MFA Financial, Inc. Announces First Quarter 2014 Financial Results

      MFA Financial, Inc. Announces First Quarter 2014 Financial Results

PR Newswire

NEW YORK, May 1, 2014

NEW YORK, May 1, 2014 /PRNewswire/ --MFA Financial, Inc. (NYSE:MFA) today
announced financial results for the first quarter ended March 31, 2014.

First Quarter 2014 and other highlights:

  oGenerated first quarter net income available to common shareholders of
    $72.4 million, or $0.20 per common share ^ (based on 365.8 million
    weighted average common shares).
  oBook value per common share increased to $8.20 as of March 31, 2014 from
    $8.06 as of December 31, 2013 due primarily to Non-Agency MBS price
  oOn April 30, 2014, MFA paid its first quarter 2014 dividend of $0.20 per
    share of common stock to shareholders of record as of March 28, 2014.

In the first quarter, both net income and dividend per common share were
$0.20. Net income of $72.4 million includes $3.6 million of gains realized on
sales of MBS and a $1.8 million increase in the fair value of the securities
underlying "Linked Transactions." Non-Agency MBS price performance was again a
key contributor to increased book value per common share.

William Gorin, MFA's CEO, said, "In the first quarter, MFA continued to
generate consistent and attractive results in an investment environment
characterized by very low short-term interest rates. MFA remains positioned
for a more flexible monetary policy by the Federal Reserve based on measures
of the labor markets, core inflation and other incoming data. Due to our
strategy of investment across the residential mortgage asset universe, we were
able to increase the yield on MFA's interest earning assets during the quarter
to 4.32% while also reducing estimated effective duration, a measure of MFA's
interest rate sensitivity, to 0.83. Leverage, which reflects the ratio of our
financing obligations to equity, remained at 2.9:1."

Craig Knutson, MFA's President and COO, added, "Our credit sensitive assets
continued to benefit from improved housing fundamentals. Home price
appreciation and underlying mortgage loan amortization further decreased the
Loan-To-Value Ratio ("LTV") for many of the mortgages underlying MFA's
Non-Agency portfolio. We estimate that the average LTV of mortgage loans
underlying our Non-Agency MBS has declined from approximately 105% as of
January 2012 to approximately 82% as of March 31, 2014. In addition, we
estimate that the percentage of current loans underlying our Non-Agency MBS
that are underwater (with LTVs greater than 100%), has declined from
approximately 52% as of January 2012 to 16% as of March 31, 2014. As a result,
we have again reduced our estimate of future losses. In the first quarter,
$35.9 million was transferred from credit reserve to accretable discount. This
will be reflected in increased interest income over the remaining life of
MFA's Non-Agency MBS."

MFA's Non-Agency MBS had a face amount of $5.742 billion with an amortized
cost of $4.258 billion and a net purchase discount of $1.484 billion at March
31, 2014. This discount consists of a $1.042 billion credit reserve and
other-than-temporary impairments and a $441.6 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 7.80%
for the first quarter is based on projected defaults equal to 28% of
underlying loan balances. On average, these loans are approximately eight
years seasoned and approximately 16% are currently 60 or more days delinquent.

The Agency portfolio had an average amortized cost basis of 103.8% of par as
of March 31, 2014, and generated a 2.39% yield in the first quarter. The
Non-Agency portfolio had an average amortized cost of 74.2% of par as of March
31, 2014, and generated a loss-adjusted yield of 7.80% in the first quarter.
In addition, as of the end of the first quarter, MFA holds approximately $200
million of the senior-most tranches of 2013/2014 securitizations of
re-performing/non-performing loans ("RPL/NPL MBS"). These assets, which have
an amortized cost of 99.7% of par, and generated an average yield of 4.24% in
the quarter, are reported as a component of Linked Transactions.

For the three months ended March 31, 2014, MFA's costs for compensation and
benefits and other general and administrative expenses were $10.5 million or
an annualized 1.31% of stockholders' equity as of March 31, 2014. G&A expense
for the quarter reflects the personnel and business development expense
supporting our residential asset investment strategy.

Prepayments for MFA's MBS portfolio decreased in the first quarter. The
following table presents the weighted average prepayment speed on MFA's MBS

Table 1

                First Quarter     Fourth Quarter    Percent
                2014 Average CPR
                                  2013 Average CPR  Change
MBS Portfolio   11.71%            13.42%            (12.74)%
Agency MBS      11.54%            12.87%            (10.33)%
Non-Agency MBS  11.90%            14.16%            (15.96)%

As of March 31, 2014, under its swap agreements, MFA had a weighted average
fixed-pay rate of interest of 1.89% and a floating receive rate of 0.16% on
notional balances totaling $4.203 billion, with an average maturity of 47

The following table presents, on a non-GAAP basis, MFA's asset allocation as
of March 31, 2014 and the first quarter 2014 yield on average interest earning
assets, average cost of funds and net interest rate spread for the various
asset types.

Table 2

At March 31,     Agency MBS   Non-Agency   RPL/NPL    MBS Portfolio Cash (2)   Other, net   Total
2014                          MBS (1)      MBS (1)                             (3)
Amortized Cost   $ 6,808,815  $ 4,318,524  $ 199,120  $ 11,326,459  $ 300,811  $ (12,199)   $ 11,615,071
Market Value     $ 6,841,033  $ 5,110,069  $ 200,634  $ 12,151,736  $ 300,811  $ (12,199)   $ 12,440,348
Less Payable for
Unsettled        —            —            —          —             —          —            —
Less Repurchase  (6,018,689)  (2,206,066)  (155,322)  (8,380,077)   —          —            (8,380,077)
Less Multi-year
                 —            (435,888)    —          (435,888)     —          —            (435,888)
Less Securitized —            (292,526)    —          (292,526)     —          —            (292,526)
Less Senior      —            —            —          —             —          (100,000)    (100,000)
Equity Allocated $ 822,344    $ 2,175,589  $ 45,312   $ 3,043,245   $ 300,811  $ (112,199)  $ 3,231,857
Less Swaps at    —            —            —          —             —          (27,270)     (27,270)
Market Value
Net Equity       $ 822,344    $ 2,175,589  $ 45,312   $ 3,043,245   $ 300,811  $ (139,469)  $ 3,204,587
Debt/Net Equity  7.32x        1.35x        3.43x      2.99x         —          —            3.01x
Ratio (4)
For the Quarter
Ended March 31,
Yield on Average
Interest Earning 2.39 %       7.80 %       4.24%      4.50%         0.02%      —            4.33%

 Assets (7)
Less Average MBS
Cost of Funds    (1.21)       (2.97)       (1.80)     (1.80)        —          —            (1.80)
Senior Notes (6) —            —            —          —             —          (8.03)%      (8.03)
Net Interest     1.18 %       4.83 %       2.44%      2.70%         0.02%      (8.03)%      2.46%
Rate Spread (7)
(1) Information with respect to Non-Agency MBS and RPL/NPL MBS, related repurchase agreement borrowings
and resulting totals is presented on a non-GAAP basis, as it includes $68.6 million of Non-Agency MBS,
$196.9 million of RPL/NPL MBS and $206.0 million of repurchase agreements underlying "Linked
Transactions." The purchase of a Non-Agency or RPL/NPL 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
(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 $432.0 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) Information presented on a non-GAAP basis. For the Agency, Non-Agency and RPL/NPL MBS portfolios,
represents the sum of borrowings under repurchase agreements (including an aggregate $206.0 million of
repurchase agreements underlying linked transactions), payable for unsettled purchases, multi-year
collateralized financing arrangements of $435.9 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 $432.0 million for which U.S. Treasury securities are pledged as collateral and Senior
Notes. On a GAAP basis, which excludes the impact of Linked Transactions, our Debt/Net Equity ratio is
1.33x for Non-Agency MBS, 0.0x for RPL/NPL MBS and 2.94x in total.
(5) Information presented on a non-GAAP basis. Average MBS cost of funds includes interest on repurchase
agreements (including $206.0 million of repurchase agreements underlying Linked Transactions), the cost
of swaps and securitized debt. Agency cost of funds includes 85 basis points and Non-Agency cost of funds
includes 74 basis points associated with Swaps to hedge interest rate sensitivity on these assets. On a
GAAP basis, which excludes the impact of Linked Transactions, the average MBS cost of funds for the
quarter was (1.80)%.
(6) Includes amortization costs in connection with the issuance in of Senior Notes.
(7) Information presented on a non-GAAP basis. On a GAAP basis, which excludes the impact of Linked
Transactions, the yield on average interest earning assets for the quarter is 4.32% and the net interest
rate spread for the quarter was 2.44%.

At March 31, 2014, MFA's $11.951 billion of Agency and Non-Agency MBS, which
includes $68.6 million of Non-Agency MBS underlying Linked Transactions, were
backed by hybrid, adjustable and fixed-rate mortgages. Additional information
about these MBS, including average 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
Reset       Value       MTR CPR     Value       MTR CPR    Value        MTR CPR
                        (1) (2)                 (1) (2)                  (1) (2)
< 2 years   $ 2,324,385 8   14.1 %  $ 2,967,167 5   10.7 %  $ 5,291,552  6   12.0 %
2-5 years   1,394,257   44  17.7    539,497     33  17.8    1,933,754    41  17.7
> 5 years   706,398     77  10.2    —           —   —       706,398      77  10.2
ARM-MBS     $ 4,425,040 30  14.6 %  $ 3,506,664 9   11.8 %  $  7,931,704 21  13.2 %
15-year     $ 2,415,993     6.6  %  $ 12,737        21.6 %  $  2,428,730     6.6  %
fixed (4)
30-year     —               —       1,584,776       12.1    1,584,776        12.1
fixed (4)
40-year     —               —       5,892           3.4     5,892            3.4
fixed (4)
Fixed-Rate  $ 2,415,993     6.6  %  $ 1,603,405     12.2 %  $ 4,019,398      8.9  %
MBS Total   $ 6,841,033     11.5 %  $ 5,110,069     11.9 %  $ 11,951,102     11.7 %
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, May 1, 2014 at 10:00 a.m. (Eastern Time) to
discuss its first quarter 2014 financial results. The live audio webcast will
be accessible to the general public over the internet at through 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

(In Thousands Except Per Share Amounts)          March 31,      December 31,
                                                  2014          2013
Mortgage-backed securities ("MBS"):
Agency MBS, at fair value ($6,404,803 and         $ 6,841,033    $ 6,519,221
$6,142,306 pledged as collateral, respectively)
Non-Agency MBS, at fair value ($1,776,353 and     2,801,336      2,569,766
$1,778,067 pledged as collateral, respectively)
 Non-Agency MBS transferred to consolidated     2,243,819      2,282,371
variable interest entities ("VIEs")
Securities obtained and pledged as collateral,    435,888        383,743
at fair value
Cash and cash equivalents                         274,672        565,370
Restricted cash                                   26,139         37,520
Interest receivable                               36,680         35,828
Derivative instruments:
 MBS linked transactions, net ("Linked          59,826         28,181
Transactions"), at fair value
 Swaps, at fair value                           5,485          13,000
Goodwill                                          7,189          7,189
Prepaid and other assets                          60,922         29,719
Total Assets                                      $ 12,792,989   $ 12,471,908
Repurchase agreements                             $ 8,606,129    $ 8,339,297
Securitized debt                                  292,526        366,205
Obligation to return securities obtained as       435,888        383,743
collateral, at fair value
8% Senior Notes due 2042 ("Senior Notes")         100,000        100,000
Accrued interest payable                          11,743         14,726
Swaps, at fair value                              32,755         28,217
Dividends and dividend equivalents rights         73,875         73,643
("DERs") payable
Excise tax and interest payable                   6,198          6,398
Accrued expenses and other liabilities            29,288         17,428
Total Liabilities                                 $ 9,588,402    $ 9,329,657
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.01 par value; 7.50% Series B
cumulative redeemable; 8,050 shares authorized;   $ 80           $ 80
 8,000 shares issued and outstanding ($200,000
aggregate liquidation preference)
Common stock, $.01 par value; 886,950 shares
authorized; 366,217 and 365,125 shares issued     3,662          3,651
 and outstanding, respectively
Additional paid-in capital, in excess of par      2,981,287      2,972,369
Accumulated deficit                               (572,627)      (571,544)
Accumulated other comprehensive income            792,185        737,695
Total Stockholders' Equity                        $ 3,204,587    $ 3,142,251
 Total Liabilities and Stockholders'       $ 12,792,989   $ 12,471,908

                                                      Three Month Ended

                                                      March 31,
(InThousands,ExceptPerShareAmounts)              2014         2013
                                                      (Unaudited)  (Unaudited)
Interest Income:
Agency MBS                                            $  39,329    $  42,787
Non-Agency MBS                                        43,155       41,047
Non-Agency MBS transferred to consolidated VIEs       38,664       38,868
Cash and cash equivalent investments                  26           36
Interest Income                                       $  121,174   $  122,738
Interest Expense:
Repurchase agreements                                 $  36,729    $  34,675
Securitized debt                                      2,185        3,476
Senior Notes                                          2,007        2,007
Total Interest Expense                                $  40,921    $  40,158
Net Interest Income                                   $  80,253    $  82,580
Other Income, net:
Unrealized net gains and net interest income from     $  3,251     $  1,536
Linked Transactions
Gain on sales of MBS and U.S. Treasury securities,    3,571        1,633
Other, net                                            (416)        55
Other Income, net                                     $  6,406     $  3,224
Operating and Other Expense:
Compensation and benefits                             $  6,507     $  5,273
Other general and administrative expense              3,964        3,180
Operating and Other Expense                           $  10,471    $  8,453
Net Income                                            $  76,188    $  77,351
Less Preferred Stock Dividends                        3,750        2,040
Net Income Available to Common Stock and              $  72,438    $  75,311
Participating Securities
Earnings per Common Share - Basic and Diluted         $  0.20      $  0.21
Dividends Declared per Share of Common Stock          $  0.20      $  0.72

MEDIA CONTACT:    Abernathy MacGregor
                  Tom Johnson, Andrew Johnson

SOURCE MFA Financial, Inc.

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