NOTE 4 – AVAILABLE-FOR-SALE SECURITIES

With effect from January 1, 2015, ASU 2014-11 changed the basis on which the Company accounts for repurchase to maturity transactions and linked repurchase financings to be consistent with the basis on which the Company accounts 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, the Company’s GAAP financial statements as of and for the period ended June 30, 2015 are not directly comparable to prior period GAAP financials.

The following table presents the Company’s AFS investment securities by collateral type at fair value as of June 30, 2015 and December 31, 2014:

	June 30, 2015		December 31, 2014
Mortgage-backed securities:
Agency
Federal Home Loan Mortgage Corporation	$	89,429,826	$	162,344,627
Federal National Mortgage Association		143,635,331		152,486,058
Non-Agency		142,019,587		53,485,053
Multi-Family		116,499,851
Total mortgage-backed securities	$	491,584,595	$	368,315,738

The following tables present the amortized cost and fair value of the Company’s AFS investment securities by collateral type as of June 30, 2015 and December 31, 2014:

	June 30, 2015
	Agency			Non-Agency ⁽¹⁾			Multi-Family			Total
Face Value	$	229,830,135		$	188,029,097		$	153,521,523		$	571,380,755
Unamortized premium		1,202,379			66,825			-			1,269,204
Unamortized discount
Designated credit reserve		-			(18,305,657	)⁽²⁾		-			(18,305,657	)
Net, unamortized		(1,887,043	)		(35,090,000	)		(36,154,385	)		(73,131,428	)
Amortized Cost		229,145,471			134,700,265			117,367,138			481,212,874
Gross unrealized gain		4,276,386			5,143,175			1,203,761			10,623,322
Gross unrealized (loss)		(356,700	)		(1,424,572	)		(2,071,048	)		(3,852,320	)
Fair Value	$	233,065,157		$	138,418,868			116,499,851		$	487,983,876

	December 31, 2014
	Agency			Non-Agency			Total
Face Value	$	309,790,551		$	76,672,548		$	386,463,099
Unamortized premium		4,796,106			-			4,796,106
Unamortized discount
Designated credit reserve		-			(12,697,796	)		(12,697,796	)
Net, unamortized		(2,244,687	)		(15,209,335	)		(17,454,022	)
Amortized Cost		312,341,970			48,765,417			361,107,387
Gross unrealized gain		3,670,643			4,732,247			8,402,890
Gross unrealized (loss)		(1,181,928	)		(12,611	)		(1,194,539	)
Fair Value	$	314,830,685		$	53,485,053		$	368,315,738

(1)

Non-Agency AFS does not include interest-only securities with a notional amount of $229,787,057, book value of $3,832,990, unrealized loss of $232,273 and a fair value of $3,600,718.

(2)

Discount designated as Credit Reserve and amount related to OTTI are generally not expected to be accreted into interest income. Amounts disclosed at June 30, 2015 reflect Credit Reserve of $1,410,284 and OTTI of $2,890,939.

At June 30, 2015, the Company did not intend to sell any of its MBS that were in an unrealized loss position, and it is “more likely than not” that the Company will not be required to sell these MBS before recovery of their amortized cost basis, which may be at their maturity.

The Company recognized credit-related OTTI losses through earnings of $167,784 on two Non-Agency RMBS and decreased credit reserves by $734,989 on two Non-Agency RMBS sold during the three months ended on June 30, 2015.

Non-Agency RMBS on which OTTI is recognized have experienced, or are expected to experience, credit-related adverse cash flow changes, or credit impairment. The Company’s estimate of cash flows for its Non-Agency RMBS is based on its review of the underlying mortgage loans securing these RMBS. The Company considers information available about the structure of the securitization, including structural credit enhancement, if any, and the past and expected future performance of underlying mortgage loans, including timing of expected future cash flows, prepayment rates, default rates, loss severities, delinquency rates, percentage of non-performing loans, FICO scores at loan origination, year of origination, loan-to-value ratios, geographic concentrations, as well as Rating Agency reports, general market assessments, and dialogue with market participants. Significant judgment is used in both the Company’s analysis of the expected cash flows for its Non-Agency RMBS and any determination of OTTI that is the result, at least in part, of credit impairment.

The following table presents the composition of OTTI charges recorded by the Company for the three and six months ended June 30, 2015 and 2014:

	Three Months Ended		Three Months Ended
	June 30, 2015		June 30, 2014
(Increase)/decrease in credit reserves	$	567,205	$	-
Additional other-than-temporary credit impairment losses		-		-
Total impairment losses recognized in earnings		567,205		-

	Six Months Ended			Six Months Ended
	June 30, 2015			June 30, 2014
(Increase)/decrease in credit reserves		(1,410,284	)		-
Additional other-than-temporary credit impairment losses		(2,890,939	)		-
Total impairment losses recognized in earnings		(4,301,223	)		-

Unrealized losses on the Company’s Non-Agency RMBS were $1.4 million at June 30, 2015. Based upon the most recent evaluation, the Company does not consider these unrealized losses to be indicative of OTTI and does not believe that these unrealized losses to be credit related, but are rather due to non-credit factors, including changes in the rate of prepayments. To the extent the Company determines there are likely to be decreases in cash flows expected to be collected, and these are the result of non-credit impairment, such changes are generally recognized prospectively through adjustment of the loan’s yield over its remaining life.

The following table presents a summary of the Company’s net realized gain (loss) from the sale of AFS securities, inclusive of securities previously booked as linked, for the three and six months ended June 30, 2015 and June 30, 2014:

	Three Months Ended		Three Months Ended
	June 30, 2015		June 30, 2014
AFS securities sold, at cost	$	106,968,002	$	11,997,363
Proceeds from AFS securities sold		107,609,266		12,915,101
Net realized gain (loss) on sale of AFS securities	$	641,264	$	917,738

	Six Months Ended		Six Months Ended
	June 30, 2015		June 30, 2014
AFS securities sold, at cost	$	106,968,002	$	106,746,157
Proceeds from AFS securities sold		107,609,266		103,535,140
Net realized gain (loss) on sale of AFS securities	$	641,264	$	(3,211,017	)

The following tables present the fair value of AFS investment securities by rate type as of June 30, 2015 and December 31, 2014:

	June 30, 2015
	Agency		Non-Agency		Multi-Family		Total
Adjustable rate	$	216,373,089	$	142,019,587		-	$	358,392,676
Fixed rate		16,692,069		-		116,499,851		133,191,920
Total	$	233,065,158	$	142,019,587		116,499,851	$	491,584,596

	December 31, 2014
	Agency		Non-Agency		Total
Adjustable rate	$	229,648,342	$	53,485,053	$	283,133,395
Fixed rate		85,182,343		-		85,182,343
Total	$	314,830,685	$	53,485,053	$	368,315,738

The following tables present the fair value of AFS investment securities by maturity date as of June 30, 2015 and December 31, 2014:

	June 30, 2015		December 31, 2014
Less than one year	$	-	$	-
Greater than one year and less than five years		62,111,743		35,855,146
Greater than or equal to five years		429,472,853		332,460,592
Total	$	491,584,596	$	368,315,738

As described in Note 3, when the Company purchases a credit-sensitive AFS security at a significant discount to its face value, the Company generally does not amortize into income a significant portion of this discount that the Company is entitled to earn because it does not expect to collect it due to the inherent credit risk of the security. The Company may also record an OTTI for a portion of its investment in the security to the extent the Company believes that the amortized cost will exceed the present value of expected future cash flows. The amount of principal that the Company does not amortize into income is designated as an off balance sheet credit reserve on the security, with unamortized net discounts or premiums amortized into income over time to the extent realizable.

Actual maturities of AFS securities are affected by the contractual lives of the associated mortgage collateral, periodic payments of principal, and prepayments of principal. Therefore actual maturities of available-for-sale securities are generally shorter than stated contractual maturities. Stated contractual maturities are generally greater than ten years.

The following tables present the changes for the six months ended June 30, 2015 and year ended December 31, 2014 of the unamortized net discount and designated credit reserves on the Company’s MBS.

	June 30, 2015
	Designated			Unamortized
	credit reserve			net discount			Total
Beginning Balance as of January 1, 2015	$	(49,325,117	)	$	(64,545,980	)	$	(113,871,097	)
Acquisitions		-			(22,597,930	)		(22,597,930	)
Dispositions		24,994,386			9,143,622			34,138,008
Accretion of net discount		-			7,795,422			7,795,422
Realized gain on paydowns		-			132,716			132,716
Realized credit losses		6,024,520			(2,890,939	)		3,133,581
Addition to credit reserves		(2,319,014	)		2,151,230			(167,784	)
Release of credit reserves		2,319,568			(2,319,568	)		-
Ending balance at June 30, 2015	$	(18,305,657	)	$	(73,131,427	)	$	(91,437,084	)

	December 31, 2014
	Designated			Unamortized
	credit reserve			net discount			Total
Beginning Balance as of January 1, 2014	$	(16,126,355	)	$	(22,400,380	)	$	(38,526,735	)
Acquisitions		-			(2,361,186	)		(2,361,186	)
Accretion of net discount		559,860			1,667,828			2,227,688
Realized gain on paydowns		-			4,760,729			4,760,729
Realized credit losses		-			223,212			223,212
Release of credit reserves		2,868,699			-			2,868,699
Ending balance at December 31, 2013		-			655,775			655,775
	$	(12,697,796	)	$	(17,454,022	)	$	(30,151,818	)

Gains and losses from the sale of AFS securities are recorded within realized gain (loss) on sale of investments, net in the Company's condensed consolidated statements of operations.

Unrealized gains and losses on the Company’s AFS securities are recorded as unrealized gain (loss) on available-for-sale securities, net in the Company's condensed consolidated statement of comprehensive income (loss). For the three and six months ended June 30, 2015, the Company had unrealized gains (losses) on AFS securities of $(8,418,144) and $(993,726), respectively.

The following tables present components of interest income on the Company’s AFS securities for the three months ended June 30, 2015 and June 30, 2014 and six months ended June 30, 2015 and June 30, 2014:

	Three Months Ended June 30, 2015						Three Months Ended June 30, 2014
			Net (premium						Net (premium
	Coupon		amortization)/		Interest		Coupon		amortization)/		Interest
	interest		discount accretion		income		interest		discount accretion		income
Agency	$	1,891,811	$	151,912	$	2,043,723	$	3,074,166	$	151,622	$	3,225,788
Non-Agency		578,691		2,281,616		2,860,307		127,034		1,042,083		1,169,117
Multi-Family		455,635		1,393,914		1,849,550		83,461		8,913		92,374
Total	$	2,926,137	$	3,827,443	$	6,753,580	$	3,284,661	$	1,202,618	$	4,487,279

	Six Months Ended June 30, 2015						Six Months Ended June 30, 2014
			Net (premium						Net (premium
	Coupon		amortization)/		Interest		Coupon		amortization)/		Interest
	interest		discount accretion		income		interest		discount accretion		income
Agency	$	3,887,013	$	303,805	$	4,190,818	$	5,770,383	$	212,007	$	5,982,390
Non-Agency		875,207		5,140,318		6,015,526		174,460		2,084,467		2,258,927
Multi-Family		912,523		2,441,608		3,354,131		128,495		20,427		148,922
Total	$	5,674,743	$	7,885,731	$	13,560,475	$	6,073,338	$	2,316,901	$	8,390,239