MFA Financial, Inc. Announces Fourth Quarter 2013 Financial Results

     MFA Financial, Inc. Announces Fourth Quarter 2013 Financial Results

PR Newswire

NEW YORK, Feb. 13, 2014

NEW YORK, Feb. 13, 2014 /PRNewswire/ --MFA Financial, Inc. (NYSE:MFA) today
announced financial results for the fourth quarter ended December 31, 2013.

Fourth Quarter 2013 and other highlights:

  oGenerated fourth quarter net income available to common shareholders of
    $74.8 million, or $0.20 per common share.
  oBook value per common share increased to $8.06 as of December 31, 2013
    from $7.85 as of September 30, 2013 due primarily to Non-Agency MBS price
    appreciation.
  oOn January 31, 2014, MFA paid its fourth quarter 2013 dividend of $0.20
    per share of common stock to stockholders of record as of December 31,
    2013.
  oIn the fourth quarter, MFA transferred $47.2 million from credit reserve
    to accretable discount, bringing the total transferred in 2013 to $207.9
    million. 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 7.33% in the third quarter to 7.77% in the fourth quarter.

William Gorin, MFA's CEO, said, "Despite changing interest rates and
prepayment speeds, MFA's key metrics remained generally consistent throughout
2013. Net interest rate spread was 2.34% in the fourth quarter versus a high
of 2.38% in the second quarter and a low of 2.24% in the third quarter. The
debt to equity ratio at the end of the fourth quarter was 3.0:1 versus 3.1:1
at the end of the first three quarters of the year.

"Our Non-Agency MBS portfolio continues to benefit from its exposure to
positive trends in housing fundamentals. Home price appreciation and
underlying mortgage loan amortization continue to decrease the Loan-To-Value
Ratio ("LTV") for many of the mortgages underlying MFA's Non-Agency portfolio.
We estimate that the LTV of mortgage loans underlying our Non-Agency MBS has
declined from approximately 105% as of January 2012 to less than 85% as of
December 31, 2013. As a result, we continue to reduce our estimate of future
losses."

Craig Knutson, MFA's President and COO, added, "More than half of the
underlying loans in the Non-Agency portfolio are in California and Florida
(approximately 46% and 8% respectively), both of which haveexperienced home
price appreciation in excess of 10% over the last 12 months. This 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.

"MFA's Non-Agency MBS had a face amount of $5.616 billion with an amortized
cost of $4.114 billion and a net purchase discount of $1.502 billion at
December 31, 2013. This discount consists of a $1.043 billion credit reserve
and other-than-temporary impairments and a $459.4 million net accretable
discount. We believe this 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 7.77%
is based on projected defaults equal to 30% of underlying loan balances. On
average, these loans are more than 7.5 years seasoned and only 16.5% are
currently more than 60 days delinquent."

For the fourth quarter ended December 31, 2013, MFA generated net income
available to common stockholders of $74.8 million, or $0.20 per share of
common stock. Net income includes a $375,000 increase in the fair value of
the securities underlying "Linked Transactions," $6.1 million of gains
realized on sales of MBS and US Treasury Securities, and $1.2 million of gains
realized on the closeout of Agency MBS TBA short positions.

In the quarter, the yield on interest earning assets increased due to the
higher yield on Non-Agency MBS resulting primarily from improvements in
underlying credit fundamentals and the higher yield on Agency MBS due to lower
premium amortization. The Agency portfolio had an average amortized cost
basis of 103.6% of par as of December 31, 2013, and generated a 2.37% yield in
the fourth quarter. The Non-Agency portfolio had an average amortized cost of
73.2% of par as of December 31, 2013, and generated a loss-adjusted yield of
7.77% in the fourth quarter. For the three months ended December 31, 2013,
MFA's costs for compensation and benefits and other general and administrative
expenses were $7.7 million or an annualized 0.98% of stockholders' equity as
of December 31, 2013.

Prepayments for MFA's MBS portfolio decreased in the fourth quarter. The
average CPR for the MBS portfolio declined 29%, with the largest decline in
the Agency MBS portion of the portfolio. The following table presents the
weighted average prepayment speed on MFA's MBS portfolio.

Table 1



                Fourth Quarter    Third Quarter     Percent
                2013 Average CPR
                                  2013 Average CPR  Change
MBS Portfolio   13.42%            18.77%            (28.50)%
Agency MBS      12.87%            19.25%            (33.14)%
Non-Agency MBS  14.16%            18.15%            (21.98)%



As of December 31, 2013, under its swap agreements, MFA had a weighted average
fixed-pay rate of interest of 1.91% and a floating receive rate of 0.17% on
notional balances totaling $4.045 billion, with an average maturity of 49
months. MFA's estimated effective duration, which is the measure of price
sensitivity to changes in interest rates, was approximately 0.90 as of
December 31, 2013.

The following table presents MFA's asset allocation as of December 31, 2013
and the fourth 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 December 31,  Agency MBS   Non-Agency   MBS           Cash (2)   Other, net   Total
2013                          MBS (1)      Portfolio                (3)
($inThousands)
Amortized Cost   $ 6,504,846  $ 4,240,097  $ 10,744,943  $ 602,890  $ (31,509)   $ 11,316,324
Market Value     $ 6,519,221  $ 4,982,927  $ 11,502,148  $ 602,890  $ (31,509)   $ 12,073,529
Less Payable for
Unsettled        (6,737)      —            (6,737)       —          —            (6,737)
Purchases
Less Repurchase  (5,750,053)  (2,309,323)  (8,059,376)   —          —            (8,059,376)
Agreements
Less Multi-year
Collateralized
Financing        —            (383,743)    (383,743)     —          —            (383,743)

 Arrangements
Less Securitized —            (366,205)    (366,205)     —          —            (366,205)
Debt
Less Senior      —            —            —             —          (100,000)    (100,000)
Notes
Equity Allocated $ 762,431    $ 1,923,656  $ 2,686,087   $ 602,890  $ (131,509)  $ 3,157,468
Less Swaps at    —            —            —             —          (15,217)     (15,217)
Market Value
Net Equity       $ 762,431    $ 1,923,656  $ 2,686,087   $ 602,890  $ (146,726)  $ 3,142,251
Allocated
Debt/Net Equity  7.6x         1.6x         —             —          —            3.0x
Ratio (4)
For the Quarter
Ended December
31, 2013
Yield on Average
Interest Earning 2.37%        7.77%        4.48%         0.02%      —            4.26%
Assets
Less Average MBS
Cost of Funds    (1.26)       (3.01)       (1.85)        —          —            (1.85)
(5)
Senior Notes (6) —            —            —             —          (8.03)%      (8.03)
Net Interest     1.11%        4.76%        2.63%         0.02%      (8.03)%      2.34%
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 $130.8 million
Non-Agency MBS and $102.7 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 $382.7 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, payable for unsettled purchases, multi-year collateralized financing
arrangements of $383.7 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 $382.7 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 72 basis points associated
with Swaps to hedge additional interest rate sensitivity on these assets.
(6) Includes amortization costs in connection with the issuance in of Senior Notes.



At December 31, 2013, MFA's $11.502 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)
            Fair         Avg Avg     Fair          Avg Avg     Fair          Avg Avg
Time to
Reset       Value        MTR CPR     Value         MTR CPR    Value         MTR CPR
                         (1) (2)                   (1) (2)                   (1) (2)
< 2 years   $ 1,994,323  10  16.3%   $ 3,072,603   4   12.3%   $ 5,066,926   6   13.8%
(3)
2-5 years   1,155,070    43  18.5    410,635       35  22.6    1,565,705     41  19.7
> 5 years   909,762      76  12.1    —             —   —       909,762       76  12.1
ARM-MBS     $ 4,059,155  34  15.9%   $  3,483,238  8   13.6%   $ 7,542,393   22  14.8%
Total
15-year     $ 2,460,066      8.8%    $  16,756         18.6%   $ 2,476,822       8.1%
fixed (4)
30-year     —                —       1,477,099         15.1    1,477,099         15.1
fixed (4)
40-year     —                —       5,834             10.5    5,834             10.5
fixed (4)
Fixed-Rate  $ 2,460,066      8.8%    $ 1,499,689       15.1%   $ 3,959,755       10.6%
Total
MBS Total   $ 6,519,221      12.9%   $ 4,982,927       14.0%   $ 11,502,148      13.4%
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.
4) Information presented based on data available at time of loan origination.



MFA Financial, Inc. plans to host a live audio webcast of its investor
conference call on Thursday, February 13, 2014, at 10:00 a.m. (Eastern Time)
to discuss its fourth quarter 2013 financial results. The live audio webcast
will be accessible to the general public over the internet at
http://www.mfafinancial.comthrough the "Webcasts & Presentations" link on
MFA's home page. To listen to the conference call over the internet, please
go to the MFA website at least 15 minutes before the call to register and to
download and install any needed audio software. Earnings presentation
materials will be posted on the MFA website prior to the conference call and
an audio replay will be available on the 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.



CONSOLIDATED BALANCE SHEETS
                                                  December31,   December 31,
(In Thousands Except Per Share Amounts)          2013
                                                                 2012
                                                  (Unaudited)
Assets:
Mortgage-backed securities ("MBS"):
Agency MBS, at fair value ($6,142,306 and         $ 6,519,221    $ 7,225,460
$6,747,299 pledged as collateral, respectively)
Non-Agency MBS, at fair value ($1,778,067 and     2,569,766      2,762,006
$1,602,953 pledged as collateral, respectively)
Non-Agency MBS transferred to consolidated      2,282,371      2,620,159
variable interest entities ("VIEs")
Securities obtained and pledged as collateral,    383,743        408,833
at fair value
Cash and cash equivalents                         565,370        401,293
Restricted cash                                   37,520         5,016
Interest Receivable                               35,828         44,033
Derivative instruments:
 MBS linked transactions, net ("Linked          28,181         12,704
Transactions"), at fair value
 Derivative hedging instruments, at fair value  13,000         203
Goodwill                                          7,189          7,189
Prepaid and other assets                          29,719         30,654
Total Assets                                      $ 12,471,908   $ 13,517,550
Liabilities:
Repurchase agreements                             $ 8,339,297    $ 8,752,472
Securitized debt                                  366,205        646,816
Obligation to return securities obtained as       383,743        508,827
collateral, at fair value
8% Senior Notes due 2042 ("Senior Notes")         100,000        100,000
Accrued interest payable                          14,726         16,104
Derivative hedging instruments, at fair value     28,217         63,034
Dividends and dividend equivalents rights         73,643         72,222
("DERs") payable
Payable for unsettled purchases                   6,737          33,479
Excise tax and interest payable                   6,398          7,500
Accrued expenses and other liabilities            10,691         6,090
Total Liabilities                                 $ 9,329,657    $ 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
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; 365,125 and 357,546    3,651          3,575

 shares issued and outstanding, respectively
Additional paid-in capital, in excess of par      2,972,369      2,805,724
Accumulated deficit                               (571,544)      (260,308)
Accumulated other comprehensive income            737,695        761,977
Total Stockholders' Equity                        $ 3,142,251    $ 3,311,006
Total Liabilities and Stockholders'        $ 12,471,908   $ 13,517,550
Equity





CONSOLIDATED STATEMENTS OF OPERATIONS
                                         Three Months Ended        For the Year Ended

                                         December 31,              December 31,
(InThousands,ExceptPerShareAmounts) 2013         2012         2013         2012
                                         (Unaudited)  (Unaudited)  (Unaudited)
Interest Income:
Agency MBS                               $  39,064    $  46,010    $  156,046   $ 196,058
Non-Agency MBS                           42,310       39,346       170,485      134,901
Non-Agency MBS transferred to            39,644       39,569       156,285      168,071
consolidated VIEs
Cash and cash equivalent investments     31           43           124          127
Interest Income                          $  121,049   $  124,968   $  482,940   $ 499,157
Interest Expense:
Repurchase agreements                    $  38,700    $  37,128    $  143,885   $ 148,767
Securitized debt                         2,719        3,920        12,100       17,106
Senior Notes                             2,008        2,006        8,028        5,797
Total Interest Expense                   $  43,427    $  43,054    $  164,013   $ 171,670
Net Interest Income                      $  77,622    $  81,914    $  318,927   $ 327,487
Other-Than-Temporary Impairments:
Total other-than-temporary impairment    $  —         $  —         $  —         $ (879)
losses
Portion of loss reclassed from other     —            —            —            (321)
comprehensive income
 Net Impairment Losses Recognized in  $  —         $  —         $  —         $ (1,200)
Earnings
Other Income, net:
Unrealized net gains and net interest
income from Linked                       $  1,440     $  1,166     $  3,225     $ 12,610

 Transactions
Gains/(Losses) on TBA short positions    1,207        —            (7,517)      —
Gain on sales of MBS and U.S. Treasury   6,147        1,769        25,825       9,001
securities, net
Other, net                               54           8            219          10
Other Income, net                        $  8,848     $  2,943     $  21,752    $ 21,621
Operating and Other Expense:
Compensation and benefits                $  4,477     $  5,337     $  20,328    $ 22,089
Other general and administrative expense 3,186        2,801        13,361       11,480
Excise tax and interest                  250          7,500        2,250        7,500
Impairment of resecuritization related   —            —            2,031        —
costs
Operating and Other Expense              $  7,913     $  15,638    $  37,970    $ 41,069
Net Income                               $  78,557    $  69,129    $  302,709   $ 306,839
Less Preferred Stock Dividends           3,750        2,040        13,750       8,160
Less Issuance Costs of Redeemed          —            —            3,947        —
Preferred Stock
Net Income Available to Common Stock and
Participating                            $  74,807    $  67,179    $  285,012   $ 298,679

 Securities
Earnings per Common Share - Basic and    $  0.20      $  0.19      $  0.78      $ 0.83
Diluted
Dividends Declared per Share of Common   $  0.20      $  0.20      $  1.64      $ 0.88
Stock



INVESTOR CONTACT: InvestorRelations@mfafinancial.com
                  212-207-6433
                  www.mfafinancial.com
MEDIA CONTACT:   Abernathy MacGregor
                  Tom Johnson, Andrew Johnson
                  212-371-5999



SOURCE MFA Financial, Inc.

Website: http://www.mfafinancial.com
 
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