NOTE 10 – BORROWINGS

With effect from January 1, 2015, ASU 2014-11 changes the basis on which we account for repurchase to maturity transactions and linked repurchase financings to be consistent with the basis on which we account for secured borrowings. Accordingly, the assets and repurchase agreements that encompass linked transactions that were previously accounted for on a net basis and recorded as a forward purchase (derivative) contract are now bifurcated, and the gross amounts are reported in available-for-sale securities and repurchase agreements separately. Consequently, our GAAP financial statements as of and for the period ended March 31, 2015 are not directly comparable to prior period GAAP financials.

Repurchase Agreements

The Company has entered into repurchase agreements (including three residential loan warehouse facilities) to finance its portfolio of investments. The repurchase agreements bear interest at a contractually agreed rate. The repurchase obligations mature and typically reinvest every thirty days to one year and have a weighted average aggregate interest rate of 1.28% at March 31, 2015. Repurchase agreements are being accounted for as secured borrowings since the Company maintains effective control of the financed assets. The following table summarizes certain characteristics of the Company’s repurchase agreements at March 31, 2015 and December 31, 2014:

	March 31, 2015					December 31, 2013
			Weighted					Weighted
	Amount		average			Amount		average
	outstanding		interest rate			outstanding		interest rate
Agency	$	292,045,000		0.36	%	$	298,783,000		0.36	%
Non-Agency⁽¹⁾		223,674,000		1.60	%		200,347,000		1.25	%
Multi-Family⁽²⁾		131,768,000		1.81	%		45,484,000		1.85	%
Mortgage loans		97,360,853		2.62	%		50,263,852		2.86	%
Total	$	744,847,853		1.28	%	$	594,877,852		0.99	%

(1)

At March 31, 2015 and December 31, 2014, the Company had repurchase agreements of $0 and $85,497,000, respectively, that were linked to Non-Agency RMBS purchases and were accounted for as Linked Transactions, and as such, the linked repurchase agreements are not included in the above table. (See Note 3).

At March 31, 2015 and December 31, 2014, the repurchase agreements had the following remaining maturities:

	March 31, 2015		December 31, 2014
< 30 days	$	548,608,000	$	465,817,820
31 to 60 days		45,491,000		86,025,327
61 to 90 days		23,264,000		-
> 90 days		127,484,853		43,034,705
Total	$	744,847,853	$	594,877,852

Under the repurchase agreements (including residential loan warehouse facilities), the respective lender retains the right to mark the underlying collateral to fair value. A reduction in the value of pledged assets would require the Company to provide additional collateral or fund margin calls. In addition, the repurchase agreements are subject to certain financial covenants. The Company is in compliance with these covenants as of March 31, 2015.

The following tables summarize certain characteristics of the Company’s repurchase agreements at March 31, 2015 and December 31, 2014:

	March 31, 2015
	Amount		Percent of total			Weighted average		Market Value
Repurchase Agreement Counterparties	Outstanding		amount outstanding			days to maturity		of collateral held
North America	$	439,879,000		59.06	%		20	$	595,758,052
Asia ⁽¹⁾		121,833,000		16.36	%		14		131,918,900
Europe ⁽¹⁾		183,135,853		24.58	%		129		185,152,479
Total	$	744,847,853		100.00	%		45	$	912,829,432

(1) Counterparties domiciled in Europe and Asia, or their U.S. subsidiaries.

	December 31, 2014
	Amount		Percent of total			Weighted average		Company RMBS
Repurchase Agreement Counterparties	Outstanding⁽¹⁾		amount outstanding			days to maturity		held as collateral
North America	$	388,138,820		65.25	%		19	$	458,095,791
Europe ⁽²⁾		93,350,032		15.69	%		21		85,810,345
Asia ⁽²⁾		113,389,000		19.06	%		122		301,450,213
Total	$	594,877,852		100.00	%		36	$	845,356,349

(1) At December 31, 2014, the Company had repurchase agreements of $85,497,000 and $63,796,000 that were linked to Non-Agency RMBS and Multi-Family MBS purchases, respectively, and were accounted for as Linked Transactions, and as such, the linked repurchase agreements are not included in the above table. (See Note 3).

(2) Counterparties domiciled in Europe and Asia, or their U.S. subsidiaries.

Secured Loans

In February 2015, the Company’s wholly owned subsidiary, FOI, became a member of the FHLBI. As a member of the FHLBI, FOI may borrow funds from the FHLBI in the form of secured advances.

As of March 31, 2015, FOI, had $1 million in outstanding secured advances from the FHLBI and is approved for additional available uncommitted credit for borrowing of an amount up to $500 million. The secured advances are due in three months and have floating rates based on three-month LIBOR plus a spread. For the quarter ended March 31, 2015, FOI had average borrowings of $66,667 with a weighted average borrowing rate of 0.35%.

The ability to borrow funds from the FHLBI is subject to the Company’s continued credit worthiness, pledging of sufficient eligible collateral to secure advances, and compliance with certain agreements with FHLBI. Each advance requires approval by the FHLBI and is secured by collateral in accordance with FHLBI’s credit and collateral guidelines, as may be revised from time to time by the FHLBI.

As of March 31, 2015, the FHLBI advances were collateralized by RMBS with a fair value of $1.2 million.

The FHLBI retains the right to mark the underlying collateral for FHLBI advances to fair value. A reduction in the value of pledged assets would require FOI to provide additional collateral.

An additional requirement of FHLBI membership is to purchase and hold a certain amount of FHLBI stock, which is based in part, upon the outstanding principal balance of secured advances from the FHLBI.