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Press release from PR Newswire

MFA Financial, Inc. Announces Fourth Quarter 2011 Financial Results

Thursday, February 16, 2012

MFA Financial, Inc. Announces Fourth Quarter 2011 Financial Results08:30 EST Thursday, February 16, 2012NEW YORK, Feb. 16, 2012 /PRNewswire/ -- MFA Financial, Inc. (NYSE: MFA) today announced financial results for the fourth quarter ended December 31, 2011.  Fourth Quarter 2011 and other recent highlights:Fourth quarter net income per common share of $0.19 and Core Earnings (as defined below) per common share of $0.22.On January 31, 2012, MFA paid its fourth quarter 2011 dividend of $0.25 per share of common stock and an additional special cash dividend of $0.02 per share of common stock to stockholders of record as of December 30, 2011.Book value per common share was $6.74 at the end of the fourth quarter versus $7.16 at September 30, 2011 due primarily to price weakness within the Non-Agency MBS sector.  Book Value per common share increased to $7.10 at January 31, 2012, due principally to a rebound in the value of Non-Agency MBS in the month of January.We believe that the weakness in Non-Agency MBS prices throughout 2011 was more severe than justified by underlying residential mortgage loan fundamentals.  While most Non-Agency MBS in MFA's portfolio will not return their full face value due to loan defaults, we believe that they will deliver attractive loss-adjusted yields due to our highly discounted average amortized cost of 72.8% of face value.We continue to increase our focus on financing structures that reduce our reliance on short-term repurchase arrangements collateralized by Non-Agency MBS.  In the fourth quarter, we entered into a three-year collateralized financing arrangement that effectively provides $300 million of financing for Non-Agency MBS. Subsequent to year-end, we increased the amount financed under this arrangement to approximately $500 million.On February 9, 2012, MFA sold $433.3 million in principal amount of Non-Agency MBS as part of a re-securitization.  In connection with this transaction, $186.7 million of senior bonds rated "AAA" by DBRS, Inc. were issued to third-party investors via a trust.  These bonds, with an average life of 1.9 years, were priced at a 2.75% yield.  As required by GAAP, MFA will consolidate the re-securitization and will account for this transaction as a financing.For the fourth quarter ended December 31, 2011, MFA generated net income allocable to common stockholders of $68.0 million, or $0.19 per share of common stock. Core Earnings for the fourth quarter were $80.1 million, or $0.22 per share of common stock.  "Core Earnings" is a Non-GAAP financial measure, which reflects net income excluding $2.5 million of gains on sale of MBS, $0.4 million of gain on sale of properties, $4.2 million of other-than-temporary impairment charges, $10.2 million reduction in the fair value of the securities underlying our Linked Transactions and includes an adjustment of $0.6 million to increase interest income following the de-linking of certain Non-Agency MBS previously reported as Linked Transactions for GAAP. 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. At year-end our debt to equity ratio (including the liabilities underlying our Linked Transactions) was 3.7:1.  Our Agency portfolio had an amortized cost basis of 102.6% of par as of December 31, 2011 and generated a 3.14% yield in the fourth quarter. Our Non-Agency portfolio had an average amortized cost of 72.8% of par as of December 31, 2011 and generated a loss-adjusted yield of 7.06% in the fourth quarter (Non-Agency average cost and loss-adjusted yield are adjusted for the impact of MBS Linked Transactions). The loss-adjusted yield for the Non-Agency MBS has trended lower due to the flattening (downward movement in the later years) of the forward yield curve which causes us to lower the projected future coupons and therefore the expected yield from our hybrid Non-Agency MBS. "We continued to selectively find value in the Agency MBS market. In addition, we continued to implement our strategy of identifying and acquiring Non-Agency MBS with what we consider to be superior loss-adjusted yields at prices well below par. We believe MFA continues to be run on a very cost effective basis for the benefit of its stockholders.  For the three months ended December 31, 2011, MFA's cost for compensation and benefits and other general and administrative expenses were $6.6 million or 1.06% on an annualized basis of December 31, 2011 Stockholders' Equity.  Our goal remains to continue positioning MFA to generate double-digit returns on equity over time."William Gorin, MFA's President, added, "In the fourth quarter, our Non-Agency portfolio experienced a modest price decline averaging 3.2 points.  However, during the month of January, the value of these assets increased.  We believe that the factors impacting Non-Agency MBS prices in the fourth quarter were continued negative housing market news, concerns about the sovereign debt exposure of the European banking system, and the desire of dealers to reduce inventory.  While housing fundamentals remain weak, we believe that we have appropriately factored this into our cash flow projections and credit reserve estimates.  In two installments, one in the fourth quarter of 2011 and one in the first quarter of 2012, we entered into a three-year collateralized financing arrangement that effectively provides $500 million of financing for Non-Agency MBS.  While this multi-year financing is incrementally more expensive than short-term repo financing by approximately 100-150 basis points, we believe the certainty of the committed term outweighs the additional cost."MFA's $4.001 billion fair market value of Non-Agency MBS had a face amount of $5.704 billion, an amortized cost of $4.155 billion and a net purchase discount of $1.549 billion (all amounts adjusted for the impact of MBS Linked Transactions) at December 31, 2011. This discount consists of a $1.275 billion credit reserve and other-than-temporary impairments and a $274.6 million net accretable discount. In addition, at December 31, 2011, these Non-Agency MBS had 5.2% 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.  Despite low mortgages rates, the overall change in the portfolio CPR between the third and fourth quarter was not significant. The following table presents the weighted average prepayment speed on MFA's MBS portfolio (including MBS underlying Linked Transactions). Table 1Fourth Quarter 2011 Average CPRThird Quarter 2011 Average CPRMBS Portfolio17.08%17.85%Agency MBS19.35%19.29%Non-Agency MBS13.01%14.54%As of December 31, 2011, under its swap agreements, MFA has a weighted average fixed pay rate of interest of 2.80% and a floating receive rate of 0.32% on notional balances totaling $3.378 billion, with an average maturity of 22 months. During 2012, approximately $958 million notional amount of existing swaps with a weighted average fixed pay rate of 3.87% is scheduled to expire.The following table presents MFA's asset allocation as of December 31, 2011 and the fourth quarter 2011 yield on average interest earning assets, average cost of funds and net interest rate spread for the various asset types.Table 2ASSET ALLOCATION (1)At December 31, 2011Agency MBSNon-Agency MBS (2)Cash(3)Other, netTotal(Dollars in Thousands)Amortized Cost$6,921,275$4,154,746$409,524$(49,884)(4)$11,435,661Market Value$7,137,531$4,001,415$409,524$(49,884)$11,498,586Less Payable for Unsettled Purchases-(27,056)--(27,056)Less Repurchase Agreements(6,198,829)(1,485,227)--(7,684,056)Less Multi-year Collateralized Financing -(300,000)--(300,000)  Arrangements      (5)Less Securitized Debt-(875,520)--(875,520)Equity Allocated $938,702$1,313,612$409,524$(49,884)$2,611,954Less Swaps at Market Value---(114,194)(114,194)Net Equity Allocated$938,702$1,313,612$409,524$(164,078)$2,497,760Debt/Net Equity Ratio      (6)6.60x2.05x---For the quarter ended December 31, 2011Yield on Average Interest Earning Assets 3.14%7.06%0.03 %4.42%Less Average Cost of Funds1.71(7)1.78(7)-1.73Net Interest Rate Spread1.43%5.28%0.03 %2.69%(1)  Information presented with respect to Non-Agency MBS, related repurchase agreement borrowings and resulting totals are presented on a non-GAAP basis.  See the accompanying Reconciliation of Non-GAAP Financial Measures.  (2) Includes Non-Agency MBS and repurchase agreements underlying Linked Transactions.  The purchase of a Non-Agency MBS and 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 purchase and borrowing under repurchase agreement) are evaluated on a combined basis and are presented as "Linked Transactions" on MFA's consolidated balance sheet.(3) Includes cash, cash equivalents and restricted cash.(4) Includes securities obtained and pledged as collateral, interest receivable, goodwill, prepaid and other assets, obligation to return securities obtained as collateral, interest payable, derivative hedging instruments at fair value, dividends payable and accrued expenses and other liabilities.(5) Multi-year collateralized financing arrangements are viewed by management as having an effective term of 3.0 years, but for GAAP reporting purposes are disclosed within repurchase agreements and as having a contractual term of over 30 days to 90 days.(6) Represents the sum of borrowings under repurchase agreements, multi-year collateralized financing arrangements, payable for unsettled purchases and securitized debt as a multiple of net equity allocated.(7) Includes effect of Swaps.At December 31, 2011, MFA's $11.139 billion of Agency and Non-Agency MBS, which includes MBS underlying Linked Transactions, were backed by hybrid, adjustable and fixed-rate mortgages.  Additional information about these MBS, including months to reset and three month average CPR, is presented below:Table 3Agency MBSNon-Agency MBSTotal($ in Thousands)Market ValueAverageMTR (1)AverageCPR (2)Market ValueAverageMTR (1)AverageCPR (2)Market ValueAverageMTR (1)AverageCPR (2)Time to Reset:< 2 years    (3)$1,785,933816.0%$2,027,481511.9%$3,813,414713.9%2-5 years2,726,9724123.9609,1624516.73,336,1344222.7> 5 years976,7766921.4192,8826313.61,169,6586819.5ARM-MBS Total$5,489,6813520.9%$2,829,5251813.0%$8,319,2062918.1%15-Year fixed$1,647,85014.4%$--$1,647,85014.4%30-Year fixed--1,165,85313.1%1,165,85313.140-Year fixed--6,03714.86,03714.8Fixed-Rate Total $1,647,85014.4%$1,171,89013.1%$2,819,74013.9%MBS Total$7,137,53119.4%$4,001,41513.0%$11,138,94617.1%(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.MFA plans to hold a conference call on Thursday, February 16, 2012, at 10:00 a.m. (Eastern Time) to discuss its fourth quarter 2011 financial results. The number to dial in order to listen to the conference call is (800) 288-8960 in the U.S. and Canada. International callers must dial (612) 332-0418. A replay of the call will be available through Thursday, February 23, 2012, and can be accessed by dialing (800) 475-6701 in the U.S. and Canada or (320) 365-3844 internationally and entering access code 237810. Live audio of the conference call will also be accessible over the internet at through the appropriate link on MFA's Investor Information page or, alternatively, over the Thomson Reuters Investor Distribution Network at 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. An audio replay of the call will also be available on MFA's 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 "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.MFA FINANCIAL, INC.CONSOLIDATED BALANCE SHEETSDecember 31,December 31,(In Thousands, Except Per Share Amounts)2011 2010 Assets:(Unaudited)Mortgage-backed securities ("MBS")  Agency MBS, at fair value ($6,666,963 and $5,519,879 pledged$7,137,531$5,980,623    as collateral, respectively)  Non-Agency MBS, at fair value ($692,534 and $867,655 pledged1,492,3761,372,383    as collateral, respectively)  Non-Agency MBS transferred to consolidated variable interest entities ("VIE's")2,283,070705,704Securities obtained and pledged as collateral, at fair value306,401-Cash and cash equivalents394,022345,243Restricted cash15,50241,927MBS linked transactions, net ("Linked Transactions"), at fair value55,801179,915Interest receivable42,83738,215Derivative hedging instruments, at fair value26-Real estate, net-10,732Goodwill7,1897,189Prepaid and other assets15,8795,476     Total Assets$11,750,634$8,687,407Liabilities:Repurchase agreements$7,813,159$5,992,269Securitized debt875,520220,933Obligation to return securities obtained as collateral, at fair value 306,401-Accrued interest payable9,1128,007Derivative hedging instruments, at fair value114,220139,142Dividends and dividend equivalents rights ("DERs") payable97,52567,040Accrued expenses and other liabilities36,9379,569     Total Liabilities$9,252,874$6,436,960Commitments and contingenciesStockholders' Equity:Preferred stock, $.01 par value; Series A 8.50% cumulative redeemable;$38$38  5,000 shares authorized; 3,840 shares issued and outstanding  ($96,000  aggregate liquidation preference)Common stock, $.01 par value; 895,000 and 370,000 shares authorized;3,5612,805  356,112 and 280,481 issued and outstanding, respectively Additional paid-in capital, in excess of par2,795,9252,184,493Accumulated deficit (243,061)(191,569)Accumulated other comprehensive (loss)/ income(58,703)254,680     Total Stockholders' Equity$2,497,760$2,250,447     Total Liabilities and Stockholders' Equity$11,750,634$8,687,407MFA FINANCIAL, INC.CONSOLIDATED STATEMENTS OF OPERATIONSThree Months EndedFor the Year EndedDecember 31,December 31,(In Thousands, Except Per Share Amounts)2011 2010 2011 2010 (Unaudited) (Unaudited) (Unaudited) Interest Income:Agency MBS$55,880$57,003$241,994$250,602Non-Agency MBS24,95627,214101,054127,070Non-Agency MBS transferred to consolidated VIEs43,12813,281153,56313,281Cash and cash equivalent investments3099136385Interest Income123,99497,597496,747391,338Interest Expense:Repurchase agreements35,22634,556137,739144,212Securitized debt3,58591311,672913Total Interest Expense38,81135,469149,411145,125Net Interest Income 85,18362,128347,336246,213Other-Than-Temporary Impairments: Total other-than-temporary impairment losses (29,595)(5,858)(45,144)(6,042)Portion of other-than-temporary impairment losses25,408(1,007)34,574(6,235)  recognized in/(reclassified from) other  comprehensive income/(loss)Net Impairment Losses Recognized in Earnings(4,187)(6,865)(10,570)(12,277)Other (Loss)/Income, Net:Unrealized net gains and net interest income from(6,955)12,4583,01553,762  Linked TransactionsGain on sale of MBS, net2,534-6,73033,739Revenue from operations of real estate4203641,5661,464Loss on termination of repurchase agreements---(26,815)Gain on sale of properties, net430-430-Other, net(28)-(914)-Other (Loss)/Income, Net(3,599)12,82210,82762,150Operating and Other Expense:Compensation and benefits3,3683,56518,95916,092Other general and administrative expense3,2692,57611,2508,571Real estate operating expense, mortgage interest and1963639701,661  prepayment penaltyOperating and Other Expense6,8336,50431,17926,324Net Income70,56461,581316,414269,762Less:  Preferred Stock Dividends2,0402,0408,1608,160Net Income Available to Common Stock and$68,524$59,541$308,254$261,602    Participating SecuritiesEarnings Per Common Share-Basic and Diluted$0.19$0.21$0.90$0.93Dividends Declared Per Share of Common Stock$0.27$0.235$1.01$0.89Reconciliations of Non-GAAP Financial MeasuresThis 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, 2011, which 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, 2011 are not measures of performance in accordance with GAAP, as they exclude impairment losses recognized through earnings, gain on sale of MBS, gain on sale of properties and changes in fair value of MBS underlying our Linked Transactions. In addition, following the "de-linking" of certain Non-Agency MBS that were previously reported as Linked Transactions under GAAP, Core Earnings includes an adjustment to reflect interest income recognized on the underlying de-linked Non-Agency MBS on the same basis with that used prior to the de-linking. Accordingly, the adjustment is consistent with the way management views the performance of these underlying Non-Agency MBS (i.e., as if never linked), which differs from GAAP accounting.MFA believes that Core Earnings and Core Earnings per share provides investors with a useful measure to assess the performance of the Company's ongoing business and useful supplemental information to both management and investors in evaluating our financial results.  A reconciliation of the GAAP items discussed above to their non-GAAP measures for the three months and year ended December 31, 2011 are as follows:Table 4Three Months EndedFor the Year EndedDecember 31, 2011December 31, 2011(In Thousands, Except Per Share Amount)ReconciliationBasic and Diluted EPSReconciliationBasic and Diluted EPSGAAP Net Income Available to Common Stock and $68,524$308,254Participating SecuritiesLess: Dividends and Dividend Equivalent Rights on (489)(1,684)Participating SecuritiesGAAP Net Income Allocable to Common Stockholders$68,035$0.19$306,570$0.90Non-GAAP Adjustments:Impairment Losses Recognized in Earnings$4,187$10,570Gain on Sale of MBS(2,534)(6,730)Gain on Sale of Properties(430)(430)Changes in Net Unrealized losses on Linked Transactions10,21617,783Yield Adjustment for De-Linked MBS5882,504Total Adjustments to Arrive at Core Earnings$12,027$0.03$23,697$0.07Core Earnings$80,062$0.22$330,267$0.97Weighted Average Common Shares Outstanding - Basic355,855341,368Weighted Average Common Shares Outstanding - Diluted356,100341,627As noted above, 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, 2011.  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 assist investors in analyzing 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 fair value of MBS underlying Linked Transactions, impairment charges, gain on sale of MBS, gain on sale of properties and revisions to the yield used for income recognition for the underlying Non-Agency MBS subsequent to delinking, which are reflected in 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, 2011 with the most directly comparable financial measure calculated in accordance with GAAP, as follows:Table 5Adjustments to IncludeAssets/LiabilitiesGAAP BasedUnderlying LinkedNon-GAAP(Dollars in Thousands)Information TransactionsPresentationAt December 31, 2011:Repurchase Agreement Borrowings$7,813,159$170,897(1)$7,984,056Securitized Debt875,520-875,520Obligation to Return Securities 306,401-306,401  Obtained as Collateral Payable for Unsettled Purchases27,056-27,056Total Borrowings (Debt)$9,022,136$170,897(1)$9,193,033Stockholders' Equity$2,497,7602,504$2,500,264Debt-to-Equity (Debt/Stockholders' Equity)3.6x3.7xFor the Three Months Ended December 31, 2011:       Average Interest Earning Assets$11,403,662$241,947(2)$11,645,609Interest Income$123,994$4,706$128,700Yield on Average Interest Earning Assets4.35%7.78%4.42%Average Total Borrowings$8,899,013$187,665(1)$9,086,678Interest Expense$38,811$857$39,668Average Cost of Funds1.73%1.81%1.73%Net Interest Rate Spread2.62%5.97%2.69%(1)  Represents borrowings under repurchase agreements underlying Linked Transactions.(2)  Represents Non-Agency MBS underlying Linked Transactions.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.    Table 6Adjustments to IncludeAssets/LiabilitiesGAAP BasedUnderlying LinkedNon-GAAP(Dollars in Thousands)Information (1)Transactions(2)PresentationAt December 31, 2011:Amortized Cost of Non-Agency MBS$3,936,211$218,535(3)$4,154,746(3)Fair Value of Non-Agency MBS$3,775,446$225,969$4,001,415Face/Par Value of Non-Agency MBS$5,414,353$289,536$5,703,889Purchase (Discount) Designated as Credit Reserve and OTTI$(1,228,766)(4)$(45,735)$(1,274,501)(5)Net Purchase (Discount) Designated as Accretable$(249,376)$(25,266)(3)$(274,642)(3)  Total Purchase (Discount) of Non-Agency MBS$(1,478,142)(4)$(71,001)$(1,549,143)(5)Non-Agency Repurchase Agreements and$2,489,850$170,897$2,660,747  Securitized DebtFor the Three Months Ended December 31, 2011:Non-Agency MBS Average Amortized Cost$3,881,220$241,947$4,123,167Non-Agency Average Total Borrowings$2,497,368$187,665$2,685,033Coupon Interest on Non-Agency MBS$58,890$3,926$62,816Effective Yield Adjustment(6)$9,194$780$9,974Interest Income on Non-Agency MBS$68,084$4,706$72,790Interest Expense on Non-Agency Total Borrowings$11,202$857$12,059Yield on Average Interest Earning Non-Agency MBS7.02%7.78%7.06%Non-Agency Average Cost of Funds1.78%1.81%1.78%Non-Agency Interest Rate Spread5.24%5.97%5.28%(1)  Includes Non-Agency MBS transferred to consolidated VIE.(2) Adjustment to reflect Non-Agency MBS underlying Linked Transactions, borrowings under repurchase agreements underlying Linked Transactions and yield adjustments for de-linked Non-Agency MBS.(3) Includes adjustment of $19.1 million related to yield adjustments for de-linked Non-Agency MBS.(4)  Amounts disclosed reflect purchase discount designated as credit reserve of $1.174 billion and OTTI of $54.5 million.(5)  Amounts disclosed reflect purchase discount designated as credit reserve of $1.220 billion and OTTI of $54.5 million.(6)  The effective yield adjustment on Non-Agency MBS is the difference between net income calculated using the net yield on average interest earning Non-Agency MBS, which is based on management's estimates of future cash flows for Non-Agency MBS, less the current coupon yield.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, 2011.Table 7For the Year EndedDecember 31, 2011(In Thousands)GAAP Net Income Before Preferred Dividends$316,414Less: Preferred Dividends Paid to Stockholders(8,160)Less: Dividends and Dividend Equivalent Rights on Participating Securities(1,684)GAAP Net Income Allocable to Common Stockholders$306,570Adjustments to Arrive at Core Earnings:Add: Impairment Loss Recognized in Earnings$10,570Add: Changes in Fair Value on Linked Transactions17,783Add: Yield Adjustments for De-Linked MBS2,504Less: Gain on Sale of MBS      (1)(6,730)Less: Gain on Sale of Properties      (1)(430)Total Adjustments to Arrive at Core Earnings$23,697Core Earnings$330,267Adjustments to Core Earnings to Arrive at Estimated REIT Taxable Income:Add: Preferred Dividends Paid to Stockholders (deducted above)$8,160Add: Dividend and Dividend Equivalent Rights on Participating Securities1,684   (deducted above)Add: Adjustment to GAAP Income to Reflect Estimated Taxable Income30,408   on Non-Agency MBSAdd: Adjustment to Reflect Estimated Taxable Income on Re-securitized2,734   Non-Agency MBSAdd: Other Expenses Not Deductible in Determining Taxable Income687Total Adjustments Increasing Estimated REIT Taxable Income$43,673Less: Adjustment to GAAP Income to Reflect Taxable Income on Agency MBS$(3,203)Total Net Adjustments to Core Earnings to Arrive at Estimated REIT Taxable Income$40,470Estimated REIT Taxable Income Available for Distribution to$370,737  Preferred and Common Stockholders(1)  Gain on sales of MBS and Properties were not recognized for REIT taxable income because the gain on sale was offset by capital loss carry forward generated in prior years.CONTACT:  MFA Investor Relations SOURCE MFA Financial, Inc.