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MFA Financial, Inc. Announces Fourth Quarter 2012 Financial Results

     MFA Financial, Inc. Announces Fourth Quarter 2012 Financial Results

PR Newswire

NEW YORK, March 6, 2013

NEW YORK, March 6, 2013 /PRNewswire/ --MFA Financial, Inc. (NYSE: MFA) today
announced financial results for the fourth quarter ended December 31, 2012.

Fourth Quarter 2012 and other highlights:

  oFourth quarter net income per common share of $0.19 and Core Earnings (as
    defined below) per common share of $0.20.
  oBook value per common share grew to $8.99 as of December 31, 2012,
    compared to $8.80 as of September 30, 2012, and $6.74 at December 31,
    2011. For the year, MFA's strategy of investing in both Agency and
    discounted Non-Agency MBS generated book value per share growth of 33% in
    addition to quarterly dividend payments. At January 31, 2013, MFA's book
    value per share was $9.40 as Non-Agency MBS prices have gained additional
    value since year end.
  oOn March 4, 2013, MFA's Board of Directors declared a special cash
    dividend of $0.50 per share of common stock. This dividend reflects a
    portion of the REIT taxable income in excess of distributions previously
    paid to stockholders for prior periods. This dividend will be paid on
    April 10, 2013, to stockholders of record on March 15, 2013.
  oA combination of both home price appreciation and mortgage amortization
    has led to a decrease in the Loan-to-Value ratio ("LTV") for many of the
    mortgages underlying MFA's Non-Agency portfolio. Due to this lower LTV, we
    have reduced estimated future losses within MFA's Non-Agency portfolio. As
    a result, in the fourth quarter we transferred $81.0 million to accretable
    discount from credit reserve and transferred $152.5 million in total for
    2012. This increase in accretable discount prospectively increases the
    yield on Non-Agency MBS and will be realized in income over the life of
    the assets.

For the fourth quarter ended December 31, 2012, MFA generated net income
allocable to common stockholders of $66.8 million, or $0.19 per share of
common stock. Core Earnings for the fourth quarter were $72.0 million, or
$0.20 per share of common stock. "Core Earnings" is a Non-GAAP financial
measure, which reflects net income excluding $7.5 million of excise tax and
interest on REIT taxable income in excess of distributions previously paid to
stockholders for prior periods, $1.8 million of gains on sale of MBS and a
$611,000 increase in the fair value of the securities underlying our Linked
Transactions.

Stewart Zimmerman, MFA's Chairman of the Board and CEO, said, "MFA continues
to provide stockholders with attractive returns through what we believe to be
appropriately leveraged investments in both Agency and Non-Agency residential
MBS. At quarter-end our debt to equity ratio (including the liabilities
underlying our Linked Transactions) was 3.0:1. Our Agency portfolio had an
average amortized cost basis of 103.3% of par as of December 31, 2012, and
generated a 2.59% yield in the fourth quarter. Our Non-Agency portfolio had
an average amortized cost of 73.2% of par as of December 31, 2012, and
generated a loss-adjusted yield of 6.70% in the fourth quarter (Non-Agency
average cost and loss-adjusted yield are adjusted for the impact of MBS Linked
Transactions)."

"We believe MFA, an internally managed REIT, continues to be a very efficient
vehicle for delivering the benefits of residential MBS investment to
stockholders. For the three months ended December 31, 2012, MFA's cost for
compensation and benefits and other general and administrative expenses,
excluding excise tax and interest which is excluded for Core Earnings, were
$8.1 million or an annualized 0.98% of stockholders' equity as of December 31,
2012."

William Gorin, MFA's President, added, "The Fed continues to combat
deflationary pressures through its monetary policy. Given rising multifamily
rents, limited housing construction, capital flows into own-to-rent
foreclosure purchases and demographic-driven U.S. household formation, there
have been increasing signs of home price appreciation. However, we believe
that we are appropriately factoring in the uncertainty regarding housing
fundamentals into our cash flow projection and credit reserve analysis. Our
Non-Agency MBS loss adjusted yield of 6.70% is based on projected defaults
that are approximately twice the amount of underlying mortgage loans that are
presently 60+ days delinquent. MFA's Non-Agency MBS prices increased, on
average, approximately two points in the fourth quarter. These assets have
gained additional value since year end. We believe this reflects the
continued impact of a shrinking universe of seasoned Non-Agency MBS and
improvement in fundamental assumptions as investors assign lower probabilities
to the more pessimistic housing scenarios."

Following a detailed review of tax calculations, the Company determined that
REIT taxable income for certain prior periods exceeded distributions made to
stockholders. Consequently, our Board of Directors declared a special cash
dividend, totaling approximately $179.4 million. Approximately $130 million of
this distribution will be allocated to the previously undistributed REIT
taxable income for 2010 and 2011, with the remainder available to satisfy a
portion of 2012 taxable income undistributed to date. Determination of 2012
taxable income will not be finalized until the timely filing of MFA's 2012 tax
return, which is expected to occur in the third quarter of 2013. Before filing
its 2012 tax return, MFA may elect to apply, on an asset-by-asset basis, an
alternative methodology for calculating taxable income for Non-Agency assets
acquired in 2012. Application of this alternative methodology may serve to
reduce the final determination of 2012 taxable income. After payment of the
special dividend, MFA currently estimates that under either methodology,
taxable income for 2012 is in excess of distributions paid to date in respect
of that year and it expects that its Board of Directors will declare dividends
in 2013 to address any undistributed 2012 taxable income.

MFA's $5.430 billion fair market value of Non-Agency MBS had a face amount of
$6.562 billion, an amortized cost of $4.802 billion and a net purchase
discount of $1.760 billion (all amounts adjusted for the impact of MBS Linked
Transactions) at December 31, 2012. This discount consists of a $1.387
billion credit reserve and other-than-temporary impairments and a $373.2
million net accretable discount. At December 31, 2012, MFA's Non-Agency MBS
had 3.2% average structured credit enhancement in the form of subordination
(subordinated bonds which absorb losses before MFA's Non-Agency MBS are
impacted).

Prepayments for MFA's MBS portfolio trended down in the fourth quarter due to
a reduction in prepayment speed for the Agency MBS portfolio. The Non-Agency
prepayment speed was up marginally in the fourth quarter. Due to their
discounted purchase prices, the return on Non-Agency MBS is generally
positively impacted if prepayment rates increase. The following table
presents the weighted average prepayment speed on MFA's MBS portfolio
(including MBS underlying Linked Transactions).

 Table 1
                        Fourth Quarter  Third Quarter

                        2012 Average    2012 Average

                        CPR             CPR
         MBS Portfolio  17.67     %     19.06    %
         Agency MBS     19.23     %     21.62    %
         Non-Agency MBS 15.53     %     15.41    %



As of December 31, 2012, under its swap agreements, MFA has a weighted average
fixed pay rate of interest of 2.31% and a floating receive rate of 0.22% on
notional balances totaling $2.520 billion, with an average maturity of 17
months. During 2012, approximately $958 million notional amount of existing
swaps with a weighted average fixed pay rate of 3.87% expired.

The following table presents MFA's asset allocation as of December 31, 2012
and the fourth quarter 2012 yield on average interest earning assets, average
cost of funds and net interest rate spread for the various asset types.

Table 2
                 ASSET ALLOCATION (1)
At December                    Non-Agency        MBS             Cash      Other, net
31, 2012       Agency MBS                                        (3)       (4)              Total
                               MBS (2)           Portfolio
(Dollars in
Thousands)
Amortized      $ 7,024,517     $ 4,802,117     $ 11,826,634    $ 406,309   $ (21,871)     $ 12,211,072
Cost
Market Value   $ 7,225,460     $ 5,429,993     $ 12,655,453    $ 406,309   $ (21,871)     $ 13,039,891
Less Payable
for Unsettled    (33,479)        -               (33,479)            -       -              (33,479)
Purchases
Less
Repurchase       (6,353,489)     (2,023,443)     (8,376,932)         -       -              (8,376,932)
Agreements
Multi-year
Collateralized   -               (508,827)       (508,827)           -       -              (508,827)
Financing

Arrangements
Less
Securitized      -               (646,816)       (646,816)       -           -              (646,816)
Debt
Less Senior      -               -               -                   -       (100,000)      (100,000)
Notes
Equity         $ 838,492       $ 2,250,907     $ 3,089,399     $ 406,309   $ (121,871)    $ 3,373,837
Allocated
Less Swaps at    -               -               -               -           (62,831)       (62,831)
Market Value
Net Equity     $ 838,492       $ 2,250,907     $ 3,089,399     $ 406,309   $ (184,702)    $ 3,311,006
Allocated
Debt/Net
Equity Ratio     7.62        x   1.41        x   3.10        x   -           -              3.04        x
(5)


For the quarter ended
December 31, 2012
Yield on
Interest Earning 2.59        %   6.70        %   4.24        %   0.04    %   -              4.10        %
Assets
MBS Cost of
Funds            (1.36)          (2.41)          (1.71)          -           -              (1.71)
(6)
Senior Notes
(7)            -               -               -               -           (8.03)    %    (8.03)

Net Interest     1.23        %   4.29        %   2.53        %   0.04    %   (8.03)    %    2.33        %
Rate Spread
(1) Information presented with respect to Non-Agency MBS, related repurchase agreement borrowings and
resulting totals are presented on a non-GAAP basis. See the accompanying Reconciliation of Non-GAAP
Financial Measures.

(2) Includes Non-Agency MBS and repurchase agreements underlying Linked Transactions. The purchase of a
Non-Agency MBS and contemporaneous repurchase borrowing of this MBS with the same counterparty are
accounted for under GAAP as a "linked transaction." The two components of a linked transaction (MBS and
associated borrowings under a repurchase agreement) are evaluated on a combined basis and are presented
net as "Linked Transactions" on our consolidated balance sheet.

(3) Includes cash, cash equivalents and restricted cash.

(4) Includes securities obtained and pledged as collateral, interest receivable, goodwill, prepaid and
other assets, borrowings under repurchase agreements of $410.8 million for which U.S. Treasury securities
are pledged as collateral, interest payable, dividends payable, excise tax and interest payable, and
accrued expenses and other liabilities.

(5) For the Agency and Non-Agency MBS portfolio, represents the sum of borrowings under repurchase
agreements, payable for unsettled purchases, multi-year collateralized financing arrangements of $508.8
million and securitized debt as a multiple of net equity allocated. The numerator of the total Debt/Net
Equity ratio for the Company also includes borrowings under repurchase agreements of $410.8 million for
which U.S. Treasury securities are pledged as collateral and Senior Notes.

(6) Includes effect of swaps.

(7) Includes amortization of Senior Notes issuance costs.



At December 31, 2012, MFA's $12.655 billion of Agency and Non-Agency MBS,
which includes MBS underlying Linked Transactions, were backed by hybrid,
adjustable and fixed-rate mortgages. Additional information about these MBS,
including months to reset and three month average CPR, is presented below:

Table 3
 Agency MBS                               Non-Agency MBS                Total
                        Average Average               Average Average                Average Average
 ($ in      Market      MTR (1) CPR (2)   Market      MTR (1) CPR (2)   Market Value MTR (1) CPR (2)
 Thousands) Value                         Value
 Time to
 Reset:
 < 2 years $ 1,743,589 8       19.47   % $ 3,124,846 5       14.54   % $ 4,868,435  6       16.31   %
 (3)
 2-5 years    1,979,942 37      27.56       652,588   44      16.98       2,632,530  39      25.09
 > 5          1,172,295 74      15.06       -         -       -           1,172,295  74      15.06
 years
 ARM-MBS
            $ 4,895,826 36      21.87   % $ 3,777,434 12      14.98   % $ 8,673,260  27      18.98   %
 Total
 15-Year    $ 2,329,634         13.04   % $ 16,972            11.82   % $ 2,346,606          13.03   %
 fixed
 30-Year      -                 -           1,629,365         16.76       1,629,365          16.76
 fixed
 40-Year      -                 -           6,222             25.46       6,222              25.46
 fixed
 Fixed-Rate $ 2,329,634         13.04   % $ 1,652,559         16.76   % $ 3,982,193          14.64   %
 Total
 MBS Total  $ 7,225,460         19.23   % $ 5,429,993         15.53   % $ 12,655,453         17.67   %
(1) MTR, or months to reset, is the number of months remaining before the coupon interest rate
resets. At reset, the MBS coupon will adjust based upon the underlying benchmark interest rate
index, margin and periodic or lifetime caps. The MTR does not reflect scheduled amortization or
prepayments.
(2) Average CPR weighted by positions as of beginning of each month in the quarter.
(3)Includes floating rate MBS that may be collateralized by fixed-rate mortgages.

MFA plans to hold a conference call on Wednesday, March 6, 2013 at 10:00 a.m.
(Eastern Time) to discuss its fourth quarter 2012 financial results. The
number to dial in order to listen to the conference call is (866) 244-4519 in
the U.S. and Canada. International callers must dial (703) 639-1171. A replay
of the call will be available through Wednesday, May 1, 2013 and can be
accessed by dialing (800) 475-6701 in the U.S. and Canada or (320) 365-3844
internationally and entering access code 284669. Live audio of the conference
call will also be accessible over the internet at http://www.mfafinancial.com
through the appropriate link on MFA's Investor Information page. 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. An audio replay of the call will also be available on MFA's website
following the call.

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 "will," "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; changes in the default rates and management's assumptions
regarding default rates on the mortgage loans securing MFA's Non-Agency MBS;
MFA's ability to borrow to finance its assets and the terms, including the
cost, maturity and other terms, of any such borrowing; implementation of or
changes in government regulations or programs affecting MFA's business; MFA's
estimates regarding taxable income and the timing and amount of distributions
to stockholders; 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, as amended (or the
Investment Company Act), including statements regarding the Concept Release
issued by the SEC relating to interpretive issues under the Investment Company
Act with respect to the status under the Investment Company Act of certain
companies that are in engaged in the business of acquiring mortgages and
mortgage-related interests; 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 Securities
and Exchange Commission, 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
                                                   December 31,   December 31,
(In Thousands, Except Per Share Amounts)           2012           2011
Assets:                                            (Unaudited)
Mortgage-backed securities ("MBS")
 Agency MBS, at fair value ($6,747,299 and        $ 7,225,460   $ 7,137,531
$6,666,963 pledged
 as collateral, respectively)
 Non-Agency MBS, at fair value ($1,602,953 and      2,762,006     1,492,376
$692,534 pledged as
 as collateral, respectively)
 Non-Agency MBS transferred to consolidated          2,620,159     2,283,070
variable interest entities ("VIE's")
Securities obtained and pledged as collateral, at     408,833       306,401
fair value
Cash and cash equivalents                             401,293       394,022
Restricted cash                                       5,016         15,502
MBS linked transactions, net ("Linked                 12,704        55,801
Transactions"), at fair value
Interest receivable                                   44,033        42,837
Derivative hedging instruments, at fair value         203           26
Goodwill                                              7,189         7,189
Prepaid and other assets                              30,654        15,879
 Total Assets                                   $ 13,517,550  $ 11,750,634
Liabilities:
Repurchase agreements                               $ 8,752,472   $ 7,813,159
Securitized debt                                      646,816       875,520
Obligation to return securities obtained as           508,827       306,401
collateral, at fair value
8% Senior Notes due 2042 ("Senior Notes")             100,000       -
Accrued interest payable                              16,104        9,112
Derivative hedging instruments, at fair value         63,034        114,220
Dividends and dividend equivalents rights ("DERs")    72,222        97,525
payable
Payable for unsettled purchases                       33,479        27,056
Excise tax and interest payable                       7,500         -
Accrued expenses and other liabilities                6,090         9,881
 Total Liabilities                              $ 10,206,544  $ 9,252,874
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.01 par value; Series A 8.50%     $ 38          $ 38
cumulative redeemable;
 5,000 shares authorized; 3,840 shares issued and
outstanding ($96,000
 aggregate liquidation preference)
Common stock, $.01 par value; 895,000 shares          3,575         3,561
authorized;
 357,546 and 356,112 shares issued and
outstanding, respectively
Additional paid-in capital, in excess of par          2,805,724     2,795,925
Accumulated deficit                                   (260,308)     (243,061)
Accumulated other comprehensive income/(loss)         761,977       (58,703)
 Total Stockholders' Equity                     $ 3,311,006   $ 2,497,760
 Total Liabilities and Stockholders' Equity     $ 13,517,550  $ 11,750,634







MFA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
                                Three Months Ended      For the Year Ended
                            December 31,        December 31,
(In Thousands, Except Per       2012       2011         2012       2011
Share Amounts)
                             (Unaudited) (Unaudited) (Unaudited)
Interest Income:
Agency MBS                   $  46,010   $ 55,880    $  196,058  $ 241,994
Non-Agency MBS                  39,346     24,956       134,901    101,054
Non-Agency MBS transferred      39,569     43,128       168,071    153,563
to consolidated VIEs
Cash and cash equivalent        43         30           127        136
investments
Interest Income         $  124,968  $ 123,994   $  499,157  $ 496,747
Interest Expense:
Repurchase agreements        $  37,128   $ 35,226    $  148,767  $ 137,739
Securitized debt                3,920      3,585        17,106     11,672
Senior Notes                    2,006      -            5,797      -
Total Interest Expense  $  43,054   $ 38,811    $  171,670  $ 149,411
Net Interest Income     $  81,914   $ 85,183    $  327,487  $ 347,336
Other-Than-Temporary
Impairments:
Total other-than-temporary   $  -        $ (29,595)  $  (879)    $ (45,144)
impairment losses
Portion recognized              -          25,408       (321)      34,574
in/(reclassified from) other
 comprehensive
income/(loss)
Net Impairment Losses
Recognized in                $  -        $ (4,187)   $  (1,200)  $ (10,570)

Earnings
Other Income, Net:
Unrealized net
gains/(losses) and net       $  1,166    $ (6,955)   $  12,610   $ 3,015
interest
 income from Linked
Transactions
Gain on sale of MBS, net        1,769      2,534        9,001      6,730
Revenue from operations of      -          420          -          1,566
real estate held-for-sale
Gain on sale of properties,     -          430          -          430
net
Other, net                      8          (28)         10         (914)
Other Income/(Loss),    $  2,943    $ (3,599)   $  21,621   $ 10,827
Net
Operating and Other
Expense:
Compensation and benefits    $  5,337    $ 3,368     $  22,089   $ 18,959
Other general and               2,801      3,269        11,480     11,250
administrative expense
Excise tax and interest         7,500      -            7,500      -
Real estate held-for-sale      -          196          -          970
operating expense
 Operating and Other       $  15,638   $ 6,833     $  41,069   $ 31,179
Expense
Net Income                   $  69,219   $ 70,564    $  306,839  $ 316,414
Less: Preferred Stock          2,040      2,040        8,160      8,160
Dividends
 Net Income Available to   $  67,179   $ 68,524    $  298,679  $ 308,254
Common Stock and
 Participating
Securities
Earnings Per Common          $  0.19     $ 0.19      $  0.83     $ 0.90
Share-Basic and Diluted
Dividends Declared Per       $  0.20     $ 0.27      $  0.88     $ 1.01
Share of Common Stock



Reconciliations of Non-GAAP Financial Measures

This press release contains disclosures related to MFA's Core Earnings and
Core Earnings per common share, for the three months and year ended December
31, 2012, which constitute non-GAAP financial measures within the meaning of
Regulation G as promulgated by the Securities and Exchange Commission. MFA's
management believes that these non-GAAP financial measures presented in its
press release, when considered together with GAAP financial measures, provide
information that is useful to investors in understanding period-over-period
operating results. An analysis of any non-GAAP financial measure should be
used in conjunction with results presented in accordance with GAAP.

Core Earnings and Core Earnings per common share for the three months and year
ended December 31, 2012 are not measures of performance in accordance with
GAAP, as they exclude excise tax and interest on REIT taxable income in excess
of distributions previously paid to stockholders for prior periods, impairment
losses recognized through earnings, gain on sale of MBS and changes in fair
value of MBS underlying our Linked Transactions. Management excludes these
items as it believes that they are not reflective of the underlying
performance of our portfolio or the way the portfolio is managed by the
Company.

MFA believes that Core Earnings and Core Earnings per share provides investors
with a useful measure to assess the performance of the Company's ongoing
business and useful supplemental information to both management and investors
in evaluating our financial results. A reconciliation of the GAAP items
discussed above to their non-GAAP measures for the three months and year ended
December 31, 2012 are as follows:

 Table 4
                        Three Months Ended        For the Year Ended
                        December 31, 2012         December 31, 2012
                                        Basic and                 Basic and
 (In Thousands, Except  Reconciliation            Reconciliation
 Per Share Amount)                      Diluted                   Diluted EPS
                                        EPS
 GAAP Net Income
 Available to Common    $   67,179                $   298,679
 Stock and
 Participating
 Securities
 Less: Dividends and
 Dividend Equivalent        (349)                     (1,517)
 Rights on
 Participating
 Securities
 GAAP Net Income
 Allocable to Common    $   66,830      $  0.19   $   297,162     $  0.83
 Stockholders
 Non-GAAP Adjustments:
 Excise tax and    $   7,500                 $   7,500
 interest
 Impairment Losses     -                         1,200
 Recognized in Earnings
 Gain on Sale of       (1,769)                   (9,001)
 MBS
 Net Unrealized
 gains on Linked            (611)                     (8,634)
 Transactions
 Total Adjustments to
 Arrive at Core         $   5,120       $  0.01   $   (8,935)     $  (0.02)
 Earnings
 Core Earnings          $   71,950      $  0.20   $   288,227     $  0.81
 Weighted Average
 Common Shares              357,354                   356,762
 Outstanding - Basic
 and Diluted



CONTACT: MFA Investor Relations
         800-892-7547
         www.mfafinancial.com



SOURCE MFA Financial, Inc.

Website: http://www.mfafinancial.com
 
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