AVAILABLE-FOR-SALE SECURITIES

3 Months Ended

Mar. 31, 2016

Investments, Debt and Equity Securities [Abstract]

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

NOTE 4 – AVAILABLE-FOR-SALE SECURITIES

Other Financial Instruments

The carrying value of short term instruments, including cash and cash equivalents, receivables and repurchase agreements whose term is less than twelve months, generally approximates fair value due to the short term nature of the instruments.

FHLBI stock, which FOI was required to purchase under a borrowing agreement with FHLBI, is redeemable (subject to FHLBI approval) at face value, which represents the carrying value and fair value of the stock. At March 31, 2016, the Company had redeemed $1,372,500 of the FHLBI stock resulting in a remaining balance of $1,030,500.

The following table presents the Company’s AFS investment securities by collateral type at fair value as of March 31, 2016 and December 31, 2015:

	March 31, 2016		December 31, 2015
Mortgage-backed securities:
Agency
Federal Home Loan Mortgage Corporation	$	145,578,658	$	148,760,159
Federal National Mortgage Association		179,267,676		182,867,134
Government National Mortgage Association		-		43,705,764
Non-Agency		57,357,819		92,107,727
Multi-Family		86,278,049		104,025,797
Total mortgage-backed securities	$	468,482,202	$	571,466,581

The following tables present the amortized cost and fair value of the Company’s AFS investment securities by collateral type as of March 31, 2016 and December 31, 2015:

	March 31, 2016
	Agency		Non-Agency (1)		Multi-Family		Total
Face Value	$	316,467,417	$	72,559,605	$	120,176,444	$	509,203,466
Unamortized premium		4,429,900		80,003		-		4,509,903
Unamortized discount
Designated credit reserve and OTTI (2)		-		(4,629,162)		-		(4,629,162)
Net, unamortized		(1,817,555)		(13,000,852)		(29,923,193)		(44,741,600)
Amortized Cost		319,079,762		55,009,594		90,253,251		464,342,607
Gross unrealized gain		6,066,842		720,234		785,449		7,572,525
Gross unrealized (loss)		(300,270)		(4,775,184)		(4,760,651)		(9,836,105)
Fair Value	$	324,846,334	$	50,954,644		86,278,049	$	462,079,027

	December 31, 2015
	Agency		Non-Agency (1)		Multi - Family		Total
Face Value	$	370,394,525	$	116,954,842	$	138,829,925		626,179,292
Unamortized premium		5,745,862		80,257		-		5,826,119
Unamortized discount
Designated credit reserve and OTTI (2)		-		(8,891,565)				(8,891,565)
Net, unamortized		(1,929,145)		(22,101,062)		(33,250,068)		(57,280,275)
Amortized Cost		374,211,242		86,042,472		105,579,857		565,833,571
Gross unrealized gain		3,234,673		1,099,957		913,556		5,248,186
Gross unrealized (loss)		(2,112,858)		(1,808,973)		(2,467,616)		(6,389,447)
Fair Value	$	375,333,057	$	85,333,456	$	104,025,797		564,692,310

(1) Non-Agency AFS does not include interest-only securities with a notional amount of $401,531,398, book value of $7,815,919, unrealized loss of $1,412,744 and a fair value of $6,403,175 at March 31, 2016 and a notional amount of $428,230,275. Book value of $7,815,919, unrealized loss of $1,041,649 and a fair value of $6,774,271 as of December 31, 2015

(2) Discount designated as Credit Reserve and amount related to OTTI are generally not expected to be accreted into interest income. Amounts disclosed reflect Credit Reserve of $3,862,676 and $8,146,073, at March 31, 2016 and December 31, 2015, respectively, and OTTI of $766,487 and $745,493 at March 31, 2016 and December 31, 2015, respectively

At March 31, 2016, 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 $0.02 million on one Non-Agency RMBS and $4.9 million on six Non-Agency RMBS during the three months ended March 31, 2016 and March 31, 2015, respectively.

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 months ended March 31, 2016 and 2015:  

	Three Months Ended
	March 31,
	2016		2015
Cumulative credit loss at beginning of year	$	(3,636,432)	$	-
Additions:
Initial increase in credit reserves		(20,994)		(1,977,489)
Initial additional other-than-temporary credit impairment losses		-		(2,890,939)
Reductions:
For securities sold decrease in credit reserves		-		-
For securities sold decrease in other-than-temporary impairment		-		-
Cumulative credit loss at end of period	$	(3,657,426)	$	(4,868,428)

Unrealized losses on the Company’s Non-Agency RMBS were $4.8 million at March 31, 2016. 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.

 

The following table presents the components comprising the carrying value of AFS securities not deemed to be other than temporarily impaired by length of time the securities had an unrealized loss position as of March 31, 2016 and December 31, 2015. At March 31, 2016, the Company held 57 AFS securities, of which 20 were in an unrealized loss position for less than twelve consecutive months and 4 were in an unrealized loss for more than twelve months. At December 31, 2015, the Company held 67 AFS securities, of which 35 were in an unrealized loss position for less than twelve consecutive months and 5 were in an unrealized loss position for more than twelve months:

 

	Less than 12 months				Greater than 12 months				Total
	Estimated Fair		Gross Unrealized		Estimated Fair		Gross Unrealized		Estimated Fair		Gross Unrealized
	Value		Losses		Value		Losses		Value		Losses
March 31, 2016		160,506,203		(9,226,905)		12,386,853		(609,199)		172,893,056		(9,836,104)
December 31, 2015		348,120,251		(5,983,726)		6,939,257		(405,720)		355,059,508		(6,389,446)

To the extent the Company determines there are likely to be decreases in cash flows expected to be collected, and as a result of non-credit impairment, such changes are generally recognized prospectively through adjustment of the security’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 for the three months ended March 31, 2016 and March 31, 2015:

	Three Months Ended		Three Months Ended
	March 31, 2016		March 31, 2015
AFS securities sold, at cost	$	88,932,353	$	-
Proceeds from AFS securities sold		82,592,076		-
Net realized gain (loss) on sale of AFS securities	$	(6,340,277)	$	-

The following tables present the fair value of AFS investment securities by rate type as of March 31, 2016 and December 31, 2015:

	March 31, 2016
	Agency		Non-Agency		Multi-Family		Total
Adjustable rate	$	309,610,934	$	57,357,819		-	$	366,968,753
Fixed rate		15,235,400		-		86,278,049		101,513,449
Total	$	324,846,334	$	57,357,819		86,278,049	$	468,482,202

	December 31, 2015
	Agency		Non-Agency		Multi- Family		Total
Adjustable rate	$	360,057,377	$	92,107,727	$			452,165,104
Fixed rate		15,275,680		-		104,025,797		119,301,477
Total	$	375,333,057	$	92,107,727	$	104,025,797		571,466,581

The following tables present the fair value of AFS investment securities by maturity date as of March 31, 2016 and December 31, 2015:

	March 31, 2016		December 31, 2015
Less than one year	$	-	$	-
Greater than one year and less than five years		299,608,473		211,800,340
Greater than or equal to five years		168,873,729		359,666,241
Total	$	468,482,202	$	571,466,581

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 three months ended March 31, 2016 and December 31, 2015 of the unamortized net discount and designated credit reserves on the Company’s MBS.

	March 31, 2016
	Designated		Unamortized
	credit reserve		net discount		Total
Beginning Balance as of January 1, 2016	$	(8,891,565)	$	(57,280,275)	$	(66,171,840)
Acquisitions		-		-		-
Dispositions		2,904,601		10,573,134		13,477,735
Accretion of net discount		-		1,865,398		1,865,398
Realized gain on paydowns		-		79,149		79,149
Realized credit losses		1,378,796		-		1,378,796
Addition to credit reserves		(20,994)		20,994		-
Release of credit reserves		-		-		-
Ending balance at March 31, 2016	$	(4,629,162)	$	(44,741,600)	$	(49,370,762)

	December 31, 2015
	Designated		Unamortized
	credit reserve		net discount		Total
Beginning Balance as of January 1, 2015	$	(12,697,796)	$	(17,454,022)	$	(30,151,818)
Cumulative - effect adjustment for Linked Transactions		(36,627,321)		(47,091,958)		(83,719,279)
Adjusted beginning Balance as of January 1, 2015		(49,325,117)		(64,545,980)		(113,871,097)
Acquisitions		-		(24,446,013)		(24,446,013)
Dispositions		-		20,963,895		20,963,895
Accretion of net discount		30,201,676		13,061,839		43,263,515
Realized gain (loss) on paydowns		-		226,553		226,553
Realized credit losses		10,582,246		(2,890,939)		7,691,307
Addition to credit reserves		(2,669,938)		2,669,938		-
Release of credit reserves		2,319,568		(2,319,568)		-
Ending balance at December 31, 2015	$	(8,891,565)	$	(57,280,275)	$	(66,171,840)

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 months ended March 31, 2016, the Company had unrealized gains (losses) on AFS securities of ($1,122,320).

The following tables present components of interest income on the Company’s AFS securities for the three months ended March 31, 2016 and March 31, 2015:

	Three Months Ended March 31, 2016						Three Months Ended March 31, 2015
			Net (premium						Net (premium
	Coupon		amortization)/		Interest		Coupon		amortization)/		Interest
	interest		discount accretion		income		interest		discount accretion		income
Agency	$	2,023,202	$	23,184	$	2,046,386	$	1,991,553	$	148,255	$	2,139,808
Non-Agency		762,081		496,838		1,258,919		303,510		2,858,679		3,162,189
Multi-Family		257,869		1,335,864		1,593,733		456,266		1,047,695		1,503,961
Total	$	3,043,152	$	1,855,886	$	4,899,038	$	2,751,329	$	4,054,629	$	6,805,958