MFA Financial, Inc. Announces Third Quarter 2014 Financial Results

NEW YORK, Nov. 4, 2014 /PRNewswire/ -- MFA Financial, Inc. MFA today announced financial results for the third quarter ended September 30, 2014.

Third Quarter 2014 and other highlights:

• Generated third quarter net income available to common shareholders of $75.1 million, or $0.20 per common share (based on 369.7 million weighted average common shares).  As of September 30, 2014, book value per common share was $8.28.
• On October 31, 2014, MFA paid its third quarter 2014 dividend of $0.20 per share of common stock to shareholders of record as of September 29, 2014.
• In the third quarter we continued to selectively identify and acquire attractive investments within our targeted residential mortgage credit universe.  Within the quarter our holdings of securities backed by re-performing/non-performing loans ("RPL/NPL MBS") increased by 91% to $943.3 million while our holdings of non-securitized reperforming loans increased by 89% to $112.9 million.

In the third quarter, both net income and dividend per common share were $0.20.  Net income of $75.1 million includes $13.9 million of gains realized on sales of MBS and a $1.8 million decline in the fair value of the securities underlying "Linked Transactions."

William Gorin, MFA's CEO, said, "In the third quarter, we continued to identify attractive investment opportunities across the residential mortgage asset universe.  We were positioned to significantly grow our holdings of securities backed by re-performing/non-performing loans to $943.3 million while moving forward with the acquisition of non-securitized re-performing loans, bringing our holdings of credit sensitive residential whole loans to $112.9 million.  In addition, we acquired $42.5 million and opportunistically sold $61.6 million of Non-Agency MBS issued prior to 2008 ("Legacy Non-Agency MBS"), realizing a gain of $13.9 million.  This is the ninth 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.  We did not acquire any Agency MBS in this quarter.

"MFA remains positioned for a period when Federal Reserve monetary policy may become more variable based on measures of the labor markets, core inflation and other incoming data.  Through asset selection and hedging strategy, the estimated effective duration, a gauge of MFA's interest rate sensitivity, remains below 1.0 and measured 0.62 at quarter-end. Leverage, which reflects the ratio of our financing obligations to equity, was 2.7:1 at quarter-end."

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 have decreased the loan-to-value ratio ("LTV") for many of the mortgages underlying MFA's Legacy Non-Agency portfolio.  We estimate that the average LTV of mortgage loans underlying our Legacy Non-Agency MBS has declined from approximately 105% as of January 2012 to approximately 76% as of September 30, 2014.  In addition, we estimate that the percentage of current loans underlying our Legacy Non-Agency MBS that are underwater (with LTVs greater than 100%), has declined from approximately 52% as of January 2012 to 12% as of September 30, 2014.  As a result, we have again reduced our estimate of future losses.  In the third quarter, $20.2 million was transferred from credit reserve to accretable discount.  This increase in accretable discount is expected to increase the interest income realized over the remaining life of MFA's Legacy Non-Agency MBS.

Financing availability and terms continue to improve for our Legacy Non-Agency MBS as we see additional lenders enter this market.  Generally, we are seeing lower haircuts and borrowing rates for these assets.  In addition, we have taken advantage of capital structure opportunities to further improve our available borrowing capacity."

MFA's Legacy Non-Agency MBS had a face amount of $5.303 billion with an amortized cost of $3.948 billion and a net purchase discount of $1.355 billion at September 30, 2014.  This discount consists of a $929.1 million credit reserve and other-than-temporary impairments and a $425.9 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 loss adjusted yield of 7.70% for the third quarter is based on projected defaults equal to 26% of underlying loan balances.  On average, these loans are approximately eight years seasoned and approximately 15% are currently 60 or more days delinquent.

The Agency portfolio had an average amortized cost basis of 103.8% of par as of September 30, 2014, and generated a 2.09% yield in the third quarter.  The Legacy Non-Agency portfolio had an average amortized cost of 74.5% of par as of September 30, 2014, and generated a loss-adjusted yield of 7.70% in the third quarter.  At the end of the third quarter, MFA held approximately $943.3 million (of which, $916.7 million were reported as a component of Linked Transactions) of the senior-most tranches of 2013/2014 securitizations of RPL/NPL MBS.  These assets had an amortized cost of 100.5% of par and generated an average yield of 3.51% (amortized cost of 99.9% of par and yield of 3.49%, including the effect of RPL/NPL MBS reported as a component of Linked Transactions).  In addition, the credit sensitive residential whole loan portfolio had an average carrying value of 82.6% of face amount and a loss-adjusted yield of 7.31% (6.77% net of servicing costs) in the quarter.

For the three months ended September 30, 2014, MFA's costs for compensation and benefits and other general and administrative expenses were $9.8 million or an annualized 1.21% of stockholders' equity as of September 30, 2014.

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

 

 

As of September 30, 2014, under its swap agreements, MFA had a weighted average fixed-pay rate of interest of 1.90% and a floating receive rate of 0.16% on notional balances totaling $3.881 billion, with an average maturity of 49 months.

The following table presents, on a non-GAAP basis, MFA's asset allocation as of September 30, 2014 and the third quarter 2014 yield on average interest earning assets, average cost of funds and net interest rate spread for the various asset types.

 

 

At September 30, 2014, MFA's $10.975 billion of Agency and Non-Agency MBS, which includes $65.7 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 4

The following table presents certain information about our RPL/NPL MBS portfolio at September 30, 2014:

 

Webcast
MFA Financial, Inc. plans to host a live audio webcast of its investor conference call on Tuesday, November 4, 2014, at 10:00 a.m. (Eastern Time) to discuss its third quarter 2014 financial results. The live audio webcast will be accessible to the general public over the internet at http://www.mfafinancial.com 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 otherwise.

 

 

 

 

 

 

SOURCE MFA Financial, Inc.