MFA Financial, Inc. Announces Second Quarter 2017 Financial Results

     MFA Financial, Inc. Announces Second Quarter 2017 Financial Results

PR Newswire

NEW YORK, Aug. 2, 2017

NEW YORK, Aug. 2, 2017 /PRNewswire/ -- MFA Financial, Inc. (NYSE: MFA) today
announced its financial results for the second quarter ended June 30, 2017.

Second Quarter 2017 and other highlights:

  o MFA generated second quarter net income available to common shareholders
    of $76.2 million, or $0.20 per common share (based on 386.3 million
    weighted average common shares outstanding). As of June 30, 2017, book
    value per common share was $7.76.
  o On July 28, 2017, MFA paid its second quarter 2017 dividend of $0.20 per
    share of common stock to shareholders of record as of June 29, 2017.
  o MFA acquired or committed to purchase over $1.0 billion of residential
    mortgage assets in the second quarter, including $340.6 million of credit
    sensitive whole loans.
  o We completed a common equity offering in May, selling 23.0 million common
    shares, for net proceeds of $178.3 million.
  o MFA completed a rated securitization of re-performing whole loans in June,
    selling $147.8 million of rated bonds to third-party investors.

William Gorin, MFA's Co-CEO, said, "In the second quarter, we continued to
execute our strategy of targeted investment within the residential mortgage
universe with a focus on credit sensitive assets.  We acquired assets in every
one of our investment asset classes during the quarter.  Further, we
opportunistically sold $16.9 million of Non-Agency MBS issued prior to 2008
("Legacy Non-Agency MBS"), realizing gains of $5.9 million for the quarter. 
This is the twentieth consecutive quarter we have realized gains through
selected sales of Legacy Non-Agency MBS based on our projections of future
cash flows relative to market pricing.

"MFA remains well-positioned to generate attractive returns despite
historically low interest rates.  Through asset selection and hedging
strategy, the estimated net effective duration, a gauge of MFA's interest rate
sensitivity, remains low and measured 0.76 at quarter-end.  MFA's book value
per common share increased to $7.76 versus $7.62 at the end of 2016. 
Leverage, which reflects the ratio of our financing obligations to equity, was
2.5:1 at quarter-end."

Craig Knutson, MFA's Co-CEO, President and COO, added, "MFA's portfolio asset
selection process continues to emphasize residential mortgage credit exposure
while seeking to minimize sensitivity to interest rates.  As housing prices
maintain their upward trend and borrowers repair their credit and balance
sheets, MFA's Legacy Non-Agency MBS portfolio continues to outperform our
credit assumptions.  In the second quarter of  2017, we reduced our credit
reserve on this portfolio by $9.8 million.  Also, our credit sensitive
residential whole loans offer additional exposure to residential mortgage
credit while affording us the opportunity to improve outcomes through sensible
and effective servicing decisions.  We successfully bid on four whole loan
packages with an investment amount of $340.6 million during the second

During the second quarter, while MFA successfully purchased (or committed to
purchase) over $1 billion of investments in 3 Year Step-Up securities, credit
sensitive whole loans and CRT Securities, we also experienced an elevated
level of runoff in 3 Year Step-Up securities as issuers called a number of
deals and refinanced at lower coupons.

MFA's Legacy Non-Agency MBS had a face amount of $3.1 billion with an
amortized cost of $2.2 billion and a net purchase discount of $882.2 million
at June 30, 2017.  This discount consists of a $626.5 million credit reserve
and other-than-temporary impairments and a $255.7 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 Legacy Non-Agency MBS have underlying
mortgage loans that are on average approximately eleven years seasoned and
approximately 12.0% are currently 60 or more days delinquent.

The Agency MBS portfolio had an amortized cost basis of 103.8% of par as of
June 30, 2017, and generated a 1.96% yield in the second quarter.  The Legacy
Non-Agency MBS portfolio had an amortized cost of 71.8% of par as of June 30,
2017, and generated a loss-adjusted yield of 8.85% in the second quarter.  At
the end of the second quarter, MFA held approximately $1.7 billion of 3 year
step-up securities.  These securities had an amortized cost of 99.9% of par
and generated a 4.38% yield for the quarter. 

In addition, at June 30, 2017, our investments in credit sensitive residential
whole loans totaled $1.6 billion.  Of this amount, $661.3 million is recorded
at carrying value, or 83.6% of the interest-bearing unpaid principal balance,
and generated a loss-adjusted yield of 5.99% (5.68% net of servicing costs)
during the quarter, and $983.3 million is recorded at fair value on our
consolidated balance sheet.  On this portion of the portfolio, we recorded
gains for the quarter of approximately $16.2 million, primarily reflecting
changes in the fair value of the underlying loans and coupon interest payments
received during the quarter.

For the three months ended June 30, 2017, MFA's costs for compensation and
benefits and other general and administrative expenses were $13.3 million, or
an annualized 1.63% of stockholders' equity as of June 30, 2017.

The following table presents the weighted average prepayment speed on MFA's
MBS portfolio.

Table 1
                               Second Quarter    First Quarter
                               2017 Average CPR  2017 Average CPR
Agency MBS                     16.3%             15.1%
Legacy Non-Agency MBS          18.2%             16.8%
3 Year Step-up securities (1)  33.4%             25.7%

    All principal payments are considered to be prepayments for conditional
    rate ("CPR") purposes.  3 year step-up securities are securitized
(1) instruments that are primarily backed by securitized re-performing and
    performing loans.  The majority of these securities are structured such
    that the
    coupon increases up to 300 basis points at 36 months from issuance or

As of June 30, 2017, under its swap agreements, MFA had a weighted average
fixed-pay rate of interest of 2.04% and a floating receive rate of 1.20% on
notional balances totaling $2.6 billion, with an average maturity of 33

The following table presents MFA's asset allocation as of June 30, 2017, and
the second quarter 2017 yield on average interest-earning assets, average cost
of funds and net interest rate spread for the various asset types.

Table 2
                        Legacy                        Residential Residential
                                3 Year     Credit     Whole       Whole       Other,
At June 30,     Agency  Non-               Risk                                      Total
2017            MBS     Agency  Step-Up    Transfer   Loans, at   Loans, at   net
                        MBS     Securities Securities Carrying    Fair Value  (1)
($ in Millions)
Value/Carrying  $ 3,248 $ 2,897 $  1,695   $   636    $  662      $  983      $  799 $ 10,920
Less Payable
for Unsettled        —       —       (24)          —       (101)       (239)       — (364)
Less Repurchase (2,882) (1,833) (1,217)    (401)      (205)       (452)       (51)   (7,041)
Less Senior     —       —       —          —          —           —           (97)   (97)
Securitized     —       —       —          —          (115)       (28)        —      (143)
Net Equity      $ 366   $ 1,064 $  454     $   235    $  241      $  264      $  651 $ 3,275
Debt/Net Equity 7.9x    1.7x    2.7x       1.7x       1.7x        2.7x               2.5x
Ratio (2)
For the Quarter Ended June 30,
Yield on
Interest        1.96%   8.85%   4.38%      5.98%      5.99%       N/A         —%     4.61%
Assets (3)
Less Average
Cost of Funds   (1.57)  (3.28)  (2.50)     (2.38)     (3.38)      (3.53)      —      (2.51)
Net Interest    0.39%   5.57%   1.88%      3.60%      2.61%       N/A         —%     2.10%
Rate Spread

    Includes cash and cash equivalents and restricted cash, securities
(1) obtained and pledged as collateral, other assets, obligation to return
    securities obtained as collateral and other liabilities.
    Represents the sum of borrowings under repurchase agreements, and
(2) securitized debt as a multiple of net equity allocated.  The numerator of
    our Total Debt/Net Equity Ratio also includes the obligation to return
    securities obtained as collateral of $510.2 million and Senior Notes.
    Yields reported on our interest earning assets are calculated based on the
    interest income recorded and the average amortized cost for the quarter of
    the respective asset.  At June 30, 2017, the amortized cost of our
    interest earning assets were as follows: Agency MBS - $3.2 billion; Legacy
    Non-Agency MBS - $2.2 billion; 3 year step-up securities - $1.7 billion;
    Credit Risk Transfer securities - $588.0 million; and Residential Whole
    Loans at carrying value - $661.3 million. In addition, the yield for
(3) residential whole loans at carrying value was 5.68% net of 31 basis points
    of servicing fee expense incurred during the quarter.  For GAAP reporting
    purposes, such expenses are included in Loan servicing and other related
    operating expenses in our statement of operations.  Interest payments
    received on residential whole loans at fair value is reported in Other
    Income as Net gain on residential whole loans held at fair value in our
    statement of operations.  Accordingly, no yield is presented as such loans
    are not included in interest earning assets for reporting purposes.
    Average cost of funds includes interest on repurchase agreements and other
    advances, the cost of swaps and Senior Notes.  Agency cost of funds
(4) includes 49 basis points and Legacy Non-Agency cost of funds includes 58
    basis points associated with swaps to hedge interest rate sensitivity on
    these assets.


At June 30, 2017, MFA's $6.1 billion of Agency and Legacy Non-Agency MBS 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                Legacy Non-Agency MBS    Total (1)
                    Average                   Average 3                Average
Time to     Fair    Months  3 Month   Fair    Months  Month    Fair    Months  3 Month
Reset       Value   to      Average   Value   to      Average  Value   to      Average
            (2)     Reset   CPR (4)           Reset   CPR (4)  (2)     Reset   CPR (4)
                    (3)                       (3)                      (3)
($ in
< 2 years   $ 1,710 8       21.7%     $ 1,972 5       18.6%    $ 3,682 6       20.0%
2-5 years   155        40   13.0           —      —   —            155 40      13.0
> 5 years       95  66      5.5       —       —       —        95      66      5.5
ARM-MBS     $ 1,960 14      20.3%     $ 1,972 5       18.6%    $ 3,932 9       19.4%
15-year     $ 1,287         10.4%     $ 4             18.2%    $ 1,291         10.4%
fixed (6)
30-year     —               —         881             17.3     881             17.3
fixed (6)
40-year     —               —         40              19.0     40              19.0
fixed (6)
Fixed-Rate  $ 1,287         10.4%     $ 925           17.4%    $ 2,212         13.5%
MBS Total   $ 3,247         16.3%     $ 2,897         18.2%    $ 6,144         17.3%


(1) Excludes $1.7 billion of 3 year step-up securities.
(2) Does not include principal payments receivable of $1.6 million.
    Months to Reset is the number of months remaining before the coupon
    interest rate resets. At reset, the MBS coupon will adjust based
(3) upon the underlying benchmark interest rate index, margin and periodic or
    lifetime caps.  Months to Reset does not reflect scheduled
    amortization or prepayments.
(4) 3 month average CPR weighted by positions as of beginning of each month in
    the quarter.
(5) Includes floating rate MBS that may be collateralized by fixed-rate
(6) 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 Wednesday, August 2, 2017, at 11:00 a.m. (Eastern Time) to
discuss its second quarter 2017 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.

Cautionary Language Regarding Forward-Looking Statements
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," "could," "would," "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, an increase of
which could result in a reduction of the yield on MBS in our portfolio and
could require us to reinvest the proceeds received by us as a result of such
prepayments in MBS with lower coupons; credit risks underlying MFA's assets,
including changes in the default rates and management's assumptions regarding
default rates on the mortgage loans securing MFA's Non-Agency MBS and relating
to MFA's residential whole loan portfolio; MFA's ability to borrow to finance
its assets and the terms, including the cost, maturity and other terms, of any
such borrowings; 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 MFA to accrete the market discount on Non-Agency MBS and
residential whole loans and the extent of prepayments, realized losses and
changes in the composition of MFA's Agency MBS, Non-Agency MBS and residential
whole loan portfolios that may occur during the applicable tax period,
including gain or loss on any MBS disposals and whole loan modification,
foreclosure and liquidation; 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 Securities
and Exchange Commission ("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 engaged in the business of acquiring
mortgages and mortgage-related interests; MFA's ability to successfully
implement its strategy to grow its residential whole loan portfolio, which is
dependent on, among other things, the supply of loans offered for sale in the
market; expected returns on our investments in non-performing residential
whole loans ("NPLs"), which are affected by, among other things, the length of
time required to foreclose upon, sell, liquidate or otherwise reach a
resolution of the property underlying the NPL, home price values, amounts
advanced to carry the asset (e.g., taxes, insurance, maintenance expenses,
etc. on the underlying property) and the amount ultimately realized upon
resolution of the asset; and risks associated with investing in real estate
assets, including changes in business conditions and general economic
conditions. These and other risks, uncertainties and factors, including those
described in the annual, quarterly and current reports that MFA files with the
SEC, 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.

 (In Thousands, Except Share and Per Share        June 30,       December 31,
Amounts)                                           2017          2016
Mortgage-backed securities ("MBS") and credit
risk transfer ("CRT") securities:
Agency MBS, at fair value ($3,125,864 and         $ 3,248,007    $ 3,738,497
$3,540,401 pledged as collateral, respectively)
Non-Agency MBS, at fair value ($3,548,633 and
$4,892,399 pledged as collateral, respectively)   4,592,275      5,825,816
CRT securities, at fair value ($517,067 and       636,315        404,850
$357,488 pledged as collateral, respectively)
Securities obtained and pledged as collateral,    370,837        510,767
at fair value
Residential whole loans, at carrying value
($270,553 and $427,880 pledged as collateral,     661,319        590,540
respectively) (2)
Residential whole loans, at fair value ($671,106
and $734,331 pledged as collateral,               983,270        814,682
respectively) (2)
Cash and cash equivalents                         745,480        260,112
Restricted cash                                   11,843         58,463
Other assets                                      287,470        280,295
Total Assets                                      $ 11,536,816   $ 12,484,022
Repurchase agreements and other advances          $ 7,040,844    $ 8,687,268
Obligation to return securities obtained as       510,237        510,767
collateral, at fair value
8% Senior Notes due 2042 ("Senior Notes")         96,753         96,733
Payable for unsettled MBS and residential whole   364,389        —
loans purchases
Other liabilities                                 249,949        155,352
Total Liabilities                                 $ 8,262,172    $ 9,450,120
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; 396,311 and 371,854 shares issued     3,963          3,719
  and outstanding, respectively
Additional paid-in capital, in excess of par      3,214,701      3,029,062
Accumulated deficit                               (576,482)      (572,641)
Accumulated other comprehensive income            632,382        573,682
Total Stockholders' Equity                        $ 3,274,644    $ 3,033,902
Total Liabilities and Stockholders' Equity        $ 11,536,816   $ 12,484,022

    Includes approximately $174.4 million of Non-Agency MBS transferred to
(1) consolidated VIEs at December 31, 2016.  Such assets can be used only to
    settle the obligations of each respective VIE.
    Includes approximately $134.1 million of Residential whole loans, at
(2) carrying value and $42.2 million of Residential whole loans, at fair value
    transferred to a consolidated VIE at June 30, 2017. Such assets can be
    used only to settle the obligations of the VIE.




                                          Three Months Ended      Six Months Ended
                                           June 30,                June 30,
(In Thousands, Except Per Share Amounts)  2017        2016        2017        2016
Interest Income:
Agency MBS                                $ 16,587    $ 21,592    $ 34,481    $ 45,589
Non-Agency MBS                            74,217      83,765      156,460     169,917
CRT securities                            7,846       3,222       14,222      5,914
Residential whole loans held at carrying  8,503       5,758       17,193      10,195
Other interest-earning investments        1,957       —           3,656       —
Cash and cash equivalent investments      1,047       170         1,402       310
Interest Income                           $ 110,157   $ 114,507   $ 227,414   $ 231,925
Interest Expense:
Repurchase agreements and other advances  $ 46,802    $ 45,574    $ 95,141    $ 90,969
Senior Notes and other interest expense   2,220       2,146       4,230       4,351
Interest Expense                          $ 49,022    $ 47,720    $ 99,371    $ 95,320
Net Interest Income                       $ 61,135    $ 66,787    $ 128,043   $ 136,605
Other-Than-Temporary Impairments:
Total other-than-temporary impairment     $ —         $ —         $ (63)      $ —
Portion of loss reclassed from other      (618)       —           (969)       —
comprehensive income
Net Impairment Losses Recognized in       $ (618)     $ —         $ (1,032)   $ —
Other Income, net:
Net gain on residential whole loans held  $ 16,208    $ 15,742    $ 29,981    $ 28,090
at fair value
Net gain on sales of MBS and U.S.         5,889       9,241       15,597      18,986
Treasury securities
Other, net                                14,847      2,047       19,359      2,665
Other Income, net                         $ 36,944    $ 27,030    $ 64,937    $ 49,741
Operating and Other Expense:
Compensation and benefits                 $ 7,573     $ 7,022     $ 15,366    $ 14,429
Other general and administrative expense  5,754       4,881       9,979       8,799
Loan servicing and other related          4,199       2,964       8,608       6,098
operating expenses
Operating and Other Expense               $ 17,526    $ 14,867    $ 33,953    $ 29,326
Net Income                                $ 79,935    $ 78,950    $ 157,995   $ 157,020
Less Preferred Stock Dividends            3,750       3,750       7,500       7,500
Net Income Available to Common Stock and  $ 76,185    $ 75,200    $ 150,495   $ 149,520
Participating Securities
Earnings per Common Share - Basic and     $ 0.20      $ 0.20      $ 0.39      $ 0.40
Dividends Declared per Share of Common    $ 0.20      $ 0.20      $ 0.40      $ 0.40




MEDIA CONTACT:     Abernathy MacGregor
                   Tom Johnson, Andrew Johnson

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SOURCE MFA Financial, Inc.

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