Published on July 27, 2009
MFA
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FINANCIAL, INC. | ||
350
Park Avenue
New
York, New York 10022
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PRESS
RELEASE
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FOR
IMMEDIATE RELEASE
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||
July
27, 2009
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NEW
YORK METRO
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||
CONTACT:
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MFA
Investor Relations
800-892-7547
www.mfa-reit.com
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NYSE:
MFA
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MFA
Financial, Inc.
Announces
Second Quarter 2009 Financial Results
MFA
Financial, Inc. (NYSE:MFA) today reported net income of $67.1 million, or $0.30
per share of common stock, for the second quarter ended June 30,
2009. For the second quarter, net income excluding items not
affecting distributable income (capital gains on sales of MBS of $13.5 million
and net impairment losses recognized in earnings on legacy non-Agency MBS of
$7.5 million) was $61.0 million, or $0.27 per share of common
stock. On July 1, 2009, MFA announced its second quarter 2009
dividend of $0.25 per share of common stock, which is being paid on July 31,
2009 to stockholders of record as of July 13, 2009. As of June 30,
2009, MFA’s book value per share of common stock was $6.99 versus $6.13 as of
March 31, 2009.
Stewart
Zimmerman, MFA’s Chairman of the Board and CEO, said “MFA’s second quarter
distributable income represents a return on average equity (“ROE”) of
15.9%. We are very pleased with these results, especially in this
period of continued economic stress. Our goal is to position the
company to continue to generate a double digit ROE during this turbulent period
through appropriately leveraged investments in high-quality residential MBS
securities including both higher-yielding Agency MBS and senior most tranches of
non-Agency residential MBS (“Senior MBS”). By blending Senior MBS
with Agency MBS, MFA can generate attractive returns with less leverage and less
sensitivity to yield curve and interest rate cycles.”
William
Gorin, MFA’s President and CFO, said “The current financial environment is
driven by exceptional monetary easing with a Fed Funds target rate range of 0.0%
to 0.25%. Repo funding remains available to MFA at attractive rates
from multiple counterparties. However, it continues to be our view
that the financial industry remains fragile in light of the probable credit
impact of the current worldwide economic recession. At June 30, 2009,
MFA’s overall debt-to-equity multiple was 4.8x. Alternatively,
excluding the $363.5 million of equity used to fund unlevered Senior MBS held
through MFA’s wholly-owned MFResidential Assets I, LLC (“MFR LLC”) subsidiary,
the effective leverage utilized by MFA at June 30, 2009 was approximately 6.2x
debt-to-equity. At June 30, 2009, MFA’s liquidity position was $653
million, consisting of $282 million of cash, $275 million of unpledged Agency
MBS and $96 million of excess collateral with our counterparties.”
During
the second quarter, MFA had two noteworthy income items which did not impact
distributable income. We opportunistically sold approximately $438.5
million of our longest term to reset 10/1 Agency MBS at a realized capital gain
of $13.5 million. We sold these assets to decrease our exposure to
potential increases in interest rates in future years. In addition,
during the second quarter, we had net impairment losses recognized in earnings
of $7.5 million on several legacy Senior MBS acquired prior to July 2007 at
prices close to par. The amount of this non-cash charge is in
accordance with new accounting standards implemented this quarter and reflect
our current projection that the existing credit enhancement on these securities
will be insufficient to cover all projected losses on the underlying assets due
to the continued weakness in the housing market. Each of these assets
continue to perform and these net impairment losses reflect our projection that
existing credit enhancement may be depleted in future years with a small impact
on projected future cash flows.
Through
MFR LLC, we continue to take advantage of the unprecedented investment
opportunities in Senior MBS. Based on market conditions, we currently
anticipate acquiring additional Senior MBS through MFR LLC in the second half of
2009. Through June 30, 2009, MFR LLC had acquired $340.7 million of Senior MBS
at a deeply discounted weighted average price of 51% of the face amount of the
securities and with average structural credit enhancement of
11%. This structured credit enhancement along with the highly
discounted purchase price mitigates the risk of loss on these investments. In
this current market, our MFR LLC team is acquiring assets at projected
loss-adjusted yields in the low-to-high teens. While these MFR LLC investments
are not currently leveraged, it is likely that leverage for non-Agency MBS may
become more readily available in 2009, creating the potential for higher returns
on equity and asset appreciation. In addition, unlike our
Agency MBS, due to the discounted purchase prices, the return on these assets
will increase if the prepayment rates on these securities trend up.
As a
leveraged owner of approximately $8.9 billion of Agency MBS, the value of MFA’s
assets continues to be positively impacted by the Federal Reserve’s program to
buy $1.25 trillion of Agency MBS during 2009. These governmental
purchases have increased prices of Agency MBS and, as a result, we did not
purchase additional Agency MBS during the second quarter of 2009. We
believe that MFA’s Agency portfolio, which is 73% interest-only hybrid
adjustable-rate MBS, should be less impacted by potential future increases in
prepayment speeds than will amortizing Agency MBS. This is due to the
fact that interest-only hybrid adjustable-rate MBS do not require principal
payments (amortization) for an initial time period typically varying between
three and ten years. Lower monthly payments on interest-only
mortgages significantly reduce the incentive to refinance into a fully
amortizing mortgage, which may require a higher monthly payment despite a lower
mortgage rate.
Based on
current LIBOR and repo rates, we expect MFA’s overall funding costs will
continue their downward trend in the second half of 2009 with most of this
decline projected for the fourth quarter, when MFA anticipates realizing the
full benefit of third quarter scheduled maturities of approximately $690 million
of long-term repurchase agreements with a weighted average cost of
5.25%. Additionally, while our book value per share includes a
negative swap valuation of $173.4 million as of June 30, 2009 from existing
interest rate hedges, we expect a partial recovery of this amount over the next
twelve months due to both scheduled amortization of $894 million of swaps and
the rolldown of the remaining average swap term. As of June 30, 2009,
under its swap agreements, MFA had an average fixed rate of interest of 4.23%,
and a floating receive rate of 0.55% on notional balances totaling $3.52
billion, with an average maturity of 27 months.
During
the second quarter of 2009, MFA’s portfolio spread, which is the difference
between MFA’s interest-earning asset portfolio (including cash balances) net
yield of 5.09% and its 2.78% cost of funds, was 2.31%. During the
second quarter, MFA’s MBS net spread, which is the difference between MFA’s MBS
net yield of 5.27% and its cost of funds, was 2.49%. In the second
quarter of 2009, MFA’s costs for compensation and benefits and other general and
administrative expense were $5.6 million.
At June
30, 2009, Agency MBS and related receivables totaled $8.9 billion representing
approximately 91% of MFA’s assets, Senior MBS (including those assets held
through MFR LLC) were $540 million representing approximately 6% of assets
(Senior MBS are funded with repurchase agreements of $96.5 million and $443
million of equity, representing 27% of MFA’s total equity) and cash and
restricted cash was $322 million representing approximately 3%. The
remainder of our assets, consisting primarily of real estate, other MBS assets
and goodwill, represented less than 1% of total assets. We anticipate
that the majority of MFA’s assets will continue to be whole pool Agency MBS due
to the attractiveness of the asset class and for purposes of our exemption under
the Investment Company Act of 1940. The average cost basis of our
Agency MBS portfolio was 101.3% of par at June 30, 2009. MFA’s MBS
assets continue to be financed with multiple funding providers through
repurchase agreements.
MFA takes
into account both coupon resets and expected prepayments when measuring the
sensitivity of its MBS portfolio to changing interest rates. Our MBS
are primarily hybrids which have an initial fixed interest rate for a specified
period of time and, thereafter, generally reset annually. In
measuring its assets-to-borrowing repricing gap (or Repricing Gap), MFA measures
the difference between: (a) the weighted average months until coupon
adjustment or projected prepayment on its MBS portfolio; and (b) the months
remaining on its repurchase agreements including the impact of interest rate
swap agreements. Assuming a 15% CPR, the weighted average time to
repricing or assumed prepayment for MFA’s MBS portfolio (excluding those assets
held through MFR LLC which currently are not leveraged), as of June 30, 2009,
was approximately 33 months and the average term remaining on its repurchase
agreements, including the impact of interest rate swaps, was approximately 14
months, resulting in a Repricing Gap of approximately 19 months. The prepayment
speed on MFA’s MBS portfolio averaged 16% CPR during the second quarter of
2009.
Stockholders
interested in participating in MFA’s Discount Waiver, Direct Stock Purchase and
Dividend Reinvestment Plan (or the Plan) or receiving a Plan prospectus may do
so by contacting The Bank of New York Mellon, the Plan administrator, at
1-866-249-2610 (toll free). For more information about the Plan,
interested stockholders may also go to the website established for the Plan at
http://www.bnymellon.com/shareowner/isd or visit MFA’s website at
www.mfa-reit.com.
MFA will
hold a conference call on Monday, July 27, 2009, at 10:00 a.m. (New York City
time) to discuss its second quarter 2009 financial results. The number to dial
in order to listen to the conference call is (800) 230-1059 in the U.S. and
Canada. International callers must dial (612) 332-0107. The replay will be
available through Monday, August 3, 2009, at 11:59 p.m., and can be accessed by
dialing (800) 475-6701 in the U.S. and Canada or (320) 365-3844 internationally
and entering access code: 108968. The conference call will also be webcast over
the internet and can be accessed at http://www.mfa-reit.com through the
appropriate link on MFA’s Investor Information page or, alternatively, at
http://www.ccbn.com. To listen to the call over the internet, go to the
applicable website at least 15 minutes before the call to register and to
download and install any needed audio software.
When used
in this press release or other written or oral communications, statements which
are not historical in nature, including those containing words such as
“believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,”
“should,” “may” or similar expressions, are intended to identify
“forward-looking statements” within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, and, as such, may involve known and unknown risks, uncertainties and
assumptions. Statements regarding the following subjects, among others, may be
forward-looking: changes in interest rates and the market value of MFA’s MBS;
changes in the prepayment rates on the mortgage loans securing MFA’s MBS; MFA’s
ability to borrow to finance its assets; implementation of or changes in
government regulations or programs affecting MFA’s business; MFA’s ability to
maintain its qualification as a REIT for federal income tax purposes; MFA’s
ability to maintain its exemption from registration under the Investment Company
Act of 1940; and risks associated with investing in real estate assets,
including changes in business conditions and the general economy. These and other risks,
uncertainties and factors, including those described in the annual, quarterly
and current reports that MFA files with the SEC, could cause MFA’s actual
results to differ materially from those projected in any forward-looking
statements it makes. All forward-looking statements speak only as of the date on
which they are made. New risks and uncertainties arise over time and it is not
possible to predict those events or how they may affect MFA. Except as required
by law, MFA is not obligated to, and does not intend to, update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
MFA
FINANCIAL, INC.
CONSOLIDATED
BALANCE SHEETS
June
30,
2009
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December
31,
2008
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|||||||
(In
Thousands, Except Per Share Amounts)
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(Unaudited)
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Assets:
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Investment
securities at fair value (including pledged mortgage-backed
securities
(“MBS”) of $8,766,779 and $10,026,638 at June 30, 2009
and
December 31, 2008, respectively)
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$ | 9,417,042 | $ | 10,122,583 | ||||
Cash
and cash equivalents
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282,492 | 361,167 | ||||||
Restricted
cash
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39,930 | 70,749 | ||||||
Interest
receivable
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45,549 | 49,724 | ||||||
Real
estate, net
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11,188 | 11,337 | ||||||
Securities
held as collateral, at fair value
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- | 17,124 | ||||||
Goodwill
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7,189 | 7,189 | ||||||
Prepaid
and other assets
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2,804 | 1,546 | ||||||
Total
Assets
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$ | 9,806,194 | $ | 10,641,419 | ||||
Liabilities:
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Repurchase
agreements
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$ | 7,951,931 | $ | 9,038,836 | ||||
Accrued
interest payable
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14,851 | 23,867 | ||||||
Mortgage
payable on real estate
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9,224 | 9,309 | ||||||
Swaps,
at fair value
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173,410 | 237,291 | ||||||
Obligations
to return cash and security collateral, at fair value
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- | 22,624 | ||||||
Dividends
and dividend equivalents payable
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- | 46,351 | ||||||
Accrued
expenses and other liabilities
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6,196 | 6,064 | ||||||
Total
Liabilities
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$ | 8,155,612 | $ | 9,384,342 | ||||
Stockholders'
Equity:
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Preferred
stock, $.01 par value; series A 8.50% cumulative redeemable;
5,000
shares authorized; 3,840 shares issued and outstanding at
June
30, 2009 and December 31, 2008 ($96,000 aggregate
liquidation
preference)
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$ | 38 | $ | 38 | ||||
Common
stock, $.01 par value; 370,000 shares authorized;
222,459
and 219,516 issued and outstanding at June 30, 2009
and
December 31, 2008, respectively
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2,225 | 2,195 | ||||||
Additional
paid-in capital, in excess of par
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1,793,315 | 1,775,933 | ||||||
Accumulated
deficit
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(141,296 | ) | (210,815 | ) | ||||
Accumulated
other comprehensive loss
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(3,700 | ) | (310,274 | ) | ||||
Total
Stockholders’ Equity
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$ | 1,650,582 | $ | 1,257,077 | ||||
Total
Liabilities and Stockholders’ Equity
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$ | 9,806,194 | $ | 10,641,419 |
MFA
FINANCIAL, INC.
CONSOLIDATED
STATEMENTS OF INCOME
Three
Months Ended
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Six
Months Ended
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June
30,
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June
30,
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|||||||||||||||
(In
Thousands, Except Per Share Amounts)
|
2009
|
2008
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2009
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2008
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||||||||||||
(Unaudited)
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||||||||||||||||
Interest
Income:
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Investment
securities
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$ | 126,477 | $ | 118,542 | $ | 258,630 | $ | 243,607 | ||||||||
Cash
and cash equivalent investments
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260 | 2,151 | 871 | 5,182 | ||||||||||||
Interest
Income
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126,737 | 120,693 | 259,501 | 248,789 | ||||||||||||
Interest
Expense
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58,006 | 76,661 | 130,143 | 170,133 | ||||||||||||
Net Interest
Income
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68,731 | 44,032 | 129,358 | 78,656 | ||||||||||||
Other-Than-Temporary
Impairments:
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Total
other-than-temporary impairment losses
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(76,586 | ) | (4,017 | ) | (78,135 | ) | (4,868 | ) | ||||||||
Portion
of loss recognized in other comprehensive income
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69,126 | - | 69,126 | - | ||||||||||||
Net impairment losses
recognized in earnings
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(7,460 | ) | (4,017 | ) | (9,009 | ) | (4,868 | ) | ||||||||
Other
Income/(Loss):
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Net
gain/(loss) on sale of MBS
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13,495 | - | 13,495 | (24,530 | ) | |||||||||||
Revenue
from operations of real estate
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384 | 398 | 767 | 812 | ||||||||||||
Loss
on early termination of Swaps, net
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- | - | - | (91,481 | ) | |||||||||||
Miscellaneous
other income, net
|
(1 | ) | 87 | 43 | 179 | |||||||||||
Other
Income/(Loss)
|
13,878 | 485 | 14,305 | (115,020 | ) | |||||||||||
Operating
and Other Expense:
|
||||||||||||||||
Compensation
and benefits
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3,612 | 2,687 | 7,114 | 5,331 | ||||||||||||
Real
estate operating expense and mortgage interest
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453 | 424 | 915 | 873 | ||||||||||||
New
business initiative
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- | 998 | - | 998 | ||||||||||||
Other
general and administrative expense
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1,978 | 1,353 | 3,846 | 2,471 | ||||||||||||
Operating and Other
Expense
|
6,043 | 5,462 | 11,875 | 9,673 | ||||||||||||
Net
Income/(Loss) Before Preferred Stock Dividends
|
69,106 | 35,038 | 122,779 | (50,905 | ) | |||||||||||
Less: Preferred
Stock Dividends
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2,040 | 2,040 | 4,080 | 4,080 | ||||||||||||
Net Income/(Loss) to Common
Stockholders
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$ | 67,066 | $ | 32,998 | $ | 118,699 | $ | (54,985 | ) | |||||||
Income/(Loss)
Per Share of Common Stock-Basic and Diluted
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$ | 0.30 | $ | 0.20 | $ | 0.53 | $ | (0.35 | ) | |||||||
Dividends
Declared Per Share of Common Stock
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$ | 0.22 | $ | 0.18 | $ | 0.22 | $ | 0.18 |
Reconciliation
of Non-GAAP Financial Measures
This
press release contains disclosure relating to MFA’s earnings for the three
months ended June 30, 2009, which may constitute a non-GAAP financial measure
within the meaning of Regulation G promulgated by the Securities and Exchange
Commission. The table below presents the reconciliation of net income
to common stockholders to net income excluding items not affecting distributable
income for the period presented. As a REIT, MFA must distribute at
least 90% of its taxable ordinary net income, which excludes, among other
things, capital gains and losses and impairment charges. MFA’s
management believes that the disclosure of this financial measure is useful in
enabling investors to better understand MFA’s minimum dividend requirement
relating to its REIT status. MFA’s management further believes that
this financial measure, when considered together with MFA’s GAAP financial
measures, provides information that is useful to investors in understanding
period-over-period operating results. Management also believes that
this financial measure enhances the ability of investors to analyze MFA’s
operating trends and to better understand its operating
performance. This financial measure does not, however, take into
account the effect of the realized capital gains and impairment charges
recognized by MFA for the period presented, and therefore, should not be used as
a substitute in assessing MFA’s results of operations and financial
position. An analysis of any non-GAAP financial measure should be
used in conjunction with results presented in accordance with GAAP. A
reconciliation of MFA’s earnings excluding items not affecting distributable
income for the three months ended June 30, 2009 with net income to common
stockholders, which is the most directly comparable financial measure calculated
in accordance with GAAP, is as follows:
Three
Months Ended
June
30, 2009
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(In
Thousands, Except per Share Amounts)
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(Per
Share)
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|||||||
Net
Income to Common Stockholders
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$ | 67,066 | $ | 0.30 | ||||
Add:
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||||||||
Net
impairment losses recognized in earnings
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7,460 | |||||||
Less:
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Gross
gains on the sale of MBS
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(13,495 | ) | ||||||
Distributable
income
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$ | 61,031 | $ | 0.27 | ||||
Weighted
average common shares outstanding – basic
|
222,608 | |||||||
Weighted
average common shares outstanding – diluted
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222,747 | |||||||
Average
total equity
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$ | 1,537,393 | ||||||
Distributable
income, annualized
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$ | 244,795 | ||||||
ROE
based on distributable income
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15.9 | % |