MFA Financial, Inc. Announces Third Quarter 2013 Financial Results

      MFA Financial, Inc. Announces Third Quarter 2013 Financial Results

PR Newswire

NEW YORK, Nov. 4, 2013

NEW YORK, Nov. 4, 2013 /PRNewswire/ --MFA Financial, Inc. (NYSE:MFA) today
announced financial results for the third quarter ended September 30, 2013.

Third Quarter 2013 and other highlights:

  oThird quarter net income per common share of $0.19 and Core Earnings (as
    defined below) per common share of $0.18.
  oIn the third quarter, MFA declared two dividends. MFA declared a special
    cash dividend of $0.28 per share of common stock on August 1, 2013, which
    was paid to stockholders on August 30, 2013. In addition, on September 26,
    2013, MFA declared a regular quarterly dividend of $0.22 per share of
    common stock, which was paid to stockholders on October 31, 2013.
  oOn September 11, 2013, MFA timely filed its 2012 tax return. An amount
    equal to all taxable income for years prior to 2013 has been distributed
    to stockholders. MFA currently estimates that for the first nine (9)
    months of 2013, MFA's taxable income was approximately $297 million.
    Including the dividend paid on October 31, 2013, MFA has distributed
    approximately $236 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.
  oBook value per common share was $7.85 as of September 30, 2013. Due
    primarily to the special dividend of $0.28, book value declined from $8.19
    as of June 30, 2013. In addition, the third quarter dividend per share
    exceeded net income per share by $0.03 so as to more closely track REIT
    taxable income.
  oHome price appreciation continues to decrease the Loan-To-Value Ratio
    ("LTV") for many of the mortgages underlying MFA's Non-Agency portfolio.
    MFA estimates that the LTV of mortgage loans underlying its Non-Agency MBS
    has declined from approximately 105% as of January 2012 to less than 85%
    as of September 30, 2013, as a result of home price appreciation and
    underlying mortgage loan amortization. As a result, MFA continues to
    reduce its estimate of future losses. In the third quarter, MFA
    transferred $71.0 million from credit reserve to accretable discount,
    bringing the total transferred over the last 12 months to $241.3 million
    and $312.8 million since January 2012. This increase in accretable
    discount is expected to increase the interest income realized over the
    remaining life of MFA's Non-Agency MBS.
  oDue primarily to increases in accretable discount and to changes in the
    forward curve, the loss-adjusted yield on MFA's Non-Agency portfolio
    increased from 7.15% in the second quarter to 7.33% in the third quarter.

For the third quarter ended September 30, 2013, MFA generated net income
allocable to common stockholders of $67.3 million, or $0.19 per share of
common stock. Core Earnings for the third quarter were $64.7 million, or
$0.18 per share of common stock. "Core Earnings" is a Non-GAAP financial
measure, which reflects net income excluding a $290,000 decrease in the fair
value of the securities underlying "Linked Transactions," $13.7 million of
gain on sales of MBS, $8.7 million of unrealized losses on TBA short positions
and $2.0 million in impairment of resecuritization related costs.

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 3.0:1. Our Agency portfolio
had an average amortized cost basis of 103.5% of par as of September 30, 2013,
and generated a 2.13% yield in the third quarter. Our Non-Agency portfolio
had an average amortized cost of 73.4% of par as of September 30, 2013, and
generated a loss-adjusted yield of 7.33% in the third 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 September 30, 2013, MFA's costs for
compensation and benefits and other general and administrative expenses were
$8.7 million or an annualized 1.1% of stockholders' equity as of September 30,

William Gorin, MFA's President, added, "Our Non-Agency MBS portfolio continues
to benefit from its exposure to positive trends in housing fundamentals. More
than half of the underlying loans in the Non-Agency portfolio are in
California (approximately 45%) and Florida (approximately 8%), both of which
have experienced home price appreciation in excess of 10% over the last 12
months. Home price appreciation is generally due to a combination of limited
housing supply, low mortgage rates, capital flows into own-to-rent foreclosure
purchases and demographic-driven U.S. household formation. We believe that
MFA's $1.119 billion credit reserve appropriately factors in remaining
uncertainties regarding underlying mortgage performance and the potential
impact on future cash flows. Our Non-Agency MBS loss adjusted yield of 7.33%
is based on projected defaults that are 32% of underlying loans, while loans
that are currently more than 60 days delinquent represent only 17% of
underlying loans."

MFA's $4.973 billion fair market value of Non-Agency MBS had a face amount of
$5.866 billion, an amortized cost of $4.304 billion and a net purchase
discount of $1.561 billion at September 30, 2013. This discount consists of a
$1.119 billion credit reserve and other-than-temporary impairments and a
$442.2 million net accretable discount. At September 30, 2013, MFA's
Non-Agency MBS had 2.6% 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 third quarter.
This increase in prepayments is due entirely to an increase in prepayments for
Non-Agency MBS, as Agency MBS prepayment speeds experienced a slight decline.
Since Non-Agency MBS were primarily purchased at a discount, the increased
prepayment rate has a positive impact. The following table presents the
weighted average prepayment speed on MFA's MBS portfolio.

Table 1

                Third Quarter   Second Quarter
                2013 Average CPR
                                  2013 Average CPR
MBS Portfolio   18.77%            18.53%
Agency MBS      19.25%            20.19%
Non-Agency MBS  18.15%            16.37%

Due to increased interest rate uncertainty and higher interest rate
sensitivity on our Non-Agency MBS portfolio, MFA increased both the notional
amount and average maturity of its interest rate swaps during the second and
third quarters of this year. As of September 30, 2013, under its swap
agreements, MFA had a weighted average fixed-pay rate of interest of 1.93% and
a floating receive rate of 0.18% on notional balances totaling $4.079 billion,
with an average maturity of 51 months. MFA's estimated effective duration,
which is the measure of price sensitivity to changes in interest rates, was
approximately 0.65 as of September 30, 2013.

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

Table 2


At September 30, Agency MBS   Non-Agency   MBS Portfolio Cash (2)   Other, net   Total
2013                          MBS (1)                               (3)
Amortized Cost   $ 6,649,048  $ 4,406,768  $ 11,055,816  $ 563,127  $ (38,801)   $ 11,580,142
Market Value     $ 6,697,689  $ 5,079,609  $ 11,777,298  $ 563,127  $ (38,801)   $ 12,301,624
Less Payable for
Unsettled        —            —            —             —          —            —
Less Repurchase  (5,895,942)  (2,507,767)  (8,403,709)   —          —            (8,403,709)
Less Multi-year
Financing        —            (252,796)    (252,796)     —          —            (252,796)

Less Securitized —            (419,693)    (419,693)     —          —            (419,693)
Less Senior      —            —            —             —          (100,000)    (100,000)
Equity Allocated $ 801,747    $ 1,899,353  $ 2,701,100   $ 563,127  $ (138,801)  $ 3,125,426
Less Swaps at    —            —            —             —          (51,901)     (51,901)
Market Value
Net Equity       $ 801,747    $ 1,899,353  $ 2,701,100   $ 563,127  $ (190,702)  $ 3,073,525
Debt/Net Equity  7.35x        1.67x        —             —          —            3.07x
Ratio (4)
For the Quarter
Ended September
30, 2013
Yield on Average
Interest Earning 2.13%        7.33%        4.20%         0.02%      —            4.05%
Less Average
Cost of Funds    (1.12)       (2.91)       (1.74)        —          —            (1.74)
Senior Notes (6) —            —            —             —          (8.03)%      (8.03)
Net Interest     1.01%        4.42%        2.46%         0.02%      (8.03)%      2.24%
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 $106.2 million Non-Agency MBS and $82.4 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 $246.9 million for which U.S. Treasury securities are pledged as
collateral, interest payable, dividends payable, excise tax and interest
payable, TBA short positions, and accrued expenses and other liabilities.
(4)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 $252.8 million and
securitized debt as a multiple of net equity allocated. The numerator of our
Total Debt/Net Equity ratio also includes borrowings under repurchase
agreements of $246.9 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. Non-Agency cost of funds
includes 57 basis points associated with Swaps to hedge additional interest
rate sensitivity on these assets.
(6) Includes amortization costs in connection with the issuance in April 2012
of Senior

At September 30, 2013, MFA's $11.777 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
            Fair         Avg Avg    Fair         Avg Avg    Fair          Avg Avg
Time to                  MTR CPR                 MTR CPR                  MTR CPR
Reset       Value        (1)        Value        (1)        Value         (1) (2)
                             (2)                     (2)
< 2 years   $ 2,119,825  11  24.2%  $ 3,074,707  3   17.4%  $ 5,194,532   6   20.3%
2-5 years   1,010,058    44  30.7   503,782      36  20.2   1,513,840     41  26.8
> 5 years   1,007,143    76  18.6   —            —   —      1,007,143     76  18.6
ARM-MBS     $ 4,137,026  34  24.3%  $ 3,578,489  8   17.9%  $ 7,715,515   22  21.3%
15-year     $ 2,560,663      11.3%  $ 13,189         8.2%   $ 2,573,852       11.2%
fixed (4)
30-year     —                —      1,482,040        18.9   1,482,040         18.9
fixed (4)
40-year     —                —      5,891            10.2   5,891             10.2
fixed (4)
Fixed-Rate  $ 2,560,663      11.3%  $ 1,501,120      18.3%  $ 4,061,783       14.0%
MBS Total   $ 6,697,689      19.2%  $ 5,079,609      18.0%  $ 11,777,298      18.7%

1) MTR or Months To Reset is the number of months remaining before the coupon
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
3) Includes floating rate MBS that may be collateralized by fixed rate
4) Information presented based on data available at time of loan origination.

MFA plans to hold a conference call on Monday November 4, 2013 at 10:00 a.m.
(Eastern Time) to discuss its third quarter 2013 financial results. The number
to dial in order to listen to the conference call is (800) 230-1074 in the
U.S. and Canada. International callers must dial (612) 288-0337. A replay of
the call will be available through February 4, 2014 and can be accessed by
dialing (800) 475-6701 in the U.S. and Canada or (320) 365-3844
internationally and entering access code 307244. Live audio of the conference
call will also be accessible over the internet at
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 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

(In Thousands Except Per Share Amounts)          September30,  December 31,
                                                  2013           2012
Mortgage-backed securities ("MBS"):
Agency MBS, at fair value ($6,282,729 and         $ 6,697,689    $ 7,225,460
$6,747,299 pledged as collateral, respectively)
Non-Agency MBS, at fair value ($1,837,996 and     2,632,659      2,762,006
$1,602,953 pledged as collateral, respectively)
Non-Agency MBS transferred to consolidated    2,340,719      2,620,159
variable interest entities ("VIEs")
Securities obtained and pledged as collateral,    252,796        408,833
at fair value
Cash and cash equivalents                         503,852        401,293
Restricted cash                                   59,275         5,016
Interest Receivable                               37,804         44,033
Derivative instruments:
 MBS linked transactions, net ("Linked          23,940         12,704
Transactions"), at fair value
 Other derivative instruments, at fair value    4,629          203
Goodwill                                          7,189          7,189
Prepaid and other assets                          38,002         30,654
Total Assets                                      $ 12,598,554   $ 13,517,550
Repurchase agreements                             $ 8,568,171    $ 8,752,472
Securitized debt                                  419,693        646,816
Obligation to return securities obtained as       252,796        508,827
collateral, at fair value
8% Senior Notes due 2042 ("Senior Notes")         100,000        100,000
Accrued interest payable                          13,601         16,104
Other derivative instruments, at fair value       65,253         63,034
Dividends and dividend equivalents rights         81,171         72,222
("DERs") payable
Payable for unsettled purchases                   —              33,479
Excise tax and interest payable                   6,208          7,500
Accrued expenses and other liabilities            18,136         6,090
Total Liabilities                                 $ 9,525,029    $ 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 outstanding,      $ —            $ 38
respectively ($0 and $96,000 aggregate
 preference, respectively)
Preferred stock, $.01 par value; 7.50% Series B
cumulative redeemable 8,050 and 0

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

 aggregate liquidation preference,
Common stock, $.01 par value; 886,950 and
895,000 shares authorized; 365,833 and
357,546                                 3,658          3,575

 shares issued and outstanding, respectively
Additional paid-in capital, in excess of par      2,977,190      2,805,724
Accumulated deficit                               (573,065)      (260,308)
Accumulated other comprehensive income            665,662        761,977
Total Stockholders' Equity                        $ 3,073,525    $ 3,311,006
 Total Liabilities and Stockholders'      $ 12,598,554   $ 13,517,550

                                         Three Months Ended     Nine Months Ended
                                         September 30,          September 30,
(InThousands,ExceptPerShareAmounts) 2013        2012        2013        2012
Interest Income:
Agency MBS                               $ 36,158    $ 47,198    $ 116,982   $ 150,048
Non-Agency MBS                           43,131      37,087      128,175     95,555
Non-Agency MBS transferred to            39,172      40,812      116,641     128,502
consolidated VIEs
Cash and cash equivalent investments     21          38          93          84
Interest Income                          $ 118,482   $ 125,135   $ 361,891   $ 374,189
Interest Expense:
Repurchase agreements                    $ 37,113    $ 39,317    $ 105,185   $ 111,639
Securitized debt                         2,830       4,477       9,381       13,186
Senior Notes                             2,007       2,007       6,020       3,791
Total Interest Expense                   $ 41,950    $ 45,801    $ 120,586   $ 128,616
Net Interest Income                      $ 76,532    $ 79,334    $ 241,305   $ 245,573
Other-Than-Temporary Impairments:
Total other-than-temporary impairment    $ —         $ —         $ —         $ (879)
Portion of loss reclassed from other     —           —           —           (321)
comprehensive income
Net Impairment Losses Recognized in $ —         $ —         $ —         $ (1,200)
Other Income, net:
Unrealized net gains and net interest
income from Linked                      $ 544       $ 3,177     $ 1,785     $ 11,444
Unrealized losses on TBA short positions (8,724)     —           (8,724)     —
Gain on sales of MBS and U.S. Treasury   13,680      4,279       19,678      7,232
securities, net
Other, net                               55          1           165         2
Other Income, net                        $ 5,555     $ 7,457     $ 12,904    $ 18,678
Operating and Other Expense:
Compensation and benefits                $ 5,294     $ 5,984     $ 15,851    $ 16,752
Other general and administrative expense 3,434       2,666       10,175      8,679
Excise tax and interest                  —           —           2,000       —
Impairment of resecuritization related   2,031       —           2,031       —
Operating and Other Expense              $ 10,759    $ 8,650     $ 30,057    $ 25,431
Net Income                               $ 71,328    $ 78,141    $ 224,152   $ 237,620
Less Preferred Stock Dividends           3,750       2,040       10,000      6,120
Less Issuance Costs of Redeemed          —           —           3,947       —
Preferred Stock
Net Income Available to Common Stock and
Participating                            $ 67,578    $ 76,101    $ 210,205   $ 231,500

Earnings per Common Share - Basic and    $ 0.19      $ 0.21      $ 0.58      $ 0.65
Dividends Declared per Share of Common   $ 0.50      $ 0.21      $ 1.44      $ 0.68

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 September 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
September 30, 2013 are not measures of performance in accordance with GAAP, as
they exclude gain on sales of MBS and U.S. Treasury securities, net, changes
in fair value of MBS underlying our Linked Transactions, unrealized losses on
TBA short positions and impairment of resecuritization related costs.
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
September 30, 2013, are as follows:

                                                   Three Months Ended
                                                   September 30, 2013
(In Thousands, Except Per Share Amounts)           Reconciliation  Basic and
                                                                   Diluted EPS
GAAP Net Income Available to Common Stock and      $   67,578
Participating Securities
Less: Dividends and Dividend Equivalent Rights on  (230)
Participating Securities
GAAP Net Income Allocable to Common Stockholders   $   67,348      $  0.19
Non-GAAP Adjustments:
        Changes in Net Unrealized Gains on Linked  $   290
        Gain on Sales of MBS and U.S. Treasury     (13,680)
        Securities, net
        Unrealized losses on TBA short positions   8,724
        Impairment of resecuritization related     2,031
Total Adjustments to Arrive at Core Earnings       $   (2,635)     $  (0.01)
Core Earnings                                      $   64,713      $  0.18
Weighted Average Common Shares Outstanding - Basic 363,918
and 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 September 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,
unrealized losses on TBA short positions and impairment of resecuritization
related costs which are reflected in GAAP earnings.

CONTACT: MFA Investor Relations

SOURCE MFA Financial, Inc.