Stockholders’ Equity

(a) Preferred Stock

Redemption of 8.50% Series A Cumulative Redeemable Preferred Stock (“Series A Preferred Stock”)

On May 16, 2013 (the “Redemption Date”), the Company redeemed all 3,840,000 outstanding shares of its Series A Preferred Stock at an aggregate redemption price of approximately $97.0 million, or $25.27153 per share, including all accrued and unpaid dividends to the Redemption Date. The redemption value of the Series A Preferred Stock exceeded its carrying value by $3.9 million, which represents the original offering costs for the Series A Preferred Stock. This amount is included in the determination of net income available to common stock and participating securities for the year ended December 31, 2013.

From the time of original issuance of the Series A Preferred Stock through the Redemption Date, the Company had declared and paid all required quarterly dividends of $0.53125 per share on such stock. In addition, as part of the redemption price on its Series A Preferred Stock (discussed above), the Company paid a dividend of $0.27153 per share, which reflected accrued and unpaid dividends for the period from April 1, 2013, through and including the Redemption Date.

Issuance of 7.50% Series B Cumulative Redeemable Preferred Stock (“Series B Preferred Stock”)

On April 15, 2013, the Company amended its charter through filing of articles supplementary to its charter to reclassify 8,050,000 shares of the Company’s authorized but unissued common stock as shares of the Company’s Series B Preferred Stock. On April 15, 2013, the Company completed the issuance of 8.0 million shares of its Series B Preferred Stock, with a par value of $0.01 per share and a liquidation preference $25.00 per share, plus accrued and unpaid dividends, in an underwritten public offering. The aggregate net proceeds to the Company from the offering of the Series B Preferred Stock were approximately $193.3 million, after deducting the underwriting discount and related offering expenses. The Company used a portion of such net proceeds to redeem all of its outstanding Series A Preferred Stock (as discussed above), and used the remaining net proceeds of the offering for general corporate purposes, including, without limitation, to acquire additional MBS consistent with its investment policy, and for working capital, which may include, among other things, the repayment of its repurchase agreements.

The Company’s Series B Preferred Stock, which is redeemable at $25.00 per share plus accrued and unpaid dividends (whether or not authorized or declared) exclusively at the Company’s option commencing on April 15, 2018 (subject to the Company’s right under limited circumstances to redeem the Series B Preferred Stock prior to that date in order to preserve its qualification as a REIT and upon certain specified change in control transactions in which the Company’s common stock and the acquiring or surviving entity common securities would not be listed on the New York Stock Exchange (the “NYSE”), the NYSE MKT or NASDAQ, or any successor exchanges), is entitled to receive a dividend at a rate of 7.50% per year on the $25.00 liquidation preference before the Company’s common stock is paid any dividends and is senior to the Company’s common stock with respect to distributions upon liquidation, dissolution or winding up.

Dividends on the Series B Preferred Stock are payable quarterly in arrears on or about March 31, June 30, September 30 and December 31 of each year. On May 20, 2013, the Company declared the first dividend payable on the Series B Preferred Stock, which was paid on July 1, 2013 to preferred stockholders of record as of June 3, 2013. The amount of such dividend payable was $0.39583 per share, and was paid in respect of the partial period commencing on April 15, 2013, the date of original issue of the Series B Preferred Stock, and ending on, and including, June 30, 2013. The Company declared and paid all required quarterly dividends on its Series B Preferred Stock of $0.46875 per share during the third and fourth quarters of 2013.

The Series B Preferred Stock generally does not have any voting rights, subject to an exception in the event the Company fails to pay dividends on such stock for six or more quarterly periods (whether or not consecutive). Under such circumstances, the Series B Preferred Stock will be entitled to vote to elect two additional directors to the Company’s Board of Directors (the “Board”), until all unpaid dividends have been paid or declared and set apart for payment. In addition, certain material and adverse changes to the terms of the Series B Preferred Stock cannot be made without the affirmative vote of holders of at least 66 2/3% of the outstanding shares of Series B Preferred Stock.

(b) Dividends on Common Stock

The following table presents cash dividends declared by the Company on its common stock from January 1, 2011 through December 31, 2013:



Year	Declaration Date	Record Date	Payment Date	Dividend Per Share
2013	December 11, 2013	December 31, 2013	January 31, 2014	$	0.20	(1)
	September 26, 2013	October 11, 2013	October 31, 2013	0.22
	August 1, 2013	August 12, 2013	August 30, 2013	0.28		(2)
	June 28, 2013	July 12, 2013	July 31, 2013	0.22
	March 28, 2013	April 12, 2013	April 30, 2013	0.22
	March 4, 2013	March 18, 2013	April 10, 2013	0.50		(3)

2012	December 12, 2012	December 28, 2012	January 31, 2013	$	0.20
	September 28, 2012	October 12, 2012	October 31, 2012	0.21
	June 27, 2012	July 13, 2012	July 31, 2012	0.23
	March 23, 2012	April 4, 2012	April 30, 2012	0.24

2011	December 14, 2011	December 30, 2011	January 31, 2012	$	0.27	(4)
	September 26, 2011	October 11, 2011	October 31, 2011	0.25
	June 30, 2011	July 14, 2011	July 29, 2011	0.25
	March 31, 2011	April 11, 2011	April 29, 2011	0.24

(1) At December 31, 2013, the Company had accrued dividends and DERs payable of $73.6 million related to the common stock dividend declared on December 11, 2013.

(2) Reflects the special cash dividend on common stock declared on August 1, 2013.

(3) Reflects the special cash dividend on common stock declared on March 4, 2013.

(4) Includes a special dividend of $0.02 per share.

In general, the Company’s common stock dividends have been characterized as ordinary income to its stockholders for income tax purposes. However, a portion of the Company’s common stock dividends may, from time to time, be characterized as capital gains or return of capital. For income tax purposes, for each of the years ended December 31, 2013, 2012 and 2011, all of the Company’s common stock dividends were characterized as ordinary income to stockholders.

The table below presents information with respect to shares of the Company’s common stock issued through a public offering during the three years ended December 31, 2013:



Share Issue Date (1)	Shares Issued	Gross Proceeds Per Share		Gross Proceeds
(In Thousands, Except Per Share Amounts)
March 11, 2011	74,750	$	8.10	$	605,475	(2)

(1) The Company did not issue any shares of common stock through public offerings during the years ended December 31, 2013 and 2012.

(2) The Company incurred approximately $438,000 of expenses in connection with this equity offering.

(d) Discount Waiver, Direct Stock Purchase and Dividend Reinvestment Plan (“DRSPP”)

On August 8, 2013, the Company filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission (“SEC”) under the Securities Act of 1933, as amended (the “1933 Act”), for the purpose of registering additional common stock for sale through its DRSPP. Pursuant to Rule 462(e) of the 1933 Act, this shelf registration statement became effective automatically upon filing with the SEC and, when combined with the unused portion of the Company’s previous DRSPP shelf registration statements, registered an aggregate of 15 million shares of common stock. The Company’s DRSPP is designed to provide existing stockholders and new investors with a convenient and economical way to purchase shares of common stock through the automatic reinvestment of dividends and/or optional cash investments. At December 31, 2013, 11.5 million shares of common stock remained available for issuance pursuant to the DRSPP shelf registration statement.

During the years ended December 31, 2013, 2012 and 2011, the Company issued 9,511,739, 1,977,165 and 404,516 shares of common stock through the DRSPP, raising net proceeds of approximately $77.6 million, $15.5 million and $2.8 million, respectively. From the inception of the DRSPP in September 2003 through December 31, 2013, the Company issued 26,039,764 shares pursuant to the DRSPP, raising net proceeds of $221.4 million.

(e) Controlled Equity Offering Program

On August 20, 2004, the Company initiated a controlled equity offering program (the “CEO Program”) through which it may, from time to time, publicly offer and sell shares of common stock through Cantor Fitzgerald & Co. (“Cantor”) in privately negotiated and/or at-the-market transactions. During the three years ended December 31, 2013, the Company did not issue any shares through the CEO Program. From inception of the CEO Program through December 31, 2013, the Company issued 30,144,815 shares of common stock in at-the-market transactions through the CEO Program, raising net proceeds of approximately $194.9 million. In connection with such transactions, the Company paid Cantor aggregate fees and commissions of approximately $4.2 million. Shares for the CEO Program are issued through the automatic shelf registration statement on Form S-3 that was filed on October 22, 2013.

On December 12, 2008, the Company entered into its most recent Sales Agreement (the “Agreement”) with Cantor, as sales agent. In accordance with the terms of the Agreement, the Company may offer and sell up to 40 million shares of common stock (the “CEO Shares”) from time to time through Cantor. Sales of the CEO Shares, if any, may be made in privately negotiated transactions and/or by any other method permitted by law, including, but not limited to, sales at other than a fixed price made on or through the facilities of the NYSE, or sales made to or through a market maker or through an electronic communications network, or in any other manner that may be deemed to be an “at-the-market offering” as defined in Rule 415 of the 1933 Act. Cantor will make all sales on a best efforts basis using commercially reasonable efforts consistent with its normal trading and sales practices on mutually agreed terms between the Company and Cantor.

(f) Stock Repurchase Program

As previously disclosed, in August 2005, the Company’s Board authorized a stock repurchase program (“Repurchase Program”), to repurchase up to 4.0 million shares of its outstanding common stock under the Repurchase Program. The Board reaffirmed such authorization in May 2010. In December 2013, the Board increased the number of shares authorized for repurchase to 10.0 million. Such authorization does not have an expiration date and, at present, there is no intention to modify or otherwise rescind such authorization. Subject to applicable securities laws, repurchases of common stock under the Repurchase Program are made at times and in amounts as the Company deems appropriate, (including, in our discretion, through the use of one or more plans adopted under Rule 10b-5-1 promulgated under the Securities Exchange Act of 1934, as amended (the “1934 Act”)) using available cash resources. Shares of common stock repurchased by the Company under the Repurchase Program are cancelled and, until reissued by the Company, are deemed to be authorized but unissued shares of the Company’s common stock. The Repurchase Program may be suspended or discontinued by the Company at any time and without prior notice. During the year ended December 31, 2013, the Company repurchased 2,143,354 shares of its common stock at a total cost of approximately $15.4 million and an average cost of $7.20 per share. During the year ended December 31, 2012, the Company repurchased 1,240,291 shares of its common stock at a total cost of approximately $9.7 million and an average cost of $7.83 per share. At December 31, 2013, 6,616,355 shares remained authorized for repurchase.

(g) Accumulated Other Comprehensive Income/(Loss)

The following table presents changes in the balances of each component of the Company’s AOCI for the years ended December 31, 2013, 2012 and 2011:



	For the Year Ended December 31,
	2013									2012									2011
(In Thousands)	Net Unrealized Gain/(Loss) on Available-for-Sale MBS			Net Unrealized Gain/(Loss) on Swaps			Total AOCI			Net Unrealized Gain/(Loss) on Available-for-Sale MBS			Net Unrealized Gain/(Loss) on Swaps			Total AOCI			Net Unrealized Gain/(Loss) on Available-for-Sale MBS			Net Unrealized Gain/(Loss) on Swaps			Total AOCI
Balance at beginning of period	$	824,808		$	(62,831	)	$	761,977		$	55,491		$	(114,194	)	$	(58,703	)	$	393,822		$	(139,142	)	$	254,680
OCI before reclassifications	(52,063		)	47,614			(4,449		)	778,010			51,363			829,373			(320,261		)	24,948			(295,313		)
Amounts reclassified from AOCI (1)	(19,833		)	—			(19,833		)	(8,693		)	—			(8,693		)	(18,070		)	—			(18,070		)
Net OCI during period (2)	(71,896		)	47,614			(24,282		)	769,317			51,363			820,680			(338,331		)	24,948			(313,383		)
Balance at end of period	$	752,912		$	(15,217	)	$	737,695		$	824,808		$	(62,831	)	$	761,977		$	55,491		$	(114,194	)	$	(58,703	)

(1) See separate table below for details about these reclassifications.

(2) For further information regarding changes in OCI, see the Company’s consolidated statement of comprehensive income/(loss).

The following table presents information about the significant amounts reclassified out of the Company’s AOCI for the years ended December 31, 2013, 2012, and 2011:



	For the Year Ended December 31,
	2013			2012			2011
Details about AOCI Components	Amounts Reclassified from AOCI									Affected Line Item in the Statement Where Net Income is Presented
(In Thousands)
Available-for-sale MBS:
Realized gain on sale of securities	$	(19,833	)	$	(7,493	)	$	(7,500	)	Gain on sales of MBS and U.S. Treasury securities, net
OTTI recognized in earnings	—			(1,200		)	(10,570		)	Net impairment losses recognized in earnings
Total reclassifications for period	$	(19,833	)	$	(8,693	)	$	(18,070	)

At December 31, 2013 and 2012, the Company had OTTI recognized in AOCI of $609,000 and $2.6 million, respectively.