Press release from PR Newswire
MFA Financial, Inc. Announces First Quarter 2012 Financial Results
Friday, May 04, 2012
MFA Financial, Inc. Announces First Quarter 2012 Financial Results08:30 EDT Friday, May 04, 2012NEW YORK, May 4, 2012 /PRNewswire/ -- MFA Financial, Inc. (NYSE: MFA) today announced financial results for the first quarter ended March 31, 2012. First Quarter 2012 and other recent highlights:First quarter net income per common share of $0.23 and Core Earnings (as defined below) per common share of $0.21. Book value per common share increased to $7.49 at the end of the first quarter versus $6.74 at 2011 year-end due primarily to price appreciation within our Non-Agency portfolio. On April 30, 2012, MFA paid its first quarter 2012 dividend of $0.24 per share of common stock to stockholders of record as of April 4, 2012. In the first quarter we added multi-year Non-Agency MBS financing, including an expanded collateralized financing arrangement and a re-securitization, reducing our reliance on short-term repurchase arrangements for Non-Agency MBS. We increased to $500 million an existing collateralized financing arrangement that effectively provides three year financing for Non-Agency MBS. As a part of a re-securitization, $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. For the first quarter ended March 31, 2012, MFA generated net income allocable to common stockholders of $82.3 million, or $0.23 per share of common stock. Core Earnings for the first quarter were $74.3 million, or $0.21 per share of common stock. "Core Earnings" is a Non-GAAP financial measure, which reflects net income excluding $0.9 million of other-than-temporary impairment charges, $3.0 million of gain on sales of MBS and a $5.9 million increase in the fair value of the securities underlying our Linked Transactions. 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 quarter-end our debt to equity ratio (including the liabilities underlying our Linked Transactions) was 3.5:1. Our Agency portfolio had an average amortized cost basis of 102.8% of par as of March 31, 2012, and generated a 3.15% yield in the first quarter. Our Non-Agency portfolio had an average amortized cost of 73.1% of par as of March 31, 2012, and generated a loss-adjusted yield of 6.92% in the first quarter (Non-Agency average cost and loss-adjusted yield are adjusted for the impact of MBS Linked Transactions). "Our goal remains to continue positioning MFA to generate double-digit returns on equity over time. We continued to selectively find value in the Agency MBS market. In addition, we continued to implement our strategy of growing our Non-Agency MBS assets at what we consider to be superior loss-adjusted yields at prices well below par. For the three months ended March 31, 2012, MFA's cost for compensation and benefits and other general and administrative expenses were $8.4 million or an annualized 1.22% based on stockholders' equity at March 31, 2012. We believe MFA, an internally managed REIT, continues to operate on a very cost effective basis for the benefit of our stockholders."William Gorin, MFA's President, added, "In the first quarter, book value per share increased by approximately 11% due primarily to appreciation within our Non-Agency portfolio. While housing fundamentals remain weak, we believe that we have appropriately factored this into our cash flow projections and credit reserve estimates. Our Non-Agency MBS loss adjusted yield of 6.92% is based on projected defaults that are approximately twice the amount of underlying mortgage loans that are presently 60+ days delinquent. These underlying mortgage loans were originated on average more than five years ago so that we have access to more than 60 months of payment history. In the first quarter we continued to add multi-year financing that serves to reduce our reliance on short-term repurchase agreements for Non-Agency MBS. While this 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 $4.520 billion fair market value of Non-Agency MBS had a face amount of $6.037 billion, an amortized cost of $4.415 billion and a net purchase discount of $1.622 billion (all amounts adjusted for the impact of MBS Linked Transactions) at March 31, 2012. This discount consists of a $1.352 billion credit reserve and other-than-temporary impairments and a $269.7 million net accretable discount. In addition, at March 31, 2012, these Non-Agency MBS had 4.6% 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, together 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 mortgage rates, the portfolio CPR declined in the first quarter of 2012 versus the fourth quarter of 2011. The following table presents the weighted average prepayment speed on MFA's MBS portfolio (including MBS underlying Linked Transactions).Table 1First Quarter 2012 Average CPRFourth Quarter 2011 Average CPRMBS Portfolio16.43%17.08%Agency MBS17.90%19.35%Non-Agency MBS13.98%13.01% As of March 31, 2012, under its swap agreements, MFA has a weighted average fixed pay rate of interest of 2.73% and a floating receive rate of 0.28% on notional balances totaling $3.224 billion, with an average maturity of 20 months. During the next twelve months, approximately $860.3 million notional amount of existing swaps with a weighted average fixed pay rate of 3.79% is scheduled to expire.The following table presents MFA's asset allocation as of March 31, 2012 and the first quarter 2012 yield on average interest earning assets, average cost of funds and net interest rate spread for the various asset types.Table 2ASSET ALLOCATION (1)At March 31, 2012Agency MBSNon-Agency MBS (2) Cash (3) Other, netTotal($ in Thousands)Amortized Cost$6,849,432$4,415,482$387,626$(38,700)(4)$11,613,840Market Value$7,059,629$4,519,944$387,626$(38,700)$11,928,499Less Payable for Unsettled Purchases(46,843)(52,929)--(99,772)Less Repurchase Agreements(6,115,414)(1,374,983)--(7,490,397)Less Multi-year Collateralized Financing Arrangements (5)-(503,311)--(503,311)Less Securitized Debt-(967,422)--(967,422)Equity Allocated $897,372$1,621,299$387,626$(38,700)$2,867,597Less Swaps at Market Value---(102,103)(102,103)Net Equity Allocated$897,372$1,621,299$387,626$(140,803)$2,765,494Debt/Net Equity Ratio(6)6.87x1.79xFor the Quarter Ended March 31, 2012Yield on Average Interest Earning Assets3.15%6.92%0.02%4.42%Less Average Cost of Funds1.71(7)2.16(7)-1.85Net Interest Rate Spread1.44%4.76%0.02%2.57%(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 associated borrowing under repurchase agreement) are evaluated on a combined basis and reported net 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 2.7 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 March 31, 2012, MFA's $11.580 billion of Agency and Non-Agency MBS, which includes MBS underlying Linked Transactions, were backed by hybrid, adjustable and fixed-rate mortgages. Additional information about these MBS, including months to reset and three-month average CPR, is presented below:Table 3Agency MBSNon-Agency MBSTotal($ in thousands) AvgAvgAvgAvgAvgAvgTime to ResetMarket ValueMTR(1)CPR(2)Market ValueMTR(1)CPR(2)Market ValueMTR(1)CPR(2)< 2 years(3)$1,661,431713.81%$2,398,626412.97%$4,060,057513.34%2-5 years2,637,3463923.05696,6594516.403,334,0054021.73> 5 years1,140,3157219.14110,8146218.891,251,1297119.11ARM-MBS Total$5,439,0923619.37%$3,206,0991514.01%$8,645,1912817.46%15-year fixed$1,620,53713.06%$15,1430.37%$1,635,68013.02%30-year fixed--1,292,62213.971,292,62213.9740-year fixed--6,08013.866,08013.86Fixed-Rate Total $1,620,53713.06%$1,313,84513.91%$2,934,38213.43%MBS Total$7,059,62917.90%$4,519,94413.98%$11,579,57316.43%(1) MTR or Months To Reset is the number of months remaining before the coupon 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 the 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 Friday, May 4, 2012, at 10:00 a.m. (Eastern Time) to discuss its first quarter 2012 financial results. The number to dial in order to listen to the conference call is (800) 230-1096 in the U.S. and Canada. International callers must dial (612) 332-0107. A replay of the call will be available through Friday, May 11, 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 247472. Live audio of the conference call will also be accessible over the internet 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. 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 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 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.MFA FINANCIAL, INC.CONSOLIDATED BALANCE SHEETSMarch 31,December 31,20122011(In Thousands, Except Per Share Amounts)(Unaudited)Assets:Mortgage-backed securities ("MBS"): Agency MBS, at fair value ($6,536,740 and $6,666,963 pledged$7,059,629$7,137,531 as collateral, respectively) Non-Agency MBS, at fair value ($629,623 and $692,534 pledged1,756,5651,492,376 as collateral, respectively) Non-Agency MBS transferred to consolidated variable interest entities ("VIEs")2,658,7122,283,070Securities obtained and pledged as collateral, at fair value503,740306,401Cash and cash equivalents374,621394,022Restricted cash13,00515,502MBS linked transactions, net ("Linked Transactions"), at fair value20,12455,801Interest receivable42,67042,837Derivative hedging instruments, at fair value-26Goodwill7,1897,189Prepaid and other assets15,46915,879 Total Assets$12,451,724$11,750,634Liabilities:Repurchase agreements$7,908,932$7,813,159Securitized debt967,422875,520Obligation to return securities obtained as collateral, at fair value503,740306,401Accrued interest payable11,5169,112Derivative hedging instruments, at fair value102,103114,220Dividends and dividend equivalents rights ("DERs") payable86,77897,525Payable for unsettled purchases99,77227,056Accrued expenses and other liabilities5,9679,881 Total Liabilities$9,686,230$9,252,874Stockholders' 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 shares authorized;3,5633,561356,266 and 356,112 issued and outstanding, respectivelyAdditional paid-in capital, in excess of par2,797,4752,795,925Accumulated deficit (246,433)(243,061)Accumulated other comprehensive income/(loss)210,851(58,703) Total Stockholders' Equity$2,765,494$2,497,760 Total Liabilities and Stockholders' Equity$12,451,724$11,750,634MFA FINANCIAL, INC.CONSOLIDATED STATEMENTS OF OPERATIONSThree Months EndedMarch 31,(In Thousands, Except Per Share Amounts)20122011(Unaudited) Interest Income:Agency MBS$53,300$60,175Non-Agency MBS25,79422,894Non-Agency MBS transferred to consolidated VIEs44,41026,755Cash and cash equivalent investments1954Interest Income$123,523$109,878Interest Expense:Repurchase agreements$36,070$33,054Securitized debt4,0571,599Total Interest Expense$40,127$34,653Net Interest Income $83,396$75,225Other-Than-Temporary Impairments:Total other-than-temporary impairment losses$(879)$-Portion of loss reclassed from other comprehensive income(41)-Net Impairment Losses Recognized in Earnings$(920)$-Other Income:Unrealized net gains and net interest income from Linked Transactions$7,699$14,850Gain on sales of MBS2,953-Revenue from operations of real estate held-for-sale-381Other Income$10,652$15,231Operating and Other Expense:Compensation and benefits$5,612$5,123Other general and administrative expense2,8032,161Real estate held-for-sale operating expense-307Operating and Other Expense$8,415$7,591Net Income $84,713$82,865Less: Preferred Stock Dividends2,0402,040Net Income Available to Common Stock and Participating Securities$82,673$80,825Earnings per Common Share - Basic and Diluted$0.23$0.27Dividends Declared per Share of Common Stock$0.240$0.235Reconciliations 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 ended March 31, 2012, which constitute non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. MFA's management believes that these non-GAAP financial measures presented in this 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 measures should be made in conjunction with results presented in accordance with GAAP.Core Earnings and Core Earnings per common share for the three months ended March 31, 2012, are not measures of performance in accordance with GAAP, as they exclude impairment losses recognized through earnings, gain on sale of MBS and changes in fair value of MBS underlying our Linked Transactions.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 ended March 31, 2012, are as follows:Table 4Three Months EndedMarch 31, 2012(In Thousands, Except Per Share Amounts)ReconciliationBasic and Diluted EPSGAAP Net Income Available to Common Stock and $82,673Participating SecuritiesLess: Dividends and Dividend Equivalent Rights on (416)Participating SecuritiesGAAP Net Income Allocable to Common Stockholders$82,257$0.23Non-GAAP Adjustments:Impairment Losses Recognized in Earnings$920Gain on Sale of MBS(2,953)Changes in Net Unrealized Gains on Linked Transactions(5,915)Total Adjustments to Arrive at Core Earnings$(7,948)$(0.02)Core Earnings$74,309$0.21Weighted Average Common Shares Outstanding - Basic and Diluted356,167As 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 ended March 31, 2012. 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 and gains on sale of MBS 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 March 31, 2012, with the most directly comparable financial measure calculated in accordance with GAAP, as follows:Table 5Adjustments to IncludeAssets/Liabilities of GAAP BasedUnderlying LinkedNon-GAAP(Dollars in Thousands)Information TransactionsPresentationAt March 31, 2012:Repurchase Agreement Borrowings$7,908,932$84,776(1)$7,993,708Securitized Debt967,422-967,422Obligation to Return Securities Held as Collateral503,740-503,740Payable for Unsettled MBS Purchases99,772-99,772Total Borrowings (Debt)$9,479,866$84,776(1)$9,564,642Stockholders' Equity$2,765,494$-$2,765,494Debt-to-Equity (Debt/Stockholders' Equity)3.4x3.5xFor the Three Months Ended March 31, 2012:Average Interest Earning Assets$11,244,222$147,321(2)$11,391,543Interest Income$123,523$2,288$125,811Yield on Average Interest Earning Assets4.39%6.21%4.42%Average Total Borrowings$8,721,868$111,018(1)$8,832,886Interest Expense$40,127$504$40,631Average Cost of Funds1.85%1.83%1.85%Net Interest Rate Spread2.54%4.38%2.57%(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 (reflected in the table below) on a Non-GAAP basis. Table 6Adjustments to IncludeAssets/Liabilities GAAP BasedUnderlying LinkedNon-GAAP(Dollars in Thousands)Information (1) Transactions(2)PresentationAt March 31, 2012:Amortized Cost of Non-Agency MBS$4,312,520$102,962$4,415,482Fair Value of Non-Agency MBS$4,415,277$104,667$4,519,944Face/Par Value of Non-Agency MBS$5,920,383$117,022$6,037,405Purchase (Discount) Designated as Credit Reserve and OTTI$(1,344,718)(3)$(7,473)$(1,352,191)(4)Net Purchase (Discount) Designated as Accretable(263,145)(6,587)(269,732) Total Purchase (Discount) on Non-Agency MBS$(1,607,863)(3)$(14,060)$(1,621,923)(4)Non-Agency Repurchase Agreements and$2,760,940$84,776$2,845,716 Securitized DebtFor the Three Months Ended March 31, 2012:Non-Agency MBS Average Amortized Cost$4,040,977$147,321$4,188,298Non-Agency Average Total Borrowings$2,666,995$111,018$2,778,013Coupon Interest on Non-Agency MBS$60,860$1,958$62,818Effective Yield Adjustment(5)9,3443309,674Interest Income on Non-Agency MBS$70,204$2,288$72,492Interest Expense on Non-Agency Total Borrowings$14,404$504$14,908Yield on Average Interest Earning Non-Agency MBS6.95%6.21%6.92%Non-Agency Average Cost of Funds2.171.832.16Non-Agency Interest Rate Spread4.78%4.38%4.76%(1) Includes Non-Agency MBS transferred to consolidated VIE.(2) Adjustment to reflect Non-Agency MBS underlying Linked Transactions and borrowings under repurchase agreements underlying Linked Transactions.(3) Amounts disclosed reflect purchase discount designated as credit reserve of $1.290 billion and OTTI of $54.5 million.(4) Amounts disclosed reflect purchase discount designated as credit reserve of $1.298 billion and OTTI of $54.5 million.(5) 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. CONTACT: MFA Investor Relations 800-892-7547www.mfa-reit.com SOURCE MFA Financial, Inc.