Revision of Previously Issued Financial Statements for Errors Affecting Certain Items Presented in the Statements of Operations and Statements of Cash Flows

6 Months Ended

Jun. 30, 2013

Revision of Previously Issued Financial Statements for Errors Affecting Certain Items Presented in the Statements of Operations and Statements of Cash Flows

Revision of Previously Issued Financial Statements for Errors Affecting Certain Items Presented in the Statements of Operations and Statements of Cash Flows

Note 2 — Revision of Previously Issued Financial Statements for Errors Affecting Certain Items Presented in the Statements of Operations and Statements of Cash Flows

As previously reported in the Company’s annual report on Form 10-K for 2012, during the process of preparing the Company’s 2012 financial statements, the Company discovered that the methodology that was used to accrete interest income and to amortize the cost basis of certain of the Company’s residential mortgage backed securities, which was based on a third party vendor’s system, as well as the presentation with regard to certain items in its Statement of Cash Flows were not in accordance with GAAP. The Company has evaluated the impact of these errors and has concluded that individually and in the aggregate, these errors were not material to any previously issued financial statements. However, the Company elected to revise the Statements of Operations for the period from May 15, 2012 (commencement of operations) through June 30, 2012 and the Statements of Cash Flows for the period from May 15, 2012 (commencement of operations) through June 30, 2012 in this quarterly financial statements on Form 10-Q to correct these errors. The corrections resulted in a reclassification of a portion of the Company’s previously reported net interest income to realized and unrealized gains, and certain amounts previously reflected in operating cash flows to investing cash flows (as indicated in the tables below). These revisions had no effect on net income, shareholders’ equity, net change in cash, or total assets, of the Company reported for this period.

Statements of Operations for the period from May 15, 2012 (commencement of operations) through June 30, 2012:

Amounts in thousands,	Period from May 15, 2012 (commencement of operations) through June 30, 2012
except share and per share amounts	As Originally Reported			Adjustments			Revised
Net interest income:
Interest income	$	6,850		$	233		$	7,083
Interest expense	725			—			725
Net interest income	6,125			233			6,358
Other Income (loss):
Interest income on cash balances	—			—			—
Realized gain on sale of residential mortgage-backed securities, net	1,120			37			1,157
Other loss on residential mortgage-backed securities	(605		)	518			(87		)
Unrealized gain on residential mortgage-backed securities, net	3,925			(942		)	2,983
Loss on derivative instruments, net	(5,313		)	154			(5,159		)
Other Income, net	(873		)	(233		)	(1,106		)
Operating Expenses:
General and administrative	584			—			584
Management fee - related party	407			—			407
Total Operating Expenses	991			—			991
Net income available to Common Stock and Participating Securities	$	4,261		—			$	4,261
Earnings per share Net income attributable to common and participating shareholders (basic)	$	0.41		$	—		$	0.41
Net income attributable to shareholders (diluted)	$	0.41		$	—		$	0.41

Statement of Cash Flows (summarized) for the periods from May 15, 2012 (commencement of operations) through June 30, 2012:

	Period from May 15, 2012 (commencement of operations) through June 30, 2012
Amounts in thousands	As Originally Reported			Adjustments			Revised
Statement of Cash Flows (effect on individual line items)
Net income	$	4,261		$	—		$	4,261
Adjustments to reconcile net income to net cash provided by operating activities:
Premium amortization and (discount accretion), net	2,198			(631		)	1,567
Unrealized (gain) loss on Residential mortgage-backed securities and other securities, net	(3,925		)	942			(2,983		)
Mark-to-market adjustments on derivative instruments	5,409			(140		)	5,269
Other loss on Residential mortgage-backed securities	605			(518		)	87
Realized (gain) loss on sale of Residential mortgage-backed securities and other securities, net	(1,120		)	(37		)	(1,157		)
All other Items	(5,735		)	—			(5,735		)
Net cash provided by operating activities	1,693			(384		)	1,309
Cash flows from investing activities:
Principal payments and basis recovered on Residential mortgage-backed securities and other securities	8,015			384			8,399
All other items	(1,921,286		)	—			(1,921,286		)
Net cash used in investing activities	(1,913,271		)	384			(1,912,887		)
Cash flows from financing activities:
All items	1,938,358			—			1,938,358
Net cash provided by financing activities	1,938,358			—			1,938,358
Net increase in cash and cash equivalents	26,780			—			26,780
Cash and cash equivalents beginning of period	1			—			1
Cash and cash equivalents end of period	$	26,781		$	—		$	26,781