |                         |        |                         |       |   |   |   |   |
| DIRECT  OPERATING EXPENSES                                                                               |       | 923,205                      |        | 480,227                      |       | 299,287 |   | 177,048 |   |
|                                                                                                     |       |                         |        |                         |       |   |   |   |   |
| GENERAL  AND ADMINISTRATIVE EXPENSES:                                                                    |       |                         |        |                         |       |   |   |   |   |
| Compensation  and related expenses                                                                       |       | 3,925,044                    |        | 1,204,435                    |       | 1,402,435 |   | 563,629 |   |
| Directors’  fees                                                                                    |       | 260,057                      |        | 122,341                      |       | 84,015 |   | 52,021 |   |
| Directors’  liability insurance costs                                                               |       | 209,754                      |        | 102,887                      |       | 78,823 |   | 34,296 |   |
| Audit,  legal and other professional fees                                                                |       | 570,594                      |        | 221,584                      |       | 209,994 |   | 98,500 |   |
| Other  administrative expenses                                                                           |       | 442,498                      |        | 212,413                      |       | 127,026 |   | 61,425 |   |
|                                                                                                     |       |                         |        |                         |       |   |   |   |   |
| TOTAL  GENERAL AND ADMINISTRATIVE EXPENSES                                                               |       | 5,407,947                    |        | 1,863,660                    |       | 1,902,293 |   | 809,871 |   |
|                                                                                                     |       |                         |        |                         |       |   |   |   |   |
| NET  INCOME                                                                                              |       | $                            | 27,001,509  |                         | $          | 15,256,448 |   | $ | 7,875,257 |   | $ | 5,746,093 |   |
|                                                                                                     |       |                         |        |                         |       |   |   |   |   |
| BASIC  AND DILUTED INCOME PER CLASS A COMMON SHARE                                                  |       | $                            | 1.27        |                         | $          | 1.56 |   | $ | 0.37 |   | $ | 0.51 |   |
| BASIC  AND DILUTED INCOME PER CLASS B COMMON SHARE                                                  |       | $                            | 1.27        |                         | $          | 1.65 |   | $ | 0.37 |   | $ | 0.53 |   |
|                                                                                                     |       |                         |        |                         |       |   |   |   |   |
| WEIGHTED  AVERAGE NUMBER OF CLASS A COMMON SHARES OUTSTANDING USED IN COMPUTING  PER SHARE AMOUNTS: |       |                         |        |                         |       |   |   |   |   |
|                                                                                                     |       |                         |        |                         |       |   |   |   |   |
| BASIC  AND DILUTED                                                                                       |       | 20,864,842                   |        | 9,648,176                    |       | 20,900,703 |   | 10,866,734 |   |
|                                                                                                     |       |                         |        |                         |       |   |   |   |   |
| WEIGHTED  AVERAGE NUMBER OF CLASS B COMMON SHARES OUTSTANDING USED IN COMPUTING  PER SHARE AMOUNTS: |       |                         |        |                         |       |   |   |   |   |
|                                                                                                     |       |                         |        |                         |       |   |   |   |   |
| BASIC  AND DILUTED                                                                                       |       | 319,388                      |        | 106,074                      |       | 319,388 |   | 319,388 |   |
|                                                                                                     |       |                         |        |                         |       |   |   |   |   |
| CASH  DIVIDENDS DECLARED PER:                                                                            |       |                         |        |                         |       |   |   |   |   |
| CLASS A  COMMON SHARE                                                                               |       | $                            | 1.31        |                         | $          | 1.43 |   | $ | 0.38 |   | $ | 0.52 |   |
|                                                                                                     |       |                         |        |                         |       |   |   |   |   |
| CLASS B  COMMON SHARE                                                                               |       | $                            | 1.31        |                         | $          | 0.52 |   | $ | 0.38 |   | $ | 0.52 |   |

 

See notes to financialstatements.

 

4

----

## **BIMINI MORTGAGEMANAGEMENT, INC.**

## **STATEMENT OF STOCKHOLDERS’ EQUITY**

**NINE MONTHS ENDEDSEPTEMBER 30, 2005**

## **(UNAUDITED)**

## ** **

| ** **                                                                                 | ** ** | **Common Stock,  Amounts at Par Value** | ** ** | **Additional  Paid-in** | ** ** | **Accumulated  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 for board compensation and phantom share exercises |       | 28                                      |       |                    |       |                                  |       | 260,028         |       |        |       |   |   | 260,056 |   |
| Cash dividends declared,  March 2005                                                  |       |                                    |       |                    |       |                                  |       |            |       |        |       | (11,241,953 | ) | (11,241,953 | ) |
| Amortization of equity  plan compensation                                                  |       |                                    |       |                    |       |                                  |       | 1,574,661       |       |        |       |   |   | 1,574,661 |   |
| Stock issuance costs                                                                       |       |                                    |       |                    |       |                                  |       | (86,036         | )          |        |       |   |   | (86,036 | ) |
| Reclassify unrealized net gain  on security sales                                          |       |                                    |       |                    |       |                                  |       |            |       | (1,993,457  | )          |   |   | (1,993,457 | ) |
| Cash dividends declared,  May 2005                                                    |       |                                    |       |                    |       |                                  |       |            |       |        |       | (8,486,958 | ) | (8,486,958 | ) |
| Cash dividends declared,  August 2005                                                      |       |                                    |       |                    |       |                                  |       |            |       |        |       | (8,064,084 | ) | (8,064,084 | ) |
| Net income                                                                                 |       |                                    |       |                    |       |                                  |       |            |       |        |       | 27,001,509 |   | 27,001,509 |   |
| Unrealized loss on  available for sale securities, net                                     |       |                                    |       |                    |       |                                  |       |            |       | (49,321,271 | )          |   |   | (49,321,271 | ) |
| Comprehensive loss                                                                         |       |                                    |       |                    |       |                                  |       |            |       |        |       |   |   | (24,313,219 | ) |
|                                                                                       |       |                                    |       |                    |       |                                  |       |            |       |        |       |   |   |   |   |
| Balances,  September 30, 2005                                                         |       | $                                       | 20,397     |                    | $          | 319                                   |       | $               | 319        |        | $          | 286,923,304 |   | $ | (52,470,499 | ) | $ | (1,869,046 | ) | $ | 232,604,794 |   |
|                                                                                            |            |                                         |            |                         |            |                                       |            |                 |            |             |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

See notes to financial statements.

 

5

----

 

**BIMINIMORTGAGE MANAGEMENT, INC.**

**STATEMENTS OF CASH FLOWS**

 
| ** **                                                                         | ** ** | **Nine months ended  September 30, 2005** | ** **  | **Nine months ended  September 30, 2004** | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------------------------------|-------------|------------------------------------------------|------------|
| ** **                                                                         | ** ** | **(Unaudited)**                                | ** **  | **(Unaudited)**                                | ** ** |
| CASH  FLOWS FROM OPERATING ACTIVITIES:                                             |       |                                           |        |                                           |       |
| Net  income                                                                        |       | $                                              | 27,001,509  |                                           | $          | 15,256,448 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities: |       |                                           |        |                                           |       |
| Amortization of premium and discount                                               |       | 16,657,961                                     |        | 13,717,516                                     |       |
| Stock compensation, depreciation and amortization                                  |       | 2,007,587                                      |        | 539,803                                        |       |
| Net gain on sales of mortgage-backed securities                                    |       | (1,993,457                                     | )           | (121,664                                       | )          |
| Changes  in certain assets and liabilities:                                        |       |                                           |        |                                           |       |
| Accrued interest receivable                                                        |       | (5,318,794                                     | )           | (5,698,098                                     | )          |
| Prepaids and other assets                                                          |       | (3,435,994                                     | )           | (72,814                                        | )          |
| Accrued interest payable                                                           |       | 12,123,551                                     |        | 6,280,663                                      |       |
| Accounts payable, accrued expenses and other                                       |       | 175,434                                        |        | 409,822                                        |       |
| NET  CASH PROVIDED BY OPERATING ACTIVITIES                                         |       | 47,217,794                                     |        | 30,311,676                                     |       |
|                                                                               |       |                                           |        |                                           |       |
| CASH  FLOWS FROM INVESTING ACTIVITIES:                                             |       |                                           |        |                                           |       |
| From  available-for-sale securities:                                               |       |                                           |        |                                           |       |
| Purchases                                                                          |       | (2,307,378,255                                 | )           | (1,974,987,075                                 | )          |
| Sales                                                                              |       | 240,735,761                                    |        | 360,124,493                                    |       |
| Principal repayments                                                               |       | 1,024,037,076                                  |        | 188,228,139                                    |       |
| Purchases  of property and equipment                                               |       | (624,319                                       | )           | (128,854                                       | )          |
| NET  CASH USED IN INVESTING ACTIVITIES                                             |       | (1,043,229,737                                 | )           | (1,426,763,297                                 | )          |
|                                                                               |       |                                           |        |                                           |       |
| CASH  FLOWS FROM FINANCING ACTIVITIES:                                             |       |                                           |        |                                           |       |
| Decrease  in restricted cash                                                       |       | 8,662,000                                      |        | —                                         |       |
| Net  borrowings under repurchase agreements                                        |       | 958,210,685                                    |        | 1,359,777,814                                  |       |
| Net  proceeds from trust preferred securities offering                             |       | 50,101,571                                     |        | —                                         |       |
| Stock  issuance costs                                                              |       | (86,036                                        | )           | —                                         |       |
| Proceeds  from sales of common stock, net of costs of issuance                     |       | —                                         |        | 161,312,122                                    |       |
| Cash  dividends paid                                                               |       | (19,728,911                                    | )           | (9,272,979                                     | )          |
| NET  CASH PROVIDED BY FINANCING ACTIVITIES                                         |       | 997,159,309                                    |        | 1,511,816,957                                  |       |
|                                                                               |       |                                           |        |                                           |       |
| NET  CHANGE IN CASH AND CASH EQUIVALENTS                                           |       | 1,147,366                                      |        | 115,365,336                                    |       |
|                                                                               |       |                                           |        |                                           |       |
| CASH  AND CASH EQUIVALENTS, Beginning of the period                                |       | 128,942,436                                    |        | 18,404,130                                     |       |
|                                                                               |       |                                           |        |                                           |       |
| CASH  AND CASH EQUIVALENTS, End of the period                                      |       | $                                              | 130,089,802 |                                           | $          | 133,769,466 |   |
|                                                                               |       |                                           |        |                                           |       |
| SUPPLEMENTAL  DISCLOSURES OF CASH FLOW INFORMATION:                                |       |                                           |        |                                           |       |
| Cash  paid during the period for interest                                          |       | $                                              | 84,195,289  |                                           | $          | 5,053,119 |   |
|                                                                               |       |                                           |        |                                           |       |
| SUPPLEMENTAL  SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:         |       |                                           |        |                                           |       |
| Cash  dividends declared and payable, not yet paid                                 |       | $                                              | 8,064,084   |                                           | $          | 5,537,295 |   |
|                                                                                    |            |                                                |             |                                                |            |  |  |  |

 

See notes to financial statements.

 

6

----

 

## **BIMINI MORTGAGEMANAGEMENT, INC.**

## **NOTES TO FINANCIAL STATEMENTS**

## **(UNAUDITED)**

**SEPTEMBER 30, 2005**

 

**NOTE 1.   ORGANIZATION ANDSIGNIFICANT ACCOUNTING POLICIES**

 

**Organization and Business Description**

 

Bimini Mortgage Management, Inc. (the “Company”)was incorporated in Maryland on September 24, 2003 and it commenced itsplanned business activities on December 19, 2003, the date of the initialclosing of a private issuance of its common stock.

 

The Company was formed 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).

 

The Company has elected to be taxed as a real estateinvestment trust (“REIT”) under the Internal Revenue Code of 1986, as amended.In order to maintain its REIT status, the Company must comply with a number ofrequirements under Federal tax law, including that it must distribute at least90% of its annual taxable net income to its stockholders, subject to certainadjustments. As a REIT, the Company will routinely distribute substantially allof its taxable income generated from operations to its stockholders.  The Company will generally not be subject toFederal income tax to the extent that it distributes its net income to thestockholders, and satisfies the ongoing REIT requirements including meetingcertain asset, income and stock ownership tests.

 

***Merger Agreement***

 

On September 29, 2005, the Company executed adefinitive merger agreement with Opteum Financial Services, LLC (“Opteum”), aprivately held home mortgage lender headquartered in Paramus, New Jersey.Opteum has nearly 1,000 associates operating out of 30 offices and lending in44 states. The transaction, in which Opteum will become a wholly-owned taxableREIT subsidiary of the Company, is expected to close in November 2005 and issubject to customary closing conditions.

 

Under the terms of the merger agreement, the Companyhas agreed to issue in the merger 3,717,242 shares of Class A Common Stock and1,800,000 Series A convertible preferred shares to the stockholders ofOpteum in exchange for 100% of the stock of Opteum. The new class of preferredshares would be convertible into Class A Common Stock of the Company, on aone-for-one basis, if the Company’s stockholders approve the conversion at afuture stockholder meeting. In addition, the Company has agreed to lendapproximately $65 million to Opteum to repay existing debt. The Company hasalso agreed to pay the Opteum stockholders a contingent earn-out of up to $17.5million over the next five years payable in cash, or under certaincircumstances, Series A convertible preferred shares, based on the achievementby Opteum of certain specific financial objectives. In return, Opteum hasagreed that at the time of the merger it will have a book value of $60 million.The three most senior executives of Opteum agreed to enter into long termemployment contracts upon completion of the merger.

 

**Interim Financial Statements**

 

The accompanying interim financial statementsreflect all adjustments, consisting of normal recurring items that, in theopinion of management, are necessary for a fair presentation of the Company’sfinancial position, results of operations, statement of stockholder equity andcash flows for the periods presented. These interim financial statements havebeen prepared in accordance with disclosure requirements for interim financialinformation and accordingly, they may not include all of the information andfootnotes required by U.S. generally accepted accounting principles (“GAAP”)for annual financial statements. The operating results for the interim periodended September 30, 2005 are not necessarily indicative of results thatcan 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 forthe year ended December 31, 2004. Certain prior year amounts have beenreclassified to conform to the current year presentation.

 

**Basis of Presentation and Use of Estimates**

 

The accompanying financial statements are preparedon the accrual basis of accounting in accordance with GAAP. The preparation offinancial statements in conformity with GAAP requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. Actual results could differ from those estimates.Significant estimates affecting the accompanying financial statements includethe fair values of mortgage-backed securities (“MBS”) and the prepayment speedsused to calculate amortization and accretion of premiums and discounts on MBS.

 

7

----

 

**Securities and Interest Income Recognition**

 

The Company invests primarily in residentialmortgage related securities issued by Fannie Mae, Freddie Mac, and Ginnie Mae.

 

In accordance with GAAP, the Company classifies itsinvestments as either trading investments, available-for-sale investments orheld-to-maturity investments. Management determines the appropriateclassification of the securities at the time they are acquired and evaluatesthe appropriateness of such classifications at each balance sheet date.Although the Company intends to hold its MBS until maturity, it may, from timeto time, sell any of its MBS as part of the overall management of the business.The Company currently classifies all of its securities as available-for-sale,and assets so classified are carried on the balance sheet at fair value, andunrealized gains or losses arising from changes in market values are excludedfrom earnings and reported in other comprehensive income or loss as a componentof stockholders’ equity. Other than temporary impairment losses, if any, arereported in earnings.

 

Securities are recorded on the date the securitiesare purchased or sold, which is generally the trade date. Realized gains orlosses from securities transactions are determined based on the specificidentification method.

 

Interest income is accrued based on the outstandingprincipal amount of the securities and their stated contractual terms. Premiumsand discounts associated with the purchase of the securities are accreted oramortized into interest income over the estimated lives of the assets adjustedfor estimated prepayments using the effective interest method. Adjustments aremade using the retrospective method to the effective interest computation eachreporting period based on the actual prepayment experiences to date, and thepresent expectation of future prepayments of the underlying mortgages.

 

**Cash and Cash Equivalents**

 

Cash and cash equivalents include cash on hand andhighly liquid investments with original maturities of three months or less. Thecarrying amount of cash equivalents approximates its fair value atSeptember 30, 2005 and December 31, 2004.

 

**Restricted Cash**

 

Restricted cash represents cash held on deposit ascollateral with certain repurchase agreement counter-parties.  Such amounts may be used to make principaland interest payments on the related repurchase agreements.

 

**Credit Risk**

 

At September 30, 2005, the Company had limitedits exposure to credit losses on its portfolio of securities by purchasingprimarily securities from federal agencies or federally chartered entities,such as, but not limited to, Fannie Mae, Freddie Mac, and Ginnie Mae. Theportfolio is diversified to avoid undue loan originator, geographic and othertypes of concentrations. The Company manages the risk of prepayments of theunderlying mortgages by creating a diversified portfolio with a variety ofprepayment characteristics.

 

The Company is engaged in various trading andbrokerage activities in which counter-parties primarily include broker-dealers,banks, and other financial institutions. In the event counter-parties do notfulfill their obligations, the Company may be exposed to risk of loss. The riskof default depends on the creditworthiness of the counter-party and/or issuerof the instrument. It is the Company’s policy to review, as necessary, thecredit standing for each counter-party.

 

**Repurchase Agreements**

 

The Company finances most acquisitions of its MBSthrough the use of repurchase agreements. Under these repurchase agreements,the Company sells securities to a lender and agrees to repurchase the samesecurities in the future for a price that is higher than the original salesprice. The difference between the sale price that the Company receives and therepurchase price that the Company pays represents interest paid to the lender.Although structured as a sale and repurchase obligation, a repurchase agreementoperates as a financing under which the Company pledges its securities ascollateral to secure a loan which is equal in value to a specified percentageof the estimated fair value of the pledged collateral. The Company retainsbeneficial ownership of the pledged collateral. At the maturity of a repurchaseagreement, the Company is required to repay the loan and concurrently receivesback its pledged collateral from the lender or, with the consent of the lender,the Company may renew such agreement at the then prevailing financing rate.These repurchase agreements may require the Company to pledge additional assetsto the lender in the event the estimated fair value of the existing pledgedcollateral declines. As of September 30, 2005 and December 31, 2004,the Company did not have any margin calls on its repurchase agreements that itwas not able to satisfy with either cash or additional pledged collateral.

 

8

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Original terms to maturity of the Company’srepurchase agreements generally range from one month to 36 months; however, theCompany is not precluded from entering into repurchase agreements with longermaturities. Should a counter-party decide not to renew a repurchase agreementat maturity, the Company must either refinance elsewhere or be in a position tosatisfy this obligation. If, during the term of a repurchase agreement, alender should file for bankruptcy, the Company might experience difficulty recoveringits pledged assets and may have an unsecured claim against the lender’s assetsfor the difference between the amount loaned to the Company and the estimatedfair value of the collateral pledged to such lender.  At September 30, 2005, the Company hadamounts outstanding under repurchase agreements with 14 separate lenders with amaximum net exposure (the difference between the amount loaned to the Companyand the estimated fair value of the security pledged by the Company ascollateral) to any single lender of approximately $39.0 million. AtDecember 31, 2004, the Company had amounts outstanding under repurchaseagreements with 12 separate lenders with a maximum net exposure to any singlelender of approximately $29.0 million.

 

9

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At September 30, 2005, the Company’s repurchaseagreements had the following counter-parties, amounts at risk and weightedaverage 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)**             | ** ** | ** **                                                          | ** ** | ** **                                 | ** ** |
| Deutsche Bank  Securities, Inc.        |       | $                       | 941,027       |                   | $          | 11,777                                                              |       | 129                                        |       | 25.3 | % |
| Nomura Securities  International, Inc. |       | 817,596                 |          | 38,926                 |       | 174                                                                 |       | 21.9                                       | %          |
| Cantor Fitzgerald                           |       | 530,931                 |          | 24,645                 |       | 160                                                                 |       | 14.2                                       | %          |
| REFCO Securities, LLC                       |       | 323,273                 |          | 9,359                  |       | 115                                                                 |       | 8.7                                        | %          |
| Washington Mutual                           |       | 233,932                 |          | 10,961                 |       | 14                                                                  |       | 6.3                                        | %          |
| Bear Stearns &  Co. Inc.           |       | 196,476                 |          | 6,813                  |       | 217                                                                 |       | 5.3                                        | %          |
| Goldman Sachs                               |       | 188,989                 |          | 5,670                  |       | 39                                                                  |       | 5.1                                        | %          |
| JP Morgan Securities                        |       | 132,036                 |          | 5,575                  |       | 142                                                                 |       | 3.5                                        | %          |
| Merrill Lynch                               |       | 128,119                 |          | 1,677                  |       | 188                                                                 |       | 3.4                                        | %          |
| UBS Investment Bank, LLC                    |       | 109,052                 |          | 4,627                  |       | 123                                                                 |       | 2.9                                        | %          |
| Lehman Brothers                             |       | 57,982                  |          | 1,345                  |       | 21                                                                  |       | 1.6                                        | %          |
| Countrywide Securities  Corp.               |       | 45,975                  |          | 2,653                  |       | 82                                                                  |       | 1.2                                        | %          |
| Daiwa Securities America  Inc.              |       | 19,825                  |          | 1,167                  |       | 279                                                                 |       | 0.5                                        | %          |
| Morgan Stanley                              |       | 4,161                   |          | 172                    |       | 95                                                                  |       | 0.1                                        | %          |
|                                        |       |                    |          |                   |       |                                                                |       |                                       |       |
| **Total**                                   | ** ** | **$**                   | **3,729,374** | ** **             | **$**      | **125,367**                                                         | ** ** | ** **                                 | ** ** | **100.0** | **%** |

----

*(1)**           *Equal to the fair value ofsecurities sold, plus accrued interest income, minus the sum of repurchaseagreement liabilities, plus accrued interest expense.

 

At December 31, 2004, the Company’s repurchaseagreements had the following counter-parties, amounts at risk and weightedaverage 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** | **%** |
|                                             |            |                         |               |                        |            |                                                                    |            |                                            |            |  |  |  |

----

*(1)*            Equal to the fair value ofsecurities sold, plus accrued interest income, minus the sum of repurchaseagreement liabilities, plus accrued interest expense.

 

10

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**Stock-Based Compensation**

 

Stock-based compensation is accounted for using thefair value based method prescribed by Statement of Financial AccountingStandards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation.” Theadoption of SFAS No. 123(R), “Share-Based Payment,” on January 1,2006 is not expected to have a significant impact on the Company. For stock andstock-based awards issued to employees, a compensation charge is recordedagainst earnings based on the fair value of the award. For transactions withnon-employees in which services are performed in exchange for the Company’scommon stock or other equity instruments, the transactions are recorded on thebasis of the fair value of the service received or the fair value of the equityinstruments issued, whichever is more readily measurable at the date ofissuance. The Company currently incurs share-based payment charges for itsstock incentive plan (see note 6) and for shares issued to its outsidedirectors for payment of their directors fees. All of the Company’s stock-basedcompensation transactions resulted in an aggregate of $1,834,717 and $638,919of compensation expense for the nine and three months ended September 30,2005, respectively, and $523,902 and $396,216 of compensation expense for thenine and three months ended September 30, 2004, respectively.

 

**Earnings Per Share**

 

The Company follows the provisions of SFASNo. 128, “Earnings per Share,” (SFAS 128) and the guidance providedin EITF 03-6, “Participating Securities and the two-class method under FASBStatement No. 128, Earnings Per Share,” (EITF 03-6) which requirescompanies with complex capital structures, common stock equivalents, or twoclasses of participating securities to present both basic and diluted earningsper share (“EPS”) on the face of the statement of income. Basic EPS iscalculated as income available to common stockholders divided by the weightedaverage number of common shares outstanding during the period. Diluted EPS iscalculated using the “if converted” method for common stock equivalents.

 

Effective July 9, 2004, the shares ofClass B Common Stock, participating and convertible into Class ACommon Stock, became entitled to receive dividends in an amount equal to thedividends declared on each share of Class A Common Stock if, as and whenauthorized and declared by the Board of Directors. Following the provisions ofEITF 03-6, the Class B Common Stock, beginning in the three-month periodended September 30, 2004, is included in the computation of basic EPSusing the two-class method, and consequently is presented separately fromClass A Common Stock. Prior to July 9, 2004, the Class B sharesof common stock are not included in the basic EPS computation as the conditionsto participate in earnings were not met, and they were not included in thecomputation of diluted Class A EPS as the conditions for conversion toClass A shares were not met.

 

The Class C common shares are not included inthe basic EPS computation as these shares do not have participation rights. TheClass C common shares totaling 319,388 are not included in the computationof diluted Class A EPS as the conditions for conversion to Class Ashares were not met.

 

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

 
| ** **                                                                                | ** ** | **Nine months ended**        | ** ** | **Three months ended**       | ** ** |
|-------------------------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                                                                | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** |
| ** **                                                                                | ** ** | **(Unaudited)**              | ** ** | **(Unaudited)**              | ** ** |
| *Basic and diluted EPS per Class A common  share:*                                   |       |                         |       |                         |       |   |   |   |   |
| Numerator: net income allocated to the Class A common shares                         |       | $                            | 26,595,023 |                         | $          | 15,081,676 |   | $ | 7,756,746 |   | $ | 5,575,944 |   |
| *Denominator-basic and diluted:*                                                          |       |                         |       |                         |       |   |   |   |   |
| Class A common shares outstanding at the balance sheet date                          |       | 20,397,210                   |       | 15,765,656                   |       | 20,397,210 |   | 15,765,656 |   |
| Participating phantom shares issued as of the balance sheet date                          |       | 504,675                      |       | 313,600                      |       | 504,675 |   | 313,600 |   |
| Effect of weighting                                                                       |       | (37,043                      | )          | (6,431,080                   | )          | (1,182 | ) | (5,212,522 | ) |
| Weighted average shares-basic and diluted                                                 |       | 20,864,842                   |       | 9,648,176                    |       | 20,900,703 |   | 10,866,734 |   |
| Basic and diluted EPS per Class A common share                                       |       | $                            | 1.27       |                         | $          | 1.56 |   | $ | 0.37 |   | $ | 0.51 |   |
|                                                                                      |       |                         |       |                         |       |   |   |   |   |
| *Basic and diluted EPS per Class B common  share:*                                   |       |                         |       |                         |       |   |   |   |   |
| Numerator: net income allocated to the Class B common shares                         |       | $                            | 406,486    |                         | $          | 174,772 |   | $ | 118,525 |   | $ | 170,149 |   |
| *Denominator-basic and diluted:*                                                          |       |                         |       |                         |       |   |   |   |   |
| Class B shares outstanding at the balance sheet date                                 |       | 319,388                      |       | 319,388                      |       | 319,388 |   | 319,388 |   |
| Effect of weighting (based on the date the Class B shares  participate in dividends) |       | —                       |       | (213,314                     | )          | — |   | — |   |
| Weighted average shares-basic and diluted                                                 |       | 319,388                      |       | 106,074                      |       | 319,388 |   | 319,388 |   |
| Basic and diluted EPS per Class A common share                                       |       | $                            | 1.27       |                         | $          | 1.65 |   | $ | 0.37 |   | $ | 0.53 |   |

 

11

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**Comprehensive Income (Loss)**

 

In accordance with SFAS No. 130, “ReportingComprehensive Income,” the Company is required to separately report itscomprehensive income. Other comprehensive income refers to revenue, expenses,gains, and losses that under GAAP are included in comprehensive income but areexcluded from net income, as these amounts are recorded directly as anadjustment to stockholders’ equity. Other comprehensive income (loss) arisesfrom unrealized gains or losses generated from changes in market values of itssecurities held as available-for-sale. Comprehensive income (loss) is asfollows:

 
| ** **                                                   | ** ** | **Nine months ended**        | ** **  | **Three months ended**       | ** ** |
|--------------------------------------------------------------|------------|------------------------------|-------------|------------------------------|------------|
| ** **                                                   | ** ** | **September 30,  2005** | ** **  | **September 30,  2004** | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** |
| ** **                                                   | ** ** | **(Unaudited)**              | ** **  | **(Unaudited)**              | ** ** |
| Net income                                                   |       | $                            | 27,001,509  |                         | $          | 15,256,448 |   | $ | 7,875,257 |   | $ | 5,746,093 |   |
|                                                         |       |                         |        |                         |       |   |   |   |   |
| Realized gain on available for sale securities, net          |       | (1,993,457                   | )           | (121,664                     | )          | (11,075 | ) | (121,664 | ) |
|                                                         |       |                         |        |                         |       |   |   |   |   |
| Unrealized gain/(loss) on available for sale securities, net |       | (49,321,271                  | )           | 77,196                       |       | (29,327,409 | ) | 9,168,699 |   |
|                                                         |       |                         |        |                         |       |   |   |   |   |
| Comprehensive (loss) income                                  |       | $                            | (24,313,219 | )                            | $          | 15,211,980 |   | $ | (21,463,227 | ) | $ | 14,793,128 |   |

 

**NOTE 2.   SECURITIES**

 

At September 30, 2005 and December 31,2004, all of the Company’s securities were classified as available-for-saleand, as such, are reported at their estimated fair value. Estimated fair valuewas determined based on the average of third-party broker quotes receivedand/or independent pricing sources when available.

 

The following are the carrying values of the Company’ssecurities:

 

| ** **                | ** ** | **September 30, 2005** | ** **    | **December 31, 2004** | ** ** |
|---------------------------|------------|-----------------------------|---------------|----------------------------|------------|
| ** **                | ** ** | **(Unaudited)**             | ** **    | ** **                 | ** ** |
| Floating-Rate CMO’s  |       | $                           | —        |                       | $          | 250,438,730 |   |
| Hybrid Arms and Balloons  |       | 882,618,782                 |          | 569,623,089                |       |
| Adjustable-Rate Mortgages |       | 2,166,581,042               |          | 1,403,381,666              |       |
| Fixed-Rate Mortgages      |       | 809,119,878                 |          | 749,789,412                |       |
|                      |       | $                           | 3,858,319,702 |                       | $          | 2,973,232,897 |   |

 

The following table presents the components of thecarrying value of the Company’s MBS portfolio:

 

| ** **                           | ** ** | **September 30, 2005** | ** **    | **December 31, 2004** | ** ** |
|--------------------------------------|------------|-----------------------------|---------------|----------------------------|------------|
| ** **                           | ** ** | **(Unaudited)**             | ** **    | ** **                 | ** ** |
| Principal balance                    |       | $                           | 3,797,400,645 |                       | $          | 2,876,568,150 |   |
| Unamortized premium                  |       | 116,703,040                 |          | 98,202,287                 |       |
| Unaccreted discount                  |       | (3,310,379                  | )             | (381,769                   | )          |
| Gross unrealized gains               |       | 3,669,212                   |          | 7,824,313                  |       |
| Gross unrealized losses              |       | (56,142,816                 | )             | (8,980,084                 | )          |
| Carrying value/estimated  fair value |       | $                           | 3,858,319,702 |                       | $          | 2,973,232,897 |   |

 

12

----

 

The following table presents for the Company’sinvestments with gross unrealized losses, the estimated fair value and grossunrealized losses aggregated by investment category, at September 30, 2005(unaudited):

 
| ** **                       | ** ** | **Loss  Position Less than 12 Months** | ** **        | **Loss  Position 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 & Balloons |       | 619,020,190                            |              | (8,738,949                             | )          | 48,878,942                |       | (1,226,658 | ) | 667,899,132 |   | (9,965,607 | ) |
| Adjustable-Rate  Mortgages       |       | 1,510,346,785                          |              | (24,429,300                            | )          | 98,995,112                |       | (2,639,937 | ) | 1,609,341,897 |   | (27,069,237 | ) |
| Fixed-Rate  Mortgages            |       | 632,720,407                            |              | (12,115,896                            | )          | 200,190,753               |       | (6,992,076 | ) | 832,911,160 |   | (19,107,972 | ) |
| ** **                       | ** ** | ** **                             | ** **        | ** **                             | ** ** | ** **                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                       | ** ** | **$**                                  | **2,762,087,382** | ** **                             | **$**      | **(45,284,145**           | **)**      | **$** | **348,064,807** | ** ** | **$** | **(10,858,671** | **)** | **$** | **3,110,152,189** | ** ** | **$** | **(56,142,816** | **)** |

 

The following table presents for the Company’sinvestments with gross unrealized losses, the estimated fair value and grossunrealized losses aggregated by investment category, at December 31, 2004:

 
| ** **                       | ** ** | **Loss  Position Less than 12 Months** | ** **        | **Loss  Position 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 & 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 the Company’s investments have contractualmaturities greater than two years. Actual maturities of MBS are generallyshorter than stated contractual maturities. Actual maturities of the Company’sMBS are affected by the contractual lives of the underlying mortgages, periodicpayments of principal, and prepayments of principal.

 

The unrealized losses on the investments are notconsidered other-than-temporary, and are therefore not written-down as beingimpaired. The factors considered in making this determination included: theexpected cash flow from the investment, the general quality of the MBS owned,any credit protection available, current market conditions, the magnitude andduration of the historical decline in market prices as well as the Company’sability and intention to hold such securities owned.  Because management’s assessments are based onfactual information as well as subjective information available at the time ofassessment, the determination as to whether an other-than-temporary declineexists and, if so, the amount considered impaired is also subjective and,therefore, constitutes material estimates that are susceptible to significantchange.  At September 30, 2005 andDecember 31, 2004, the Company had no securities on which an impairmentcharge had been made.

 

**NOTE 3.   REPURCHASE AGREEMENTS**

 

The Company has entered into repurchase agreementsto finance most of its security purchases. The repurchase agreements areshort-term borrowings that bear interest rates that have historically moved inclose relationship to LIBOR (London Interbank Offered Rate). AtSeptember 30, 2005, the Company had an outstanding amount of $3.7 billionwith a net weighted average borrowing rate of 3.75%, and these agreements werecollateralized by MBS with a fair value of $3.9 billion. At December 31,2004, the Company had an outstanding amount of $2.8 billion with a net weightedaverage borrowing rate of 2.28% and these agreements were collateralized by MBSwith a fair value of $2.9 billion.

 

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At September 30, 2005, the Company’s repurchaseagreements had remaining maturities 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    |       | $                              | —     |                        | $          | 1,003,660,106                |       | $                          | 370,644,726 |      | $          | 2,324,971,638 |   | $ | 3,699,276,470 |   |
| Fair market value  of securities sold, including accrued interest receivable |       | $                              | —     |                        | $          | 997,067,965                  |       | $                          | 363,123,771 |      | $          | 2,290,690,407 |   | $ | 3,650,882,143 |   |
| Repurchase  agreement liabilities associated with these securities           |       | $                              | —     |                        | $          | 1,044,159,014                |       | $                          | 397,581,000 |      | $          | 2,287,633,628 |   | $ | 3,729,373,642 |   |
| Average interest  rate of repurchase agreement liabilities                   |       | —                         |       | 3.46                        | %          | 3.65                         | %          | 3.90                       | %           | 3.75      | %          |

 

At December 31, 2004, the Company’s repurchaseagreements had remaining maturities 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      | %          |

 

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**NOTE 4.   TRUSTPREFERRED SECURITIES**

 

OnMay 17, 2005, the Company completed a private offering of $50.0 million oftrust preferred securities through Bimini Capital Trust I, a Delaware statutorybusiness trust sponsored and wholly-owned by the Company.

 

Bimini CapitalTrust I (“BCTI” or the “trust”) used the proceeds of the private offering,together with the Company’s investment of $1.6 million in the BCTI common securities, to purchase $51.6 millionaggregate principal amount of the Company’s Junior Subordinated Notes withterms that parallel the terms of the trust preferred securities. The trustpreferred securities have a fixed rate of interest until March 30, 2010 at7.61% and thereafter the rate will float at a spread of 3.30% over theprevailing three-month LIBOR rate.  Thetrust preferred securities require quarterly interest distributions and areredeemable at the Company’s option, in whole or in part and without penalty,beginning March 30, 2010 and at any date thereafter.  The notes are subordinate and junior in rightof payment of all present and future senior indebtedness. The proceeds from theprivate offering net of costs were approximately $48.5 million.

 

The trust is avariable interest entity pursuant to FASB Interpretation No. 46, “Consolidationof Variable Interest Entities,” (“FIN 46”) because the holders of the equityinvestment at risk do not have adequate decision making ability over the trust’sactivities. Because the Company’s investment in the trust’s common shares wasfinanced directly by the trust as a result of its loan of the proceeds to theCompany, that investment is not considered to be an equity investment at riskpursuant to FIN 46. Since the Company’s common shares investment in BCTI is nota variable interest, the Company is not the primary beneficiary of the trust.Therefore, the Company has not consolidated the financial statements of BCTIinto its financial statements.  Based onthe aforementioned accounting guidance, the financial statements present thenotes issued to the trust as a liability and the investment in the BCTI as anasset. For financial statement purposes, the Company records interest expenseon the corresponding notes issued to the BCTI on its statements of income.

 

On September29, 2005, the Company committed to a private offering of $50.0 million of trustpreferred securities which was completed on October 5, 2005. The trustpreferred securities were issued through Bimini Capital Trust II, a Delawarestatutory business sponsored and wholly-owned by the Company.

 

Bimini CapitalTrust II (“BCTII”) used the proceeds of the private offering, together with theCompany’s investment of $1.5 million in the BCTII common securities to purchase$51.5 million aggregate principal amount of the Company’s Junior SubordinatedNotes with terms that parallel the terms of the trust preferred securities. Thetrust preferred securities have a fixed rate of interest until December 15,2010 at 7.8575% and thereafter the rate will float at a spread of 3.50% overthe prevailing three-month LIBOR rate. The trust preferred securities requirequarterly interest distributions and are redeemable at the Company’s option, inwhole or in part and without penalty, beginning December 15, 2010 and at anydate thereafter. The notes are subordinate and junior in right of payment ofall present and future senior indebtedness. The proceeds from the privateoffering net of costs were approximately $48.5 million.

 

**NOTE 5.   CAPITAL STOCK**

 

**Issuances of Common Stock**

 

During the nine months ended September 30,2005, the Company issued a total of 18,099 shares of Class A Common Stockto its four independent directors for the payment of director fees for servicesrendered.

 

For the nine months ended September 30, 2005,the Company issued 9,778 shares of its Class A Common Stock to an officerand director. These shares were issued pursuant to the terms of the phantomshare grants (see note 6).

 

For the three months ended September 30, 2005, theCompany issued 418 shares of its Class A Common Stock to a former employee.These shares were issued pursuant to the terms of the phantom share grants (seenote 6).

 

**Dividends**

 

On March 9, 2005, the Board of Directorsdeclared a regular quarterly cash dividend of $0.53 per share on the Company’sClass A and Class B Common Stock for the quarter endingMarch 31, 2005. The dividend was paid on April 8, 2005.

 

On May 31, 2005, the Board of Directorsdeclared a regular quarterly cash dividend of $0.40 per share on the Company’sClass A and Class B Common Stock for the quarter ending June 30,2005. The dividend was paid on July 8, 2005.

 

On August 24, 2005, the Board of Directors declareda regular quarterly cash dividend of $0.38 per share on the Company’s Class Aand Class B Common Stock for the quarter ending September 30, 2005. Thedividend was paid on October 7, 2005.

 

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**NOTE 6.   STOCK INCENTIVEPLAN**

 

On December 1, 2003, the Company adopted the 2003Long Term Incentive Compensation Plan (the “2003 Plan”) to provide the Companywith the flexibility to use stock options and other awards as part of anoverall compensation package to provide a means of performance-basedcompensation to attract and retain qualified personnel. The 2003 Plan wasamended and restated in March 2004. Key employees, directors andconsultants are eligible to be granted stock options, restricted stock, phantomshares, dividend equivalent rights and other stock-based awards under the 2003Plan. An initial grant of 313,600 phantom shares was made in June 2004.

 

During the nine months ended September 30,2005, the Company granted 204,861 phantom shares to employees. Each phantomshare represents a right to receive a share of the Company’s Class ACommon Stock. Dividend equivalent rights were also granted on 203,361 of thesephantom shares; the remaining 1,500 phantom shares are not entitled to receivedividend equivalent rights until they vest.

 

Phantom share awards are valued at the fair value ofthe Company’s Class A Common Stock at the date of the grant. The totalgrant date value of all awards is $7,822,313 and the grant date value of awardsgranted in 2005 is $3,118,313. The phantom awards do not have an exerciseprice. The grant date value is being amortized to compensation expense on astraight-line basis over the vesting period of the respective award.  The phantom shares vest, based on theemployees’ continuing employment, following a quarterly schedule asprovided in the grant agreements, for periods through November 15, 2008.

 

As of September 30, 2005, a total of 518,461phantom stock awards have been granted since the inception of the 2003 Plan, ofwhich, 136,094 shares have fully vested, 380,277 shares remain unvested, and2,090 shares were forfeited due to the termination of the grantee’semployment.  The future compensationcharge that is eliminated by the forfeiture totaled $31,852. No phantom shareawards have expired. Of the vested shares, 10,196 were distributed to granteesduring the nine months ended September 30, 2005. As of September 30,2005, 506,175 phantom shares were outstanding. Total compensation cost recognized for the nine and three months endedSeptember 30, 2005 and 2004 was $1,574,661 and $554,904, respectively, and$401,561 and $344,145 respectively. Dividends paid on phantom shares arecharged to retained earnings when declared.

 

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

 

The followingdiscussion of our financial condition and results of operations should be readin conjunction with our unaudited interim financial statements and relatednotes included elsewhere in this report.

 

**Introductionand Overview**

 

BiminiMortgage Management, Inc. (“we”, “our”, “Bimini” or “Company”) was formedin September 2003 to invest primarily in residential mortgage relatedsecurities issued by the Federal National Mortgage Association (more commonlyknown as Fannie Mae), the Federal Home Loan Mortgage Corporation (more commonlyknown as Freddie Mac) and the Government National Mortgage Association (morecommonly known as Ginnie Mae). We earn returns on the spread between the yieldon our assets and our costs, including the interest expense on the funds weborrow. We intend to borrow between eight and 12 times the amount of our equitycapital to attempt to enhance our returns to stockholders. For purposes of thiscalculation we treat our trust preferred securities as an equity capitalequivalent. 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.

 

For the nineand three months ended September 30, 2005, we had interest income of$111.4 million and $43.6 million, respectively, and interest expense of$80.1 million and $33.5 million, respectively. As of September 30,2005, we had a weighted average yield on assets of 4.07% and a net weightedaverage borrowing cost of 3.75%. The constant prepayment rate for the portfoliowas 35.7% for September 2005, which reflects the annualized proportion ofprincipal that was prepaid. Prepayments on the loans underlying our mortgagerelated securities can alter the timing of the cash flows from the underlyingloans to the Company. As a result, we gauge the interest rate sensitivity ofour assets by measuring their effective duration. While modified durationmeasures the price sensitivity of a bond to movements in interest rates,effective duration captures both the movement in interest rates and the factthat cash flows to a mortgage related security are altered when interest ratesmove. Accordingly, when the contract interest rate on a mortgage loan is substantiallyabove prevailing interest rates in the market, the effective duration ofsecurities collateralized by such loans can be quite low because of expectedprepayments. Although most of 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.”

 

The thirdquarter of 2005 was a period when short term rates continued to increase morethan longer term rates. This phenomenon, which is referred to as a “flattening”of the yield curve, often occurs just prior to a period when the FederalReserve completes a “tightening cycle.” Yet, the Federal Reserve is still in atightening mode, having just raised the short term borrowing rate (the “FederalFunds Target Rate”) to 3.75% on September 20, 2005. Sixteen months ago, onJune 30, 2004, the Federal Reserve began a series of Federal Funds TargetRate increases which have to this date resulted in the Federal Funds Target Rateincreasing from 1.00% to 3.75% as of September 30, 2005.  During the third quarter of 2005, theone-month LIBOR rate increased 52.4 basis points to 3.86% and the longer12-month LIBOR rate increased 53.6 basis points to 4.44%. The yield of theon-the-run two year Treasury note increased 53.2 basis points to 4.17%.  During that same period, the yield of theon-the-run five year Treasury note increased 49 basis points to 4.19% and theyield of the on-the-run ten year Treasury note increased 41.0 basis points to4.32%. It should be noted, however, that since the beginning of 2005, theon-the-run Treasury ten year note is up in yield only 10.6 basis points ascompared to the one month LIBOR rate which is up 13.8 times that amount, or 146basis points. Continued increases in the Federal Funds Target Rate willinevitably put pressure on earnings to the extent that our funding ratesincrease faster than the income on our adjustable rate mortgage related assets.

 

Thisflattening of the yield curve has affected our financial results as compared toprior periods.  The yields on ourportfolio of mortgage-backed securities are affected by movements in both shortand long term rates. In particular, while yields on our adjustable rate assetswill ultimately move in response to movements in short term rates, they will doso with a lag owing to reset frequencies that are often greater than monthly.Yields on our fixed rate assets and longer resetting hybrids are drivenprimarily by longer term rates. Conversely, our repurchase agreement debtcarries interest rates that are set based on short-term interest rates only(the short end of the yield curve). As the effect of Federal Reserve actionsare reflected in LIBOR rates, our funding costs will increase as our repurchaseagreements mature and are renewed at the then current rates. This will resultin a tightening of our net interest spread.

 

 

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The narrowingof the interest rate spread on our portfolio is evident when our September 30,2005 portfolio data is compared to the June 30, 2005 data. The weightedaverage yield on our assets was 4.07% at September 30, 2005 while the netweighted average cost of borrowings was 3.75%, for a spread of 0.32%.  These same percentages at June 30, 2005were 3.81% for assets and 3.14% for liabilities, or a spread of 0.67%.  These changes in the yield curve are alsoevident when our September 30, 2005 portfolio data is compared toSeptember 30, 2004.  These samepercentages at September 30, 2004 were 3.02% for assets and 1.55% forliabilities, or a spread of 1.47%.

 

This narrowingin the third quarter of 2005 resulted in the following changes in the Company’sfinancial results:  lower net interestincome as compared to the second quarter of 2005 and therefore lower netincome;  reduced quarterlydividends;  and a lower fair market valueof the investment portfolio which results in an increase in the Company’saccumulated other comprehensive loss.

 

**FinancialCondition**

 

All of ourassets at September 30, 2005 were acquired with the proceeds of our commonstock offerings and the trust preferred securities issued during the secondquarter of 2005, and through the use of leverage. On May 17, 2005 wereceived net proceeds after offering costs of $48.5 million from the issuanceof the trust preferred securities the Company issued through a Delawarestatutory business trust sponsored and wholly-owned by the Company calledBimini Capital Trust I. The interest on the trust preferred securities is fixedfor the first five years at 7.61% and then floats at a spread of 3.30% overthree-month LIBOR for the remaining 25 years. However, the trust preferredsecurities are redeemable at the Company’s option at the end of the first fiveyear period and at any subsequent date that the Company chooses. We believethat the income generated from available investment opportunities, when the useof leverage is employed for the purchase of assets, will exceed the cost of thedebt. In addition, on September 29, 2005 the Company announced that it hadentered into an agreement to issue an additional $50 million of trust preferredsecurities through Bimini Capital Trust II, a Delaware statutory business trustsponsored and wholly owned by the Company. The transaction settled on October5, 2005 and the Company received net proceeds after offering costs of $48.5million from the issuance of the trust preferred securities. The interest onthe Bimini Capital Trust II Trust Preferred Securities is fixed for the firstfive years at 7.8575% and then floats at a spread of 3.50% over the three-monthLIBOR for the remaining 25 years. However, the trust preferred securities areredeemable at the Company’s option at the end of the first five year period andat any subsequent date that the Company chooses. We believe that the incomegenerated from available investment opportunities, when the use of leverage isemployed for the purchase of assets, will exceed the cost of the debt.

 

***Mortgage Related Securities***

 

AtSeptember 30, 2005, we held $3.9 billion of mortgage relatedsecurities at fair value. Our portfolio of mortgage related securities willtypically be comprised of fixed-rate mortgage-backed securities, floating ratecollateralized mortgage obligations, adjustable-rate mortgage-backed securities,hybrid adjustable-rate mortgage-backed securities and balloon maturitymortgage-backed securities. We seek to acquire low duration assets that offerhigh levels of protection from mortgage prepayments. Although the duration ofan individual asset can change as a result of changes in interest rates, weplan to maintain a portfolio with an average effective duration of less than2.0. The stated contractual final maturity of the mortgage loans underlying ourportfolio of mortgage related securities generally ranges up to 30 years.However, the effect of prepayments of the underlying mortgage loans tends toshorten the resulting cash flows from our investments substantially.Prepayments occur for various reasons, including refinancings of underlying mortgagesand payoffs associated with sales of the underlying homes as the individualborrower moves.

 

In response tothe changing interest rate environment during the last 16 months as the Boardof the Federal Reserve voted to raise the Federal Funds Target Rate eleventimes, or a total of 275 basis points to 3.75% as of September 30, 2005,we began and have continued to modify the mix of mortgage related securities inour portfolio. This has been accomplished by purchasing greater percentages ofadjustable-rate and hybrid adjustable-rate mortgage related securities andsmaller percentages of fixed-rate mortgage related securities than we owned oneyear ago. This approach has altered the mix of mortgage related securities inour portfolio such that the percentage of adjustable-rate securities whosecoupons reset in one year or less had increased to 56.1% on September 30,2005 from 43.1% on September 30, 2004. The percentage of floating ratecollateralized mortgage obligations has decreased to zero percent of theportfolio from 15.7% on September 30, 2004 in order to minimize thepotential negative effect of higher LIBOR rates on the 7.5% and 8.0% lifetimecaps on those securities. During the third quarter of 2005, the Company sold$68.2 million of assets, consisting primarily of CMO floating rate securitieswhose lifetime caps were 8% or lower, resulting in a net gain of approximately$11,000. We are generally using the proceeds of our monthly mortgage-backedsecurities principal payments to purchase greater percentages ofadjustable-rate and shorter resetting hybrid-adjustable-rate mortgage relatedsecurities and a smaller percentage of fixed-rate mortgage backed pools than weowned one year ago.

 

 

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The followingtables summarize our mortgage related securities as of September 30, 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** | ** ** |
|----------------------------------------------------|------------|-------------------|---------------|---------------------------------------|------------|-------------------------------|------------|--------------------------------------------|------------|-----------------------|------------|-----------------------------------------------|------------|-------------------------------------|------------|-------------------------------------|------------|
| ** **                                         | ** ** | ** **        | ** **    | ** **                            | ** ** | ** **                    | ** ** | ** **                                 | ** ** | ** **            | ** ** | ** **                                    | ** ** | ** **                          | ** ** | ** **                          | ** ** |
| Fixed-Rate  Mortgage-Backed Securities             |       | $                 | 809,119,878   |                                  | 20.97      | %                             | 6.43       | %                                          | 257        |                  | 25-July-34 |                                          | n/a        |                                | n/a        |                                | n/a        |   |
| CMO Floaters                                       |       | —            |          | —                                |       | —                        |       | —                                     |       | —                |       | —                                        |       | —                              |       | n/a                                 |       |
| Adjustable-Rate  Mortgage-Backed Securities        |       | 2,166,581,042     |          | 56.15                                 | %          | 4.26                          | %          | 337                                        |       | 1-Dec-42              |       | 4.44                                          |       | 10.49                               | %          | 1.76                                | %          |
| Hybrid Adjustable  Rate Mortgage-Backed Securities |       | 829,053,560       |          | 21.49                                 | %          | 4.22                          | %          | 342                                        |       | 1-Apr-44              |       | 20.82                                         |       | 9.92                                | %          | 1.64                                | %          |
| Balloon Maturity  Mortgage-Backed Securities       |       | 53,565,222        |          | 1.39                                  | %          | 4.07                          | %          | 51                                         |       | 1-Feb-11              |       | n/a                                           |       | n/a                                 |       | n/a                                 |       |
| Total Portfolio                                    |       | $                 | 3,858,319,702 |                                  | 100.00     | %                             | 4.71       | %                                          | 317        |                  | 1-Apr-44   |                                          | 8.97       |                                | 10.33      | %                                   | 1.72       | % |

 
| **Agency**          | ** ** | **Market Value** | ** ** | **Percentage of Entire  Portfolio** | ** ** |
|---------------------|------------|------------------|------------|-------------------------------------|------------|
| ** **          | ** ** | ** **       | ** ** | ** **                          | ** ** |
| Fannie Mae          |       | $2,323,395,590   |       | 60.22                               | %          |
| Freddie Mac         |       | 832,257,477      |       | 21.57                               | %          |
| Ginnie Mae          |       | 702,666,635      |       | 18.21                               | %          |
|                |       |             |       |                                |       |
| **Total Portfolio** |       | $3,858,319,702   |       | 100.00                              | %          |

 

**Entire Portfolio**

 
| Effective Duration               |   | 1.190 |   |
|----------------------------------|--------|-------|--------|
| Weighted Average Purchase  Price |   | $     | 102.68 |   |
| Weighted Average Current  Price  |   | $     | 101.60 |   |

 

As of September 30,2005, approximately 49% of our portfolio of 15-year fixed-rate coupon mortgagesecurities, and 35% of our 30-year fixed-rate coupon mortgage securities,contained only loans with principal balances of $85,000 or less. Because of thelow loan balances on these mortgages, we believe borrowers have a lowereconomic incentive to refinance and have historically prepaid more slowly thancomparable securities.

 

The table below shows the principal balance of ourinvestment securities, the net un-amortized premium, amortized cost ofsecurities held, average cost expressed as a price, the fair market value ofour investments and the fair market value expressed as a price for the currentquarter and each of the previous six quarters.

 
| **Quarter  Ended**         | ** ** | **Principal  Balance of  Investment  Securities Held** | ** **    | **Unamortized  Premium (Net)** | ** ** | **Amortized  Cost of  Securities Held** | ** ** | **Amortized  Cost/Principal  Balance Held** | ** **    | **Fair  Market  Value of  Investment  Securities Held** | ** ** | **Fair  Market  Value/Principal  Balance Held** | ** ** |
|----------------------------|------------|--------------------------------------------------------|---------------|--------------------------------|------------|-----------------------------------------|------------|---------------------------------------------|---------------|---------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                 | ** ** | ** **                                             | ** **    | ** **                     | ** ** | ** **                              | ** ** | ** **                                  | ** **    | ** **                                              | ** ** | ** **                                      | ** ** |
| At September 30, 2005      |       | $                                                      | 3,797,400,645 |                           | $          | 113,392,661                             |       | $                                           | 3,910,793,306 |                                                    | 102.986    |                                            | $          | 3,858,319,701 |   | 101.604 |   |
| At June 30, 2005      |       | $                                                      | 3,784,668,467 |                           | $          | 114,672,670                             |       | $                                           | 3,899,341,137 |                                                    | 103.030    |                                            | $          | 3,876,205,996 |   | 102.419 |   |
| At March 31, 2005     |       | $                                                      | 3,212,516,823 |                           | $          | 109,389,703                             |       | $                                           | 3,321,906,527 |                                                    | 103.405    |                                            | $          | 3,299,051,561 |   | 102.694 |   |
| At December 31, 2004  |       | $                                                      | 2,876,319,085 |                           | $          | 97,753,097                              |       | $                                           | 2,974,072,182 |                                                    | 103.399    |                                            | $          | 2,973,232,897 |   | 103.369 |   |
| At September 30, 2004 |       | $                                                      | 1,589,828,988 |                           | $          | 48,498,955                              |       | $                                           | 1,638,327,943 |                                                    | 103.051    |                                            | $          | 1,638,264,065 |   | 103.047 |   |
| At June 30, 2004      |       | $                                                      | 1,479,500,209 |                           | $          | 38,033,673                              |       | $                                           | 1,517,533,882 |                                                    | 102.571    |                                            | $          | 1,508,421,270 |   | 101.955 |   |
| At March 31, 2004     |       | $                                                      | 1,473,583,661 |                           | $          | 39,535,014                              |       | $                                           | 1,513,118,676 |                                                    | 102.683    |                                            | $          | 1,516,539,744 |   | 102.915 |   |

 

We hadapproximately $130.1 million of cash and cash equivalents as ofSeptember 30, 2005. At such date there was no cash out on margin. Thiscompares to $128.9 million of cash and cash equivalents on hand and $8.7million of cash out on margin as of December 31, 2004. Cash out on margin istemporarily encumbered as it is being used as collateral.

 

***Liabilities***

 

In May 2005,the Company issued $50 million of trust preferred securities through BCTI. Theinterest rate on the trust preferred securities is fixed for the first fiveyears at 7.61% and then floats at a spread of 3.30% over three-month LIBOR forthe remaining 25 years. However, the trust preferred securities are redeemableat the Company’s option at the end of the first five year period and at anysubsequent date that the Company chooses. We believe that the income generatedfrom available investment opportunities, when the use of leverage is employedfor the purchase of assets, will exceed the cost of the debt. In addition, onSeptember 29, 2005 the Company announced that it had entered into an agreementto issue an additional $50 million of trust preferred securities through BiminiCapital Trust II, a Delaware statutory business trust sponsored and wholly-ownedby the Company. The transaction settled on October 5, 2005 and the Companyreceived net proceeds after offering costs of $48.5 million from the issuance

 

 

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of the trust preferredsecurities. The interest on the Bimini Capital Trust II trust preferredsecurities is fixed for the first five years at 7.8575% and then floats at aspread of 3.50% over three-month LIBOR for the remaining 25 years. However, thetrust preferred securities are redeemable at the Company’s option at the end ofthe first five year period and at any subsequent date that the Company chooses.We believe that the income generated from available investment opportunities,when the use of leverage is employed for the purchase of assets, will exceedthe cost of the debt. However, the issuance of debt at a fixed rate for anylong-term period, considering the use of leverage, could create an interestrate mismatch if we are not able to invest at yields that exceed the cost ofthe trust preferred securities.

 

On the Company’s CurrentReport on Form 8-K that was furnished on October 7, 2005, which listed ourassets and liabilities, as well as on the liability table presented below, oneof the repo counterparties listed is REFCO Securities, LLC. We have reduced ourREFCO Securities, LLC exposure to zero as of October 18, 2005.

 

We haveentered into repurchase agreements to finance acquisitions of mortgage relatedsecurities. None of the counter-parties to these agreements are affiliates ofours. These agreements are secured by our mortgage related securities and bearinterest rates that have historically moved in close relationship to LIBOR. Asof September 30, 2005, we had 19 master repurchase agreements with variousinvestment banking firms and other lenders and had outstanding balances under14 of these agreements.

 

AtSeptember 30, 2005, we had approximately $3.7 billion outstandingunder repurchase agreements with a net weighted average borrowing cost of3.75%, $1,044.2 million of which matures between two and 30 days,$397.6 million of which matures between 31 and 90 days, and$2,287.6 million of which matures in more than 90 days. It is ourpresent intention to seek to renew these repurchase agreements as they mature underthe then-applicable borrowing terms of the counter-parties to our repurchaseagreements. At September 30, 2005, the repurchase agreements were securedby mortgage related securities with an estimated fair value of$3.9 billion and a weighted average maturity of 317 months.

 

At September 30,2005, our repurchase agreements had the following counter-parties, amountsoutstanding, 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)**             | ** ** | ** **                                                          | ** ** | ** **                                 | ** ** |
| Deutsche Bank  Securities, Inc.        |       | $941,027                |       | $11,777                |       | 129                                                                 |       | 25.3                                       | %          |
| Nomura Securities  International, Inc. |       | 817,596                 |       | 38,926                 |       | 174                                                                 |       | 21.9                                       | %          |
| Cantor Fitzgerald                           |       | 530,931                 |       | 24,645                 |       | 160                                                                 |       | 14.2                                       | %          |
| REFCO Securities, LLC                       |       | 323,273                 |       | 9,359                  |       | 115                                                                 |       | 8.7                                        | %          |
| Washington Mutual                           |       | 233,932                 |       | 10,961                 |       | 14                                                                  |       | 6.3                                        | %          |
| Bear Stearns &  Co. Inc.           |       | 196,476                 |       | 6,813                  |       | 217                                                                 |       | 5.3                                        | %          |
| Goldman Sachs                               |       | 188,989                 |       | 5,670                  |       | 39                                                                  |       | 5.1                                        | %          |
| JP Morgan Securities                        |       | 132,036                 |       | 5,575                  |       | 142                                                                 |       | 3.5                                        | %          |
| Merrill Lynch                               |       | 128,119                 |       | 1,677                  |       | 188                                                                 |       | 3.4                                        | %          |
| UBS Investment Bank, LLC                    |       | 109,052                 |       | 4,627                  |       | 123                                                                 |       | 2.9                                        | %          |
| Lehman Brothers                             |       | 57,982                  |       | 1,345                  |       | 21                                                                  |       | 1.6                                        | %          |
| Countrywide Securities  Corp.               |       | 45,975                  |       | 2,653                  |       | 82                                                                  |       | 1.2                                        | %          |
| Daiwa Securities America  Inc.              |       | 19,825                  |       | 1,167                  |       | 279                                                                 |       | 0.5                                        | %          |
| Morgan Stanley                              |       | 4,161                   |       | 172                    |       | 95                                                                  |       | 0.1                                        | %          |
|                                        |       |                    |       |                   |       |                                                                |       |                                       |       |
| **Total**                                   | ** ** | **$3,729,374**          | ** ** | **$125,367**           | ** ** | ** **                                                          | ** ** | **100.0**                                  | **%**      |

 

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(1)   Equal to the fairvalue of securities sold, plus accrued interest income, minus the sum ofrepurchase greement liabilities, plus accrued interest expense.

 

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***Equity***

 

Accumulated other comprehensive loss, as reflectedin the stockholders’ equity section, increased approximately $51.3 million fromDecember 31, 2004 to September 30, 2005.  This is reflective of an overall decline inthe fair value of our portfolio as compared to the original aggregate purchaseprice of the investments.  Changes ininterest rates over time, as described previously in the Introduction andOverview section, are the primary market factor for this value decline;generally, as interest rates rise, the value of long-term interest ratesensitive securities decline. The value of the majority of our assets is drivenby movements in short term rates—rates typically inside two years. As mentionedabove, these rates increased over the nine month period. Additionally, aslonger term rates decreased, prepayment expectations increased resulting in awidening in the spreads at which our assets are priced.

 

The Company has negative retained earnings (titled “accumulateddeficit” in the stockholders’ equity section) at each balance sheet date becauseof the consequences of the Company’s tax status as a REIT.  As is more fully described in thesection titled “Future REIT Taxable Income Distributions,” the Company’sdividends are based on its REIT taxable income, and not on its income computedin accordance with generally accepted accounting principles (as reported in theaccompanying financial statements). Therefore, to the extent that the Company’s cumulative REIT taxableincome is both (i) greater than the cumulative financial statement income,and (ii) is paid-out to the Company’s stockholders as dividends, theCompany will report negative retained earnings on its balance sheet.

 

***Merger Agreement***

 

On September 29, 2005, the Company announced that ithad entered into a definitive merger agreement with Opteum Financial Services,LLC (“Opteum”) headquarted in Paramus, New Jersey. The transaction is expectedto close in November 2005. Under the terms of the merger agreement, the Companyhas agreed to issue in the merger 3,717,242 Class A Shares and 1,800,000 Series Aconvertible preferred shares to the stockholders of Opteum in exchange for 100%of the stock of Opteum. Opteum is required to deliver $60 million of bookvalue. The purchase price will be adjusted pursuant to the merger agreement ifOpteum delivers a different book value at the closing of the merger.  For accounting purposes, Bimini will use theaverage closing stock price for the five trading sessions surrounding thisannouncement to determine the value of the initial consideration paid in thisdeal. Using that calculation, the stock price average is $11.46. In 2006, theCompany will issue its annual proxy statement where we will ask thestockholders to elect to allow the Series A convertible preferred sharesto be eligible to convert into Class A common shares on a one-for-one basis. Inaddition, the Opteum stockholders will be eligible to receive up to $17.5million in cash, or in certain circumstances, preferred shares over the nextfive years dependent on the cash flows of certain residual interests insecuritizations which are on Opteum’s balance sheet at the closing. For taxpurposes, Opteum will be a taxable REIT subsidiary.

 

As part of the merger, theCompany is lending approximately $65 million to Opteum to pay down existingdebt, the majority of which will come from the net proceeds of $48.5 million ofBimini Capital Trust II Trust Preferred Securities which we issued on October5, 2005.

 

 

**Results ofOperations**

 

We haveexperienced a significant growth in our assets over the past 21 months as wecompleted our private equity raises in January 2004 andFebruary 2004, our public offerings in September 2004 andDecember 2004, and our issuance of trust preferred securities inMay 2005. This growth in our capitalization and assets results in theamounts and components of our income and expenses for the three and nine monthperiods ending September 30, 2005 to differ significantly from the sameperiods in 2004.

 

***Nine Months Ended September 30, 2005 Compared to Nine Months EndedSeptember 30, 2004***

 

For the ninemonths ended September 30, 2005 and 2004, we recorded $27.0 million and$15.3 million in net income, respectively. Our net interest income for the nine months ended September 30,2005 and 2004 was $31.3 million and $17.5 million, respectively, our net gainon sale of securities was $2.0 million and $0.1 million, respectively and ourexpenses for those periods were $6.3 million and $2.3 million, resulting in netincome of $27.0 million or $1.27 per diluted Class A Common Share and$15.3 million or $1.56 per diluted Class A Common Share, respectively.

 

(See the table below for results listed on a quarterly basis.)

 

For the ninemonths ended September 30, 2005 and 2004, comprehensive income/(loss) was($24.3) million including the net unrealized loss on the available for salesecurities of ($49.3) million and $15.2 million including the net unrealizedgain on available for sale securities of $0.1 million, respectively. Thefactors resulting in the unrealized loss on available for sale securities aredescribed above.

 

 

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***Three Months EndedSeptember 30, 2005 Compared to Three Months Ended September 30, 2004***

 

For the threemonths ended September 30, 2005 and 2004, we recorded $7.9 million and$5.7 million in net income, respectively. Our net interest income for the three months ended September 30,2005 and 2004 was $10.1 million and $6.6 million, respectively, our net gain onsale of securities was $0.01 million and $0.1 million, respectively and ourexpenses for those periods were $2.2 million and $1.0 million, resulting in netincome of $7.9 million or $0.37 per diluted Class A Common Share and $5.7million or $0.51 per diluted Class A Common Share, respectively.

 

For the threemonths ended September 30, 2005 and 2004, comprehensive income/(loss) was($21.5) million including the net unrealized loss on the available for salesecurities of ($29.3) million and $14.8 million including the net unrealizedgain on available for sale securities of $9.2 million, respectively. Thefactors resulting in the unrealized loss on available for sale securities aredescribed above.

 

The table below shows our average investments held,total interest income, yield on average earning assets, average repurchasebalances outstanding, interest expense, average cost of funds, net interestincome and net interest spread for the quarter ended September 30, 2005and the six previous quarters.  Wecommenced operations on December 19, 2003 and quarterly results for theperiod ended December 31, 2003 are not meaningful.

 

RATIOSFOR THE QUARTERS HAVE BEEN ANNUALIZED

 
| **Quarter  Ended**      | ** ** | **Average  Investment  Securities Held** | ** **    | **Total Interest  Income** | ** ** | **Yield on  Average Interest  Earning Assets** | ** ** | **Average  Balance of  Repurchase  Agreements  Outstanding** | ** ** | **Interest  Expense** | ** **    | **Average  Cost of  Funds** | ** ** | **Net  Interest  Income** | ** ** | **Net  Interest  Spread** | ** ** |
|-------------------------|------------|------------------------------------------|---------------|----------------------------|------------|------------------------------------------------|------------|--------------------------------------------------------------|------------|-----------------------|---------------|-----------------------------|------------|---------------------------|------------|---------------------------|------------|
| ** **              | ** ** | ** **                               | ** **    | ** **                 | ** ** | ** **                                     | ** ** | ** **                                                   | ** ** | ** **            | ** **    | ** **                  | ** ** | ** **                | ** ** | ** **                | ** ** |
| September 30, 2005      |       | $                                        | 3,867,262,849 |                       | $          | 43,574,308                                     |       | 4.507                                                        | %          | $                     | 3,723,603,116 |                        | $          | 31,829,278                |       | 3.419                     | %          | $ | 11,745,030 |   | 1.088 | % |
| June 30, 2005      |       | $                                        | 3,587,628,779 |                       | $          | 36,748,640                                     |       | 4.097                                                        | %          | $                     | 3,449,743,973 |                        | $          | 26,703,422                |       | 3.096                     | %          | $ | 10,045,218 |   | 1.001 | % |
| March 31, 2005     |       | $                                        | 3,136,142,229 |                       | $          | 31,069,934                                     |       | 3.963                                                        | %          | $                     | 2,976,409,157 |                        | $          | 19,841,710                |       | 2.667                     | %          | $ | 11,228,224 |   | 1.296 | % |
| December 31, 2004  |       | $                                        | 2,305,748,481 |                       | $          | 20,463,071                                     |       | 3.550                                                        | %          | $                     | 2,159,890,886 |                        | $          | 10,824,164                |       | 2.005                     | %          | $ | 9,638,907 |   | 1.545 | % |
| September 30, 2004 |       | $                                        | 1,573,342,668 |                       | $          | 11,017,346                                     |       | 2.801                                                        | %          | $                     | 1,504,919,407 |                        | $          | 4,253,337                 |       | 1.131                     | %          | $ | 6,764,009 |   | 1.670 | % |
| June 30, 2004      |       | $                                        | 1,512,480,507 |                       | $          | 10,959,098                                     |       | 2.898                                                        | %          | $                     | 1,452,004,000 |                        | $          | 4,344,012                 |       | 1.197                     | %          | $ | 6,615,086 |   | 1.702 | % |
| March 31, 2004     |       | $                                        | 871,140,453   |                       | $          | 7,194,033                                      |       | 3.303                                                        | %          | $                     | 815,814,500   |                        | $          | 2,736,434                 |       | 1.342                     | %          | $ | 4,457,599 |   | 1.962 | % |
|                         |            |                                          |               |                            |            |                                                |            |                                                              |            |                       |               |                             |            |                           |            |                           |            |  |  |  |  |  |  |  |  |  |  |

 

As discussedpreviously, actions by the Federal Reserve and the resulting impact on variousmarket interest rates have adversely impacted the net interest spread earned onour portfolio of MBS securities over our repurchase agreement funding.  Management has taken steps to mitigate thecontinued impact of further interest rate movements initiated by the FederalReserve.  As discussed above, ourportfolio of MBS securities has been adjusted and now contains a greaterproportion of adjustable rate securities whose coupons reset in 12 months orless.  However, while the coupons onthese securities reset frequently and their coupons are tied to the same marketinterest rates impacted by Federal Reserve actions, they do so with a lag andthere is no assurance that our net interest spread will not be compressedfurther.

 

**Liquidityand Capital Resources**

 

Our primarysource of funds as of September 30, 2005 consisted of repurchaseagreements totaling $3.7 billion, with a net weighted average borrowingcost of 3.75%. We expect to continue to borrow funds in the form of repurchaseagreements. At September 30, 2005, we had master repurchase agreements inplace with 19 counter-parties and had outstanding balances under 14 of theseagreements. These master repurchase agreements have no stated expiration butcan be terminated at any time at our option or at the option of thecounter-party. However, once a definitive repurchase agreement under a masterrepurchase agreement has been entered into, it generally may not be terminatedby either party. As of September 30, 2005, all of our existing repurchaseagreements mature in less than one year. Increases in short-term interest ratescould negatively impact the valuation of our mortgage related securities, whichcould limit our borrowing ability or cause our lenders to initiate margincalls.

 

InDecember 2004, the Company entered into contracts and paid commitment feesto three lenders providing for an aggregate of $900 million in committedrepurchase lines at pre-determined borrowing rates and haircuts for a 364 dayperiod following the commencement date of each contract. The Company has noobligation to utilize these repurchase lines. During the second quarter of2005, the Company increased the size of one of these lines to $1 billion andextended the maturity of the $1 billion line to April 2006. The totalamount of committed lines now stands at $1.6 billion. In addition, $100 millionof the $1 billion line may be used to finance principal prepayments due theCompany, but not yet received, by Ginnie Mae, Fannie Mae, and Freddie Mac. Thisarrangement, which has predetermined fees which are due only if the line isutilized, benefits the Company by making cash management less dependent of thevagaries of monthly prepays. The Company believes that this principalprepayment funding arrangement is unique in the industry and will benefit theCompany greatly, primarily by increasing liquidity.

 

For liquidity, we will also rely on cash flow fromoperations, primarily monthly principal and interest payments to be received onour mortgage related securities, as well as any primary securities offeringsauthorized by our Board of Directors.

 

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We believethat equity capital and the funds from the offering of the trust preferred securities,combined with the cash flow from operations and the utilization of borrowings,will be sufficient to enable us to meet anticipated liquidity requirements.Various changes in market conditions could adversely affect our liquidity,including increases in interest rates and increases in prepayment ratessubstantially above our expectations. If our cash resources are at any timeinsufficient to satisfy our liquidity requirements, we may be required topledge additional assets to meet margin calls, liquidate mortgage relatedsecurities or sell debt or additional equity securities. If required, the saleof mortgage related securities at prices lower than the carrying value of suchassets would result in losses and reduced income.

 

We may in thefuture increase our capital resources by making additional offerings of equityand debt securities, including classes of preferred stock, common stock,commercial paper, medium-term notes, collateralized mortgage obligations andsenior or subordinated notes. All debt securities, other borrowings, andclasses of preferred 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.

 

As discussed previously, theCompany is lending approximately $65 million to Opteum, the majority of whichwill come from the net proceeds of $48.5 million of Bimini Capital Trust IITrust Preferred Securities which we just issued and which settled on October 5,2005.

 

**ContractualObligations and Commitments**

 

The followingtable provides information with respect to our contractual obligations atSeptember 30, 2005.

 
| ** **                                              | ** ** | **Payment due by period** | ** **    |
|---------------------------------------------------------|------------|---------------------------|---------------|
| **Contractual Obligations**                             | ** ** | **Total**                 | ** **    | **Less than  1 year** | ** ** | **More than  5 Years** | ** ** |
|                                                    |       |                      |          |   |   |   |   |
| Repurchase Agreements                                   |       | $                         | 3,729,373,642 |   | $ | 3,729,373,642 |   | $ | — |   |
| Junior subordinated notes due to Bimini Capital Trust I |       | 51,550,000                |          | — |   | 51,550,000 |   |
| Total                                                   |       | $                         | 3,780,923,642 |   | $ | 3,729,373,642 |   | $ | 51,550,000 |   |
|                                                         |            |                           |               |  |  |  |  |  |  |  |  |

 

**CriticalAccounting Policies**

 

Our financialstatements are prepared in accordance with U.S. generally accepted accountingprinciples (GAAP). These accounting principles require us to make some complexand subjective decisions and assessments. Our most critical accounting policiesinvolve decisions and assessments which could significantly affect our reportedassets and liabilities, as well as our reported revenues and expenses. Webelieve that all of the decisions and assessments upon which our financialstatements are based were reasonable at the time made based upon informationavailable to us at that time. For a description of all of the accountingpolicies that management believes are the most critical, refer to our AnnualReport on Form 10-K for the year ended December 31, 2004. Certain ofour critical accounting policies are described below:

 

**Classifications of Investment Securities**

 

In accordancewith applicable GAAP, our investments in mortgage related securities areclassified as available-for-sale securities. As a result, changes in fair valueare recorded as a balance sheet adjustment to accumulated other comprehensiveincome (loss), which is a component of stockholders’ equity, rather thanthrough our statement of operations. If available-for-sale securities wereclassified as trading securities, there could be substantially greatervolatility in earnings from period-to-period.

 

**Valuations of Mortgage Related Securities**

 

All investmentsecurities are carried on the balance sheet at fair value. Our mortgage relatedsecurities have fair values determined by management based on the average ofthird-party broker quotes received and/or by independent pricing sources whenavailable. Because the price estimates may vary to some degree between sources,management must make certain judgments and assumptions about the appropriateprice to use to calculate the fair values for financial reporting purposes.Different judgments and assumptions could result in different presentations ofvalue.

 

When the fairvalue of an available-for-sale security is less than amortized cost, managementconsiders whether there is an other-than-temporary impairment in the value ofthe security (for example, whether the security will be sold prior to therecovery of fair value). If, in management’s judgment, an other-than-temporaryimpairment exists, the cost basis of the security is written down to thethen-current fair value, and this loss is realized and charged againstearnings. The determination of other than temporary

 

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impairment isa subjective process, and different judgments and assumptions could affect thetiming of loss realization.

 

The decline infair value of investments held in our portfolio at September 30, 2005, andDecember 31, 2004 is not considered to be other than temporary.  Accordingly the write down to fair value isrecorded in other comprehensive 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.

 

**Interest Income Recognition**

 

Interestincome on our mortgage related securities is accrued based on the actual couponrate and the outstanding principal amount of the underlying mortgages. Premiumsand discounts are amortized or accreted into interest income over the estimatedlives of the securities using the effective yield method adjusted for theeffects of estimated prepayments based on Statement of Financial AccountingStandards, or SFAS No. 91, “Accounting for Nonrefundable Fees and CostsAssociated with Originating or Acquiring Loans and Initial Direct Costs ofLeases—an amendment of FASB Statements No. 13, 60, and 65 and a rescissionof FASB Statement No. 17.” Adjustments are made using the retrospectivemethod to the effective interest computation each reporting period based on theactual prepayment 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.

 

**Future REIT Taxable Income Distributions**

 

In order to maintain our qualification as a REIT, weare required (among other provisions) to distribute dividends to ourstockholders in an amount at least equal to 90% of our “REIT taxable income.” “REITtaxable income” is a term that describes our operating results followingtaxation rules and regulations governed by various provisions of theInternal Revenue Code.  REIT taxableincome is computed differently from our net income as computed in accordancewith GAAP (“GAAP net income”).  Dependingon the number and size of the various items or transactions being accounted fordifferently, the differences between REIT taxable income and GAAP net incomecan be substantial and each item can affect several years.  See our Annual Report on Form 10-K forthe year ended December 31, 2004 for a more extensive description.

 

For the nine month period ended September 30,2005, the Company’s REIT taxable income was estimated to be approximately $1.6million greater than the Company’s GAAP net income, and the Company thereforehas declared and paid REIT distributions (dividends) during 2005 based on thishigher amount.  The most significantportion of this amount is attributable to the phantom stock awards, as theseawards result in current charges against GAAP net income that are not currentdeductions for REIT taxable income. The future deduction of phantom stock awardcharges against REIT taxable income is uncertain both to the year and as to theamount.

 

Depending on the actual size of these timing ortemporary differences, some of which are not entirely in the Company’s control,future REIT distributions (dividends) may be substantially greater than or lessthan the Company’s GAAP net income in any future reporting quarter oryear.  Since inception throughSeptember 30, 2005, the Company’s REIT taxable income is estimated to beapproximately $2.4 million greater than the Company’s GAAP net income.

 

**Inflation**

 

Virtually all of our assets and liabilities arefinancial in nature. As a result, interest rates and other factors influenceour performance far more so than does inflation. Changes in interest rates donot necessarily correlate with inflation rates or changes in inflation rates.Our financial statements are prepared in accordance with accounting principlesgenerally accepted in the United States and our distributions are determined byour board of directors based primarily on REIT taxable net income as calculatedfor tax purposes; in each case, our activities and balance sheet are measuredwith reference to historical cost and or fair market value without consideringinflation.

 

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**Forward-Looking Statements**

 

When used in thisquarterly report on Form 10-Q, in future filings with the SEC or in pressreleases or other written or oral communications, statements which are nothistorical in nature, including those containing words such as “anticipate,” “estimate,”“should,” “expect,” “believe,” “intend” and similar expressions, are intendedto identify “forward-looking statements” within the meaning of Section 27Aof the Securities Act of 1933, as amended (“Securities Act”) andSection 21E of the Securities Exchange Act of 1934, as amended (“ExchangeAct”), and, as such, may involve known and unknown risks, uncertainties andassumptions.

 

Theseforward-looking statements are subject to various risks and uncertainties,including, but not limited to, those relating to: changes in the prepaymentrates on the mortgage loans securing the Company’s MBS; changes in interestrates and the market value of the Company’s MBS; the Company’s ability to useborrowings to finance its assets; changes in government regulations affectingthe Company’s business; the Company’s ability to maintain its qualification asa REIT for federal income tax purposes; and changes in business conditions andthe general economy. These and other risks, uncertainties and factors,including those described in reports that the Company files from time to timewith the SEC, could cause the Company’s actual results to differ materiallyfrom 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 Companybelieves the primary risk inherent in its investments is the effect ofmovements in interest rates. This arises because the changes in interest rateson the Company’s borrowings will not be perfectly coordinated with the effectsof interest rate changes on the income from, or value of, its investments. TheCompany therefore follows an interest rate risk management program designed tolimit the potential adverse effects resulting from the rate adjustmentlimitations on its mortgage related securities. The Company seeks to minimizedifferences between the interest rate indices and interest rate adjustmentperiods of its adjustable-rate mortgage-backed securities and those of itsrelated borrowings.

 

The Company’s interestrate risk management program encompasses a number of procedures, including thefollowing:

 

•                  monitoring andadjusting, if necessary, the interest rate sensitivity of its mortgage relatedsecurities compared with the interest rate sensitivities of its borrowings;

 

•                  attempting tostructure its repurchase agreements that fund its purchases of adjustable-ratemortgage-backed securities to have a range of different maturities and interestrate adjustment periods. The Company attempts to structure these repurchaseagreements to match the reset dates on its adjustable-rate mortgage-backedsecurities. At September 30, 2005, the weighted average months to reset ofthe Company’s adjustable-rate mortgage-backed securities was 4.44 months andthe weighted average reset on the corresponding repurchase agreements was 3.31months; and

 

•                  activelymanaging, on an aggregate basis, the interest rate indices and interest rate adjustmentperiods of its mortgage related securities compared to the interest rateindices and adjustment periods of its borrowings. The Company’s liabilitiesunder its repurchase agreements are all LIBOR-based, and the Company, amongother considerations, selects its adjustable-rate mortgage-backed securities tofavor LIBOR indexes. As of September 30, 2005, over 29.3% of itsadjustable-rate mortgage-backed securities were LIBOR-based.

 

As a result, theCompany expects to be able to adjust the average maturities and reset periodsof its borrowings on an ongoing basis by changing the mix of maturities andinterest rate adjustment periods as borrowings mature or are renewed. Throughthe use of these procedures, the Company attempts to reduce the risk of differencesbetween interest rate adjustment periods of its adjustable-rate mortgage-backedsecurities and those of its related borrowings.

 

Because theCompany attempts to match its assets and liabilities from an interest rateperspective and hold its assets to maturity, it expects to limit its exposureto changes in interest rates. However, the Company will be exposed to changesin interest rates either (i) upon refinancing borrowings that expirebefore the related assets are repaid or (ii) upon reinvesting (andrefinancing) proceeds following the maturity of current investments, ifinterest rates were to rise substantially.

 

As a further meansof protecting its portfolio against the effects of major interest rate changesthe Company may employ a limited hedging strategy under which it purchasesinterest rate cap contracts (under which it would generally be entitled topayment if interest rate indices exceed the agreed rates). We currently do nothave any such contracts.

 

**Interest Rate Risk**

 

The Company issubject to interest rate risk in connection with its investments in mortgagerelated securities and its related debt obligations, which are generallyrepurchase agreements of limited duration that are periodically refinanced atcurrent market rates. The Company has also issued $50 million of trustpreferred securities that has a fixed rate for five years, and then a floatingrate for 25 years thereafter. The Company’s issuance of trust preferredsecurities at a fixed rate for five years could create an interest ratemismatch if the Company could not invest at yields that exceed the cost of thetrust preferred securities. The Company presently believes that it can investthe trust preferred securities proceeds (considering the use of leverage) atyields that exceed the cost of the trust preferred securities.

 

**Effect on Net Interest Income**

 

The Company fundsits investments in long-term fixed-rate and hybrid adjustable-ratemortgage-backed securities with short-term borrowings under repurchaseagreements. During periods of rising interest rates, the borrowing costsassociated with those fixed-rate and hybrid adjustable-rate mortgage-backedsecurities tend to increase while the income earned on such fixed-ratemortgage-backed securities and hybrid adjustable-rate mortgage-backedsecurities (during the fixed-rate component of such securities) may remainsubstantially unchanged. This results in a narrowing of the net interest spreadbetween the related assets and borrowings and may even result in losses. TheCompany may enter into interest rate cap contracts or forward fundingagreements seeking to mitigate the negative impact of a rising interest rateenvironment. Hedging techniques will be based, in part, on assumed levels ofprepayments

 

26

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of the Company’sfixed-rate and hybrid adjustable-rate mortgage-backed securities. Ifprepayments are slower or faster than assumed, the life of the mortgage relatedsecurities will be longer or shorter, which would reduce the effectiveness ofany hedging techniques the Company may utilize and may result in losses on suchtransactions. Hedging techniques involving the use of derivative securities arehighly complex and may produce volatile returns. The Company’s hedging activitywill also be limited by the asset and sources-of-income requirements applicableto it as a REIT.

 

**Extension Risk**

 

The Companyinvests in fixed-rate and hybrid adjustable-rate mortgage-backed securities.Hybrid adjustable-rate mortgage-backed securities have interest rates that arefixed for the first few years of the loan—typically three, five, seven or 10years—and thereafter their interest rates reset periodically on the same basisas adjustable-rate mortgage-backed securities. As of September 30, 2005, approximately21.5% of the Company’s investment portfolio was comprised of hybridadjustable-rate mortgage-backed securities. The Company computes the projectedweighted average life of its fixed-rate and hybrid adjustable-ratemortgage-backed securities based on the market’s assumptions regarding the rateat which the borrowers will prepay the underlying mortgages. In general, when afixed-rate or hybrid adjustable-rate mortgage-backed security is acquired withborrowings, the Company may, but is not required to, enter into interest ratecap contracts or forward funding agreements that effectively cap or fix itsborrowing costs for a period close to the anticipated average life of thefixed-rate portion of the related mortgage-backed security. This strategy is designedto protect the Company from rising interest rates because the borrowing costsare fixed for the duration of the fixed-rate portion of the relatedmortgage-backed security. However, if prepayment rates decrease in a risinginterest rate environment, the life of the fixed-rate portion of the relatedmortgage-backed security could extend beyond the term of the swap agreement orother hedging instrument. This situation could negatively impact the Company asborrowing costs would no longer be fixed after the end of the hedginginstrument, while the income earned on the fixed-rate or hybrid adjustable-ratemortgage-backed security would remain fixed. This situation may also cause themarket value of the Company’s fixed-rate and hybrid adjustable-rate mortgage-backedsecurities to decline with little or no offsetting gain from the relatedhedging transactions. In extreme situations, the Company may be forced to sellassets and incur losses to maintain adequate liquidity.

 

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

 

The Company alsoinvests in adjustable-rate and hybrid adjustable-rate mortgage-backedsecurities, which are based on mortgages that are typically subject to periodicand lifetime interest rate caps and floors, which limit the amount by which anadjustable-rate or hybrid adjustable-rate mortgage-backed security’s interestyield may change during any given period. However, the Company’s borrowingcosts pursuant to its repurchase agreements will not be subject to similarrestrictions. Hence, in a period of increasing interest rates, interest ratecosts on the Company’s borrowings could increase without limitation by caps,while the interest-rate yields on the Company’s adjustable-rate and hybridadjustable-rate mortgage-backed securities would effectively be limited bycaps. 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 its adjustable-rateand hybrid adjustable-rate mortgage-backed securities than it needs in order topay the interest cost on its related borrowings. These factors could lower theCompany’s net interest income or cause a net loss during periods of risinginterest rates, which would negatively impact the Company’s financialcondition, cash flows and results of operations.

 

**Interest Rate Mismatch Risk**

 

The Companyintends to fund a substantial portion of its acquisitions of adjustable-rateand hybrid adjustable-rate mortgage-backed securities with borrowings that haveinterest rates based on indices and re-pricing terms similar to, but ofsomewhat shorter maturities than, the interest rate indices and re-pricingterms of the mortgage related securities it is financing. Thus, the Companyanticipates that in most cases the interest rate indices and re-pricing termsof its mortgage related securities and its funding sources will not beidentical, thereby creating an interest rate mismatch between assets andliabilities. Therefore, the Company’s cost of funds would likely rise or fallmore quickly than would its earnings rate on assets. During periods of changinginterest rates, such interest rate mismatches could negatively impact theCompany’s financial condition, cash flows and results of operations. Inaddition, the Company’s issuance of trust preferred securities at a fixed ratefor five years could create an interest rate mismatch if the Company could notinvest at yields that exceed the cost of the trust preferred securities.

 

**Prepayment Risk**

 

Prepayment ratesfor existing mortgage related securities generally increase when prevailinginterest rates fall below the market rate existing when the underlyingmortgages were originated. In addition, prepayment rates on adjustable-rate andhybrid adjustable-rate mortgage-backed securities generally increase when thedifference between long-term and short-term interest rates declines or becomesnegative. Prepayments of mortgage related securities could harm the Company’sresults of operations in several ways. Some adjustable-rate mortgagesunderlying the Company’s adjustable-rate mortgage-backed securities may bearinitial “teaser” 

 

27

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interest rates that arelower than their “fully-indexed” rate, which refers to the applicable indexrates plus a margin. In the event that such an adjustable-rate mortgage isprepaid prior to or soon after the time of adjustment to a fully-indexed rate,the holder of the related mortgage-backed security would have held suchsecurity while it was less profitable and lost the opportunity to receiveinterest at the fully-indexed rate over the expected life of theadjustable-rate mortgage-backed security. The Company currently owns mortgagerelated securities that were purchased at a premium. The prepayment of suchmortgage related securities at a rate faster than anticipated would result in awrite-off of any remaining capitalized premium amount and a consequentreduction of the Company’s net interest income by such amount. Finally, in theevent that the Company is unable to acquire new mortgage related securities toreplace the prepaid mortgage related securities, its financial condition, cashflow and results of operations could be harmed.

 

**Effect on Fair Value**

 

Another componentof interest rate risk is the effect changes in interest rates will have on thefair value of the Company’s assets. The Company faces the risk that the fairvalue of its assets will increase or decrease at different rates than that ofits liabilities, including its hedging instruments.

 

The Companyprimarily assesses its interest rate risk by estimating the duration of itsassets and the duration of its liabilities. Duration essentially measures themarket price volatility of financial instruments as interest rates change. TheCompany generally calculates duration using various financial models andempirical data, and different models and methodologies can produce differentduration numbers for the same securities.

 

 

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The following sensitivityanalysis table shows the estimated impact on the fair value of the Company’sinterest rate-sensitive investments at September 30, 2005, assuming ratesinstantaneously fall 100 basis points, rise 100 basis points and rise 200 basispoints:

 
| ** **                                     | ** ** | **Interest Rates Fall  100 BPS** | ** ** | **Interest Rates Rise  100 BPS** | ** ** | **Interest Rates Rise  200 BPS** | ** ** |
|------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| **Adjustable-Rate**                            |       |                             |       |                             |       |                             |       |
| Fair Value 2,166,581,042                       |       |                             |       |                             |       |                             |       |
| Change in Fair Value                           |       | 15,975,860                       |       | (15,975,860                      | )          | (31,951,719                      | )          |
| Change as a     % of Fair Value |       | 0.74                             | %          | (0.74                            | )%         | (1.47                            | )%         |
|                                           |       |                             |       |                             |       |                             |       |
| **Fixed-Rate**                                 |       |                             |       |                             |       |                             |       |
| Fair Value 809,119,878                         |       |                             |       |                             |       |                             |       |
| Change in Fair Value                           |       | 17,696,967                       |       | (17,696,967                      | )          | (35,393,933                      | )          |
| Change as a     % of Fair Value |       | 2.19                             | %          | (2.19                            | )%         | (4.37                            | )%         |
|                                           |       |                             |       |                             |       |                             |       |
| **Hybrid**                                     |       |                             |       |                             |       |                             |       |
| Fair Value 829,053,560                         |       |                             |       |                             |       |                             |       |
| Change in Fair Value                           |       | 10,856,624                       |       | (10,856,624                      | )          | (21,713,247                      | )          |
| Change as a     % of Fair Value |       | 1.31                             | %          | (1.31                            | )%         | (2.62                            | )%         |
|                                           |       |                             |       |                             |       |                             |       |
| **Balloon**                                    |       |                             |       |                             |       |                             |       |
| Fair Value 53,565,222                          |       |                             |       |                             |       |                             |       |
| Change in Fair Value                           |       | 1,135,885                        |       | (1,135,885                       | )          | (2,271,770                       | )          |
| Change as a     % of Fair Value |       | 2.12                             | %          | (2.12                            | )%         | (4.24                            | )%         |
|                                           |       |                             |       |                             |       |                             |       |
| **Cash**                                       |       |                             |       |                             |       |                             |       |
| Fair Value 130,089,802                         |       |                             |       |                             |       |                             |       |
|                                           |       |                             |       |                             |       |                             |       |
| **Portfolio Total**                            |       |                             |       |                             |       |                             |       |
| Fair Value 3,858,319,702                       |       |                             |       |                             |       |                             |       |
| Change in Fair Value                           |       | 45,665,336                       |       | (45,665,336                      | )          | (91,330,669                      | )          |
| Change as a     % of Fair Value |       | 1.18                             | %          | (1.18                            | )%         | (2.37                            | )%         |

 

29

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The table below reflectsthe same analysis presented above but with the figures in the columns thatindicate the estimated impact of a 100 basis point fall, a 100 basis pointrise, and a 200 basis point rise adjusted to reflect the impact of convexity.

 
| ** **                                     | ** ** | **Interest Rates Fall  100 BPS** | ** ** | **Interest Rates Rise  100 BPS** | ** **  | **Interest Rates Rise  200 BPS** | ** **   |
|------------------------------------------------|------------|----------------------------------|------------|----------------------------------|-------------|----------------------------------|--------------|
| **Adjustable-Rate**                            |       |                             |       |                             |        |                             |         |
| Fair Value 2,166,581,042                       |       |                             |       |                             |        |                             |         |
| Change in Fair Value                           |       | $                                | 8,982,778  |                             | (20,621,332 | )                                | (48,832,614  | ) |
| Change as a     % of Fair Value |       | 0.41                             | %          | (0.95                            | )%          | (2.25                            | )%           |
|                                           |       |                             |       |                             |        |                             |         |
| **Fixed-Rate**                                 |       |                             |       |                             |        |                             |         |
| Fair Value 809,119,878                         |       |                             |       |                             |        |                             |         |
| Change in Fair Value                           |       | $                                | 11,245,358 |                             | (23,630,687 | )                                | (51,949,329  | ) |
| Change as a     % of Fair Value |       | 1.39                             | %          | (2.92                            | )%          | (6.42                            | )%           |
|                                           |       |                             |       |                             |        |                             |         |
| **Hybrid**                                     |       |                             |       |                             |        |                             |         |
| Fair Value 829,053,560                         |       |                             |       |                             |        |                             |         |
| Change in Fair Value                           |       | $                                | 7,356,364  |                             | (13,527,596 | )                                | (31,010,304  | ) |
| Change as a     % of Fair Value |       | 0.89                             | %          | (1.63                            | )%          | (3.74                            | )%           |
|                                           |       |                             |       |                             |        |                             |         |
| **Balloon**                                    |       |                             |       |                             |        |                             |         |
| Fair Value 53,565,222                          |       |                             |       |                             |        |                             |         |
| Change in Fair Value                           |       | $                                | 970,842    |                             | (1,210,298  | )                                | (2,481,626   | ) |
| Change as a     % of Fair Value |       | 1.81                             | %          | (2.26                            | )%          | (4.63                            | )%           |
|                                           |       |                             |       |                             |        |                             |         |
| **Cash**                                       |       |                             |       |                             |        |                             |         |
| Fair Value 130,089,082                         |       |                             |       |                             |        |                             |         |
|                                           |       |                             |       |                             |        |                             |         |
| **Portfolio Total**                            |       |                             |       |                             |        |                             |         |
| Fair Value 3,858,319,702                       |       |                             |       |                             |        |                             |         |
| Change in Fair Value                           |       | $                                | 28,555,342 |                             | (58,989,913 | )                                | (134,273,873 | ) |
| Change as a     % of Fair Value |       | 0.74                             | %          | (1.53                            | )%          | (3.48                            | )%           |

 

In addition to changes in interest rates, otherfactors impact the fair value of the Company’s interest rate-sensitiveinvestments and hedging instruments, such as the shape of the yield curve,market expectations as to future interest rate changes and other marketconditions. Accordingly, in the event of changes in actual interest rates, thechange in the fair value of the Company’s assets would likely differ from thatshown above, and such difference might be material and adverse to the Company’sstockholders.

 

The Company’sliabilities, consisting primarily of repurchase agreements as well as $50million of trust preferred securities, are also affected by changes in interestrates. As rates rise, the value of the underlying asset, or the collateral,declines. In certain circumstances, the Company could be required to postadditional collateral in order to maintain the repurchase agreement position.The Company maintains a substantial cash position, as well as un-pledgedassets, to cover these types of situations. As an example, if interest rates increased200 basis points, as shown on the prior table, the Company’s collateral as ofSeptember 30, 2005 would decline in value by approximately $134.3 million.

 

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# **ITEM 4.   CONTROLS AND PROCEDURES**

 

**Evaluation of Disclosure Controlsand Procedures**

# ** **

The Company maintains disclosure controls andprocedures that are designed to ensure that information required to bedisclosed in the Company’s Exchange Act reports is recorded, processed,summarized and reported within the time periods specified in the SEC’srules and forms, and that such information is accumulated and communicatedto the Company’s management, including its Chief Executive Officer and ChiefFinancial Officer, as appropriate, to allow timely decisions regarding requireddisclosure based closely on the definition of “disclosure controls andprocedures” in Rule 13a-15(e).  Indesigning and evaluating the disclosure controls and procedures, managementrecognized that any controls and procedures, no matter how well designed andoperated, can provide only reasonable assurance of achieving the desiredcontrol objectives, and management necessarily was required to apply itsjudgment in evaluating the cost-benefit relationship of possible controls andprocedures.

 

As of the end of the period covered by this report,the Company carried out an evaluation, under the supervision and with theparticipation of the Company’s management, including the Company’s ChiefExecutive Officer and the Company’s Chief Financial Officer, of theeffectiveness of the design and operation of the Company’s disclosure controlsand procedures.  Based on the foregoing,the Company’s Chief Executive Officer and Chief Financial Officer concludedthat the Company’s disclosure controls and procedures were effective.

 

**Changes in Internal Controls over Financial Reporting**

 

There have been no changes in the Company’s internalcontrols over financial reporting identified in connection with the calculationof such internal controls that occurred during the Company’s last fiscal yearor in other factors that could have materially affected, or are reasonablylikely to materially affect the Company’s internal controls subsequent to thedate the Company completed its evaluation.

 

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# **PART II**   OTHER INFORMATION

# ** **

# **ITEM 1.   LEGAL PROCEEDINGS**

# ** **

None

 

**ITEM 2.**   **UNREGISTERED SALES OF EQUITYSECURITIES AND USE OF PROCEEDS**

 

None

 

# **ITEM 3.   DEFAULTS UPON SENIOR SECURITIES**

# ** **

None

 

# **ITEM 4.   SUBMISSION OF MATTERS TO AVOTE OF SECURITY HOLDERS**

# ** **

# **None**

# ** **

# **ITEM 5.   OTHER INFORMATION**

# ** **

None

 

# **ITEM 6.   EXHIBITS**

# ** **

| *3.1   |   | Articles of Incorporation  of Bimini Mortgage Management, Inc.                                                                                                                                                                                                                                                                                                                                  |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *3.2   |   | Bylaws of Bimini Mortgage  Management, Inc.                                                                                                                                                                                                                                                                                                                                                     |
| *10.2  |   | 2003 Long-Term Incentive  Compensation Plan                                                                                                                                                                                                                                                                                                                                                     |
| *10.3  |   | Employment Agreement dated  April 12, 2004 between Bimini Mortgage Management, Inc. and  Jeffrey J. Zimmer                                                                                                                                                                                                                                                                            |
| *10.4  |   | Employment Agreement dated  April 12, 2004 between Bimini Mortgage Management, Inc. and  Robert E. Cauley                                                                                                                                                                                                                                                                             |
| *10.5  |   | Letter Agreement dated  November 4, 2003 from AVM, L.P. to Bimini Mortgage Management, Inc.  with respect to consulting services to be provided by AVM, L.P. and  Letter Agreement, dated February 10, 2004 from AVM, L.P. to Bimini  Mortgage Management with respect to assignment of AVM, L.P.'s rights,  interest and responsibilities to III Associates |
| *10.6  |   | Agency Agreement, dated  November 20, 2003 by and among AVM, L.P. and Bimini Mortgage  Management, Inc.                                                                                                                                                                                                                                                                               |
| *10.7  |   | 2004 Performance Bonus  Plan                                                                                                                                                                                                                                                                                                                                                                    |
| *10.8  |   | Phantom Share Award  Agreement dated August 13, 2004 between Bimini Mortgage Management, Inc.  and Jeffrey J. Zimmer                                                                                                                                                                                                                                                             |
| *10.9  |   | Phantom Share Award  Agreement dated August 13, 2004 between Bimini Mortgage  Management, Inc. and Robert E. Cauley                                                                                                                                                                                                                                                              |
| *10.10 |   | Phantom Share Award  Agreement dated August 13, 2004 between Bimini Mortgage  Management, Inc. and George H. Haas IV                                                                                                                                                                                                                                                        |
| 31.1   |   | Certification of Chief  Executive Officer pursuant to Rule 13a-14(a) of the Securities  Exchange Act, as amended                                                                                                                                                                                                                                                                      |
| 31.2   |   | Certification of Chief  Financial Officer pursuant to Rule 13a-14(a) of the Securities  Exchange Act, as amended                                                                                                                                                                                                                                                                      |
| 32.1   |   | Certification of Chief  Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                   |
| 32.2   |   | Certification of Chief  Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                        |

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*    Incorporated by reference to the exhibit of the samenumber filed with Bimini Mortgage Management's initial public offeringregistration statement on Form S-11 (file no. 333-113715), asamended.

 

 

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## **SIGNATURES**

## ** **

                Pursuantto the 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:  | October 28, 2005 |                             |   |

 

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