Beginning with the Company’s financial statements for the period ended September 30, 2011, the Company will evaluate its investments in securities rated less than AA, non-rated non-Agency securities and other subordinate securities for impairment under ASC 325-40 - Investments-Other – Beneficial Interest in Securitized Transactions and will make immaterial restatements to previously presented financial information in prior comparable periods. Alexandra Denahan, Chief Financial Officer of the Company, commented on the restatements: “The Company retrospectively applied the OTTI guidance of ASC 325-40 to its portfolio to determine what the effect would be on previously reported financial statements had the Company always applied ASC 325-40. I want to re-emphasize that the effect of this evaluation is immaterial non-cash changes in our GAAP financial statements that in no way affect our previously announced economic or GAAP book value, cash flows and taxable income. As we base our dividend distributions on taxable income, not GAAP income, this evaluation has no impact on dividends for any prior or future period.”
For the quarter ended September 30, 2011, the annualized yield on average interest earning assets was 7.21% and the annualized cost of funds on the average borrowed funds balance, including the realized gains and losses on interest rate swaps, was 2.33% for an interest rate spread of 4.88%. This is a 61 basis point increase from the 4.27% annualized interest rate spread for the quarter ended September 30, 2010, and an 87 basis point decrease from the 5.75% annualized interest rate spread for the quarter ended June 30, 2011. Beginning with the Company’s consolidated financial statements for the quarter and six month period ending June 30, 2011, interest expense on interest rate swaps are presented in other gains (losses) as realized gains (losses) on interest rate swaps. This change does not affect GAAP or taxable net income, stockholders’ equity, cash flows or earnings per share. Consolidated financial statements for periods prior to June 30, 2011 will be conformed to the restated presentation. Leverage was 1.8:1, 1.3:1, and 1.9:1 at September 30, 2011, September 30, 2010, and June 30, 2011, respectively. Recourse leverage was 1.2:1, 0.5:1 and 1.3:1 at September 30, 2011, September 30, 2010, and June 30, 2011, respectively.