4.	Mortgage-Backed Securities

All of the Company’s agency securities were classified as available-for-sale and, as such, are reported at their estimated fair value. The agency securities market is primarily an over-the-counter market. As such, there are no standard, public market quotations or published trading data for individual agency securities. The Company estimates the fair value of the Company’s agency securities based on a market approach obtaining values for its securities primarily from third-party pricing services and dealer quotes. To ensure the Company’s fair value determinations are consistent with the ASC Topic on Fair Value Measurements and Disclosures, the Company regularly reviews the prices obtained and the methods used to derive those prices. The Company evaluates the pricing information it receives taking into account factors such as coupon, prepayment experience, fixed/adjustable rate, annual and life caps, coupon index, time to next reset and issuing agency, among other factors to ensure that estimated fair values are appropriate. The Company reviews the methods and inputs used by providers of pricing data to determine that the fair value of its assets and liabilities are properly classified in the fair value hierarchy.

The third-party pricing services gather trade data and use pricing models that incorporate such factors as coupons, primary mortgage rates, prepayment speeds, spread to the U.S. Treasury and interest rate swap curves, periodic and life caps and other similar factors. Traders at broker-dealers function as market-makers for these securities, and these brokers have a direct view of the trading activity. Brokers do not receive compensation for providing pricing information to the Company. The broker prices received are non-binding offers to trade. The brokers receive data from traders that participate in the active markets for these securities and directly observe numerous trades of securities similar to the securities owned by the Company. The Company’s analysis of fair value for these includes comparing the data received to other information, if available, such as repurchase agreement pricing or internal pricing models.

If the fair value of a security is not available using the Level 2 inputs as described above, or such data appears unreliable, the Company may estimate the fair value of the security using a variety of methods including, but not limited to, other independent pricing services, repurchase agreement pricing, discounted cash flow analysis, matrix pricing, option adjusted spread models and other fundamental analysis of observable market factors. At December 31, 2013, all of the Company’s agency securities values were based on third-party sources.

The Company’s investment portfolio consists solely of agency securities, which are backed by a U.S. Government agency or a U.S. Government sponsored enterprise. The following table presents certain information about the Company’s agency securities at December 31, 2013.

	Agency
	Securities		Gross			Gross
	Amortized		Unrealized			Unrealized		Estimated
	Cost		Loss			Gain		Fair Value
Agency Securities
Fannie Mae Certificates
ARMS	$	9,620,743	$	(44,871	)	$	167,848	$	9,743,720
Fixed Rate		806,312		(1,798	)		3,832		808,346
Total Fannie Mae		10,427,055		(46,669	)		171,680		10,552,066

Freddie Mac Certificates
ARMS		6,671,013		(70,752	)		57,808		6,658,069
Fixed Rate		338,738		(1,600	)		21		337,159
Total Freddie Mac		7,009,751		(72,352	)		57,829		6,995,228

Ginnie Mae Certificates
ARMS		-		-			-		-
Fixed Rate		96,236		(998	)		-		95,238
Total Ginnie Mae		96,236		(998	)		-		95,238

Total Agency Securities	$	17,533,042	$	(120,019	)	$	229,509	$	17,642,532

The following table presents certain information about the Company’s agency securities at December 31, 2012.

	Amortized Cost		Gross Unrealized Loss			Gross Unrealized Gain		Estimated Fair Value
Agency Securities
Fannie Mae Certificates
ARMS	$	14,081,259	$	(100	)	$	329,780	$	14,410,939
Fixed Rate		743,299					9,296		752,595
Total Fannie Mae		14,824,558		(100	)		339,076		15,163,534
Freddie Mac Certificates
ARMS		7,850,630		(21	)		149,114		7,999,723
Fixed Rate		744,720		-			11,274		755,994
Total Freddie Mac		8,595,350		(21	)		160,388	$	8,755,717
Total Agency Securities	$	23,419,908	$	(121	)	$	499,464	$	23,919,251

The components of the carrying value of available-for-sale agency securities at December 31, 2013 and 2012 are presented below.

	As of December 31
	2013			2012
Principal balance	$	17,044,190		$	22,771,731
Unamortized premium		488,854			648,181
Unamortized discount		(2	)		(4	)
Gross unrealized gains		229,509			499,464
Gross unrealized losses		(120,019	)		(121	)
Carrying value/estimated fair value	$	17,642,532		$	23,919,251

The following table presents components of interest income on the Company’s agency securities portfolio for the three years ended December 31, 2013:

	Years Ended December 31
	2013			2012			2011
Coupon interest on MBS	$	616,632		$	667,644		$	518,048
Net premium amortization		(165,924	)		(162,844	)		(93,335	)
Interest income on MBS, net	$	450,708		$	504,800		$	424,713

During the second half of 2013, the Company repositioned a significant portion of its portfolio, resulting in an elevated level of sales of securities. Gross gains and losses from sales of securities for the three years ended December 31, 2013 were as follows:

	Years Ended December 31
	2013			2012			2011
Gross gains on MBS	$	18,717		$	66,084		$	22,135
Gross losses on MBS		(301,729	)		(1,737	)		(1,559	)
Net gain (loss) on MBS	$	(283,012	)	$	64,347		$	20,576

The Company monitors the performance and market value of its agency securities portfolio on an ongoing basis, and on a quarterly basis reviews its agency securities for impairment. At December 31, 2013 and 2012, the Company had the following securities in a loss position presented below:

	Less than 12 months					Less than 12 months
	as of December 31, 2013					as of December 31, 2012
	Fair Market		Unrealized			Fair Market		Unrealized
	Value		Loss			Value		Loss
Fannie Mae Certificates
ARMS	$	3,233,274	$	(44,871	)	$	149,954	$	(100	)
Fixed Rate		281,760		(1,798	)		-		-
Freddie Mac Certificates
ARMS		4,046,473		(70,752	)		41,625		(21	)
Fixed Rate		316,835		(1,600	)		-		-
Ginnie Mae Certificates
ARMS		-		-			-		-
Fixed Rate		95,238		(998	)		-		-
Total temporarily impaired securities	$	7,973,580	$	(120,019	)	$	191,580	$	(121	)
Number of securities in an unrealized loss position				279					4

The Company did not make the decision to sell the above securities as of December 31, 2013 and 2012, nor was it deemed more likely than not the Company would be required to sell these securities before recovery of their amortized cost basis. The Company recognized an other-than-temporary impairment of $8,102 as of September 30, 2013 on three securities the Company had decided to sell, the sale of which would occur prior to the recovery of their amortized cost. These securities were disposed of in early October 2013. There were no other impairment losses recognized during the three year period presented herein.

The contractual maturity of the Company’s agency securities ranges from 15 to 30 years. Because of prepayments on the underlying mortgage loans, the actual weighted-average maturity is expected to be significantly less than the stated maturity. The following table presents certain information about the Company’s adjustable rate agency securities that will reprice or amortize based on contractual terms, which do not consider prepayment assumptions, at December 31, 2013 and 2012.

	December 31, 2013								December 31, 2012
						Weighted								Weighted
						Average								Average
	Fair Value		% of Total			Coupon			Fair Value		% of Total			Coupon
Months to Coupon Reset
0 - 12	$	1,236,878		7.5	%		3.15	%	$	914,832		4.1	%		4.03	%
13 - 24		1,614,081		9.8	%		3.49	%		966,854		4.3	%		3.88	%
25 - 36		2,321,985		14.2	%		2.99	%		2,274,763		10.2	%		3.60	%
37 - 48		2,524,939		15.4	%		2.73	%		3,207,245		14.3	%		3.06	%
49 - 60		2,483,318		15.1	%		2.94	%		3,616,891		16.1	%		2.76	%
61 - 72		4,750,098		29.0	%		2.46	%		3,027,295		13.5	%		3.26	%
73 - 84		1,470,490		9.0	%		2.44	%		7,607,359		33.9	%		2.44	%
85 - 96		-		-			-			133,487		0.6	%		3.08	%
97 - 108		-		-			-			-		-			-
109 - 120		-		-			-			641,013		2.9	%		2.81	%
121 - 140		-		-			-			20,923		0.1	%		2.69	%
Total ARMS	$	16,401,789		100.0	%		2.80	%	$	22,410,662		100.0	%		2.95	%

The following table presents certain information about the Company’s fixed rate agency securities that will reprice or amortize based on contractual terms, which do not consider prepayment assumptions, at December 31, 2013 and 2012.

	December 31, 2013								December 31, 2012
						Weighted								Weighted
						Average								Average
Wtd Average Months to Maturity	Fair Value		% of Total			Coupon			Fair Value		% of Total			Coupon
133-144	$	75,693		6.1	%		3.50	%	$	-		-			-
145-156		477,544		38.5	%		3.50	%		102,158		6.8	%		3.00	%
157-168		95,238		7.7	%		3.00	%		-		-			-
169-180		592,268		47.7	%		3.50	%		1,406,431		93.2	%		2.60	%
Total Fixed Rate Securities	$	1,240,743		100.0	%		3.46	%	$	1,508,589		100.0	%		2.62	%