MFA Financial, Inc. Announces Fourth Quarter 2010 Financial Results

NEW YORK, Feb. 14, 2011 /PRNewswire/ -- MFA Financial, Inc. (NYSE: MFA) today announced financial results for the fourth quarter ended December 31, 2010.

Fourth quarter 2010 and other recent highlights:

• Fourth quarter net income per common share of $0.21 and Core Earnings (as defined below) per common share of $0.22.
• Overall, the value of MFA's assets increased in the fourth quarter. However, due to the fact that, as in prior years, MFA declared two common stock dividends within the fourth quarter totaling $0.46 per share, our book value per common share was $7.68 at the end of the fourth quarter versus $7.83 at the end of the third quarter.
• In the fourth quarter, we continued to grow our Non-Agency MBS portfolio through the purchase of approximately $509.8 million of Non-Agency MBS (including MBS underlying Linked Transactions (as defined below)). In the fourth quarter, we allowed the Agency MBS portfolio to decline. Agency MBS run-off amounted to $496.3 million while we acquired $362.2 million of Agency MBS.
• In January 2011, we purchased or agreed to purchase $536.8 million of Agency MBS, more than replacing the fourth quarter and January run-off, generally at lower prices than were available in the fourth quarter. We expect that growth in both the Agency and Non-Agency portfolio should positively impact MFA's first quarter 2011 Core EPS.
• For the year ended December 31, 2010, Core Earnings totaled $241.1 million, while estimated REIT taxable income, which directly impacts MFA's dividend distribution requirements, was $257.2 million. We anticipate that MFA's REIT taxable income will again surpass Core Earnings in 2011, primarily due to the fact that for Non-Agency MBS acquired at a discount, Core Earnings are impacted by credit reserves for estimated future losses while taxable income is impacted by realized losses only as they occur.

For the fourth quarter ended December 31, 2010, MFA generated net income available to common stock of $59.0 million, or $0.21 per share of common stock. Core Earnings for the fourth quarter were $61.9 million, or $0.22 per share of common stock. "Core Earnings" is a non-GAAP financial measure, which reflects net income excluding $3.9 million of changes in the unrealized net gains on Linked Transactions and the $6.9 million other-than-temporary impairment charges recognized in GAAP earnings. On January 31, 2011, MFA paid its fourth quarter 2010 dividend of $0.235 per share of common stock to stockholders of record as of December 31, 2010.

Stewart Zimmerman, MFA's Chairman of the Board and CEO, said, "MFA continues to provide stockholders with attractive returns through appropriately leveraged investments in both Agency and Non-Agency residential MBS. In the fourth quarter, we continued to implement our strategy of identifying and acquiring Non-Agency MBS with superior loss-adjusted yields at prices well below par. We currently project that approximately 60% of our first quarter 2011 Core Earnings will be generated by Non-Agency MBS. Our goal remains to position MFA to generate double-digit returns on equity over time."

William Gorin, MFA's President, added, "Through investment in both Non-Agency and Agency MBS, we seek to generate attractive returns with reduced leverage and with less correlation to changes in interest rates. In the fourth quarter, MFA's Non-Agency residential MBS (including MBS underlying Linked Transactions) generated an unlevered loss-adjusted yield of 8.45%. At December 31, 2010, MFA owned $2.822 billion market value of Non-Agency MBS (including Linked Transactions) with an average amortized cost of 69.6% of par. In the fourth quarter, MFA's Agency MBS generated an unlevered yield of 3.87%. At December 31, 2010, MFA owned $5.981 billion of Agency MBS, consisting of $5.315 billion of hybrid and adjustable rate MBS ("ARM-MBS") and $665 million of 15-year fixed rate MBS. Agency MBS had an average amortized cost basis of 101.8% of par."

MFA's $2.822 billion fair market value of Non-Agency MBS had a face amount of $3.685 billion, an amortized cost of $2.566 billion (69.6% of face amount) and a net purchase discount of $1.073 billion (all amounts including Linked Transactions) at December 31, 2010. This discount consists of a $799.4 million credit reserve and a $273.4 million net accretable discount. In addition, at December 31, 2010, these Non-Agency MBS had 7.5% average structured credit enhancement in the form of subordination (subordinated bonds which absorb losses before MFA's Non-Agency MBS are impacted). This structured credit enhancement, along with the purchase discount, mitigates MFA's risk of loss on these investments. Unlike MFA's Agency MBS, due to their discounted purchase prices, the return on Non-Agency MBS will generally increase if the prepayment rates on these securities trend up.

During the fourth quarter of 2010, MFA's interest-earning asset portfolio net yield was 4.78%, its cost of funds was 2.23%, and the spread was 2.55% (including MBS underlying Linked Transactions, the net yield was 4.92%, the cost of funds was 2.18% and the spread was 2.74%). The weighted average prepayment speed on MFA's MBS portfolio (including MBS underlying Linked Transactions) was 22.1% CPR during the fourth quarter of 2010. MFA's book value per common share as of December 31, 2010 includes a negative interest rate swap valuation of $139.1 million from existing interest rate hedges. As of December 31, 2010, under our swap agreements, MFA had a weighted average fixed pay rate of interest of 3.74% and a floating receive rate of 0.27% on notional balances totaling $2.805 billion, with an average maturity of 23 months. For the three months ended December 31, 2010, MFA's costs for compensation and benefits and other general and administrative expenses were $6.1 million or 1.1% of average equity on an annualized basis.

In the fourth quarter of 2010, MFA continued to implement its asset allocation strategy. MFA anticipates that the majority of its assets will continue to be whole pool Agency MBS. MFA's repurchase agreement financing continues to be provided from multiple sources. The following table presents MFA's asset allocation as of December 31, 2010 and the fourth quarter 2010 yield, cost of funds and spread for the various asset types.

At December 31, 2010, MFA's $8.803 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, is presented below:

Stockholders interested in participating in MFA's Discount Waiver, Direct Stock Purchase and Dividend Reinvestment Plan (the "Plan") or receiving a Plan prospectus may do so by contacting The Bank of New York Mellon, the Plan administrator, at 1-866-249-2610 (toll free). For more information about the Plan, interested stockholders may also go to the website established for the Plan at http://www.bnymellon.com/shareowner/equityaccess or visit MFA's website at www.mfa-reit.com.

MFA will hold a conference call on Monday, February 14, 2011, at 10:00 a.m. (New York City time) to discuss its fourth quarter 2010 financial results. The number to dial in order to listen to the conference call is (800) 230-1951 in the U.S. and Canada. International callers must dial (612) 332-7517. A replay of the call will be available through Monday, February 21, 2011 at 11:59 p.m. (New York City time), and can be accessed by dialing (800) 475-6701 in the U.S. and Canada or (320) 365-3844 internationally and entering access code: 192240. The conference call will also be webcast over the internet and can be accessed at http://www.mfa-reit.com through the appropriate link on MFA's Investor Information page or, alternatively, over the Thomson Reuters Investor Distribution Network at http://www.earnings.com. 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.

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 "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; MFA's ability to borrow to finance its assets; implementation of or changes in government regulations or programs affecting MFA's business; 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; 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.

Reconciliations of Non-GAAP Financial Measures

This press release contains disclosures related to MFA's Core Earnings, Core Earnings per common share, investments in Non-Agency MBS, and returns on such assets for the three months and year ended December 31, 2010, which may 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 and balance sheet composition. 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 and year ended December 31, 2010 are not measures of performance in accordance with GAAP, as they exclude impairment losses recognized through earnings, changes in net unrealized gains on MBS underlying our Linked Transactions, gains on the sale of MBS and losses on termination of repurchase agreements. These excluded items are difficult to predict, and MFA believes that Core Earnings provides investors with a valuable measure of the performance of the Company's ongoing business. MFA's management believes that Core Earnings and Core Earnings per common share provide useful supplemental information to both management and investors in evaluating our financial results. Reconciliations of the GAAP items discussed above to their non-GAAP measures for the three months and year ended December 31, 2010 are as follows:

As previously described, certain Non-Agency MBS purchases are presented as a component of Linked Transactions in MFA's GAAP financial statements for the three months and year ended December 31, 2010. 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 enhance the ability of investors to analyze 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 net unrealized gains on Linked Transactions, the credit related component of charges for other-than-temporary impairments, gains on the sale of MBS and losses on termination of repurchase agreements, which are included in the GAAP earnings.

Information pertaining to MFA's Non-Agency MBS that are a component of Linked Transactions are reconciled below as of and for the three months ended December 31, 2010 with the most directly comparable financial measure calculated in accordance with GAAP, as follows:

The table below reconciles MFA's Non-Agency MBS and related repurchase agreement borrowings and securitized debt on a GAAP basis to reflect on a combined basis its Non-Agency MBS and related repurchase agreements underlying its Linked Transactions, which is a non-GAAP financial measure.  Based on this non-GAAP presentation, MFA has also presented certain resulting performance measures on a non-GAAP basis.    

Reconciliation of GAAP Net Income, Core Earnings and Estimated REIT Taxable Income

MFA calculates estimated REIT taxable income in accordance with the requirements mandated by the Internal Revenue Code. Differences exist in the determination of net income for GAAP and REIT taxable income that can lead to a significant variance in the amount and timing of when income and losses are recognized under these two measures. The amount and characteristic of the dividends distributed to stockholders is impacted by REIT taxable income. The table below sets forth a reconciliation between GAAP net income, Core Earnings and Estimated REIT taxable income for the year ended December 31, 2010.

SOURCE MFA Financial, Inc.