NOTE 10 – BORROWINGS

With effect from January 1, 2015, ASU 2014-11 changed 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 June 30, 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 1.36% at June 30, 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 June 30, 2015 and December 31, 2014:

	June 30, 2015					December 31, 2014
			Weighted					Weighted
	Amount		average			Amount		average
	outstanding		interest rate			outstanding		interest rate
Agency	$	168,366,000		0.37	%	$	298,783,000		0.36	%
Non-Agency⁽¹⁾		200,524,000		1.94	%		200,347,000		1.25	%
Multi-Family⁽²⁾		129,488,000		1.55	%		45,484,000		1.85	%
Mortgage loans		42,663,099		2.65	%		50,263,852		2.86	%
Total	$	541,041,099		1.36	%	$	594,877,852		0.99	%

(1)

At December 31, 2014, the Company had repurchase agreements of $85,497,000 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 June 30, 2015 and December 31, 2014, the repurchase agreements had the following remaining maturities:

	June 30, 2015		December 31, 2014
< 30 days	$	481,135,919	$	465,817,820
31 to 60 days		15,886,000		86,025,327
61 to 90 days		14,843,000		-
> 90 days		29,176,180		43,034,705
Total	$	541,041,099	$	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 June 30, 2015.

The following tables summarize certain characteristics of the Company’s repurchase agreements at June 30, 2015 and December 31, 2014:

	June 30, 2015
	Amount		Percent of total			Weighted average		Market Value
Repurchase Agreement Counterparties	Outstanding		amount outstanding			days to maturity		of collateral held
North America	$	321,243,000		59.37	%		14	$	419,513,822
Europe ⁽¹⁾		116,222,099		21.48	%		77		145,849,613
Asia ⁽¹⁾		103,576,000		19.14	%		11		117,236,750
Total	$	541,041,099		100.00	%		27	$	682,600,185

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

	December 31, 2014
	Amount		Percent of total			Weighted average		Market Value
Repurchase Agreement Counterparties	Outstanding⁽¹⁾		amount outstanding			days to maturity		of collateral held
North America	$	388,138,820		65.25	%		19	$	463,615,686
Europe ⁽²⁾		93,350,032		15.69	%		21		113,286,452
Asia ⁽²⁾		113,389,000		19.06	%		122		118,519,817
Total	$	594,877,852		100.00	%		36	$	695,421,955

(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 June 30, 2015, FOI, had $53.4 million in outstanding secured advances from the FHLBI and is approved for available uncommitted credit for borrowing of an aggregate 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 six months ended June 30, 2015, FOI had average borrowings of $8.1 million 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 June 30, 2015, the FHLBI advances were collateralized by RMBS with a fair value of $55.9 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. As of June 30, 2015, FHLBI stock held totaled $2,403,000.