MFA Financial, Inc. Announces Second Quarter 2013 Financial Results

     MFA Financial, Inc. Announces Second Quarter 2013 Financial Results

-Declares Special Cash Dividend of $0.28 per Share-

PR Newswire

NEW YORK, Aug. 1, 2013

NEW YORK, Aug. 1, 2013 /PRNewswire/ --MFA Financial, Inc. (NYSE:MFA) today
announced financial results for the second quarter ended June 30, 2013.

Second Quarter 2013 and other highlights:

  oSecond quarter net income per common share of $0.19 and Core Earnings (as
    defined below) per common share of $0.19.
  oOn July 31, 2013, MFA paid its second quarter 2013 dividend of $0.22 per
    share of common stock to stockholders of record as of July 12, 2013.
  oOn August 1, 2013, MFA's Board of Directors declared a special cash
    dividend of $0.28 per share of common stock. This dividend will be paid on
    August 30, 2013, to stockholders of record on August 12, 2013.
  oAfter the special dividend, MFA will have distributed approximately $155
    million in dividends in 2013 not allocated to prior years. The Company has
    until the filing of its 2013 tax return (due not later than September 15,
    2014) to declare the distribution of any 2013 REIT taxable income not
    previously distributed. We currently estimate that taxable income for the
    prior year ended December 31, 2012 (due to be finalized not later than
    September 16, 2013), will be approximately $475 million.
  oBook value per common share declined to $8.19 per common share as of June
    30, 2013 from $8.84 as of March 31, 2013. Increased uncertainty about the
    pace and amount of future Federal Reserve asset purchases impacted the
    value of MFA's MBS during the second quarter of 2013.
  oStrong home price appreciation continues to decrease the Loan-To-Value
    Ratio ("LTV") for many of the mortgages underlying MFA's Non-Agency
    portfolio. MFA believes that due to underlying mortgage loan amortization
    and based on regional home price appreciation, the LTV of mortgage loans
    underlying its Non-Agency MBS has declined from approximately 105% to
    approximately 90% since January 2012. As a result, MFA continues to
    reduce its estimate of future losses. In the second quarter, MFA
    transferred $54.8 million to accretable discount from credit reserve,
    bringing the total transferred over the last 12 months to $224.3 million.
    This increase in accretable discount prospectively increases the interest
    income from MFA's Non-Agency MBS. This increase in interest income will be
    realized over the remaining life of the assets.
  oDue primarily to increases in accretable discount and to changes in the
    forward curve, the loss-adjusted yield on MFA's Non-Agency increased from
    6.80% in the first quarter to 7.15% in the second quarter.

For the second quarter ended June 30, 2013, MFA generated net income allocable
to common stockholders of $67.0 million, or $0.19 per share of common stock.
Core Earnings for the second quarter were $67.4 million, or $0.19 per share of
common stock. "Core Earnings" is a Non-GAAP financial measure, which
reflects net income excluding the write off of $3.9 million of issuance costs
of redeemed preferred stock, $4.4 million of gain on sales of MBS and a
$812,000 decrease 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 was 3.1:1. Our Agency portfolio
had an average amortized cost basis of 103.5% of par as of June 30, 2013, and
generated a 2.19% yield in the second quarter. Our Non-Agency portfolio had
an average amortized cost of 73.6% of par as of June 30, 2013, and generated a
loss-adjusted yield of 7.15% in the second quarter."

"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 June 30, 2013, MFA's costs for
compensation and benefits and other general and administrative expenses were
$8.8 million or an annualized 1.1% of stockholders' equity as of June 30,
2013."

William Gorin, MFA's President, added, "June'sMBS sell-off was triggered by
Federal Reserve communications indicating that the economy was improving to
the point where it may taper future asset purchases. While an improving
economy is good news for mortgage loan performance, increased uncertainty
about future central bank actions has led to interest rate increases and
widening credit spreads. Home price appreciation is generally continuing due
to a combination of low mortgage rates, limited housing supply, capital flows
into own-to-rent foreclosure purchases and demographic-driven U.S. household
formation. We believe that MFA's $1.265 billion credit reserve appropriately
factors in remaining uncertainties regarding housing fundamentals and the
potential impact on future cash flows. Our Non-Agency MBS loss adjusted yield
of 7.15% is based on projected defaults that are nearly double the amount of
underlying mortgage loans that are presently 60+ days delinquent."

MFA's $5.296 billion fair market value of Non-Agency MBS had a face amount of
$6.289 billion, an amortized cost of $4.628 billion and a net purchase
discount of $1.661 billion at June 30, 2013. This discount consists of a
$1.265 billion credit reserve and other-than-temporary impairments and a
$395.8 million net accretable discount. At June 30, 2013, MFA's Non-Agency MBS
had 2.7% 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 increased modestly in the second quarter.
The following table presents the weighted average prepayment speed on MFA's
MBS portfolio.

Table 1

                Second Quarter    First Quarter
                2013 Average CPR  2013 Average CPR
MBS Portfolio   18.53%            17.34%
Agency MBS      20.19%            19.08%
Non-Agency MBS  16.37%            15.06%

As of June 30, 2013, under its swap agreements, MFA has a weighted average
fixed pay rate of interest of 2.10% and a floating receive rate of 0.20% on
notional balances totaling $2.687 billion, with an average maturity of 27
months. Due to increased interest rate uncertainty, this swap position was
increased as of July 31, 2013 to a notional balance of $3.452 billion, with an
average fixed pay rate of 1.96% and an average maturity of 43 months.

The following table presents MFA's asset allocation as of June 30, 2013 and
the second quarter 2013 yield on average interest earning assets, average cost
of funds and net interest rate spread for the various asset types.

Table 2

ASSET ALLOCATION
At June 30, 2013 Agency MBS    Non-Agency    MBS Portfolio  Cash (2)    Other, net    Total
                               MBS (1)                                  (3)
($inThousands)
Amortized Cost   $  6,904,739  $  4,667,398  $  11,572,137  $  451,302  $  (16,692)   $  12,006,747
Market Value     $  6,937,911  $  5,339,304  $  12,277,215  $  451,302  $  (16,692)   $  12,711,825
Less Payable for
Unsettled        (15,043)      (12,545)      (27,588)       —           —             (27,588)
Purchases
Less Repurchase  (6,080,964)   (2,457,598)   (8,538,562)    —           —             (8,538,562)
Agreements
Less Multi-year
Collateralized   —             (405,458)     (405,458)      —           —             (405,458)
Financing
Arrangements
Less Securitized —             (443,748)     (443,748)      —           —             (443,748)
Debt
Less Senior      —             —             —              —           (100,000)     (100,000)
Notes
Equity Allocated $  841,904    $  2,019,955  $  2,861,859   $  451,302  $  (116,692)  $  3,196,469
Less Swaps at    —             —             —              —           (31,967)      (31,967)
Market Value
Net Equity       $  841,904    $  2,019,955  $  2,861,859   $  451,302  $  (148,659)  $  3,164,502
Allocated
Debt/Net Equity  7.24x         1.64x         —              —           —             3.14x
Ratio (4)
For the Quarter
Ended June 30,
2013
Yield on Average
Interest Earning 2.19%         7.15%         4.18%          0.03%       —             4.01%
Assets
Less Average
Cost of Funds    (1.15)        (2.41)        (1.56)         —           —             (1.63)
(5)
Senior Notes (6) —             —             —              —           (8.03)%       (8.03)
Net Interest     1.04%         4.74%         2.62%          0.03%       (8.03)%       2.38%
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.
Includes $43.7 million Non-Agency MBS and $33.2 million 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.
(2) Includes cash, cash equivalents and restricted cash.
(3) Includes securities obtained and pledged as collateral, interest
receivable, goodwill, prepaid and other assets, borrowings under repurchase
agreements of $405.5 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.
(4) For the Agency and Non-Agency MBS portfolio, represents the sum of
borrowings under repurchase agreements, multi-year collateralized financing
arrangements of $405.5 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 $405.5 million
for which U.S. Treasury securities are pledged as collateral and Senior Notes.
(5) Average cost of funds includes interest on repurchase agreements,
including the cost of swaps, and securitized debt.
(6) Includes amortization of Senior Notes issuance costs.

At June 30, 2013, MFA's $12.277 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
($ in
thousands)
            Market      Avg Avg    Market      Avg Avg    Market       Avg Avg
Time to                 MTR CPR                MTR CPR                 MTR CPR
Reset       Value                  Value                  Value
                        (1) (3)                (1) (3)                 (1) (3)
< 2 years   $ 2,191,620 11  23.4%  $ 3,049,255 3   15.6%  $ 5,240,875  6   18.8%
(2)
2-5 years   953,910     39  31.4   602,501     38  17.4   1,556,411    39  26.4
> 5 years   1,112,554   72  21.9   —           —   —      1,112,554    72  21.9
ARM-MBS     $ 4,258,084 33  25.1%  $ 3,651,756 9   15.9%  $ 7,909,840  22  20.9%
Total
15-year     $ 2,679,827     12.1%  $ 14,483        20.1%  $ 2,694,310      12.2%
fixed (4)
30-year     —               —      1,667,125       17.4   1,667,125        17.4
fixed (4)
40-year     —               —      5,940           11.4   5,940            11.4
fixed (4)
Fixed-Rate  $ 2,679,827     12.1%  $ 1,687,548     17.4%  $ 4,367,375      14.2%
Total
MBS Total   $ 6,937,911     20.2%  $ 5,339,304     16.4%  $ 12,277,215     18.5%

1) MTR or Months To Reset is the number of months remaining before the coupon
rate resets. At reset, the MBS coupon will be determined based upon the
underlying index, margin and periodic or lifetime caps. The MTR does not
reflect scheduled amortization.
2) Includes floating rate MBS that may be collateralized by fixed rate
mortgages.
3) Average CPR weighted by positions as of beginning of the month.
4) Information presented based on data available at time of loan origination.

MFA plans to hold a conference call on Thursday August 1, 2013 at 10:00 a.m.
(Eastern Time) to discuss its second quarter 2013 financial results. The
number to dial in order to listen to the conference call is (800) 288-8961 in
the U.S. and Canada. International callers must dial (612) 332-0228. A replay
of the call will be available through November 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 299172. Live audio of the conference
call will also be accessible over the internet at
http://www.mfafinancial.comthrough 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 the actual amount of which is dependent on
a number of factors, including, but not limited to, changes in the amount of
interest income and financing costs, the method elected by the Company to
accrete the market discount on Non-Agency MBS and the extent of prepayments,
realized losses and changes in the composition of MFA's Agency MBS and
Non-Agency MBS portfolios that may occur during the applicable tax period,
including gain or loss on any MBS disposals; the timing and amount of
distributions to stockholders, which are declared and paid at the discretion
of MFA's Board of Directors and will depend on, among other things, MFA's
taxable income, its financial results and overall financial condition and
liquidity, maintenance of its REIT qualification and such other factors as the
Board deems relevant; 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
(In Thousands Except Per Share Amounts)       June30,        December 31,
                                               2013            2012
                                               (Unaudited)
Assets:
Mortgage-backed securities ("MBS"):
Agency MBS, at fair value ($6,484,697 and
$6,747,299 pledged as collateral,              $  6,937,911    $  7,225,460
respectively)
Non-Agency MBS, at fair value ($1,971,604 and
$1,602,953 pledged as collateral,              2,857,418       2,762,006
respectively)
Non-Agency MBS transferred to consolidated     2,438,235       2,620,159
variable interest entities ("VIEs")
Securities obtained and pledged as collateral, 405,458         408,833
at fair value
Cash and cash equivalents                      448,282         401,293
Restricted cash                                3,020           5,016
MBS linked transactions, net ("Linked          10,519          12,704
Transactions"), at fair value
Interest receivable                            40,875          44,033
Derivative hedging instruments, at fair value  7,140           203
Goodwill                                       7,189           7,189
Prepaid and other assets                       40,664          30,654
Total Assets                                   $  13,196,711   $  13,517,550
Liabilities:
Repurchase agreements                          $  8,909,283    $  8,752,472
Securitized debt                               443,748         646,816
Obligation to return securities obtained as    405,458         508,827
collateral, at fair value
8% Senior Notes due 2042 ("Senior Notes")      100,000         100,000
Accrued interest payable                       11,331          16,104
Derivative hedging instruments, at fair value  39,107          63,034
Dividends and dividend equivalents rights      80,440          72,222
("DERs") payable
Payable for unsettled purchases                27,588          33,479
Excise tax and interest payable                7,000           7,500
Accrued expenses and other liabilities         8,254           6,090
Total Liabilities                              $  10,032,209   $  10,206,544
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.01 par value; 8.50% Series
A cumulative redeemable 5,000 shares

authorized; 0 and 3,840 shares issued and    $  —            $  38
outstanding, respectively ($0 and $96,000

aggregate liquidation preference,
respectively)
Preferred stock, $.01 par value; 7.50% Series
B cumulative redeemable 8,050 and 0 shares

authorized; 8,000 and 0 shares issued and    80              —
outstanding, respectively ($200,000 and $0

aggregate liquidation preference,
respectively)
Common stock, $.01 par value; 886,950 and
895,000 shares authorized; 362,124 and         3,621           3,575

357,546 issued and outstanding, respectively
Additional paid-in capital, in excess of par   2,949,483       2,805,724
Accumulated deficit                            (457,586)       (260,308)
Accumulated other comprehensive income         668,904         761,977
Total Stockholders' Equity                     $  3,164,502    $  3,311,006
Total Liabilities and Stockholders' Equity     $  13,196,711   $  13,517,550





MFA FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
                                         Three Months Ended     Six Months Ended
                                         June 30,               June 30,
(InThousands,ExceptPerShareAmounts) 2013        2012        2013        2012
Interest Income:
Agency MBS                               $ 38,037    $ 49,550    $ 80,824    $ 102,850
Non-Agency MBS                           43,997      32,674      85,044      58,468
Non-Agency MBS transferred to            38,601      43,280      77,469      87,690
consolidated VIEs
Cash and cash equivalent investments     36          27          72          46
Interest Income                          $ 120,671   $ 125,531   $ 243,409   $ 249,054
Interest Expense:
Repurchase agreements                    $ 33,397    $ 36,252    $ 68,072    $ 72,322
Securitized debt                         3,075       4,652       6,551       8,709
Senior Notes                             2,006       1,784       4,013       1,784
Total Interest Expense                   $ 38,478    $ 42,688    $ 78,636    $ 82,815
Net Interest Income                      $ 82,193    $ 82,843    $ 164,773   $ 166,239
Other-Than-Temporary Impairments:
Total other-than-temporary impairment    $ —         $ —         $ —         $ (879)
losses
Portion of loss reclassed from other
comprehensive                           —           (280)       —           (321)

 income
 Net Impairment Losses Recognized in  $ —         $ (280)     $ —         $ (1,200)
Earnings
Other Income, net:
Unrealized net (losses)/gains and net
interest income                          $ (295)     $ 568       $ 1,241     $ 8,267

 from Linked Transactions
Gain on sales of MBS and U.S. Treasury   4,365       —           5,998       2,953
securities, net
Other, net                               55          1           110         1
Other Income, net                        $ 4,125     $ 569       $ 7,349     $ 11,221
Operating and Other Expense:
Compensation and benefits                $ 5,284     $ 5,156     $ 10,557    $ 10,768
Other general and administrative expense 3,561       3,210       6,741       6,013
Excise tax and interest                  2,000       —           2,000       —
Operating and Other Expense              $ 10,845    $ 8,366     $ 19,298    $ 16,781
Net Income                               $ 75,473    $ 74,766    $ 152,824   $ 159,479
Less Preferred Stock Dividends           4,210       2,040       6,250       4,080
Less Issuance costs of redeemed          3,947       —           3,947       —
preferred stock
Net Income Available to Common Stock and $ 67,316    $ 72,726    $ 142,627   $ 155,399
 Participating Securities
Earnings per Common Share - Basic and    $ 0.19      $ 0.20      $ 0.39      $ 0.43
Diluted
Dividends Declared per Share of Common   $ 0.22      $ 0.23      $ 0.94      $ 0.47
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 ended June 30, 2013,
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 ended
June 30, 2013 are not measures of performance in accordance with GAAP, as they
exclude the write-off of issuance costs of redeemed preferred stock, gain on
sales of MBS and U.S. Treasury securities, net 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 ended June 30,
2013, are as follows:

                                             Three Months Ended
                                             June 30, 2013
                                                             

(In Thousands, Except Per Share Amounts)     Reconciliation  Basic and Diluted

                                                             EPS
GAAP Net Income Available to Common Stock    $   67,316
and
  Participating Securities
Less: Dividends and Dividend Equivalent      (329)
Rights on
  Participating Securities
GAAP Net Income Allocable to Common          $   66,987      $       0.19
Stockholders
Non-GAAP Adjustments:
  Issuance Costs of Redeemed Preferred Stock $   3,947
  Gain on Sales of MBS and U.S. Treasury     (4,365)
  Securities, net
  Changes in Net Unrealized Gains on Linked  812
  Transactions
Total Adjustments to Arrive at Core Earnings $   394         $       0.00
Core Earnings                                $   67,381      $       0.19
Weighted Average Common Shares Outstanding -
Basic and                                   361,450

 Diluted

As noted above, certain Non-Agency MBS purchases are presented as a component
of Linked Transactions in MFA's GAAP financial statements for the three months
ended June 30, 2013. In assessing the performance of the Non-Agency MBS
portfolio, MFA's management does not view these transactions as linked, but
rather views the performance of the linked Non-Agency MBS and the related
repurchase agreement borrowings as it would any other Non-Agency MBS that is
not part of a linked transaction. Consequently, MFA considers that these
non-GAAP financial measures assist investors in analyzing the performance of
MFA's Non-Agency MBS in the same way that MFA's management assesses such
assets. However, as noted above, these non-GAAP financial measures do not
take into account the effect of the changes in fair value of MBS underlying
Linked Transactions, gain on sales of MBS and U.S. Treasury Securities, net
and the write-off of issuance costs of redeemed preferred stock which are
reflected in GAAP earnings.

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

SOURCE MFA Financial, Inc.

Website: http://www.mfafinancial.com
 
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